First



Citizens



Bancorporation





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2003

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Annual Report to Shareholders



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NATURE OF BUSINESS



First Citizens Bancorporation of South Carolina, Inc. (Bancorporation), is a three-bank financial holding
company headquartered in Columbia, South Carolina, with assets of $4.30 billion at December 31, 2003. Its primary subsidiaries are First-Citizens Bank and Trust Company of South Carolina (First Citizens), The Exchange Bank of South
Carolina, Inc. (Exchange) and Citizens Bank (Citizens). First Citizens provides a broad range of banking services through 147 offices in 101 communities throughout South Carolina and five offices in four communities in
Georgia. Exchange provides banking services through four offices in Williamsburg and Georgetown counties in South Carolina. Citizens provides banking services through two offices in Warren and McDuffie counties in Georgia. First Citizens
subsidiary is Wateree Life Insurance Company of South Carolina, a credit life insurance company. First Banks, Inc., a two-bank holding company headquartered in Carnesville, Georgia, which was the parent company of First Bank and Trust and The Bank
of Toccoa, was merged with First Citizens effective April 1, 2003. The purpose of this acquisition was to expand First Citizens banking presence in Georgia.



First Citizens Bancorporation of South Carolina, Inc.

P. O. Box 29

1225 Lady Street

Columbia, South
Carolina 29201



ANNUAL MEETING



The Annual Meeting of Shareholders of Bancorporation will be held at 2:00
p.m. on Thursday, April 22, 2004 at 1225 Lady Street, Columbia, South Carolina.



CONTENTS



|                                                                                     |  |   
|------------------------------------------------------------------------------------ |  | --
|                                                                                     | 
|Market and Dividend Information Regarding Common and Preferred Stock                 |  | 2 
|Financial Highlights                                                                 |  | 3 
|To Our Shareholders                                                                  |  | 4 
|Managements Discussion and Analysis of Financial Condition and Results of Operation |  | 5 
|Report of Management                                                                 |  | 32
|Report of Independent Auditors                                                       |  | 33
|Consolidated Financial Statements                                                    |  | 34
|Official Organization Section                                                        |  | 65



MARKET AND DIVIDEND INFORMATION REGARDING

COMMON AND PREFERRED STOCK



Bancorporations voting common stock is traded in the over-the-counter
market on the OTC Bulletin Board under the trading symbol FCBN. However, the trading market for the stock is limited.



There is no public trading market for Bancorporations non-voting common stock or for any class of its preferred stock. All trading activity for that
stock is in privately negotiated transactions.



The following
table lists the high and low closing prices for Bancorporations voting common stock, and the cash dividends declared on that stock, during each quarterly period during 2003 and 2002. All prices are as reported on the OTC Bulletin Board and
reflect interdealer prices, without retail mark-up, mark-down or commission, and those prices may not represent actual transactions.



|            |  |      |        |      |   |        |  |   |          |  |   |        |  |   |        |  |   |         
|----------- |  | ---- | ------ | ---- | - | ------ |  | - | -------- |  | - | ------ |  | - | ------ |  | - | --------
|            |  | 2003 |        | 2002
|            |  |      | High   |      |   | Low    |  |   | Dividend |  |   | High   |  |   | Low    |  |   | Dividend
|1st quarter |  | $    | 394.00 |      | $ | 383.60 |  | $ | 0.25     |  | $ | 320.00 |  | $ | 285.00 |  | $ | 0.25    
|2nd quarter |  |      | 406.50 |      |   | 387.00 |  |   | 0.25     |  |   | 378.00 |  |   | 316.00 |  |   | 0.25    
|3rd quarter |  |      | 447.00 |      |   | 405.00 |  |   | 0.35     |  |   | 400.00 |  |   | 370.00 |  |   | 0.25    
|4th quarter |  |      | 525.00 |      |   | 435.00 |  |   | 0.35     |  |   | 390.00 |  |   | 350.10 |  |   | 0.25    



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The approximate numbers of record holders of Bancorporations voting common stock and non-voting
common stock at December 31, 2003 were 954 and 4, respectively. Holders of the voting and non-voting common stock of Bancorporation are entitled to such dividends as may be declared from time to time by the Board of Directors from funds legally
available. Bancorporation was able to maintain its risk-based capital ratios through the retention of earnings, adjusted for the aforementioned dividends and repurchases of capital stock. Certain regulatory requirements restrict the payment of
dividends and extensions of credit from banking subsidiaries to bank holding companies. These restrictions have not historically affected Bancorporations ability to meet its obligations. Restrictions relating to capital requirements and
dividends are discussed on page 25 of Managements Discussion and Analysis and in Note 13 Stockholders Equity of the Notes to Consolidated Financial Statements.



Financial Highlights

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|                                                     |  |                                                  |           |   |      |   |           |                |  |       |  
|---------------------------------------------------- |  | ------------------------------------------------ | --------- | - | ---- | - | --------- | -------------- |  | ----- | -
|                                                     |  | 2003                                             |           |   | 2002 |   |           | Percent change | 
|                                                     |  | (Dollars in thousands, except for pershare data) |          
|Earnings:                                            |  |                                                  |           |   |      |   |           |                |  |       |  
|Net income                                           |  | $                                                | 39,883    |   |      | $ | 39,048    |                |  | 2.14  | %
|Net income per common share                          |  |                                                  | 43.78     |   |      |   | 42.38     |                |  | 3.30  |  
|Book value per common share                          |  |                                                  | 371.60    |   |      |   | 329.67    |                |  | 12.72 |  
|Year-end balances:                                   |  |                                                  |           |   |      |   |           |                |  |       |  
|Total assets                                         |  |                                                  | 4,301,460 |   |      |   | 3,787,876 |                |  | 13.56 |  
|Investment securities                                |  |                                                  | 922,229   |   |      |   | 915,870   |                |  | 0.69  |  
|Loans                                                |  |                                                  | 2,939,989 |   |      |   | 2,415,396 |                |  | 21.72 |  
|Deposits                                             |  |                                                  | 3,714,222 |   |      |   | 3,276,008 |                |  | 13.38 |  
|Stockholders equity                                 |  |                                                  | 339,583   |   |      |   | 303,584   |                |  | 11.86 |  
|Average balances:                                    |  |                                                  |           |   |      |   |           |                |  |       |  
|Total assets                                         |  |                                                  | 4,103,355 |   |      |   | 3,681,119 |                |  | 11.47 |  
|Investment securities                                |  |                                                  | 922,347   |   |      |   | 927,944   |                |  | (0.60 | )
|Loans                                                |  |                                                  | 2,683,789 |   |      |   | 2,307,716 |                |  | 16.30 |  
|Deposits                                             |  |                                                  | 3,531,988 |   |      |   | 3,120,497 |                |  | 13.19 |  
|Stockholders equity                                 |  |                                                  | 321,971   |   |      |   | 289,958   |                |  | 11.04 |  
|Financial ratios:                                    |  |                                                  |           |   |      |   |           |                |  |       |  
|Return on average assets                             |  |                                                  | 0.97      | % |      |   | 1.06      | %              |  | (8.49 | )
|Return on average stockholders equity               |  |                                                  | 12.39     |   |      |   | 13.47     |                |  | (8.02 | )
|Average stockholders equity to average total assets |  |                                                  | 7.85      |   |      |   | 7.88      |                |  | (0.38 | )
|Share data (as of and for the year ended):           |  |                                                  |           |   |      |   |           |                |  |       |  
|Common shares outstanding                            |  |                                                  | 905,481   |   |      |   | 911,244   |                |  | (0.63 | )
|Weighted average common shares outstanding           |  |                                                  | 907,770   |   |      |   | 917,426   |                |  | (1.05 | )
|Preferred shares outstanding                         |  |                                                  | 64,220    |   |      |   | 65,462    |                |  | (1.90 | )
|Preferred dividends paid                             |  |                                                  | 165       |   |      |   | 165       |                |  |      |  
|Common dividends paid                                |  |                                                  | 1,046     |   |      |   | 897       |                |  | 16.61 |  



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To Our Shareholders:



First
Citizens Bancorporation had another strong financial year in 2003. We were able to continue the expansion of our franchise, with total assets passing the $4 billion mark.



Net income increased 2.14% to $39.88 million, representing an increase in net income per share from $42.38 in 2002 to $43.78
in 2003.



Loans grew 21.72% to $2.94 billion, while deposits
grew 13.38% to $3.71 billion. Total assets grew 13.56% to $4.30 billion. This growth stemmed from strong internal consumer and commercial loan growth and the acquisition of First Banks, Inc. at the beginning of the second quarter.



Our plans for expansion continued with new construction and acquisitions. We
strengthened our position in the Upstate of South Carolina by acquiring a major facility for our Greenville banking headquarters, constructing a new main office in Spartanburg, and entering the markets of Seneca and Easley. In the South Carolina
Lowcountry, construction of a banking headquarters in Bluffton and the purchase of land for an office on Daniel Island will solidify our presence in that rapidly expanding portion of South Carolina.



While looking ahead to strategically position the bank in high-growth areas,
First Citizens has remained steadfast in its commitment to smaller communities that are the backbone of our company. We opened new main offices in the South Carolina communities of Barnwell, Bennettsville, and Chesterfield. Also, our acquisition of
four Central Carolina Bank offices in South Carolina strengthened our presence in Ware Shoals and York while providing us with a new presence in Batesburg-Leesville and Savannah Lakes.



Building on the 2002 entry into Georgia, we completed the acquisition of First Banks, Inc. headquartered in Carnesville,
Georgia, which operated The Bank of Toccoa and First Bank and Trust. First Banks, Inc. was merged into First Citizens Bank at the beginning of the second quarter, which added five offices to our Georgia presence. We were also able to successfully
communicate our culture and strategy to our new Georgia associates and customers. The Georgia team of bankers has shown tremendous dedication in combining our best practices with those already in place, and we look forward to continued market
momentum from our Georgia offices.



In terms of key
developments for the year 2003, we had several benchmark successes. They include, among others, the birth of a stronger business development culture via the launch of a bankwide initiative on generating teamwork around customer recruitment and
retention; continued advancements in branch technology through our branch automation project; and an ongoing emphasis on training and leadership development, as evidenced by the opening of our state-of-the-art LINCS Corporate Education Centre in
Columbia and completion of an intensive yearlong leadership course by fourteen of our talented employee associates.



First Citizens continues to invest for the long term, in both our people and communities. Our ability to skillfully manage short-term priorities while
always looking ahead to tomorrows opportunities is a trademark characteristic that few, if any, other financial institutions our size can claim. As always, the best interests of our shareholders, customers, employee associates, and the
communities we serve are our highest priority.



Thank you for your support.



LOGO

Jim B. Apple

Chairman and Chief
Executive Officer



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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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The discussion and other data presented below analyze major factors and trends
regarding the financial condition and results of operations of First Citizens Bancorporation of South Carolina, Inc. (Bancorporation) and its principal subsidiaries, First-Citizens Bank and Trust Company of South Carolina (First
Citizens), The Exchange Bank of South Carolina, Inc. (Exchange), and Citizens Bank (Citizens). It should be read in conjunction with the Consolidated Financial Statements and Notes on pages 33 through 64. In
Managements Discussion and Analysis of Financial Condition and Results of Operations (Managements Discussion and Analysis), net interest income and net interest margin are presented on a fully taxable-equivalent
(FTE) basis, which is adjusted for the tax-favored status of income from certain loans and investments. Bancorporation believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison
between taxable and non-taxable amounts. Certain reclassifications have been made to prior year financial statements and related information to conform them to the 2003 presentation.



Bancorporation is a three-bank financial holding company headquartered in Columbia, South Carolina. First Citizens provides
commercial banking and related financial products and services throughout South Carolina and four communities in Georgia. Exchange provides banking services principally in Williamsburg and Georgetown counties in South Carolina. Citizens provides
banking services principally in Warren and McDuffie counties in Georgia.



First Banks, Inc. (First Banks), a two-bank holding company headquartered in Carnesville, Georgia, which was the parent company of First Bank and Trust and The Bank of Toccoa, was merged with First
Citizens effective April 1, 2003. The purpose of this acquisition was to expand First Citizens banking presence in Georgia. Total assets of $244.1 million were acquired on April 1, 2003.



Effective October 1, 2002, Bancorporation acquired Citizens to form a
three-bank financial holding company. Total assets of $47.9 million at December 31, 2002 are included in the consolidated financial statements related to this acquisition.



The following 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 the qualifying words (and their derivatives) such as expect,
believe, estimate, plan, project, anticipate, or other statements concerning opinions or judgments of Bancorporation 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 Bancorporations customers, competition, deposit attrition, actions of government regulators, the level of market
interest rates, and general economic conditions.



CRITICAL ACCOUNTING
POLICIES (Dollars in thousands)



Bancorporations
accounting policies are integral to understanding the results reported. Accounting policies are described in detail in the Accounting Policies Adopted section in the Notes to the Consolidated Financial Statements.
Bancorporations most complex accounting policies require managements judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. A variety of factors could affect the ultimate value that is obtained when
earning income, recognizing an expense, recovering an asset or relieving a liability. In many instances, we use a discount factor to determine the present value of assets and liabilities. A change in the discount factor could increase or decrease
the values of those assets and liabilities. That change could result in either a beneficial or adverse impact on our financial results. Bancorporation has established detailed policies and control procedures that are intended to ensure valuation
methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing estimates occurs in an appropriate manner.





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The following is a description of Bancorporations more subjective and complex accounting policies
involving significant management judgment:



Allowance for
loan losses.    The allowance for loan losses is established and maintained at levels management deems adequate to cover losses inherent in the portfolio as of the balance sheet date and is based on managements
evaluation of the risks in the loan portfolio and changes in the nature and volume of loan activity. Estimates for loan losses are determined by analyzing historical loan losses, credit review assessments, current trends in delinquencies and
charge-offs, the level of classified and nonperforming loans, the opinions of our regulators, and changes in the size and composition of the loan portfolio. Also included in managements estimates for loan losses are considerations with respect
to the impact of economic events, particularly economic conditions affecting specific geographical areas in which Bancorporation conducts business.



Loans are considered impaired if, based on current information and events, it is probable that Bancorporation will be unable to collect the scheduled
payments of principal and interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans is based on either the fair value of the underlying collateral, the present value of the future cash flows
discounted at the historical effective interest rate stipulated in the loan agreement, or the estimated market value of the loan. In measuring the fair value of the collateral, management uses a comparison to the recent selling price of similar
assets which is consistent with those that would be utilized by unrelated third parties.



Changes in the financial condition of individual borrowers, economic conditions, historical loss experience, or the condition of the various markets in which collateral may be sold may affect the required level of the
allowance for loan losses and the associated provision for loan losses. Should cash flow assumptions or market conditions change, a different amount may be reported for the allowance for loan losses and the associated provision for loan losses. See
Allowance for Loan Losses section for further discussion of allowance for loan loss methodology.



Mortgage servicing rights.    Bancorporation has a mortgage loan-servicing portfolio and has capitalized the associated
servicing rights. Mortgage servicing rights represent the present value of the future servicing fees arising from the right to service loans in the portfolio. Mortgage servicing rights are included within Intangible Assets in the Consolidated
Statements of Condition. The most critical accounting policy associated with mortgage servicing is the methodology used to determine the fair value of capitalized mortgage servicing rights, which requires the development of a number of estimates,
including anticipated principal amortization and prepayments of principal. The value of capitalized mortgage servicing rights is significantly affected by interest rates available in the marketplace, which influence mortgage loan prepayment speeds
and the payment performance of the underlying loans. The initial value of mortgage servicing rights increases mortgage income reported in the Consolidated Statements of Income when the associated loan is sold. After their initial recording, the
mortgage servicing rights must be evaluated for impairment in subsequent reporting periods. Impairment charges reduce mortgage income. In general, during periods of declining interest rates, the value of mortgage servicing assets declines due to
increasing prepayments attributable to increased mortgage refinance activity. Conversely, during periods of rising interest rates, the value of servicing assets generally increases due to reduced refinance activity. Mortgage interest rates declined
during 2001, 2002 and the first two quarters of 2003. Consequently, Bancorporation recognized impairment charges in 2002 totaling $1,716 and $1,801 during the first two quarters of 2003. Mortgage interest rates increased at the beginning of the
third quarter of 2003 resulting in the recapture of $1,863 of impairment. Bancorporation amortizes mortgage servicing rights over the period of estimated net servicing income based on projections of the amount and timing of future cash flows. The
period of amortization of mortgage servicing rights is periodically reviewed for reasonableness.



Pension.    Bancorporation provides pension benefits to employees. Although the assets and liabilities associated with
Bancorporations pension plan are not included in its consolidated financial statements, the selection of key assumptions used to determine the value of the pension obligation and the plans assets can have a direct impact on the pension
expense reported within salaries and employee benefits in the Consolidated Statements of Income. The discount rate is used to determine the present value of benefits that the pension will pay to plan participants. The discount rate reflects the
interest rate that could be obtained by a suitable investment used to fund the obligation being considered. Given the reduction in market interest rates during the past three years, the discount rate used to determine the benefit obligation was
6.00%, 6.75%, and 7.25% at December 31, 2003, 2002, and 2001, respectively. Assuming that other variables remain unchanged, a reduction in the discount rate results in higher pension expense. The expected rate of return on plan assets is used to
calculate the value of plan assets over time. The expected rate of return was 8.0%, 8.5%



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and 8.5% at December 31, 2003, 2002 and 2001, respectively. The expected rate of return on plan assets is developed by considering current and
historical returns on plan assets. In 2003, the decline in the expected rate of return was due to expected reductions in rates of return on plan assets. Assuming that other variables remain unchanged, a reduction in the expected rate of return on
plan assets results in higher pension expense. The calculations of obligations and related expenses under the plans require the use of actuarial valuation methods and assumptions. Actuarial valuations and the determination of future market values of
plan assets are subject to management judgment and may differ significantly if different assumptions are used. See Note 14 Employee Benefits for further discussion on pension accounting assumptions.



Goodwill and intangible assets.    Historically,
Bancorporations growth and profitability has been enhanced by mergers and acquisitions of whole banks and branches. Acquisitions that meet the definition of a business are accounted for on the purchase method of accounting, which requires that
Bancorporation record the net assets acquired at their fair values, with any excess purchase price over fair value recorded as goodwill. The determination of fair value involves estimates based on third party or internal valuations. In addition to
goodwill, acquisitions typically result in the recording of other intangible assets, primarily core deposit intangibles. Purchase acquisitions resulting in goodwill are subject to periodic impairment tests requiring estimates of fair value to
perform an impairment analysis of goodwill. Bancorporation reviews goodwill for impairment at least once annually and whenever events or circumstances indicate the carrying value may not be recoverable. An impairment would be indicated if the
carrying value of goodwill exceeds the fair value of the reporting unit. Bancorporation recorded no impairment charges related to its goodwill in 2003, 2002 or 2001. Other intangible assets consist primarily of core deposit intangible, which
represents the excess of the fair value of deposits acquired over their carrying value. Core deposit intangible is amortized over the period in which Bancorporation expects to derive benefit from the deposits acquired. The amortization period is
periodically reviewed for reasonableness.



Income
taxes.    The determination of Bancorporations overall income tax provision is complex and requires careful analysis. As part of the Bancorporations overall business strategy, Bancorporation may enter into
business transactions that require management to consider tax laws and regulations that apply to the specific facts and circumstances under consideration. This analysis includes evaluating the amount and timing of the realization of income tax
liabilities or benefits. Management closely monitors tax developments as they affect Bancorporations overall tax provision.



EXECUTIVE OVERVIEW OF 2003 RESULTS AND CURRENT TRENDS (Dollars in thousands)



The purpose of this overview is to provide a summary discussion that identifies the most important themes that drove the
financial performance of Bancorporation in 2003 and to identify matters with which management is concerned in evaluating its prospective financial performance. Reference should be made to the remainder of this Managements Discussion and
Analysis and to the consolidated financial statements with respect to more detailed information about the financial condition and operating results of Bancorporation.



Net income



Over the past several years, Bancorporation has experienced positive net income growth due to net interest and noninterest income growth exceeding
noninterest expense growth. For the year ended December 31, 2003, net income increased from $39,048 to $39,883, or by 2.14%. While net income increased during 2003, it did so at a declining rate compared to prior years. The decline in the growth
rate of net income during 2003 is attributable primarily to a decline in the growth rate of net interest income. Net interest income increased $2,754 or by 1.88% in 2003. Net interest income attributable to the First Banks acquisition on April
1, 2003 was $6,409 for the nine months ended December 31, 2003. Noninterest income growth was strong during the year, increasing $9,805 or by 19.87%. Noninterest income growth was offset by an increase in noninterest expense of $10,881, or by 8.63%.
Noninterest income and noninterest expense attributable to the First Banks acquisition for the nine months ended December 31, 2003 was $668 and $4,249, respectively.



In the following sections we discuss these factors and their effect on Bancorporations 2003 financial performance and
highlight financial trends as we move into 2004.





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Net interest margin compressed significantly during 2003



We entered 2003 after experiencing a year of significant improvement in net
interest income to average interest-earning assets (net interest margin). This improvement resulted from a decline in the cost of funding interest-earning assets precipitated by the low interest rate environment. However, the current
sustained period of low interest rates has put pressure on our net interest margin, as well as the growth rate of net interest income. This has occurred as rates paid on interest bearing liabilities have declined at a slower rate than yields on
earning assets. During 2003, net interest margin declined from 4.37% to 3.99%, or by 38 basis points, representing the sharpest decline in net interest margin in five years. As a result, despite 11.32% earning asset growth during 2003, net interest
income grew $2,754, or by 1.88% over 2002 which represents the lowest rate of growth in net interest income in the last five years. See a more detailed discussion of net interest income in the Results of Operations section of the
Managements Discussion and Analysis.



Growth in
noninterest income and expense



During 2003,
noninterest income increased $9,805, or by 19.87%. The primary sources of noninterest income growth were service charges on deposit accounts and mortgage income. Combined, these sources constituted 92.45% of the increase in noninterest income, with
service charges and mortgage income increasing by $4,521 and $4,544, respectively. Service charges primarily increased due to continued deposit growth and an increase in fees charged. The increase in mortgage income was impacted by a record year in
mortgage production as historically low interest rates continued to support the refinancing boom. See a more detailed discussion of mortgage income under Table 4.



During 2003, noninterest expense increased $10,881, or by 8.63%. The primary sources of noninterest expense growth were
attributable to salaries and employee benefits, net occupancy and data processing expense. Salaries and employee benefits contributed to $6,127 of the increase in noninterest expense. The increase was primarily due to the effects of hiring
additional employees to support line of business growth, merit increases, acquisitions, an increase in incentives paid, and an increase in pension and health insurance costs. Net occupancy expense increased by $1,599 during the year primarily due to
a $1,208 increase in depreciation related to additional bank facilities. Data processing expense increased by $1,291 primarily related to an increase in deposit and loan accounts processed by Bancorporations third party processor. See a more
detailed discussion of noninterest expense under Table 5.



Recent trends,
uncertainties, and challenges



We believe net income
growth will remain a challenge in 2004 due to continued pressure on net interest margin, an expected decline in mortgage production, and an expected increase in employee benefit costs and data processing expense. The recent trend of moderate net
interest income growth and the prospect for greater growth is primarily dependent upon continued loan growth and the overall interest rate environment. If interest rates remain at their current low levels throughout 2004, we expect that net interest
margin will continue to decline as yields on earning assets decline faster than rates paid on deposits. Consequently, Bancorporation must continue to grow its loan portfolio to achieve growth in net interest income. Loan growth was strong during the
second and third quarters of 2003, but showed signs of declining in the fourth quarter. Based on this recent trend, we believe that loan growth will be a challenge in 2004.



Mortgage production has slowed significantly since the end of the third quarter, primarily as the result of an increase in
interest rates on mortgage loans. Growth in mortgage production on a prospective basis is dependent upon the level of mortgage interest rates, income and employment conditions for consumers, housing starts and the level of existing home sales in
Bancorporations markets. Based on the recent decline in mortgage production, we expect that mortgage income will be down in 2004.



Bancorporation has experienced two consecutive years of increased employee benefits expense primarily as the result of rising pension and health care
costs. Pension and health care costs increased during 2003 by $1,523 and $931, respectively. Pension costs have risen due to a decline in the discount rate and the expected rate of return on plan assets used to calculate pension expense under
generally accepted accounting principles. The decline in these rates are a result of the current low interest rate environment and a reduction in expected rates of return on pension assets. Health care costs have continued to increase due to an
overall increase in the cost of medical care and the addition of new employees to Bancorporations plans. We expect that these expenses will continue to increase in 2004. See a more detailed discussion of these costs under Table 5.





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Bancorporation has historically achieved strong deposit growth through its acquisition strategy and by
leveraging its extensive branch network. With the current improvement in the stock market, the risk exists that some depositors will move back into the stock market, thereby impacting Bancorporations liquidity and cost of funds. While we have
not experienced any noticeable decline in deposit balances, we are aware of this risk and have adequate sources of liquidity to fund future operations. See a more detailed discussion of liquidity under Liquidity in this Managements
Discussion and Analysis.



Current initiatives



To remain competitive, Bancorporation continually seeks ways to improve
delivery of services to its customers. To achieve this objective, Bancorporation has a branch automation initiative underway. The initiative involves technology advancements to our teller and loan platform systems and upgrades to our current work
stations. Bancorporation anticipates that this initiative will be completed in the fourth quarter of 2004.



With Bancorporations recent presence in Georgia, its branch automation initiative, and investment in talented employees to expand its franchise,
Bancorporation plans to introduce a new brand in 2004. The brand will reflect our goal of continued growth and our commitment to our employees and customers.



RESULTS OF OPERATIONS



NET INCOME (Dollars in thousands)



Net income for the year ended December 31, 2003, totaled $39,883, or $43.78 per common share. Net income for 2002 was $39,048, or $42.38 per common share.



The primary factors affecting the increase in net income were
a $2,979 or 2.18% increase in net interest income after provision for loan losses and a $9,805 or 19.87% increase in noninterest income, partially offset by a $10,881 or 8.63% increase in noninterest expense. See a more detailed discussion of these
components in the following sections.



Net income increased
from $33,876 for the year ended December 31, 2001 to $39,048 for the year ended December 31, 2002, or by 15.27%. The $5,172 increase was primarily due to a $13,862 or 11.31% increase in net interest income after provision for loan losses, and a
$1,074 or 2.23% increase in noninterest income. These favorable changes were partially offset by a $5,226 or 4.32% increase in noninterest expense.



Return on average equity and average assets are key measures of earnings performance. Return on average equity was 12.39%, 13.47% and 13.24% in 2003, 2002
and 2001, respectively. Return on average assets was .97%, 1.06%, and .98% in 2003, 2002 and 2001, respectively.



The decline in return on average equity from 2002 to 2003 was primarily attributable to the decline in return on average assets. The decline in return on
average assets for the same comparable period was primarily due to a decrease in Bancorporations net interest margin. Between 2001 and 2002, return on average equity and return on average assets increased due to improvement in return on
average assets and net interest margin, respectively.



Table 1
provides a summary of the statements of income, financial condition and selected ratios for the last five years. A more detailed analysis of each component of Bancorporations net income is included under the appropriate captions which follow.



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Table 1

SUMMARY
OF OPERATIONS

|                                                            |  |                                                   |           |   |                              |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   |  |       |  
|----------------------------------------------------------- |  | ------------------------------------------------- | --------- | - | ---------------------------- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | - |  | ----- | -
|                                                            |  | As of and for the year ended December 31,         |           |   | Five YearCompoundGrowth Rate |  
|                                                            |  | 2003                                              |           |   | 2002                         |   |           | 2001 |  |   | 2000      |   |  | 1999 |           |  
|                                                            |  | (dollars in thousands, except for per share data) |          
|CONDENSED INCOME STATEMENT:                                 |  |                                                   |           |   |                              |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   |  |       |  
|Interest income                                             |  | $                                                 | 198,196   |   |                              | $ | 208,373   |      |  | $ | 232,124   |   |  | $    | 209,803   |   |  | $ | 175,396   |   |  | 3.69  | %
|Interest expense                                            |  |                                                   | 48,895    |   |                              |   | 61,826    |      |  |   | 100,908   |   |  |      | 98,491    |   |  |   | 75,856    |   |  | (7.71 | )
|                                                            |  |                                                   |           |   |                              |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   |  |       |  
|Net interest income                                         |  |                                                   | 149,301   |   |                              |   | 146,547   |      |  |   | 131,216   |   |  |      | 111,312   |   |  |   | 99,540    |   |  | 10.09 |  
|Provision for loan losses                                   |  |                                                   | 9,843     |   |                              |   | 10,068    |      |  |   | 8,599     |   |  |      | 7,623     |   |  |   | 5,546     |   |  | 18.00 |  
|                                                            |  |                                                   |           |   |                              |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   |  |       |  
|Net interest income after provision for loan losses         |  |                                                   | 139,458   |   |                              |   | 136,479   |      |  |   | 122,617   |   |  |      | 103,689   |   |  |   | 93,994    |   |  | 9.64  |  
|                                                            |  |                                                   |           |   |                              |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   |  |       |  
|Service charges and other income                            |  |                                                   | 58,365    |   |                              |   | 48,879    |      |  |   | 43,320    |   |  |      | 35,808    |   |  |   | 31,759    |   |  | 16.00 |  
|Investment securities gains                                 |  |                                                   | 781       |   |                              |   | 462       |      |  |   | 4,947     |   |  |      | 31        |   |  |   | 8         |   |  | 85.04 |  
|                                                            |  |                                                   |           |   |                              |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   |  |       |  
|Total noninterest income                                    |  |                                                   | 59,146    |   |                              |   | 49,341    |      |  |   | 48,267    |   |  |      | 35,839    |   |  |   | 31,767    |   |  | 16.27 |  
|                                                            |  |                                                   |           |   |                              |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   |  |       |  
|Salaries and employee benefits                              |  |                                                   | 69,896    |   |                              |   | 63,769    |      |  |   | 54,804    |   |  |      | 46,601    |   |  |   | 41,396    |   |  | 13.77 |  
|Other expense                                               |  |                                                   | 67,093    |   |                              |   | 62,339    |      |  |   | 66,078    |   |  |      | 50,885    |   |  |   | 46,774    |   |  | 9.39  |  
|                                                            |  |                                                   |           |   |                              |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   |  |       |  
|Total noninterest expense                                   |  |                                                   | 136,989   |   |                              |   | 126,108   |      |  |   | 120,882   |   |  |      | 97,486    |   |  |   | 88,170    |   |  | 11.50 |  
|                                                            |  |                                                   |           |   |                              |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   |  |       |  
|Income before income tax expense                            |  |                                                   | 61,615    |   |                              |   | 59,712    |      |  |   | 50,002    |   |  |      | 42,042    |   |  |   | 37,591    |   |  | 11.14 |  
|Income tax expense                                          |  |                                                   | 21,732    |   |                              |   | 20,664    |      |  |   | 16,126    |   |  |      | 14,453    |   |  |   | 12,945    |   |  | 11.31 |  
|                                                            |  |                                                   |           |   |                              |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   |  |       |  
|Net income                                                  |  | $                                                 | 39,883    |   |                              | $ | 39,048    |      |  | $ | 33,876    |   |  | $    | 27,589    |   |  | $ | 24,646    |   |  | 11.05 |  
|                                                            |  |                                                   |           |   |                              |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   |  |       |  
|                                                            |  |                                                   |           |   |                              |  
|PER SHARE DATA:                                             |  |                                                   |           |   |                              |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   |  |       |  
|Net income per common share                                 |  | $                                                 | 43.78     |   |                              | $ | 42.38     |      |  | $ | 36.12     |   |  | $    | 29.26     |   |  | $ | 26.35     |   |  | 11.59 |  
|                                                            |  |                                                   |           |   |                              |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   |  |       |  
|Book value per common share                                 |  | $                                                 | 371.60    |   |                              | $ | 329.67    |      |  | $ | 289.12    |   |  | $    | 246.17    |   |  | $ | 208.77    |   |  | 14.92 |  
|                                                            |  |                                                   |           |   |                              |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   |  |       |  
|Weighted average common shares outstanding                  |  |                                                   | 907,770   |   |                              |   | 917,426   |      |  |   | 933,480   |   |  |      | 937,063   |   |  |   | 928,792   |   |  | (.41  | )
|                                                            |  |                                                   |           |   |                              |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   |  |       |  
|Dividends paid per common share                             |  | $                                                 | 1.20      |   |                              | $ | 1.00      |      |  | $ | 1.00      |   |  | $    | 0.75      |   |  | $ |          |   |  |       |  
|                                                            |  |                                                   |           |   |                              |  
|SELECTED RATIOS:                                            |  |                                                   |           |   |                              |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   |  |       |  
|Return on average assets                                    |  |                                                   | 0.97      | % |                              |   | 1.06      | %    |  |   | .98       | % |  |      | .94       | % |  |   | .95       | % |  |       |  
|Return on average stockholders equity                      |  |                                                   | 12.39     |   |                              |   | 13.47     |      |  |   | 13.24     |   |  |      | 12.95     |   |  |   | 13.13     |   |  |       |  
|Return on average common stockholders equity                |  |                                                   | 12.51     |   |                              |   | 13.62     |      |  |   | 13.41     |   |  |      | 13.14     |   |  |   | 13.36     |   |  |       |  
|Yield on average interest-earning assets (tax equivalent)   |  |                                                   | 3.99      |   |                              |   | 4.37      |      |  |   | 4.18      |   |  |      | 4.20      |   |  |   | 4.23      |   |  |       |  
|Average loans to average deposits                           |  |                                                   | 75.99     |   |                              |   | 73.95     |      |  |   | 75.13     |   |  |      | 84.92     |   |  |   | 80.59     |   |  |       |  
|Net loan losses to average loans                            |  |                                                   | .21       |   |                              |   | .33       |      |  |   | .25       |   |  |      | .21       |   |  |   | .12       |   |  |       |  
|Nonperforming loans to total loans                          |  |                                                   | .21       |   |                              |   | .22       |      |  |   | .23       |   |  |      | .25       |   |  |   | .16       |   |  |       |  
|Allowance for loan losses to total loans                    |  |                                                   | 1.74      |   |                              |   | 1.79      |      |  |   | 1.78      |   |  |      | 1.78      |   |  |   | 1.78      |   |  |       |  
|Allowance for loan losses to nonperforming loans            |  |                                                   | 835.66    |   |                              |   | 832.15    |      |  |   | 783.55    |   |  |      | 699.72    |   |  |   | 1,092.87  |   |  |       |  
|Average stockholders equity to average total assets        |  |                                                   | 7.85      |   |                              |   | 7.88      |      |  |   | 7.39      |   |  |      | 7.28      |   |  |   | 7.21      |   |  |       |  
|Average common stockholders equity to average total assets |  |                                                   | 7.77      |   |                              |   | 7.79      |      |  |   | 7.30      |   |  |      | 7.16      |   |  |   | 7.08      |   |  |       |  
|Total risk-based capital ratio                              |  |                                                   | 12.18     |   |                              |   | 13.01     |      |  |   | 12.59     |   |  |      | 12.09     |   |  |   | 13.79     |   |  |       |  
|Tier 1 risk-based capital ratio                             |  |                                                   | 10.32     |   |                              |   | 11.76     |      |  |   | 11.33     |   |  |      | 10.53     |   |  |   | 12.47     |   |  |       |  
|Tier 1 leverage ratio                                       |  |                                                   | 7.29      |   |                              |   | 7.91      |      |  |   | 7.34      |   |  |      | 7.46      |   |  |   | 8.49      |   |  |       |  
|                                                            |  |                                                   |           |   |                              |  
|SELECTED AVERAGE BALANCES:                                  |  |                                                   |           |   |                              |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   |  |       |  
|Total assets                                                |  | $                                                 | 4,103,355 |   |                              | $ | 3,681,119 |      |  | $ | 3,459,909 |   |  | $    | 2,929,158 |   |  | $ | 2,605,572 |   |  | 11.96 | %
|Interest-earning assets                                     |  |                                                   | 3,763,684 |   |                              |   | 3,381,013 |      |  |   | 3,166,389 |   |  |      | 2,683,993 |   |  |   | 2,385,884 |   |  | 11.87 |  
|Investment securities                                       |  |                                                   | 922,347   |   |                              |   | 927,944   |      |  |   | 819,334   |   |  |      | 680,042   |   |  |   | 635,128   |   |  | 8.99  |  
|Loans                                                       |  |                                                   | 2,683,789 |   |                              |   | 2,307,716 |      |  |   | 2,160,604 |   |  |      | 1,960,547 |   |  |   | 1,690,504 |   |  | 12.40 |  
|Deposits                                                    |  |                                                   | 3,531,988 |   |                              |   | 3,120,497 |      |  |   | 2,875,976 |   |  |      | 2,308,705 |   |  |   | 2,097,678 |   |  | 13.09 |  
|Noninterest-bearing deposits                                |  |                                                   | 632,764   |   |                              |   | 540,516   |      |  |   | 477,592   |   |  |      | 420,016   |   |  |   | 374,992   |   |  | 13.80 |  
|Interest-bearing deposits                                   |  |                                                   | 2,899,224 |   |                              |   | 2,579,981 |      |  |   | 2,398,384 |   |  |      | 1,888,689 |   |  |   | 1,722,686 |   |  | 12.94 |  
|Interest-bearing liabilities                                |  |                                                   | 3,122,175 |   |                              |   | 2,822,876 |      |  |   | 2,695,037 |   |  |      | 2,271,342 |   |  |   | 2,029,000 |   |  | 11.46 |  
|Long-term debt                                              |  |                                                   | 67,616    |   |                              |   | 51,368    |      |  |   | 50,963    |   |  |      | 50,963    |   |  |   | 50,354    |   |  | 9.01  |  
|Stockholders equity                                        |  |                                                   | 321,971   |   |                              |   | 289,958   |      |  |   | 255,836   |   |  |      | 213,105   |   |  |   | 187,744   |   |  | 13.70 |  
|                                                            |  |                                                   |           |   |                              |  
|SELECTED ACTUAL BALANCES:                                   |  |                                                   |           |   |                              |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   |  |       |  
|Total assets                                                |  | $                                                 | 4,301,460 |   |                              | $ | 3,787,876 |      |  | $ | 3,574,680 |   |  | $    | 3,240,510 |   |  | $ | 2,726,585 |   |  |       |  
|Interest-earning assets                                     |  |                                                   | 3,903,597 |   |                              |   | 3,452,892 |      |  |   | 3,259,938 |   |  |      | 2,919,090 |   |  |   | 2,454,912 |   |  |       |  
|Investment securities                                       |  |                                                   | 922,229   |   |                              |   | 915,870   |      |  |   | 899,755   |   |  |      | 740,519   |   |  |   | 562,992   |   |  |       |  
|Loans                                                       |  |                                                   | 2,939,989 |   |                              |   | 2,415,396 |      |  |   | 2,262,283 |   |  |      | 2,081,871 |   |  |   | 1,854,520 |   |  |       |  
|Deposits                                                    |  |                                                   | 3,714,222 |   |                              |   | 3,276,008 |      |  |   | 3,014,954 |   |  |      | 2,555,229 |   |  |   | 2,222,033 |   |  |       |  
|Noninterest-bearing deposits                                |  |                                                   | 651,332   |   |                              |   | 575,632   |      |  |   | 507,930   |   |  |      | 467,155   |   |  |   | 396,781   |   |  |       |  
|Interest-bearing deposits                                   |  |                                                   | 3,062,890 |   |                              |   | 2,700,376 |      |  |   | 2,507,024 |   |  |      | 2,088,074 |   |  |   | 1,825,252 |   |  |       |  
|Interest-bearing liabilities                                |  |                                                   | 3,285,568 |   |                              |   | 2,882,875 |      |  |   | 2,772,010 |   |  |      | 2,508,255 |   |  |   | 2,107,119 |   |  |       |  
|Long-term debt                                              |  |                                                   | 73,814    |   |                              |   | 52,139    |      |  |   | 50,963    |   |  |      | 50,963    |   |  |   | 50,963    |   |  |       |  
|Stockholders equity                                        |  |                                                   | 339,583   |   |                              |   | 303,584   |      |  |   | 270,915   |   |  |      | 233,693   |   |  |   | 200,073   |   |  |       |  



10



---

NET INTEREST INCOME (Dollars in thousands)



Net interest income represents the principal source of earnings for Bancorporation. Net interest income is the amount by
which interest income exceeds interest expense and is the primary measure used to evaluate the efficient management of interest-earning assets and interest-bearing liabilities.



Table 2 compares average balance sheet items and analyzes net interest income on a tax equivalent basis for the years ended
December 31, 2003, 2002 and 2001.



Table 2

COMPARATIVE AVERAGE BALANCE SHEETS



|                                              |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|--------------------------------------------- |  | ----------------------------------------- | --------- | ---------------- | ---- | ---------- |  | ---- | -------------- |  | ---------------- | --------- | ---------- | - | ------- | -------------- | ---- | ---------------- |  | ---------- | --------- |  | - | ------- |  | ---- | -
|                                              |  | As of and for the year ended December 31, |          
|                                              |  | 2003                                      |           |                  | 2002 |            |  | 2001 |               
|                                              |  | AverageBalance                            |           | InterestInc/Exp1 |      | Yield/Rate |  |      | AverageBalance |  | InterestInc/Exp1 |           | Yield/Rate |   |         | AverageBalance |      | InterestInc/Exp1 |  | Yield/Rate |          
|                                              |  | (dollars in thousands)                    |          
|Interest-earning assets:                      |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|Loans2                                        |  | $                                         | 2,683,789 |                  | $    | 171,511    |  | 6.39 | %              |  | $                | 2,307,716 |            | $ | 168,806 |                | 7.31 | %                |  | $          | 2,160,604 |  | $ | 181,724 |  | 8.41 | %
|Investment securities:                        |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|Taxable                                       |  |                                           | 910,135   |                  |      | 25,096     |  | 2.76 |                |  |                  | 915,434   |            |   | 37,393  |                | 4.08 |                  |  |            | 800,854   |  |   | 42,425  |  | 5.30 |  
|Non-taxable                                   |  |                                           | 12,212    |                  |      | 824        |  | 6.75 |                |  |                  | 12,510    |            |   | 932     |                | 7.45 |                  |  |            | 18,480    |  |   | 1,483   |  | 8.02 |  
|Federal funds sold                            |  |                                           | 157,548   |                  |      | 1,763      |  | 1.12 |                |  |                  | 145,353   |            |   | 2,397   |                | 1.65 |                  |  |            | 186,451   |  |   | 7,768   |  | 4.17 |  
|                                              |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|Total interest-earning assets                 |  |                                           | 3,763,684 |                  |      | 199,194    |  | 5.29 |                |  |                  | 3,381,013 |            |   | 209,528 |                | 6.20 |                  |  |            | 3,166,389 |  |   | 233,400 |  | 7.37 |  
|                                              |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|Noninterest-earning assets:                   |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|Cash and due from banks                       |  |                                           | 144,211   |                  |      |            |  |      |                |  |                  | 137,769   |            |   |         |                |      |                  |  |            | 135,224   |  |   |         |  |      |  
|Premises and equipment                        |  |                                           | 121,673   |                  |      |            |  |      |                |  |                  | 104,157   |            |   |         |                |      |                  |  |            | 96,335    |  |   |         |  |      |  
|Other, less allowance for loan losses         |  |                                           | 73,787    |                  |      |            |  |      |                |  |                  | 58,180    |            |   |         |                |      |                  |  |            | 61,961    |  |   |         |  |      |  
|                                              |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|Total noninterest-earning assets              |  |                                           | 339,671   |                  |      |            |  |      |                |  |                  | 300,106   |            |   |         |                |      |                  |  |            | 293,520   |  |   |         |  |      |  
|                                              |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|Total assets                                  |  | $                                         | 4,103,355 |                  |      |            |  |      |                |  | $                | 3,681,119 |            |   |         |                |      |                  |  | $          | 3,459,909 |  |   |         |  |      |  
|                                              |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|Interest-bearing liabilities:                 |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|Deposits                                      |  | $                                         | 2,899,224 |                  | $    | 42,057     |  | 1.45 |                |  | $                | 2,579,981 |            | $ | 54,722  |                | 2.12 |                  |  | $          | 2,398,384 |  | $ | 88,169  |  | 3.68 |  
|Short-term borrowings                         |  |                                           | 155,335   |                  |      | 1,389      |  | 0.89 |                |  |                  | 191,527   |            |   | 2,883   |                | 1.51 |                  |  |            | 245,690   |  |   | 8,540   |  | 3.48 |  
|Long-term debt                                |  |                                           | 67,616    |                  |      | 5,449      |  | 8.06 |                |  |                  | 51,368    |            |   | 4,221   |                | 8.22 |                  |  |            | 50,963    |  |   | 4,199   |  | 8.24 |  
|                                              |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|Total interest-bearing liabilities            |  |                                           | 3,122,175 |                  |      | 48,895     |  | 1.57 |                |  |                  | 2,822,876 |            |   | 61,826  |                | 2.19 |                  |  |            | 2,695,037 |  |   | 100,908 |  | 3.74 |  
|                                              |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|Net interest spread                           |  |                                           |           |                  |      |            |  | 3.72 | %              |  |                  |           |            |   |         |                | 4.01 | %                |  |            |           |  |   |         |  | 3.63 | %
|                                              |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|Noninterest-bearing liabilities:              |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|Demand deposits                               |  |                                           | 632,764   |                  |      |            |  |      |                |  |                  | 540,516   |            |   |         |                |      |                  |  |            | 477,592   |  |   |         |  |      |  
|Other liabilities                             |  |                                           | 26,445    |                  |      |            |  |      |                |  |                  | 27,769    |            |   |         |                |      |                  |  |            | 31,444    |  |   |         |  |      |  
|                                              |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|Total noninterest-bearing liabilities         |  |                                           | 659,209   |                  |      |            |  |      |                |  |                  | 568,285   |            |   |         |                |      |                  |  |            | 509,036   |  |   |         |  |      |  
|Stockholders equity                          |  |                                           | 321,971   |                  |      |            |  |      |                |  |                  | 289,958   |            |   |         |                |      |                  |  |            | 255,836   |  |   |         |  |      |  
|                                              |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|Total liabilities and stockholders equity    |  | $                                         | 4,103,355 |                  |      |            |  |      |                |  | $                | 3,681,119 |            |   |         |                |      |                  |  | $          | 3,459,909 |  |   |         |  |      |  
|                                              |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|Net interest income                           |  |                                           |           |                  | $    | 150,299    |  |      |                |  |                  |           |            | $ | 147,702 |                |      |                  |  |            |           |  | $ | 132,492 |  |      |  
|                                              |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|Interest income to average earning assets     |  |                                           |           |                  |      |            |  | 5.29 | %              |  |                  |           |            |   |         |                | 6.20 | %                |  |            |           |  |   |         |  | 7.37 | %
|                                              |  |                                           |           |                  |      |            |  |      |               
|Interest expense to average earning assets    |  |                                           |           |                  |      |            |  | 1.30 |                |  |                  |           |            |   |         |                | 1.83 |                  |  |            |           |  |   |         |  | 3.19 |  
|                                              |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  
|Net interest income to average earning assets |  |                                           |           |                  |      |            |  | 3.99 | %              |  |                  |           |            |   |         |                | 4.37 | %                |  |            |           |  |   |         |  | 4.18 | %
|                                              |  |                                           |           |                  |      |            |  |      |                |  |                  |           |            |   |         |                |      |                  |  |            |           |  |   |         |  |      |  

---

|1 |  | Non-taxable interest income has been adjusted to a taxable equivalent amount using the incremental statutory federal income tax rate of 35%. The net
taxable-equivalent adjustment amounts included in the above table were $998, $1,155, and $1,276 for the three years ended December 31, 2003, 2002, and 2001, respectively.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2 |  | Nonaccrual loans are included in the average loan balances. Income on such loans is generally recognized on a cash basis.
|- |  | -------------------------------------------------------------------------------------------------------------------------



11



---

Table 3 shows the impact of balance sheet changes occurring between 2001 and 2003, and the effect on
yields and rates.



Table 3

TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS



|                                         |  |   |                        |  |   |         |  |                       |         |  |                       |            |   |                |   |        |   |  |   |                       |   |  |   |            |   |  |   |        |   |  |   |                       |  
|---------------------------------------- |  | - | ---------------------- |  | - | ------- |  | --------------------- | ------- |  | --------------------- | ---------- | - | -------------- | - | ------ | - |  | - | --------------------- | - |  | - | ---------- | - |  | - | ------ | - |  | - | --------------------- | -
|                                         |  |   |                        |  |   |         |  | 2003 compared to 2002 |         |  | 2002 compared to 2001 |           
|                                         |  |   |                        |  |   |         |  | Change due to1        |         |  |                       |            |   | Change due to1 |   |        |   | 
|                                         |  |   | 2003                   |  |   | 2002    |  |                       | 2001    |  |                       | Yield/Rate |   |                |   | Volume |   |  |   | NetIncrease(Decrease) |   |  |   | Yield/Rate |   |  |   | Volume |   |  |   | NetIncrease(Decrease) |  
|                                         |  |   | (dollars in thousands) | 
|Interest income2:                        |  |   |                        |  |   |         |  |                       |         |  |                       |            |   |                |   |        |   |  |   |                       |   |  |   |            |   |  |   |        |   |  |   |                       |  
|Loans3                                   |  | $ | 171,511                |  | $ | 168,806 |  | $                     | 181,724 |  | $                     | (21,326    | ) |                | $ | 24,031 |   |  | $ | 2,705                 |   |  | $ | (23,672    | ) |  | $ | 10,754 |   |  | $ | (12,918               | )
|Investment securities:                   |  |   |                        |  |   |         |  |                       |         |  |                       |            |   |                |   |        |   |  |   |                       |   |  |   |            |   |  |   |        |   |  |   |                       |  
|Taxable                                  |  |   | 25,096                 |  |   | 37,393  |  |                       | 42,425  |  |                       | (12,151    | ) |                |   | (146   | ) |  |   | (12,297               | ) |  |   | (9,707     | ) |  |   | 4,675  |   |  |   | (5,032                | )
|Non-taxable                              |  |   | 824                    |  |   | 932     |  |                       | 1,483   |  |                       | (88        | ) |                |   | (20    | ) |  |   | (108                  | ) |  |   | (106       | ) |  |   | (445   | ) |  |   | (551                  | )
|                                         |  |   |                        |  |   |         |  |                       |         |  |                       |            |   |                |   |        |   |  |   |                       |   |  |   |            |   |  |   |        |   |  |   |                       |  
|Total investment securities              |  |   | 25,920                 |  |   | 38,325  |  |                       | 43,908  |  |                       | (12,239    | ) |                |   | (166   | ) |  |   | (12,405               | ) |  |   | (9,813     | ) |  |   | 4,230  |   |  |   | (5,583                | )
|Federal funds sold                       |  |   | 1,763                  |  |   | 2,397   |  |                       | 7,768   |  |                       | (771       | ) |                |   | 137    |   |  |   | (634                  | ) |  |   | (4,693     | ) |  |   | (678   | ) |  |   | (5,371                | )
|                                         |  |   |                        |  |   |         |  |                       |         |  |                       |            |   |                |   |        |   |  |   |                       |   |  |   |            |   |  |   |        |   |  |   |                       |  
|Total interest-earning assets            |  | $ | 199,194                |  | $ | 209,528 |  | $                     | 233,400 |  | $                     | (34,336    | ) |                | $ | 24,002 |   |  | $ | (10,334               | ) |  | $ | (38,178    | ) |  | $ | 14,306 |   |  | $ | (23,872               | )
|                                         |  |   |                        |  |   |         |  |                       |         |  |                       |            |   |                |   |        |   |  |   |                       |   |  |   |            |   |  |   |        |   |  |   |                       |  
|Interest expense:                        |  |   |                        |  |   |         |  |                       |         |  |                       |            |   |                |   |        |   |  |   |                       |   |  |   |            |   |  |   |        |   |  |   |                       |  
|NOW accounts                             |  | $ | 7,584                  |  | $ | 9,483   |  | $                     | 16,559  |  | $                     | (3,029     | ) |                | $ | 1,130  |   |  | $ | (1,899                | ) |  | $ | (8,369     | ) |  | $ | 1,293  |   |  | $ | (7,076                | )
|Market rate savings                      |  |   | 1,918                  |  |   | 3,233   |  |                       | 6,900   |  |                       | (1,361     | ) |                |   | 46     |   |  |   | (1,315                | ) |  |   | (3,867     | ) |  |   | 200    |   |  |   | (3,667                | )
|Time deposits less than $100 thousand    |  |   | 24,986                 |  |   | 33,511  |  |                       | 55,314  |  |                       | (10,083    | ) |                |   | 1,558  |   |  |   | (8,525                | ) |  |   | (22,046    | ) |  |   | 243    |   |  |   | (21,803               | )
|Time deposits in excess of $100 thousand |  |   | 7,462                  |  |   | 8,401   |  |                       | 9,173   |  |                       | (2,432     | ) |                |   | 1,493  |   |  |   | (939                  | ) |  |   | (1,352     | ) |  |   | 580    |   |  |   | (772                  | )
|Other                                    |  |   | 107                    |  |   | 94      |  |                       | 223     |  |                       | (30        | ) |                |   | 43     |   |  |   | 13                    |   |  |   | (133       | ) |  |   | 4      |   |  |   | (129                  | )
|                                         |  |   |                        |  |   |         |  |                       |         |  |                       |            |   |                |   |        |   |  |   |                       |   |  |   |            |   |  |   |        |   |  |   |                       |  
|Total deposits                           |  | $ | 42,057                 |  | $ | 54,722  |  | $                     | 88,169  |  | $                     | (16,935    | ) |                | $ | 4,270  |   |  | $ | (12,665               | ) |  | $ | (35,767    | ) |  | $ | 2,320  |   |  | $ | (33,447               | )
|Short-term borrowings                    |  |   | 1,389                  |  |   | 2,883   |  |                       | 8,540   |  |                       | (1,172     | ) |                |   | (322   | ) |  |   | (1,494                | ) |  |   | (4,839     | ) |  |   | (818   | ) |  |   | (5,657                | )
|Long-term debt                           |  |   | 5,449                  |  |   | 4,221   |  |                       | 4,199   |  |                       | (82        | ) |                |   | 1,310  |   |  |   | 1,228                 |   |  |   | (11        | ) |  |   | 33     |   |  |   | 22                    |  
|                                         |  |   |                        |  |   |         |  |                       |         |  |                       |            |   |                |   |        |   |  |   |                       |   |  |   |            |   |  |   |        |   |  |   |                       |  
|Total interest-bearing liabilities       |  | $ | 48,895                 |  | $ | 61,826  |  | $                     | 100,908 |  | $                     | (18,189    | ) |                | $ | 5,258  |   |  | $ | (12,931               | ) |  | $ | (40,617    | ) |  | $ | 1,535  |   |  | $ | (39,082               | )
|                                         |  |   |                        |  |   |         |  |                       |         |  |                       |            |   |                |   |        |   |  |   |                       |   |  |   |            |   |  |   |        |   |  |   |                       |  
|Net interest income                      |  | $ | 150,299                |  | $ | 147,702 |  | $                     | 132,492 |  | $                     | (16,147    | ) |                | $ | 18,744 |   |  | $ | 2,597                 |   |  | $ | 2,439      |   |  | $ | 12,771 |   |  | $ | 15,210                |  
|                                         |  |   |                        |  |   |         |  |                       |         |  |                       |            |   |                |   |        |   |  |   |                       |   |  |   |            |   |  |   |        |   |  |   |                       |  

---

|1 |  | Rate-volume changes have been allocated to each category based on the percentage of each to the total change.
|- |  | -------------------------------------------------------------------------------------------------------------

|2 |  | Non-taxable interest income has been adjusted to a taxable equivalent amount using the federal income tax rate of 35%.
|- |  | ----------------------------------------------------------------------------------------------------------------------

|3 |  | Balances of nonaccrual loans and related cash basis income have been included for computational purposes.
|- |  | ---------------------------------------------------------------------------------------------------------



Net interest income on a tax equivalent basis (net interest
income) increased $2,597 or by 1.76% from $147,702 in 2002 to $150,299 in 2003. As discussed in the Executive Overview, this represents a significant decline in the rate of net interest income growth for Bancorporation. In the past two years,
Bancorporations net interest income benefited from the low interest rate environment due to funding costs declining faster than earning asset yields. As a result, Bancorporation experienced strong growth in net interest income between 2000 and
2001 and between 2001 and 2002. Most of the impact occurred between 2000 and 2001, when net interest income grew $19,756, or by 17.52%. During 2002, net interest income grew $15,210, or by 11.48%. While net interest income growth was strong in 2002,
the dollar amount and rate of growth had already begun to decline as yields on average interest-earning assets began to decline faster than rates paid on average interest-bearing liabilities. This trend continued into 2003 as the interest rate
environment remained low. As a result, net interest margin to average interest earning assets decreased from 4.37% in 2002 to 3.99% in 2003, after experiencing an increase from 4.18% in 2001 to 4.37% in 2002.



The moderate growth in net interest income in 2003 was primarily driven by a
decrease in interest expense of $12,931, or by 20.92% which exceeded a decrease in interest income on a tax equivalent basis (interest income) of $10,334, or by 4.93%. Net interest income began to grow after the first quarter due to the
continuing effects of internal growth and the acquisition of First Banks at the beginning of the second quarter.





12



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The decrease in interest income during 2003 was due primarily to a decline in yield on average
interest-earning assets from 6.20% in 2002 to 5.29% in 2003. The overall yield was impacted by decreases in the yields on average: (1) loans from 7.31% in 2002 to 6.39% in 2003, (2) investment securities from 4.13% in 2002 to 2.81% in 2003 and (3)
federal funds sold from 1.65% in 2002 to 1.12% in 2003. The decline in the overall yield was partially offset by growth in average interest-earning assets from $3,381,013 in 2002 to $3,763,684 in 2003, or by 11.32%. Growth in average
interest-earning assets was impacted by internal growth as well as the acquisition of First Banks at the beginning of the second quarter. First Banks contributed $140,278 to the average interest-earning asset growth.



The decrease in interest expense during 2003 was due primarily to a decline
in the cost of average interest-bearing liabilities from 2.19% in 2002 to 1.57% in 2003. The overall cost was impacted by decreases in rates paid on average interest-bearing: (1) deposits from 2.12% in 2002 to 1.45% in 2003 and (2) short-term
borrowings (customer repurchase agreements) from 1.51% in 2002 to .89% in 2003. Short-term borrowings are tied to a floating index which decreased for a majority of 2003.



PROVISION FOR LOAN LOSSES (Dollars in thousands)



A provision for loan losses is charged against earnings in order to maintain the allowance for loan losses at a level that
reflects managements estimate of probable inherent credit losses in the portfolio. The amount of the provision is based on continuing assessments of nonperforming and watch list loans, analytical reviews of loan loss experience in
relation to outstanding loans, loan charge-offs, nonperforming asset trends and managements judgment with respect to current and expected economic conditions and their impact on the existing loan portfolio. The provision for loan losses
recorded by Bancorporation was $9,843 in 2003, compared to $10,068 in 2002 and $8,599 in 2001.



The 2.23% decrease in the current year provision for loan losses resulted from a decrease in net charge-offs during the year. Net charge-offs were .21% of average loans for 2003 compared to .33% of average loans for
2002. The allowance for loan losses was 1.74% of loans outstanding at December 31, 2003 compared to 1.79% at December 31, 2002.



NONINTEREST INCOME (Dollars in thousands)



Table 4 provides a comparison of the various components of noninterest income for the years ended December 31, 2003, 2002 and 2001.



Table 4

NONINTEREST INCOME



|                                              |  |                                 |        |                |        |   |      |   |                |  |        |      |  |   |       
|--------------------------------------------- |  | ------------------------------- | ------ | -------------- | ------ | - | ---- | - | -------------- |  | ------ | ---- |  | - | ------
|                                              |  | For the year ended December 31,
|                                              |  | 2003                            |        | Percent change |        |   | 2002 |   | Percent change |  |        | 2001
|                                              |  | (dollars in thousands)         
|Service charges                               |  | $                               | 35,444 |                | 14.62  | % |      | $ | 30,923         |  | 16.99  | %    |  | $ | 26,433
|Commission and fees from fiduciary activities |  |                                 | 3,520  |                | 3.04   |   |      |   | 3,416          |  | 22.79  |      |  |   | 2,782 
|Mortgage income                               |  |                                 | 7,943  |                | 133.69 |   |      |   | 3,399          |  | (4.52  | )    |  |   | 3,560 
|Bankcard discount and fees                    |  |                                 | 6,230  |                | 9.20   |   |      |   | 5,705          |  | 6.00   |      |  |   | 5,382 
|Insurance premiums                            |  |                                 | 1,971  |                | 11.93  |   |      |   | 1,761          |  | 4.76   |      |  |   | 1,681 
|Gain on sale of investment securities         |  |                                 | 781    |                | 69.05  |   |      |   | 462            |  | (90.66 | )    |  |   | 4,947 
|Other                                         |  |                                 | 3,257  |                | (11.37 | ) |      |   | 3,675          |  | 5.54   |      |  |   | 3,482 
|                                              |  |                                 |        |                |        |   |      |   |                |  |        |      |  |   |       
|Total                                         |  | $                               | 59,146 |                | 19.87  | % |      | $ | 49,341         |  | 2.23   | %    |  | $ | 48,267
|                                              |  |                                 |        |                |        |   |      |   |                |  |        |      |  |   |       



Noninterest income
increased by $9,805 or by 19.87% between 2002 and 2003. The majority of the increase was due to service charges on deposit accounts and mortgage income.



During 2003, service charges increased primarily due to deposit growth and an increase in fees charged during the year. The most significant increase in
service charges during the year was in non-sufficient funds (NSF) fees which accounted for $2,696 of the $4,521 increase. Service charges increased between 2001 and 2002 due to deposit growth and a full years impact of fee
increases in 2001. NSF fees accounted for $2,980 of the $4,490 increase.



13



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During 2003, mortgage income increased due to increases in the gain on sale of mortgage loans held for
sale (mortgage loans) and servicing income of $3,170 and $1,373, respectively. Gain on sale of mortgage loans increased due to an increase in the volume of mortgage loans sold from $366,192 in 2002 to $474,856 in 2003. Servicing income
consists of fees for servicing mortgage loans that are sold to investors, less amortization of mortgage servicing rights. During 2003, servicing income increased due to growth in the servicing portfolio of 10.80% to $1,017,912 and a decline in
impairment charges recorded against mortgage servicing rights. A major financial challenge to mortgage servicers during a declining interest rate environment (which occurred during 2002 and throughout the first half of 2003) is impairment of
existing mortgage servicing rights. Generally, impairment of mortgage servicing rights occurs in a declining rate environment based on the assumption that the loans serviced will prepay earlier than expected. Impairment charges result in a reduction
of servicing income. As a result, during 2002, Bancorporation took impairment charges against mortgage income totaling $1,716 (impairment charges were minimal during 2001). As mortgage rates continued to decline during the first two quarters of
2003, Bancorporation took additional impairment charges totaling $1,801. However during the third and fourth quarters, as mortgage interest rates increased, Bancorporation recaptured impairment reserves totaling $1,863. Therefore, Bancorporation
recorded a $62 net recapture of impairment in 2003.



Noninterest income increased by $1,074 or by 2.23% between 2001 and 2002. As discussed above, the majority of the increase was in service charges. The overall increase in noninterest income was offset by a $4,485 decline in gain on sale of
investment securities. The equity securities gains in 2001 were primarily the result of Bancorporations sale of certain of its equity securities donated to First Citizens Foundation to make charitable contributions and were partially offset by
donation expense to First Citizens Foundation (see Table 5). Adjusted for the equity securities gains in 2002 and 2001, noninterest income increased by $5,559, or by 12.83%.



NONINTEREST EXPENSE (Dollars in thousands)



Table 5 provides a comparison of the various components of noninterest expense for the years ended December 31, 2003, 2002 and 2001.



Table 5

NONINTEREST EXPENSE



|                                |  |                                 |         |               |       |   |      |   |               |  |        |      |  |   |        
|------------------------------- |  | ------------------------------- | ------- | ------------- | ----- | - | ---- | - | ------------- |  | ------ | ---- |  | - | -------
|                                |  | For the year ended December 31,
|                                |  | 2003                            |         | PercentChange |       |   | 2002 |   | PercentChange |  |        | 2001
|                                |  | (dollars in thousands)         
|Salaries and employee benefits  |  | $                               | 69,896  |               | 9.61  | % |      | $ | 63,769        |  | 16.36  | %    |  | $ | 54,804 
|Net occupancy expense           |  |                                 | 11,128  |               | 16.78 |   |      |   | 9,529         |  | 13.68  |      |  |   | 8,382  
|Furniture and equipment expense |  |                                 | 7,191   |               | 15.02 |   |      |   | 6,252         |  | 2.31   |      |  |   | 6,111  
|Amortization expense            |  |                                 | 8,326   |               | 2.00  |   |      |   | 8,163         |  | (17.14 | )    |  |   | 9,852  
|Bankcard processing fees        |  |                                 | 6,517   |               | 6.87  |   |      |   | 6,098         |  | 11.20  |      |  |   | 5,484  
|Data processing expense         |  |                                 | 11,628  |               | 12.49 |   |      |   | 10,337        |  | 7.20   |      |  |   | 9,643  
|Donations                       |  |                                 | 499     |               | (9.60 | ) |      |   | 552           |  | (87.73 | )    |  |   | 4,498  
|Other                           |  |                                 | 21,804  |               | 1.85  |   |      |   | 21,408        |  | (3.17  | )    |  |   | 22,108 
|                                |  |                                 |         |               |       |   |      |   |               |  |        |      |  |   |        
|Total                           |  | $                               | 136,989 |               | 8.63  | % |      | $ | 126,108       |  | 4.32   | %    |  | $ | 120,882
|                                |  |                                 |         |               |       |   |      |   |               |  |        |      |  |   |        



Noninterest expense
increased by $10,881 or by 8.63% between 2002 and 2003. The majority of the increase was due to salaries and employee benefits, net occupancy expense and data processing expense.



The increase in salaries and employee benefits between 2002 and 2003 is due to an increase in salaries and wages of $3,116
and an increase in employee benefits of $3,012. The increase in salaries and wages is due primarily to the effects of hiring additional employees to support growth in Bancorporations lines of business, merit increases, acquisitions, and an
increase in incentives paid during the year. Between 2001 and 2002, salaries and wages increased by $5,545 due to the same reasons. Employee benefits increased during 2003 primarily related to pension and health insurance costs. Of the $3,012
increase, $1,523 and $931 were related to pension and health insurance costs, respectively. The increase in pension costs is due to a decline in the discount rate and the rate of return on plan assets used to calculate net periodic pension



14



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expense. Health care costs have continued to increase as medical costs increase and more employees are added to Bancorporations health plans. Employee
benefits increased by $3,419 between 2001 and 2002, primarily due to an increase in pension and health insurance costs.



Net occupancy expense increased between 2002 and 2003 primarily due to a $1,208 increase in depreciation expense associated with an increase in bank
premises. The remainder of the increase is due to on-going expenses related to additional bank premises. The increase in net occupancy expense between 2001 and 2002 was primarily due to the same reasons.



During 2003, data processing expense increased due to the ongoing growth
realized in the number of loan and deposit accounts processed by Bancorporations third party processor. Bancorporation experienced an increase between 2001 and 2002 for the same reasons.



INCOME TAXES (Dollars in thousands)



Total income tax expense included in the Consolidated Statements of Income
was $21,732, $20,664 and $16,126 for the years ended December 31, 2003, 2002 and 2001, respectively. The effective tax rate in those years was 35.3%, 34.6% and 32.3%, respectively. Income taxes computed at the statutory rate are affected primarily
by the interest earned on state and municipal debt securities and obligations (which are exempt from federal taxes), state income taxes and other items permanently included or excluded from taxable income.



FINANCIAL CONDITION



INVESTMENT SECURITIES (Dollars in thousands)



The securities portfolios provide earnings and liquidity, as well as an
effective tool in managing interest rate risk. Management has historically emphasized investments with a duration of five years or less to provide greater flexibility in managing the balance sheet in changing interest rate environments. As of
December 31, 2003, the investment portfolio totaled $922,229, compared to $915,870 as of December 31, 2002. Bancorporation continues to invest primarily in short-term U.S. Government obligations, thereby minimizing credit, interest rate and
liquidity risk. The portfolio was comprised of 92.12% and 94.59% U.S. Government obligations at December 31, 2003 and 2002, respectively. The remainder of the investment portfolio principally consists of municipal notes, corporate bonds and equity
securities.



Average investment securities as a percentage of
average earning assets decreased from 27.45% as of December 31, 2002, to 24.51% as of December 31, 2003, with the decrease occurring primarily in investments in U. S. Government obligations. Investment securities remain the second largest component
of interest-earning assets.



The weighted average maturity of
U.S. Government obligations held in the portfolio was 16.0 months at December 31, 2003, as compared to 12.5 months at December 31, 2002. The weighted average maturity of State and Political obligations held in the portfolio was 28.5 months at
December 31, 2003, as compared to 34.1 months at December 31, 2002. The amortized cost and estimated fair value of debt securities at December 31, 2003 and 2002 are shown in Table 6.



Investment securities available-for-sale are held for expected liquidity requirements and asset/liability management. Such
securities, recorded at fair value, were $902,463 or 97.86% of the total investment portfolio at December 31, 2003, compared with $881,327 or 96.23% at December 31, 2002. The unrealized gain on investment securities available-for-sale was $29,565
and $30,019 at December 31, 2003 and 2002, respectively.



Investment securities held-to-maturity recorded at amortized cost totaled $19,766 or 2.14% of the total investment portfolio at December 31, 2003, compared to $34,543 or 3.77% at December 31, 2002. These investments are those for which
management has the intent and ability to hold to maturity. The estimated fair value of such securities exceeded their amortized cost by $298 and $725 at December 31, 2003 and December 31, 2002, respectively.



At December 31, 2003, Bancorporation held no investment in securities of a
single issuer, other than securities issued or guaranteed by the U. S. government or its agencies, that exceeded 10% of its stockholders equity. Bancorporation has made no investments in financial instruments or participated in agreements with
values that are linked to or derived from



15



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changes in the value of some underlying asset or index. These financial instruments or agreements are commonly referred to as derivatives and include such
instruments as futures, forward contracts, option contracts, interest rate swap agreements and other financial arrangements with similar characteristics. Management continues to evaluate whether to use derivatives as part of its asset/liability and
liquidity management processes.



Table 6

INVESTMENT SECURITIES



|                                                  |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|------------------------------------------------- |  | ------------- | ------- | ------------------ | ---- | ----------------------- | ---- | ----- | ------------- |  | ------------------ | ------- | ------------- | - | ------------------ |  | - | ------- |  | - | -------
|                                                  |  | 2003          |         |                    | 2002 |                         | 2001
|                                                  |  | AmortizedCost |         | EstimatedFairValue |      | TaxableEquivalentYield* |      |       | AmortizedCost |  | EstimatedFairValue |         | AmortizedCost |   | EstimatedFairValue
|                                                  |  |               |         |                    |      | (dollars in thousands)  |      |       |               |  |                    |        
|Held-to-maturity:                                 |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|U. S. government obligations:                     |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Within one year                                   |  | $             | 3,249   |                    | $    | 3,261                   |      | 2.99  | %             |  | $                  | 5,231   |               | $ | 5,273              |  | $ | 1,750   |  | $ | 1,775  
|One to five years                                 |  |               | 7,008   |                    |      | 6,968                   |      | 1.96  |               |  |                    | 6,255   |               |   | 6,336              |  |   | 6,200   |  |   | 6,327  
|Five to ten years                                 |  |               |        |                    |      |                        |      |      |               |  |                    | 6,497   |               |   | 6,538              |  |   |        |  |   |       
|Over ten years                                    |  |               |        |                    |      |                        |      |      |               |  |                    | 2,248   |               |   | 2,303              |  |   |        |  |   |       
|                                                  |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Total                                             |  |               | 10,257  |                    |      | 10,229                  |      | 2.29  |               |  |                    | 20,231  |               |   | 20,450             |  |   | 7,950   |  |   | 8,102  
|                                                  |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Obligations of states and political subdivisions: |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Within one year                                   |  |               | 1,951   |                    |      | 1,966                   |      | 5.07  |               |  |                    | 2,495   |               |   | 2,512              |  |   | 2,405   |  |   | 2,418  
|One to five years                                 |  |               | 5,713   |                    |      | 6,003                   |      | 4.89  |               |  |                    | 9,184   |               |   | 9,606              |  |   | 10,550  |  |   | 10,771 
|Five to ten years                                 |  |               |        |                    |      |                        |      |      |               |  |                    | 365     |               |   | 401                |  |   | 609     |  |   | 635    
|Over ten years                                    |  |               |        |                    |      |                        |      |      |               |  |                    |        |               |   |                   |  |   |        |  |   |       
|                                                  |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Total                                             |  |               | 7,664   |                    |      | 7,969                   |      | 4.94  |               |  |                    | 12,044  |               |   | 12,519             |  |   | 13,564  |  |   | 13,824 
|                                                  |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Other securities:                                 |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Within one year                                   |  |               |        |                    |      |                        |      |      |               |  |                    |        |               |   |                   |  |   | 2       |  |   |       
|One to five years                                 |  |               |        |                    |      |                        |      |      |               |  |                    | 11      |               |   | 12                 |  |   | 50      |  |   | 49     
|Five to ten years                                 |  |               |        |                    |      |                        |      |      |               |  |                    | 10      |               |   | 11                 |  |   |        |  |   |       
|Over ten years                                    |  |               | 1,845   |                    |      | 1,866                   |      | 10.56 |               |  |                    | 2,247   |               |   | 2,276              |  |   | 1,743   |  |   | 1,754  
|                                                  |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Total                                             |  |               | 1,845   |                    |      | 1,866                   |      | 10.56 |               |  |                    | 2,268   |               |   | 2,299              |  |   | 1,795   |  |   | 1,803  
|                                                  |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Total held-to-maturity                            |  |               | 19,766  |                    |      | 20,064                  |      | 4.09  |               |  |                    | 34,543  |               |   | 35,268             |  |   | 23,309  |  |   | 23,729 
|                                                  |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Available-for-sale:                               |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|U. S. government obligations:                     |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Within one year                                   |  |               | 390,035 |                    |      | 392,689                 |      | 3.00  |               |  |                    | 416,855 |               |   | 422,018            |  |   | 302,220 |  |   | 308,646
|One to five years                                 |  |               | 446,032 |                    |      | 446,580                 |      | 2.48  |               |  |                    | 416,605 |               |   | 424,028            |  |   | 532,563 |  |   | 539,334
|                                                  |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Total                                             |  |               | 836,067 |                    |      | 839,269                 |      | 2.72  |               |  |                    | 833,460 |               |   | 846,046            |  |   | 834,783 |  |   | 847,980
|                                                  |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Obligations of states and political subdivisions: |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|One to five years                                 |  |               | 2,949   |                    |      | 3,034                   |      | 3.26  |               |  |                    |        |               |   |                   |  |   |        |  |   |       
|Five to ten years                                 |  |               | 537     |                    |      | 546                     |      | 4.79  |               |  |                    | 113     |               |   | 118                |  |   |        |  |   |       
|Over ten years                                    |  |               | 242     |                    |      | 259                     |      | 4.88  |               |  |                    | 243     |               |   | 254                |  |   |        |  |   |       
|                                                  |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Total                                             |  |               | 3,728   |                    |      | 3,839                   |      | 3.59  |               |  |                    | 356     |               |   | 372                |  |   |        |  |   |       
|                                                  |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Other securities:                                 |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|One to five years                                 |  |               | 14,820  |                    |      | 14,862                  |      | 4.22  |               |  |                    |        |               |   |                   |  |   |        |  |   |       
|Five to ten years                                 |  |               | 2,517   |                    |      | 2,562                   |      | 5.43  |               |  |                    | 4,636   |               |   | 4,815              |  |   | 3,292   |  |   | 3,339  
|Over ten years                                    |  |               | 2,697   |                    |      | 2,712                   |      | 4.74  |               |  |                    | 2,701   |               |   | 2,779              |  |   | 2,428   |  |   | 2,417  
|                                                  |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Total                                             |  |               | 20,034  |                    |      | 20,136                  |      | 4.44  |               |  |                    | 7,337   |               |   | 7,594              |  |   | 5,720   |  |   | 5,756  
|                                                  |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Marketable equity securities                      |  |               | 13,069  |                    |      | 39,219                  |      | 2.81  |               |  |                    | 10,155  |               |   | 27,315             |  |   | 5,783   |  |   | 22,710 
|                                                  |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Total available-for-sale                          |  |               | 872,898 |                    |      | 902,463                 |      | 2.77  |               |  |                    | 851,308 |               |   | 881,327            |  |   | 846,286 |  |   | 876,446
|                                                  |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        
|Total portfolio                                   |  | $             | 892,664 |                    | $    | 922,527                 |      | 2.81  | %             |  | $                  | 885,851 |               | $ | 916,595            |  | $ | 869,595 |  | $ | 900,175
|                                                  |  |               |         |                    |      |                         |      |       |               |  |                    |         |               |   |                    |  |   |         |  |   |        

---

|* |  | Taxable equivalent yield was calculated using the incremental statutory federal income tax rate of 35%.
|- |  | -------------------------------------------------------------------------------------------------------



16



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LOANS (Dollars in thousands)



Loans comprise the largest portion of earning assets of Bancorporation, with average loans accounting for 71.31% and 68.26%
of average earning assets as of December 31, 2003 and 2002, respectively. Gross loans increased $524,593 or 21.72% to $2,939,989 as of December 31, 2003, from $2,415,396 as of December 31, 2002. Loans acquired from First Banks constituted $188,558
of the increase, while the remainder was due to internal growth. Most of the increase in loans was attributable to an increase in loans secured by 1-4 family residential properties, which increased $345,401 or by 33.36%, followed by loans secured by
nonfarm nonresidential properties which increased $114,985 or by 26.07%. Growth in these categories is attributable to the historically low interest rate environment which has allowed consumers and businesses to either re-finance their existing
loans or secure new loans at attractive rates. These increases did not cause a significant shift in the composition of Bancorporations loan portfolio during 2003. The composition of the loan portfolio at December 31 for the last five years is
presented in Table 7.



Bancorporation desires to make business
loans for productive purposes where the business has adequate capital and management expertise to succeed. Consumer loans are granted for many purposes, provided that underwriting criteria are met. The ability and willingness of the borrower to
repay debt are the primary factors considered in granting credit. Repayment ability is established by review of past and future cash flow coverage for businesses and debt-to-income ratio for consumers. The willingness of the borrower to repay debt
is reviewed through trade credit for businesses and credit bureau reports and other traditional methods for consumers. Collateral guarantees, loan-to-value ratios and loan terms are based on industry and/or regulatory standards depending on loan
purpose and the composition of collateral provided.



Table 7

LOAN PORTFOLIO COMPOSITION



|                                                     |  |                        |           |           |        |   |        |      |           |  |        |        |  |           |           |  |        |   |           |   |           |        |        |           |  |   |           |  |        |  
|---------------------------------------------------- |  | ---------------------- | --------- | --------- | ------ | - | ------ | ---- | --------- |  | ------ | ------ |  | --------- | --------- |  | ------ | - | --------- | - | --------- | ------ | ------ | --------- |  | - | --------- |  | ------ | -
|                                                     |  | December 31,           |          
|                                                     |  | 2003                   |           |           | 2002   |   |        | 2001 |           |  | 2000   |        |  | 1999      |          
|                                                     |  | Amount                 |           | % ofGross |        |   | Amount |      | % ofGross |  |        | Amount |  | % ofGross |           |  | Amount |   | % ofGross |   |           | Amount |        | % ofGross | 
|                                                     |  | (dollars in thousands) |           |           |       
|Real estate-construction                             |  | $                      | 128,997   |           | 4.39   | % |        | $    | 91,186    |  | 3.78   | %      |  | $         | 101,221   |  | 4.47   | % |           | $ | 44,910    |        | 2.16   | %         |  | $ | 49,254    |  | 2.66   | %
|Real estate-mortgage                                 |  |                        | 1,380,828 |           | 46.97  |   |        |      | 1,035,427 |  | 42.86  |        |  |           | 979,797   |  | 43.31  |   |           |   | 896,408   |        | 43.06  |           |  |   | 818,807   |  | 44.15  |  
|Real estate-commercial                               |  |                        | 556,055   |           | 18.91  |   |        |      | 441,070   |  | 18.26  |        |  |           | 408,143   |  | 18.04  |   |           |   | 409,563   |        | 19.67  |           |  |   | 345,116   |  | 18.61  |  
|Loans for purchasing and carrying securities         |  |                        | 823       |           | .03    |   |        |      | 640       |  | .03    |        |  |           | 716       |  | .03    |   |           |   | 309       |        | .01    |           |  |   | 1,283     |  | .07    |  
|Loans to farmers                                     |  |                        | 9,058     |           | .30    |   |        |      | 10,800    |  | .45    |        |  |           | 9,975     |  | .44    |   |           |   | 11,341    |        | .54    |           |  |   | 8,643     |  | .47    |  
|Commercial and industrial loans                      |  |                        | 252,202   |           | 8.58   |   |        |      | 224,079   |  | 9.28   |        |  |           | 205,577   |  | 9.09   |   |           |   | 196,041   |        | 9.42   |           |  |   | 174,556   |  | 9.41   |  
|Loans to individuals for household, family and other |  |                        |           |           |        |   |        |      |           |  |        |        |  |           |           |  |        |   |           |   |           |        |        |           |  |   |           |  |        |  
|personal expenditures                                |  |                        | 532,624   |           | 18.12  |   |        |      | 546,947   |  | 22.64  |        |  |           | 504,141   |  | 22.29  |   |           |   | 474,848   |        | 22.81  |           |  |   | 417,603   |  | 22.52  |  
|Other loans                                          |  |                        | 79,402    |           | 2.70   |   |        |      | 65,247    |  | 2.70   |        |  |           | 52,713    |  | 2.33   |   |           |   | 48,451    |        | 2.33   |           |  |   | 39,258    |  | 2.11   |  
|                                                     |  |                        |           |           |        |   |        |      |           |  |        |        |  |           |           |  |        |   |           |   |           |        |        |           |  |   |           |  |        |  
|Total loans                                          |  | $                      | 2,939,989 |           | 100.00 | % |        | $    | 2,415,396 |  | 100.00 | %      |  | $         | 2,262,283 |  | 100.00 | % |           | $ | 2,081,871 |        | 100.00 | %         |  | $ | 1,854,520 |  | 100.00 | %
|                                                     |  |                        |           |           |        |   |        |      |           |  |        |        |  |           |           |  |        |   |           |   |           |        |        |           |  |   |           |  |        |  



17



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Table 8

SELECTED
LOAN MATURITIES AND INTEREST RATE SENSITIVITY



|                                            |  |                        |           |                |   |                        |  |              |           |  |   |        
|------------------------------------------- |  | ---------------------- | --------- | -------------- | - | ---------------------- |  | ------------ | --------- |  | - | -------
|                                            |  | December 31, 2003     
|                                            |  | Total                  |           | 1 year or less |   | Over 1 through 5 years |  | Over 5 Years
|                                            |  | (Dollars in thousands)
|Type of Loan:                               |  |                        |           |                |   |                        |  |              |           |  |   |        
|Real estate-construction                    |  | $                      | 128,997   |                | $ | 56,265                 |  | $            | 63,181    |  | $ | 9,551  
|Commercial, financial and agricultural      |  |                        | 897,540   |                |   | 216,625                |  |              | 567,016   |  |   | 113,899
|Real estate, individual and other           |  |                        | 1,913,452 |                |   | 654,876                |  |              | 907,586   |  |   | 350,990
|                                            |  |                        |           |                |   |                        |  |              |           |  |   |        
|Total                                       |  | $                      | 2,939,989 |                | $ | 927,766                |  | $            | 1,537,783 |  | $ | 474,440
|                                            |  |                        |           |                |   |                        |  |              |           |  |   |        
|Rate Sensitivity for Loans (over one year): |  |                        |           |                |   |                        |  |              |           |  |   |        
|Fixed interest rates                        |  | $                      | 1,638,403 |                |   |                        |  | $            | 1,211,162 |  | $ | 427,241
|Floating or adjustable interest rates       |  |                        | 373,820   |                |   |                        |  |              | 326,621   |  |   | 47,199 
|                                            |  |                        |           |                |   |                        |  |              |           |  |   |        
|Total                                       |  | $                      | 2,012,223 |                |   |                        |  | $            | 1,537,783 |  | $ | 474,440
|                                            |  |                        |           |                |   |                        |  |              |           |  |   |        



ALLOWANCE FOR LOAN LOSSES (Dollars
in thousands)



The allowance for loan losses is
managements estimate of probable inherent credit losses in the loan portfolios at the balance sheet date. The allowance for loan losses is maintained through charges to the provision for loan losses. Bancorporation determines the allowance
based on an ongoing evaluation of the loan portfolios. Loan charge-offs and recoveries are charged or credited directly to the allowance for loan losses.



The allowance is the accumulation of various components that are calculated based on independent methodologies. All components of the allowance represent
estimates performed pursuant to either SFAS No. 5, Accounting for Contingencies or SFAS No. 114, Accounting by Creditors for Impairment of a Loan. Managements estimate of each SFAS No. 5 component is based on certain
observable data that management believes are most reflective of the underlying credit losses being estimated. This evaluation includes credit quality trends; collateral values; loan volumes; geographic, borrower and industry loan concentrations;
seasoning of the loan portfolio; the findings of independent internal credit quality assessments and results from external bank regulatory examinations. Reserves for commercial loans are determined by applying loss percentages to the portfolio based
on managements evaluation and risk grading of the commercial loan portfolio. Reserves are provided for noncommercial loan categories based on historical trends of actual loss experience. Specific reserves are typically provided on
all impaired commercial loans in excess of a defined threshold that are classified in the Substandard or Doubtful risk grades. The specific reserves are determined on a loan-by-loan basis based on managements evaluation of
Bancorporations exposure for each credit, given the current payment status of the loan and the value of any underlying collateral.



A portion of Bancorporations allowance for loan losses is not allocated to any specific category of loans. This unallocated portion of the allowance
reflects the elements of imprecision and estimation risk inherent in the calculation of the overall allowance. Due to the subjectivity involved in determining the overall allowance, including the unallocated portion, the portion of the allowance
considered unallocated may fluctuate from period to period based on managements evaluation of the factors affecting the assumptions used in calculating the allowance, including historical loss experience, current and expected economic
conditions and geographic or industry concentrations. While the unallocated allowance is available to absorb losses in excess of the amounts allocated to specific loan categories, allocated portions of the allowance are also available to absorb
losses in any loan category. Management evaluates the adequacy of the allowance for loan losses based on the combined total of the allocated and unallocated components.



While management uses the best information available to establish the allowance for loan losses, future adjustments to the
allowance or to the reserving methodology may be necessary if economic conditions differ substantially from the assumptions used in making the valuations or, if required by regulators, based upon information at the time of their examinations. Such
adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates.



18



---

An analysis of activity in the allowance for loan losses as of December 31 for the past five years is
presented in Table 9. Management believes that the provision taken in 2003 was appropriate to provide an allowance for loan losses which considers the past experience of charge-offs, the level of past due and nonaccrual loans, the size and mix of
the loan portfolio, credit classifications and general economic conditions in Bancorporations market areas. This allocation of the allowance for loan losses is calculated on an approximate basis and is not necessarily indicative of future
losses. The entire amount of the allowance is available to absorb losses incurring in any category of loans.



Table 9

ALLOWANCE FOR LOAN LOSSES



|                                                      |  |                    |        |                        |   |        |  |      |        |      |   |        |  |   |       
|----------------------------------------------------- |  | ------------------ | ------ | ---------------------- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                                      |  | As of December 31,
|                                                      |  | 2003               |        | 2002                   |   | 2001   |  | 2000 |        | 1999
|                                                      |  |                    |        | (dollars in thousands) |   |       
|Beginning allowance for loan losses                   |  | $                  | 43,305 |                        | $ | 40,259 |  | $    | 37,001 |      | $ | 32,972 |  | $ | 28,306
|Charge-offs:                                          |  |                    |        |                        |   |        |  |      |        |      |   |        |  |   |       
|Commercial, financial and agricultural                |  |                    | 816    |                        |   | 1,863  |  |      | 1,337  |      |   | 1,302  |  |   | 689   
|Real estatemortgage                                  |  |                    | 949    |                        |   | 1,794  |  |      | 447    |      |   | 967    |  |   | 398   
|Installment loans to individuals                      |  |                    | 6,154  |                        |   | 4,338  |  |      | 4,052  |      |   | 3,239  |  |   | 2,288 
|All other loans                                       |  |                    | 104    |                        |   | 1,276  |  |      | 804    |      |   | 66     |  |   | 8     
|                                                      |  |                    |        |                        |   |        |  |      |        |      |   |        |  |   |       
|Total charge-offs                                     |  |                    | 8,023  |                        |   | 9,271  |  |      | 6,640  |      |   | 5,574  |  |   | 3,383 
|                                                      |  |                    |        |                        |   |        |  |      |        |      |   |        |  |   |       
|Recoveries:                                           |  |                    |        |                        |   |        |  |      |        |      |   |        |  |   |       
|Commercial, financial and agricultural                |  |                    | 509    |                        |   | 509    |  |      | 241    |      |   | 240    |  |   | 170   
|Real estatemortgage                                  |  |                    | 1,080  |                        |   | 460    |  |      | 386    |      |   | 451    |  |   | 538   
|Installment loans to individuals                      |  |                    | 727    |                        |   | 513    |  |      | 671    |      |   | 690    |  |   | 675   
|All other loans                                       |  |                    | 51     |                        |   | 221    |  |      | 1      |      |   | 30     |  |   | 7     
|                                                      |  |                    |        |                        |   |        |  |      |        |      |   |        |  |   |       
|Total recoveries                                      |  |                    | 2,367  |                        |   | 1,703  |  |      | 1,299  |      |   | 1,411  |  |   | 1,390 
|                                                      |  |                    |        |                        |   |        |  |      |        |      |   |        |  |   |       
|Net charge-offs                                       |  |                    | 5,656  |                        |   | 7,568  |  |      | 5,341  |      |   | 4,163  |  |   | 1,993 
|Provision for loan losses                             |  |                    | 9,843  |                        |   | 10,068 |  |      | 8,599  |      |   | 7,623  |  |   | 5,546 
|Allowance for loans acquired in purchase transactions |  |                    | 3,776  |                        |   | 546    |  |      |       |      |   | 569    |  |   | 1,113 
|                                                      |  |                    |        |                        |   |        |  |      |        |      |   |        |  |   |       
|Ending allowance for loan losses                      |  | $                  | 51,268 |                        | $ | 43,305 |  | $    | 40,259 |      | $ | 37,001 |  | $ | 32,972
|                                                      |  |                    |        |                        |   |        |  |      |        |      |   |        |  |   |       



Bancorporation manages
credit risk through a variety of methods including credit scoring, establishing loan type parameters and underwriting standards. In addition, credit management is centralized using a standardized system of controls and subjecting the portfolio to
detailed credit reviews by individuals independent of the lending function.



The allowance for loan losses as a percent of gross loans was 1.74% and 1.79% at December 31, 2003 and December 31, 2002, respectively. Net charge-offs for the year ended December 31, 2003, totaled $5,656, or .21% of
average loans, a decrease of $1,912 from $7,568 or .33% of average loans in 2002. Recoveries represented .09% of average loans for the year ended December 31, 2003, versus .07% for the year ended December 31, 2002.



Table 10 presents an allocation of the allowance for loan losses by different
loan categories. The amounts allocated are not necessarily indicative of actual amounts which will be charged to any particular category. The total allowance is available to absorb potential losses in any category of loans.



19



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Table 10

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES



|                                       |  |                        |        |                 |        |   |        |      |                 |  |        |        |  |                 |        |  |        |   |                 |   |        |        |        |                 |  |   |        |  |        |  
|-------------------------------------- |  | ---------------------- | ------ | --------------- | ------ | - | ------ | ---- | --------------- |  | ------ | ------ |  | --------------- | ------ |  | ------ | - | --------------- | - | ------ | ------ | ------ | --------------- |  | - | ------ |  | ------ | -
|                                       |  | December 31,           |       
|                                       |  | 2003                   |        |                 | 2002   |   |        | 2001 |                 |  | 2000   |        |  | 1999            |       
|                                       |  | Amount                 |        | Percentof Loans |        |   | Amount |      | Percentof Loans |  |        | Amount |  | Percentof Loans |        |  | Amount |   | Percentof Loans |   |        | Amount |        | Percentof Loans | 
|                                       |  | (dollars in thousands) |       
|Real estateconstruction               |  | $                      | 2,122  |                 | 4.39   | % |        | $    | 1,564           |  | 3.78   | %      |  | $               | 1,687  |  | 4.48   | % |                 | $ | 746    |        | 2.16   | %               |  | $ | 837    |  | 2.66   | %
|Real estatemortgage                   |  |                        | 31,835 |                 | 65.87  |   |        |      | 25,290          |  | 61.13  |        |  |                 | 23,132 |  | 61.35  |   |                 |   | 21,679 |        | 62.73  |                 |  |   | 14,222 |  | 62.76  |  
|Installment loans to individuals       |  |                        | 8,757  |                 | 18.12  |   |        |      | 9,366           |  | 22.64  |        |  |                 | 8,402  |  | 22.28  |   |                 |   | 7,882  |        | 22.81  |                 |  |   | 10,526 |  | 22.52  |  
|Commercial, financial and agricultural |  |                        | 5,617  |                 | 11.62  |   |        |      | 5,151           |  | 12.45  |        |  |                 | 4,483  |  | 11.89  |   |                 |   | 4,252  |        | 12.30  |                 |  |   | 5,571  |  | 12.06  |  
|Unallocated                            |  |                        | 2,937  |                 |       |   |        |      | 1,934           |  |       |        |  |                 | 2,555  |  |       |   |                 |   | 2,442  |        |       |                 |  |   | 1,816  |  |       |  
|                                       |  |                        |        |                 |        |   |        |      |                 |  |        |        |  |                 |        |  |        |   |                 |   |        |        |        |                 |  |   |        |  |        |  
|Total                                  |  | $                      | 51,268 |                 | 100.00 | % |        | $    | 43,305          |  | 100.00 | %      |  | $               | 40,259 |  | 100.00 | % |                 | $ | 37,001 |        | 100.00 | %               |  | $ | 32,972 |  | 100.00 | %
|                                       |  |                        |        |                 |        |   |        |      |                 |  |        |        |  |                 |        |  |        |   |                 |   |        |        |        |                 |  |   |        |  |        |  



Table 11

ANALYSIS OF ASSET QUALITY



|                                                 |  |                        |       |                 |        |   |        |      |                 |  |        |        |  |                 |       |  |        |   |                 |   |       |        |        |                 |  |   |       |  |          |  
|------------------------------------------------ |  | ---------------------- | ----- | --------------- | ------ | - | ------ | ---- | --------------- |  | ------ | ------ |  | --------------- | ----- |  | ------ | - | --------------- | - | ----- | ------ | ------ | --------------- |  | - | ----- |  | -------- | -
|                                                 |  | 2003                   |       |                 | 2002   |   |        | 2001 |                 |  | 2000   |        |  | 1999            |      
|                                                 |  | Amount                 |       | Percentof Loans |        |   | Amount |      | Percentof Loans |  |        | Amount |  | Percentof Loans |       |  | Amount |   | Percentof Loans |   |       | Amount |        | Percentof Loans | 
|                                                 |  | (dollars in thousands) |      
|Nonperforming assets:                            |  |                        |       |                 |        |   |        |      |                 |  |        |        |  |                 |       |  |        |   |                 |   |       |        |        |                 |  |   |       |  |          |  
|Nonaccrual loans                                 |  | $                      | 6,135 |                 | .21    | % |        | $    | 5,204           |  | .22    | %      |  | $               | 5,138 |  | .23    | % |                 | $ | 5,288 |        | .25    | %               |  | $ | 3,017 |  | .16      | %
|Restructured loans                               |  |                        |      |                 |       |   |        |      |                |  |       |        |  |                 |      |  |       |   |                 |   |      |        |       |                 |  |   |      |  |         |  
|                                                 |  |                        |       |                 |        |   |        |      |                 |  |        |        |  |                 |       |  |        |   |                 |   |       |        |        |                 |  |   |       |  |          |  
|Total nonperforming loans                        |  |                        | 6,135 |                 | .21    |   |        |      | 5,204           |  | .22    |        |  |                 | 5,138 |  | .23    |   |                 |   | 5,288 |        | .25    |                 |  |   | 3,017 |  | .16      |  
|Other real estate owned                          |  |                        | 3,787 |                 | .13    |   |        |      | 1,019           |  | .04    |        |  |                 | 720   |  | .03    |   |                 |   | 223   |        | .01    |                 |  |   | 151   |  | .01      |  
|                                                 |  |                        |       |                 |        |   |        |      |                 |  |        |        |  |                 |       |  |        |   |                 |   |       |        |        |                 |  |   |       |  |          |  
|Total nonperforming assets                       |  | $                      | 9,922 |                 | .34    |   |        | $    | 6,223           |  | .26    |        |  | $               | 5,858 |  | .26    |   |                 | $ | 5,511 |        | .26    |                 |  | $ | 3,168 |  | .17      |  
|                                                 |  |                        |       |                 |        |   |        |      |                 |  |        |        |  |                 |       |  |        |   |                 |   |       |        |        |                 |  |   |       |  |          |  
|Accruing loans 90 days past due                  |  | $                      | 6,526 |                 | .22    |   |        | $    | 5,965           |  | .25    |        |  | $               | 3,935 |  | .17    |   |                 | $ | 3,613 |        | .17    |                 |  | $ | 2,330 |  | .13      |  
|                                                 |  |                        |       |                 |        |   |        |      |                 |  |        |        |  |                 |       |  |        |   |                 |   |       |        |        |                 |  |   |       |  |          |  
|                                                 |  |                        |       |                 |        |   |        |      |                 | 
|Nonperforming assets by type:                    |  |                        |       |                 |        |   |        |      |                 |  |        |        |  |                 |       |  |        |   |                 |   |       |        |        |                 |  |   |       |  |          |  
|Commercial, financial and agricultural           |  | $                      | 1,271 |                 | .04    |   |        | $    | 1,410           |  | .06    |        |  | $               | 1,388 |  | .06    |   |                 | $ | 867   |        | .04    |                 |  | $ | 982   |  | .05      |  
|Consumer                                         |  |                        | 83    |                 |       |   |        |      | 13              |  |       |        |  |                 | 117   |  | .01    |   |                 |   | 45    |        |       |                 |  |   | 19    |  |         |  
|Real estate                                      |  |                        | 4,138 |                 | .14    |   |        |      | 3,601           |  | .15    |        |  |                 | 3,496 |  | .15    |   |                 |   | 4,349 |        | .21    |                 |  |   | 2,016 |  | .11      |  
|Other                                            |  |                        | 643   |                 | .02    |   |        |      | 180             |  | .01    |        |  |                 | 137   |  | .01    |   |                 |   | 27    |        |       |                 |  |   |      |  |         |  
|                                                 |  |                        |       |                 |        |   |        |      |                 |  |        |        |  |                 |       |  |        |   |                 |   |       |        |        |                 |  |   |       |  |          |  
|Total nonperforming loans                        |  |                        | 6,135 |                 | .21    |   |        |      | 5,204           |  | .22    |        |  |                 | 5,138 |  | .23    |   |                 |   | 5,288 |        | .25    |                 |  |   | 3,017 |  | .16      |  
|Other real estate owned                          |  |                        | 3,787 |                 | .13    |   |        |      | 1,019           |  | .04    |        |  |                 | 720   |  | .03    |   |                 |   | 223   |        | .01    |                 |  |   | 151   |  | .01      |  
|                                                 |  |                        |       |                 |        |   |        |      |                 |  |        |        |  |                 |       |  |        |   |                 |   |       |        |        |                 |  |   |       |  |          |  
|Total nonperforming assets                       |  | $                      | 9,922 |                 | .34    | % |        | $    | 6,223           |  | .26    | %      |  | $               | 5,858 |  | .26    | % |                 | $ | 5,511 |        | .26    | %               |  | $ | 3,168 |  | .17      | %
|                                                 |  |                        |       |                 |        |   |        |      |                 |  |        |        |  |                 |       |  |        |   |                 |   |       |        |        |                 |  |   |       |  |          |  
|                                                 |  |                        |       |                 |        |   |        |      |                 | 
|Asset quality ratios:                            |  |                        |       |                 |        |   |        |      |                 |  |        |        |  |                 |       |  |        |   |                 |   |       |        |        |                 |  |   |       |  |          |  
|Reserve to year-end loans                        |  |                        |       |                 | 1.74   | % |        |      |                 |  | 1.79   | %      |  |                 |       |  | 1.78   | % |                 |   |       |        | 1.78   | %               |  |   |       |  | 1.78     | %
|Net chargeoffs to average loans                  |  |                        |       |                 | .21    |   |        |      |                 |  | .33    |        |  |                 |       |  | .25    |   |                 |   |       |        | .21    |                 |  |   |       |  | .12      |  
|Allowance for loan losses to nonperforming loans |  |                        |       |                 | 835.66 |   |        |      |                 |  | 832.15 |        |  |                 |       |  | 783.55 |   |                 |   |       |        | 699.72 |                 |  |   |       |  | 1,092.87 |  



20



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Any loans classified by Bancorporation or regulatory examiners as loss, doubtful, substandard, or special
mention that have not been disclosed hereunder or under the Loans narrative discussions do not (1) represent or result from trends or uncertainties that management expects will materially impact future operating results, liquidity, or
capital resources, or (2) represent material credits as to which management is aware of any information that causes serious doubt as to the ability of such borrowers to comply with the loan repayment terms.



During 2003, Bancorporation experienced improvement in key credit quality
trends. Specifically, loans past due 90 days or more to total loans declined from .25% at the end of 2002 to .22% at the end of 2003. Nonperforming loans to total loans declined from .22% at the end of 2002 to .21% at the end of 2003. Finally,
Bancorporation experienced a decline in its net charge-off ratio from .33% for the year ended December 31, 2002 to .21% for the year ended December 31, 2003. The gross charge-off ratio declined from .40% for the year ended December 31, 2002 to .30%
for the year ended December 31, 2003.



Interest income related
to nonaccrual and restructured loans that would have been recognized if such loans were current in accordance with their original contractual terms did not differ materially from the amounts actually recognized.



Based upon an ongoing assessment of risk elements in the portfolio and
factors affecting credit quality, it is managements opinion that there are currently no significant unidentified potential credit problems.



Continued improvement and maintenance of current credit quality is largely dependent on the South Carolina economy. A significant downturn in South
Carolina could have a material adverse impact on Bancorporations credit quality, given that 92.84% of Bancorporations loans are made to South Carolina consumers and businesses. Currently, the employment picture in South Carolina is
characterized by job losses in manufacturing coupled with job growth in service sectors including health care, educational services, and leisure and hospitality. The forecast for 2004 calls for modest job growth of about 1 percent, with strength
coming from the service sector, and a stabilization of job losses in the manufacturing sector due to recent signs of strength in nationwide manufacturing activity. The states unemployment rate increased from 5.9% to 6.4% from September 2002 to
September 2003. Since September 2003, the rate of job losses has slowed.



While the economic forecast and recent trends suggest a modestly improving economy in South Carolina, actual economic conditions could differ substantially. Bancorporation serves many rural communities throughout the
state of South Carolina dependent on manufacturing jobs. Further increases in the unemployment rate in these areas could adversely impact credit quality, especially given that unemployment rates in these communities are already high. Bancorporation
believes, however, that its allowance for loan losses at December 31, 2003 is adequate to absorb losses inherent in its portfolio related to a potential economic downturn or other factors affecting its credit quality.



GOODWILL AND OTHER INTANGIBLE ASSETS (Dollars in thousands)



As of December 31, 2003, goodwill totaled $24,525, representing a $20,046
net increase related to acquisitions during 2003 from $4,479 as of December 31, 2002. Other intangible assets consist of core deposit intangibles and mortgage servicing rights. As of December 31, 2003, other intangibles totaled $45,876, representing
a $4,877 net increase from $40,999 as of December 31, 2002. This increase was due to acquisitions during 2003 which resulted in additional core deposit intangible of $12,061 partially offset by the runoff of core deposit intangibles on former branch
acquisitions. In addition, mortgage servicing rights increased by $1,093 or 20.37% due to the increased mortgage activity in 2003. For the year ended December 31, 2003, amortization expense related to core deposit intangibles increased by $163, or
2.00%. The amortization expense related to mortgage servicing rights, included as a reduction of mortgage income in the Consolidated Statements of Income, decreased by $1,037 or 37.06%. The primary reason for the overall decrease was due to $1,716
of impairment charges taken during 2002 compared to a $62 net recapture of impairment in 2003. This decrease was partially offset by an increase in amortization of $741 due to an increase in the overall amount of mortgage servicing rights.



FUNDING SOURCES (Dollars in thousands)



Bancorporations primary source of funds is its deposit base. Average
deposits increased 13.19% to $3,531,988 as of December 31, 2003, from $3,120,497 as of December 31, 2002. The increase in average deposits was due to three factors:



21



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(1) internal deposit growth, (2) the acquisition of First Banks effective April 1, 2003 where total deposits of $207,850 were acquired and (3) the
acquisition of branches from unrelated financial institutions where total deposits of $75,368 were acquired. Total deposits increased to $3,714,222 as of December 31, 2003 or by 13.38%, from $3,276,008 as of December 31, 2002.



Core deposits finance loan and investment activities. Core deposits are
defined as demand deposits, savings, NOW, money market accounts and certificates of deposit under $100 thousand. As of December 31, 2003, $3,409,602 or 91.80% of total deposits were considered core deposits. As of December 31, 2002, $3,016,049 or
92.06% of total deposits were considered core deposits.



Purchased funds, which consist of time deposits over $100 thousand and short-term borrowings, are another source of funds. As of December 31, 2003, time deposits over $100 thousand increased $44,661 or by 17.18% to $304,620 compared to
$259,959 as of December 31, 2002. Short-term borrowings, which consist of securities sold under agreements to repurchase, averaged $155,335 in 2003 compared to $191,527 in 2002, a decrease of 18.90%. Bancorporation purchased no federal funds in
2002. During 2003, federal funds purchased were insignificant.



On March 24, 1998, Bancorporation, through FCB/SC Capital Trust I issued $50,000 of 8.25% capital securities due on March 15, 2028. The balance of the securities can be prepaid, subject to possible regulatory approval, in whole or part at
any time on or after March 15, 2008. The capital securities qualify for inclusion in Tier I capital for regulatory capital adequacy purposes.



On April 1, 2003, First Citizens issued subordinated debt of $20,218 with maturities ranging from April 1, 2008 to April 1, 2013 related to the
acquisition of First Banks included in Long-term borrowings in the table below. This subordinated debt qualifies for inclusion in Tier 2 capital for regulatory capital adequacy purposes. See Note 12 Long-Term Debt in the
Notes to the Consolidated Financial Statements for additional information.



Tables 12-15 provide additional information regarding major funding sources.



Table 12

SOURCES AND USES OF FUNDS

|                              |  |                        |           |         |        |   |                |   |           |  |        |  
|----------------------------- |  | ---------------------- | --------- | ------- | ------ | - | -------------- | - | --------- |  | ------ | -
|                              |  | December 31,           |          
|                              |  | 2003                   |           |         | 2002   |  
|                              |  | AverageBalance         |           | Percent |        |   | AverageBalance |   | Percent   | 
|                              |  | (dollars in thousands) |          
|Composition of sources:       |  |                        |           |         |        |   |                |   |           |  |        |  
|Demand deposits               |  | $                      | 632,764   |         | 15.42  | % |                | $ | 540,516   |  | 14.68  | %
|NOW accounts                  |  |                        | 1,179,866 |         | 28.75  |   |                |   | 1,004,088 |  | 27.28  |  
|Money market accounts         |  |                        | 335,874   |         | 8.19   |   |                |   | 327,778   |  | 8.90   |  
|Time deposits                 |  |                        | 1,361,146 |         | 33.17  |   |                |   | 1,234,787 |  | 33.55  |  
|Savings                       |  |                        | 22,338    |         | .54    |   |                |   | 13,328    |  | .36    |  
|Short-term borrowings         |  |                        | 155,335   |         | 3.79   |   |                |   | 191,527   |  | 5.20   |  
|Long-term borrowings          |  |                        | 17,616    |         | .43    |   |                |   | 1,368     |  | .04    |  
|Trust preferred               |  |                        | 50,000    |         | 1.22   |   |                |   | 50,000    |  | 1.36   |  
|Other liabilities             |  |                        | 26,445    |         | .64    |   |                |   | 27,769    |  | .75    |  
|Stockholders equity          |  |                        | 321,971   |         | 7.85   |   |                |   | 289,958   |  | 7.88   |  
|                              |  |                        |           |         |        |   |                |   |           |  |        |  
|Total sources                 |  | $                      | 4,103,355 |         | 100.00 | % |                | $ | 3,681,119 |  | 100.00 | %
|                              |  |                        |           |         |        |   |                |   |           |  |        |  
|Composition of uses:          |  |                        |           |         |        |   |                |   |           |  |        |  
|Loans                         |  | $                      | 2,683,789 |         | 65.40  | % |                | $ | 2,307,716 |  | 62.69  | %
|Investment securities         |  |                        | 922,347   |         | 22.48  |   |                |   | 927,944   |  | 25.21  |  
|Other earning assets          |  |                        | 157,548   |         | 3.84   |   |                |   | 145,353   |  | 3.95   |  
|                              |  |                        |           |         |        |   |                |   |           |  |        |  
|Total interest-earning assets |  |                        | 3,763,684 |         | 91.72  |   |                |   | 3,381,013 |  | 91.85  |  
|Noninterest-earning assets    |  |                        | 339,671   |         | 8.28   |   |                |   | 300,106   |  | 8.15   |  
|                              |  |                        |           |         |        |   |                |   |           |  |        |  
|Total uses                    |  | $                      | 4,103,355 |         | 100.00 | % |                | $ | 3,681,119 |  | 100.00 | %
|                              |  |                        |           |         |        |   |                |   |           |  |        |  



22



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Table 13

TIME
DEPOSITS OF $100 THOUSAND AND OVER



|                                |  |                        |         |   |      |   |         |      |  |   |         |  
|------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                |  | December 31,           |        
|                                |  | 2003                   |         |   | 2002 |   |         | 2001 | 
|                                |  | (dollars in thousands) |        
|3 months or less                |  | $                      | 87,698  |   |      | $ | 75,987  |      |  | $ | 95,279  |  
|Over 3 months through 6 months  |  |                        | 50,987  |   |      |   | 48,302  |      |  |   | 42,658  |  
|Over 6 months through 12 months |  |                        | 104,191 |   |      |   | 89,179  |      |  |   | 69,951  |  
|Over 12 months                  |  |                        | 61,744  |   |      |   | 46,491  |      |  |   | 24,798  |  
|                                |  |                        |         |   |      |   |         |      |  |   |         |  
|Total                           |  | $                      | 304,620 |   |      | $ | 259,959 |      |  | $ | 232,686 |  
|                                |  |                        |         |   |      |   |         |      |  |   |         |  
|Percent of total deposits       |  |                        | 8.20    | % |      |   | 7.94    | %    |  |   | 7.72    | %



Table 14

DEPOSIT ANALYSIS



|                                        |  |                                           |           |             |      |   |                |      |             |  |      |                |  |             |           |  |      |  
|--------------------------------------- |  | ----------------------------------------- | --------- | ----------- | ---- | - | -------------- | ---- | ----------- |  | ---- | -------------- |  | ----------- | --------- |  | ---- | -
|                                        |  | As of and for the year ended December 31, |          
|                                        |  | 2003                                      |           |             | 2002 |   |                | 2001 |            
|                                        |  | AverageBalance                            |           | AverageRate |      |   | AverageBalance |      | AverageRate |  |      | AverageBalance |  | AverageRate |          
|                                        |  | (dollars in thousands)                    |          
|Demand deposits                         |  | $                                         | 632,764   |             |     |   |                | $    | 540,516     |  |     |                |  | $           | 477,592   |  |     |  
|NOW accounts                            |  |                                           | 1,179,866 |             | 0.64 | % |                |      | 1,004,088   |  | 0.94 | %              |  |             | 867,140   |  | 1.91 | %
|Market rate savings                     |  |                                           | 335,874   |             | 0.57 |   |                |      | 327,778     |  | 0.99 |                |  |             | 307,516   |  | 2.24 |  
|Regular and premium savings             |  |                                           | 22,338    |             | 0.48 |   |                |      | 13,328      |  | 0.70 |                |  |             | 12,791    |  | 1.74 |  
|Time deposits of $100 thousand and over |  |                                           | 301,303   |             | 2.48 |   |                |      | 241,037     |  | 3.49 |                |  |             | 224,385   |  | 4.09 |  
|Other time deposits                     |  |                                           | 1,059,843 |             | 2.36 |   |                |      | 993,750     |  | 3.37 |                |  |             | 986,552   |  | 5.61 |  
|                                        |  |                                           |           |             |      |   |                |      |             |  |      |                |  |             |           |  |      |  
|Total                                   |  | $                                         | 3,531,988 |             | 1.45 | % |                | $    | 3,120,497   |  | 2.12 | %              |  | $           | 2,875,976 |  | 3.68 | %
|                                        |  |                                           |           |             |      |   |                |      |             |  |      |                |  |             |           |  |      |  



23



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Table 15

FEDERAL
FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE ANALYSIS



|                                               |  |                        |         |             |      |     |        |      |             |  |      |        |  |             |         |  |      |    
|---------------------------------------------- |  | ---------------------- | ------- | ----------- | ---- | --- | ------ | ---- | ----------- |  | ---- | ------ |  | ----------- | ------- |  | ---- | ---
|                                               |  | 2003                   |         |             | 2002 |     |        | 2001 |            
|                                               |  | Amount                 |         | AverageRate |      |     | Amount |      | AverageRate |  |      | Amount |  | AverageRate |        
|                                               |  | (dollars in thousands) |        
|At year-end*:                                  |  |                        |         |             |      |     |        |      |             |  |      |        |  |             |         |  |      |    
|Securities sold under agreements to repurchase |  | $                      | 148,864 |             | 0.64 | %** |        | $    | 130,360     |  | 0.94 | %**    |  | $           | 214,023 |  | 1.47 | %**
|                                               |  |                        |         |             |      |     |        |      |             |  |      |        |  |             |         |  |      |    
|Average for the year:                          |  |                        |         |             |      |     |        |      |             |  |      |        |  |             |         |  |      |    
|Federal funds purchased                        |  | $                      | 74      |             | 1.13 |     |        | $    |            |  | NA   |        |  | $           |        |  | NA   |    
|Securities sold under agreements to repurchase |  |                        | 155,335 |             | 0.89 |     |        |      | 191,527     |  | 1.51 |        |  |             | 245,690 |  | 3.48 |    
|                                               |  |                        |         |             |      |     |        |      |             |  |      |        |  |             |         |  |      |    
|Total                                          |  | $                      | 155,409 |             | 0.89 |     |        | $    | 191,527     |  | 1.51 |        |  | $           | 245,690 |  | 3.48 |    
|                                               |  |                        |         |             |      |     |        |      |             |  |      |        |  |             |         |  |      |    
|Maximum month-end balance:                     |  |                        |         |             |      |     |        |      |             |  |      |        |  |             |         |  |      |    
|Federal funds purchased                        |  | $                      |        |             |      |     |        | $    |            |  |      |        |  | $           |        |  |      |    
|Securities sold under agreements to repurchase |  |                        | 166,284 |             |      |     |        |      | 207,370     |  |      |        |  |             | 494,733 |  |      |    

---

|* |  | There were no federal funds purchased at year-end for the reported years.
|- |  | -------------------------------------------------------------------------

|** |  | Represents the actual offering rate for securities sold under agreements to repurchase as of December 31.
|-- |  | ---------------------------------------------------------------------------------------------------------



LIQUIDITY (Dollars in thousands)



Liquidity involves the ability to meet cash flow requirements which arise primarily from withdrawal of deposits, extensions of credit, payment of
operating expenses and repayment of purchased funds. Funds are provided primarily through earnings from operations, expansion of the deposit base, the maturity of investment assets and repayment of loans.



Bancorporation has historically maintained strong liquidity through increases
in core deposits and management of investment maturities. Bancorporations strategy is to maintain relatively short maturities for its loans and investment portfolio to provide an on-going source of liquidity to fund asset growth. Additionally,
Bancorporation maintains alternative sources of liquidity in the form of federal funds purchase lines totaling $180,000, a borrower in custody program at the Federal Reserve totaling $304,000, and an unsecured line of credit at the holding company
totaling $15,000. Bancorporation increased the line of credit to $25,000 in 2004. During 2003, Bancorporation has not had to utilize these funding sources in any significant amounts. The weighted average maturity of U.S. Government obligations,
which make up 92.12% of the investment portfolio as of December 31, 2003, was 16.0 months as compared to 12.5 months at December 31, 2002. Investment securities with an amortized cost of $754,277 and $670,741 at December 31, 2003 and 2002,
respectively, were pledged to secure public deposits as collateral for securities sold under agreements to repurchase, and for other purposes as required by law.



CONTRACTUAL COMMITMENTS AND OFF-BALANCE SHEET LENDING RELATED COMMITMENTS (Dollars in thousands)



In the normal course of business, Bancorporation enters into certain
contractual obligations. Such obligations include obligations to make future payments on debt and lease arrangements. Table 16 summarizes Bancorporations contractual obligations at December 31, 2003, except for obligations associated with our
pension benefit plan, included in Note 14 Employee Benefits in the Notes to the Consolidated Financial Statements.



24



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Table 16

CONTRACTUAL COMMITMENTS



|                                   |  |                        |     |          |   |          |  |              |        |       |   |        |  |   |       
|---------------------------------- |  | ---------------------- | --- | -------- | - | -------- |  | ------------ | ------ | ----- | - | ------ |  | - | ------
|                                   |  | December 31, 2003     
|                                   |  | 1 yearor less          |     | 1-3years |   | 3-5years |  | After 5years |        | Total
|                                   |  | (dollars in thousands)
|Long-term debt                     |  | $                      | 90  |          | $ |         |  | $            | 12,446 |       | $ | 61,368 |  | $ | 73,904
|Operating leases                   |  |                        | 637 |          |   | 779      |  |              | 401    |       |   | 240    |  |   | 2,057 
|                                   |  |                        |     |          |   |          |  |              |        |       |   |        |  |   |       
|Total contractual cash obligations |  | $                      | 727 |          | $ | 779      |  | $            | 12,847 |       | $ | 61,608 |  | $ | 75,961
|                                   |  |                        |     |          |   |          |  |              |        |       |   |        |  |   |       



Bancorporations
off-balance sheet lending related commitments are presented in the table below. Not all of these commitments will be drawn upon, thus the actual cash requirements are likely to be significantly less than the amounts reported in the accompanying
table.



Table 17

OFF-BALANCE SHEET LENDING RELATED COMMITMENTS



|                                           |  |                        |        
|------------------------------------------ |  | ---------------------- | -------
|                                           |  | At December 31, 2003  
|                                           |  | (dollars in thousands)
|Unfunded commitments to lend               |  |                        |        
|Home equity lines                          |  | $                      | 418,976
|Credit card                                |  |                        | 131,240
|Commercial real estate                     |  |                        | 58,640 
|Mortgage loans                             |  |                        | 10,629 
|Commercial                                 |  |                        | 100,086
|                                           |  |                        |        
|Total unfunded commitments to lend         |  | $                      | 719,571
|                                           |  |                        |        
|                                           | 
|Letters of credit and financial guarantees |  | $                      | 6,154  
|                                           |  |                        |        



CAPITAL RESOURCES (Dollars in
thousands)



The Federal Reserve Board and the Federal
Deposit Insurance Corporation have issued risk-based capital guidelines for United States banking corporations. The objective of these guidelines is to provide a uniform capital measurement that is more sensitive to variations in risk profiles of
banking corporations.



Regulatory agencies define capital as
Tier I, consisting of stockholders equity less ineligible intangible assets, and Tier II, consisting of Tier I capital plus the allowable portion of the allowance for loan losses and certain long-term debt. Capital adequacy is measured by
comparing both capital levels to Bancorporations risk-adjusted assets and off-balance sheet items. Regulatory requirements presently specify that Tier I capital should exclude the market appreciation or depreciation of securities
available-for-sale arising from valuation adjustments. In addition to these capital ratios, regulatory agencies have established a Tier I leverage ratio which measures Tier I capital to average assets less ineligible intangible assets.



Regulatory guidelines require a minimum of total capital to risk-adjusted
assets ratio of 8 percent with at least 50 percent consisting of tangible common stockholders equity and a minimum Tier I leverage ratio of 3 percent. Banks which meet or exceed a Tier I ratio of 6 percent, a total capital ratio of 10 percent
and a Tier I leverage ratio of 5 percent are considered well-capitalized by regulatory standards.



Bancorporation maintains a strong level of capital as a margin of safety for its depositors and stockholders, as well as to provide for future growth.



25



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The Board of Directors each year authorizes management to repurchase outstanding shares of its capital
stock. Purchases are subject to various conditions, including price and volume limitations (including, in the case of repurchases of Bancorporations voting common stock, an annual limit of up to 5% of outstanding shares), and compliance with
applicable South Carolina law. Pursuant to similar authority during 2003 and 2002, Bancorporation repurchased an aggregate of 5,765 and 14,705 shares, respectively, of its outstanding voting common stock, for an aggregate price of $2,339 and $5,194,
respectively. With respect to other classes of Bancorporations capital stock, repurchases during 2003 and 2002 totaled 1,242 shares and 670 shares, respectively, for an aggregate price of $41 and $29, respectively. Bancorporation repurchased
an aggregate of 415 and 1,079 shares, respectively, of its outstanding voting common stock, for an aggregate price of $193 and $404, respectively, during the quarter ended December 31, 2003 and 2002. With respect to other classes of
Bancorporations capital stock, there were no repurchases during the quarter ended December 31, 2003 and 2002. Repurchases of shares during both periods had an insignificant impact on Bancorporations capital.



Bancorporations Tier 1 capital ratio at December 31, 2003 was 10.32%
compared to 11.76% at December 31, 2002. The total risk-based capital ratio was 12.18% at December 31, 2003 compared to 13.01% at December 31, 2002. The decline in these ratios were primarily due to acquisitions in 2003. Both of these measures
exceed the regulatory minimums of 4.00% for Tier 1 and 8.00% for total risk-based capital. Based on the guidelines above, Bancorporation is well-capitalized. Refer to Note 18 Capital Matters in the Notes to the Consolidated
Financial Statements for further analysis of risk-based requirements.



Table 18

CAPITAL ADEQUACY

|                                  |  |                                               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------- |  | --------------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                  |  | December 31,                                  |        
|                                  |  | 2003                                          |         |   | 2002 |   |         | 2001 |  |   | 2000    |   |  | 1999 |        
|                                  |  | (dollars in thousands, except per share data) |        
|Stockholders equity:             |  |                                               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Year-end                          |  | $                                             | 339,583 |   |      | $ | 303,584 |      |  | $ | 270,915 |   |  | $    | 233,693 |   |  | $ | 200,073 |  
|Average                           |  |                                               | 321,971 |   |      |   | 289,958 |      |  |   | 255,836 |   |  |      | 213,105 |   |  |   | 187,744 |  
|Book value per common share       |  |                                               | 371.60  |   |      |   | 329.67  |      |  |   | 289.12  |   |  |      | 246.17  |   |  |   | 208.77  |  
|Average stockholders equity to:  |  |                                               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Average assets                    |  |                                               | 7.85    | % |      |   | 7.88    | %    |  |   | 7.39    | % |  |      | 7.28    | % |  |   | 7.21    | %
|Average deposits                  |  |                                               | 9.12    |   |      |   | 9.29    |      |  |   | 8.90    |   |  |      | 9.23    |   |  |   | 8.95    |  
|Average loans                     |  |                                               | 12.00   |   |      |   | 12.56   |      |  |   | 11.84   |   |  |      | 10.87   |   |  |   | 11.11   |  
|Risk-based capital ratios:        |  |                                               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Tier 1 capital ratio              |  |                                               | 10.32   | % |      |   | 11.76   | %    |  |   | 11.33   | % |  |      | 10.53   | % |  |   | 12.47   | %
|Total risk-based capital ratio    |  |                                               | 12.18   |   |      |   | 13.01   |      |  |   | 12.59   |   |  |      | 12.09   |   |  |   | 13.79   |  
|Tier 1 leverage ratio             |  |                                               | 7.29    |   |      |   | 7.91    |      |  |   | 7.34    |   |  |      | 7.46    |   |  |   | 8.49    |  
|Internal capital generation:      |  |                                               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Return on average equity          |  |                                               | 12.39   | % |      |   | 13.47   | %    |  |   | 13.24   | % |  |      | 12.95   | % |  |   | 13.13   | %
|Earnings retention rate           |  |                                               | 97.05   |   |      |   | 97.35   |      |  |   | 96.95   |   |  |      | 97.03   |   |  |   | 99.31   |  
|Dividend payout ratio             |  |                                               | 2.95    |   |      |   | 2.65    |      |  |   | 3.05    |   |  |      | 2.97    |   |  |   | .69     |  
|Internal capital generation rate* |  |                                               | 12.02   |   |      |   | 13.11   |      |  |   | 12.84   |   |  |      | 12.57   |   |  |   | 13.03   |  



---

|* |  | Return on Average Equity x Earnings Retention Rate
|- |  | --------------------------------------------------



ASSET/LIABILITY MANAGEMENT



The role of Bancorporations Asset/Liability Management Committee (ALCO) is to monitor Bancorporations liquidity position and
exposure to interest rate risk. Asset/liability management is the process by which Bancorporation monitors and attempts to control the mix and maturities of its assets and liabilities. The functions of asset/liability management are to ensure
adequate liquidity and to maintain an appropriate balance between interest-sensitive assets and liabilities.



26



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INTEREST RATE RISK (Dollars in thousands)



Management of interest rate risk involves maintaining an appropriate balance between interest-sensitive assets and
interest-sensitive liabilities (interest rate sensitivity gap) and reducing Bancorporations risk of major changes in net interest income in periods of rapidly changing interest rates. A negative gap (interest-sensitive liabilities greater than
interest-sensitive assets) in periods when interest rates are declining will tend to increase net interest income. Conversely, a negative gap in periods when interest rates are rising will tend to reduce net interest income. The net cumulative gap
position reflects Bancorporations sensitivity to interest rate changes over time. This calculation is a static measure and is not a prediction of net interest income. Gap analysis is the simplest representation of Bancorporations
interest rate sensitivity. It does not reveal the impact of factors such as administered rates (e.g., the prime lending rate), earning asset and interest-bearing liability growth, timing differences between repricing of earning assets and interest
bearing liabilities, pricing strategies on its consumer and business deposits, and changes in the balance sheet mix.



The objective of the asset/liability management process is to manage and control the sensitivity of Bancorporations income to changes in market
interest rates. This process is under the direction of the ALCO, comprised of senior bank executives. The ALCO seeks to maximize earnings while ensuring that the risks to those earnings from adverse movements in interest rates are kept within
specified limits deemed acceptable by Bancorporation. Accordingly, the ALCO conducts comprehensive simulations of net interest income under a variety of market interest rate scenarios. These simulations provide the ALCO with an estimate of earnings
at risk given changes in interest rates. While the ALCO sees the opportunities and benefits of utilizing derivative financial instruments such as interest rate swaps and caps and floors to improve net interest income, the ALCO has elected not to use
such instruments given their risk.



As indicated in Table 19,
the twelve-month cumulative gap, representing the total net assets and liabilities that are projected to reprice over the next twelve months, was asset sensitive in the amount of $243 million at December 31, 2003. This positive position remained
within the acceptable parameters of plus or minus 20% at 360 days, as listed in Bancorporations Statement of Funds Policy. This Statement is guided by asset quality, liquidity and earnings, and describes Bancorporations policy with
respect to sources and uses of funds, dividends and limitations on interbank liabilities. The responsibility for funds management resides with the Chief Financial Officer with overall guidance provided by the Chairman and Chief Executive Officer.
Management continues to seek ways to balance the gap position and reduce exposure to interest rate fluctuations.



Projected run-off of deposits that do not have a contractual maturity date are computed based on decay rate assumptions developed by bank regulators to
assist banks in addressing FDICIA Rule 305. We anticipate portions of our interest-bearing deposits will not respond to interest rate increases as quickly as earning assets. As a result, we believe that a gradual increase in interest rates would
likely have a favorable effect on net interest income. However, we believe further declines in interest rates would cause net interest income to decline due to an inability to adjust certain deposits rates.



27



---

Table 19

INTEREST
RATE-SENSITIVITY ANALYSIS



|                                                |  |                         |           |   |                    |   |          |                     |  |   |                     |    |  |                              |           |   |       |   |           |   |  |   |          
|----------------------------------------------- |  | ----------------------- | --------- | - | ------------------ | - | -------- | ------------------- |  | - | ------------------- | -- |  | ---------------------------- | --------- | - | ----- | - | --------- | - |  | - | ---------
|                                                |  | As of December 31, 2003
|                                                |  | 0-3 MonthsSensitive     |           |   | 4-6MonthsSensitive |   |          | 7-12MonthsSensitive |  |   | TotalWithin OneYear |    |  | Over OneYear orNon-Sensitive |           |   | Total
|                                                |  | (dollars in thousands) 
|Interest-earning assets:                        |  |                         |           |   |                    |   |          |                     |  |   |                     |    |  |                              |           |   |       |   |           |   |  |   |          
|Loans                                           |  | $                       | 1,119,700 |   |                    | $ | 116,560  |                     |  | $ | 189,503             |    |  | $                            | 1,425,763 |   |       | $ | 1,514,226 |   |  | $ | 2,939,989
|Federal funds sold                              |  |                         | 41,379    |   |                    |   |         |                     |  |   |                    |    |  |                              | 41,379    |   |       |   |          |   |  |   | 41,379   
|Investment securities                           |  |                         | 116,254   |   |                    |   | 140,728  |                     |  |   | 248,349             |    |  |                              | 505,331   |   |       |   | 416,898   |   |  |   | 922,229  
|                                                |  |                         |           |   |                    |   |          |                     |  |   |                     |    |  |                              |           |   |       |   |           |   |  |   |          
|Total interest-earning assets                   |  | $                       | 1,277,333 |   |                    | $ | 257,288  |                     |  | $ | 437,852             |    |  | $                            | 1,972,473 |   |       | $ | 1,931,124 |   |  | $ | 3,903,597
|                                                |  |                         |           |   |                    |   |          |                     |  |   |                     |    |  |                              |           |   |       |   |           |   |  |   |          
|Interest-bearing liabilities:                   |  |                         |           |   |                    |   |          |                     |  |   |                     |    |  |                              |           |   |       |   |           |   |  |   |          
|Savings and core time deposits                  |  | $                       | 355,271   |   |                    | $ | 311,531  |                     |  | $ | 671,326             |    |  | $                            | 1,338,128 |   |       | $ | 1,420,142 |   |  | $ | 2,758,270
|Time deposits of $100 thousand and over         |  |                         | 87,698    |   |                    |   | 50,987   |                     |  |   | 104,191             |    |  |                              | 242,876   |   |       |   | 61,744    |   |  |   | 304,620  
|Short-term borrowings                           |  |                         | 148,864   |   |                    |   |         |                     |  |   |                    |    |  |                              | 148,864   |   |       |   |          |   |  |   | 148,864  
|Long-term debt                                  |  |                         |          |   |                    |   |         |                     |  |   |                    |    |  |                              |          |   |       |   | 73,814    |   |  |   | 73,814   
|                                                |  |                         |           |   |                    |   |          |                     |  |   |                     |    |  |                              |           |   |       |   |           |   |  |   |          
|Total interest-bearing liabilities              |  | $                       | 591,833   |   |                    | $ | 362,518  |                     |  | $ | 775,517             |    |  | $                            | 1,729,868 |   |       | $ | 1,555,700 |   |  | $ | 3,285,568
|                                                |  |                         |           |   |                    |   |          |                     |  |   |                     |    |  |                              |           |   |       |   |           |   |  |   |          
|Interest-sensitivity gap (for the period)       |  |                         | 685,500   |   |                    |   | (105,230 | )                   |  |   | (337,665            | )  |  |                              | 242,605   |   |       |   | 375,424   |   |  |   |         
|                                                |  |                         |           |   |                    |   |          |                     |  |   |                     |    |  |                              |           |   |       |   |           |   |  |   |          
|% of total interest-earning assets (period)     |  |                         | 17.56     | % |                    |   | (2.70    | )%                  |  |   | (8.65               | )% |  |                              | 6.21      | % |       |   | 9.62      | % |  |   |          
|Cumulative interest-sensitive gap               |  | $                       | 685,500   |   |                    | $ | 580,270  |                     |  | $ | 242,605             |    |  |                              |          |   |       |   |          |   |  |   |         
|                                                |  |                         |           |   |                    |   |          |                     |  |   |                     |    |  |                              |           |   |       |   |           |   |  |   |          
|% of total interest-earning assets (cumulative) |  |                         | 17.56     | % |                    |   | 14.87    | %                   |  |   | 6.21                | %  |  |                              |           |   |       |   |           |   |  |   |          
|                                                |  |                         |           |   |                    |   |          |                     |  |   |                     |    |  |                              |           |   |       |   |           |   |  |   |          



Bancorporation
believes that a gradual increase in interest rates would likely have a favorable effect on forecasted net interest income. Based on our simulation model, we believe that a gradual 100 basis point increase in interest rates over the next twelve
months (25 basis points per quarter) would increase forecasted net interest income by .30%. Conversely, a gradual 100 basis point decline in interest rates would decrease net interest income by 2.32%. To calculate these percentages, we made several
key assumptions. Material assumptions include that portions of our interest-bearing deposits will not respond to interest rate increases as quickly as earning assets and that current non-maturity deposit rates have reached floors. We believe that
these percentages represent a more likely scenario than instantaneous and parallel shifts in the yield curve. More rapid changes in interest rates could cause actual results to differ materially.



MARKET RATE RISK



In January 1997, the Securities and Exchange Commission adopted new rules that require more comprehensive disclosures of
accounting policies for derivatives as well as enhanced quantitative and qualitative disclosures of market risk. The market risk disclosures must be presented for most financial instruments, which must be classified into two portfolios: financial
instruments entered into for trading purposes and all other financial instruments (non-trading purposes). Bancorporations financial instruments are held for non-trading purposes.



28



---

Table 20 summarizes the expected maturities and weighted average effective yields and interest rates
associated with Bancorporations financial instruments. Cash and cash equivalents, federal funds sold, federal funds purchased and securities sold under agreements to repurchase are excluded from Table 18 as their respective carrying values
approximate their fair values. These financial instruments generally expose Bancorporation to insignificant market risk as they have either no stated maturities or an average maturity of less than 30 days and carry interest rates that approximate
market rates. Refer to Note 17 Disclosure of Fair Value of Financial Instruments in the Notes to the Consolidated Financial Statements for further information on the fair value of financial instruments.



Table 20

MARKET RISK DISCLOSURE



|                                       |  |                        |           |   |                                 |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |         |   |  |   |           |   |  |   |          
|-------------------------------------- |  | ---------------------- | --------- | - | ------------------------------- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - | ---------- | - | ------- | ----- |  | - | ------- | - |  | - | --------- | - |  | - | ---------
|                                       |  | Expected Maturities    |           |   | EstimatedFair ValueYear-end2003
|                                       |  | 2004                   |           |   | 2005                            |   |         | 2006 |  |   | 2007    |   |  | 2008 |         |   | Thereafter |   |         | Total |  |  
|                                       |  | (dollars in thousands)
|Financial Assets:                      |  |                        |           |   |                                 |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |         |   |  |   |           |   |  |   |          
|Loans                                  |  |                        |           |   |                                 |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |         |   |  |   |           |   |  |   |          
|Fixed Rate:                            |  |                        |           |   |                                 |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |         |   |  |   |           |   |  |   |          
|Book value                             |  | $                      | 521,909   |   |                                 | $ | 315,237 |      |  | $ | 333,315 |   |  | $    | 263,752 |   |            | $ | 87,529  |       |  | $ | 469,725 |   |  | $ | 1,991,467 |   |  | $ | 1,996,337
|Weighted average effective yield       |  |                        | 6.53      | % |                                 |   | 6.40    | %    |  |   | 6.14    | % |  |      | 6.05    | % |            |   | 5.85    | %     |  |   | 5.74    | % |  |   | 6.16      | % |  |   |         
|Variable Rate:                         |  |                        |           |   |                                 |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |         |   |  |   |           |   |  |   |          
|Book value                             |  | $                      | 273,274   |   |                                 | $ | 150,022 |      |  | $ | 120,955 |   |  | $    | 107,196 |   |            | $ | 54,614  |       |  | $ | 242,461 |   |  | $ | 948,522   |   |  | $ | 948,522  
|Weighted average effective yield       |  |                        | 4.68      | % |                                 |   | 4.06    | %    |  |   | 4.15    | % |  |      | 4.12    | % |            |   | 4.09    | %     |  |   | 4.13    | % |  |   | 4.27      | % |  |   |         
|Securities held-to-maturity:           |  |                        |           |   |                                 |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |         |   |  |   |           |   |  |   |          
|Book value                             |  | $                      | 5,200     |   |                                 | $ | 7,623   |      |  | $ | 1,897   |   |  | $    | 1,936   |   |            | $ | 1,474   |       |  | $ | 1,636   |   |  | $ | 19,766    |   |  | $ | 20,064   
|Weighted average effective yield       |  |                        | 3.77      | % |                                 |   | 2.58    | %    |  |   | 4.85    | % |  |      | 4.31    | % |            |   | 3.73    | %     |  |   | 11.27   | % |  |   | 4.09      | % |  |   |         
|Securities available-for-sale:         |  |                        |           |   |                                 |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |         |   |  |   |           |   |  |   |          
|Book value                             |  | $                      | 392,689   |   |                                 | $ | 317,810 |      |  | $ | 101,007 |   |  | $    | 1,497   |   |            | $ | 43,067  |       |  | $ | 46,393  |   |  | $ | 902,463   |   |  | $ | 902,463  
|Weighted average effective yield       |  |                        | 3.00      | % |                                 |   | 2.33    | %    |  |   | 2.78    | % |  |      | 2.95    | % |            |   | 3.46    | %     |  |   | 3.61    | % |  |   | 2.77      | % |  |   |         
|Financial Liabilities:                 |  |                        |           |   |                                 |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |         |   |  |   |           |   |  |   |          
|Savings and interest-bearing checking: |  |                        |           |   |                                 |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |         |   |  |   |           |   |  |   |          
|Book value                             |  | $                      | 496,650   |   |                                 | $ | 296,437 |      |  | $ | 296,437 |   |  | $    | 296,437 |   |            | $ | 296,437 |       |  | $ |        |   |  | $ | 1,682,398 |   |  | $ | 1,682,398
|Weighted average effective rate        |  |                        | 0.58      | % |                                 |   | 0.58    | %    |  |   | 0.58    | % |  |      | 0.58    | % |            |   | 0.58    | %     |  |   |        |   |  |   | 0.58      | % |  |   |         
|Time deposits:                         |  |                        |           |   |                                 |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |         |   |  |   |           |   |  |   |          
|Book value                             |  | $                      | 1,084,841 |   |                                 | $ | 216,207 |      |  | $ | 48,414  |   |  | $    | 24,175  |   |            | $ | 6,855   |       |  | $ |        |   |  | $ | 1,380,492 |   |  | $ | 1,380,789
|Weighted average effective rate        |  |                        | 1.87      | % |                                 |   | 2.40    | %    |  |   | 2.45    | % |  |      | 3.21    | % |            |   | 1.24    | %     |  |   |        |   |  |   | 1.99      | % |  |   |         
|Long-term debt:                        |  |                        |           |   |                                 |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |         |   |  |   |           |   |  |   |          
|Book value                             |  | $                      |          |   |                                 | $ |        |      |  | $ |        |   |  | $    |        |   |            | $ |        |       |  | $ | 73,814  |   |  | $ | 73,814    |   |  | $ | 74,619   
|Weighted average effective rate        |  |                        |          |   |                                 |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 8.04    | % |  |   | 8.04      | % |  |   |         



The savings and
interest-bearing checking category consists of demand deposits, NOW, savings accounts and money market accounts. Expected maturities of these deposits were based on the same decay rates as described in the Interest Rate Risk section
above. The weighted average effective rate is based on rates currently being offered on the deposits. These rates are subject to change depending on the overall movement of market interest rates.



The great majority of assets and liabilities of a financial institution are
monetary in nature. Management believes the most significant potential impact of inflationary or deflationary economic cycles on Bancorporations financial results is its ability to react to changes in interest rates. Interest rates do not,
however, necessarily move in the same direction, or at the same magnitude, as the prices of goods and services. As discussed above, Bancorporation employs asset/liability management strategies in its attempt to minimize the effects of economic
cycles on its net interest income.



Inflation and changing
prices also have an impact on the growth of total assets in the banking industry and the resulting need to increase capital at higher than normal rates in order to maintain an appropriate equity to assets ratio. Changing prices will also affect the
trend in noninterest operating expenses and noninterest income.



29



---

RECENT ACCOUNTING DEVELOPMENTS



Bancorporation adopted the provisions of several new accounting pronouncements in the current and prior year, including
Statement of Accounting Standards (SFAS) Nos. 143, 145, 146, 147, 148, 149, 150, 132 (revised 2003) and FASB Interpretation (FIN) Nos. 45 and 46. The provisions of these pronouncements and the related impact to Bancorporation
are discussed in the Accounting Policies Adopted section in the Notes to the Consolidated Financial Statements beginning on page 42.



FOURTH QUARTER RESULTS (Dollars in thousands)



For the quarter ended December 31, 2003, net income increased by $730, or by 8.43%, over the comparable period in 2002. Return on average assets declined
from .92% to .87% and return on average equity declined from 11.32% to 11.12% for the comparable periods.



During the fourth quarter of 2003, net interest income increased by $1,572 from $37,114 to $38,686, or by 4.24%, over the comparable quarter in 2002.
While Bancorporations net interest margin (taxable-equivalent) declined from 4.32% to 3.95% during the quarter, internal loan growth and the continuing effects of the April 2003 acquisition of First Banks mitigated the compression to some
extent causing net interest income to grow in dollars. For the quarter, interest earning assets grew from $3,432,940 to $3,906,088, an increase of $473,148, or 13.78%. Earning assets growth was primarily attributable to loan growth. Provision for
loan losses declined during the quarter by $1,045, primarily due to a decline in net charge-offs during the quarter and improved credit quality trends during the year.



Noninterest income growth slowed during the quarter, with total noninterest income increasing by $504, or by 3.75%. During
the quarter, an increase in service charges of $989 was offset by a decline in mortgage income of $406. Mortgage income declined during the quarter due to a decline in refinancing activity. Noninterest expense increased during the quarter by $3,019.
The most significant components of the increase consisted of a $1,140 increase in salaries and employee benefits, a $727 increase in depreciation expense, and a $440 increase in data processing costs. The reasons for these increases are consistent
with explanations under Table 5.



30



---

Table 21

SELECTED
UNAUDITED QUARTERLY FINANCIAL DATA



|                                 |  |                                               |         |   |                |   |         |      |  |   |         |   |  |   |         |  
|-------------------------------- |  | --------------------------------------------- | ------- | - | -------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                 |  | First Quarter                                 |         |   | Second Quarter |  
|                                 |  | 2003                                          |         |   | 2002           |   |         | 2003 |  |   | 2002    |  
|                                 |  | (Dollars in thousands, except per share data) |        
|Interest income and fees         |  | $                                             | 47,917  |   |                | $ | 52,969  |      |  | $ | 50,745  |   |  | $ | 52,571  |  
|Interest expense                 |  |                                               | (12,632 | ) |                |   | (17,236 | )    |  |   | (13,472 | ) |  |   | (15,929 | )
|                                 |  |                                               |         |   |                |   |         |      |  |   |         |   |  |   |         |  
|Net interest income              |  |                                               | 35,285  |   |                |   | 35,733  |      |  |   | 37,273  |   |  |   | 36,642  |  
|Provision for loan losses        |  |                                               | (938    | ) |                |   | (889    | )    |  |   | (2,425  | ) |  |   | (2,571  | )
|Noninterest income               |  |                                               | 13,147  |   |                |   | 11,200  |      |  |   | 14,979  |   |  |   | 11,856  |  
|Noninterest expense              |  |                                               | (32,024 | ) |                |   | (29,248 | )    |  |   | (33,839 | ) |  |   | (31,110 | )
|                                 |  |                                               |         |   |                |   |         |      |  |   |         |   |  |   |         |  
|Income before income tax expense |  |                                               | 15,470  |   |                |   | 16,796  |      |  |   | 15,988  |   |  |   | 14,817  |  
|Income tax expense               |  |                                               | (5,507  | ) |                |   | (5,627  | )    |  |   | (5,691  | ) |  |   | (4,964  | )
|                                 |  |                                               |         |   |                |   |         |      |  |   |         |   |  |   |         |  
|Net income                       |  | $                                             | 9,963   |   |                | $ | 11,169  |      |  | $ | 10,297  |   |  | $ | 9,853   |  
|                                 |  |                                               |         |   |                |   |         |      |  |   |         |   |  |   |         |  
|Net income per common share      |  | $                                             | 10.91   |   |                | $ | 12.08   |      |  | $ | 11.31   |   |  | $ | 10.66   |  
|                                 |  |                                               |         |   |                |   |         |      |  |   |         |   |  |   |         |  
|                                 |  |                                              
|                                 |  | Third Quarter                                 |         |   | Fourth Quarter |  
|                                 |  | 2003                                          |         |   | 2002           |   |         | 2003 |  |   | 2002    |  
|Interest income and fees         |  | $                                             | 49,718  |   |                | $ | 51,930  |      |  | $ | 49,816  |   |  | $ | 50,903  |  
|Interest expense                 |  |                                               | (11,661 | ) |                |   | (14,872 | )    |  |   | (11,130 | ) |  |   | (13,789 | )
|                                 |  |                                               |         |   |                |   |         |      |  |   |         |   |  |   |         |  
|Net interest income              |  |                                               | 38,057  |   |                |   | 37,058  |      |  |   | 38,686  |   |  |   | 37,114  |  
|Provision for loan losses        |  |                                               | (4,436  | ) |                |   | (3,519  | )    |  |   | (2,044  | ) |  |   | (3,089  | )
|Noninterest income               |  |                                               | 17,084  |   |                |   | 12,853  |      |  |   | 13,936  |   |  |   | 13,432  |  
|Noninterest expense              |  |                                               | (34,661 | ) |                |   | (32,304 | )    |  |   | (36,465 | ) |  |   | (33,446 | )
|                                 |  |                                               |         |   |                |   |         |      |  |   |         |   |  |   |         |  
|Income before income tax expense |  |                                               | 16,044  |   |                |   | 14,088  |      |  |   | 14,113  |   |  |   | 14,011  |  
|Income tax expense               |  |                                               | (5,808  | ) |                |   | (4,719  | )    |  |   | (4,726  | ) |  |   | (5,354  | )
|                                 |  |                                               |         |   |                |   |         |      |  |   |         |   |  |   |         |  
|Net income                       |  | $                                             | 10,236  |   |                | $ | 9,369   |      |  | $ | 9,387   |   |  | $ | 8,657   |  
|                                 |  |                                               |         |   |                |   |         |      |  |   |         |   |  |   |         |  
|Net income per common share      |  | $                                             | 11.24   |   |                | $ | 10.18   |      |  | $ | 10.32   |   |  | $ | 9.45    |  
|                                 |  |                                               |         |   |                |   |         |      |  |   |         |   |  |   |         |  



31



---

MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING



Financial statements and information in this Annual Report were prepared in
conformity with generally accepted accounting principles. Management is responsible for the integrity and objectivity of the financial statements and related information. Accordingly, it maintains an extensive system of internal controls and
accounting policies and procedures to provide reasonable assurance of the accountability and safeguarding of Bancorporations assets, and of the accuracy of financial information. These procedures include management evaluations of asset quality
and a program of internal audits to evaluate independently the adequacy and application of financial and operating controls and compliance with Bancorporations policies and procedures. These procedures are designed to provide reasonable
assurance to Bancorporations management and Board of Directors regarding the preparation of reliable published financial statements and such asset safeguarding. Bancorporations internal control contains monitoring mechanisms, and actions
are taken to correct deficiencies identified.



Bancorporations independent public auditors, PricewaterhouseCoopers LLP, express their opinion as to the fairness of the financial statements presented. Their opinion is based on an audit conducted in accordance with generally
accepted auditing standards as described in their report.



The
Board of Directors, through its Audit Committee, is responsible for ensuring that both management and the independent public auditors fulfill their respective responsibilities with regard to the financial statements. The Audit Committee, composed
entirely of directors who are not officers or employees of Bancorporation, meets periodically with both management and the independent public auditors to ensure that each is carrying out its responsibilities. The independent public auditors have
full and free access to the Audit Committee and meet with it, with and without management, to discuss auditing and financial reporting matters.



Bancorporation assessed its internal control system as of December 31, 2003. This assessment was based on criteria for effective internal control over
financial reporting described in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, Bancorporation believes that, as of December 31, 2003, its
internal control over financial reporting met those criteria and provided an effective internal control.



32



---

REPORT OF INDEPENDENT AUDITORS



LOGO



TO THE BOARD OF
DIRECTORS AND STOCKHOLDERS OF

FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA, INC.:



In our opinion, the accompanying consolidated statements of condition and the
related consolidated statements of income, of changes in stockholders equity and comprehensive income and of cash flows present fairly, in all material respects, the financial position of First Citizens Bancorporation of South Carolina, Inc.
and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of Bancorporations management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



LOGO

Atlanta, Georgia

January 28, 2004



33



---

CONSOLIDATED STATEMENTS OF CONDITION



|                                                                                                                                                                       |  |                                          |           |   |      |   |           |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | --------- | - | ---- | - | --------- | -
|                                                                                                                                                                       |  | December 31,                             |          
|                                                                                                                                                                       |  | 2003                                     |           |   | 2002 |  
|                                                                                                                                                                       |  | (dollars in thousands, except par value) |          
|ASSETS                                                                                                                                                                 |  |                                          |           |   |      |   |           |  
|Cash and due from banks                                                                                                                                                |  | $                                        | 179,951   |   |      | $ | 165,747   |  
|Federal funds sold                                                                                                                                                     |  |                                          | 41,379    |   |      |   | 121,626   |  
|Investment securities:                                                                                                                                                 |  |                                          |           |   |      |   |           |  
|Held-to-maturity, at amortized cost (fair value of $20,064 in 2003 and $35,268 in 2002)                                                                                |  |                                          | 19,766    |   |      |   | 34,543    |  
|Available-for-sale, at fair value                                                                                                                                      |  |                                          | 902,463   |   |      |   | 881,327   |  
|                                                                                                                                                                       |  |                                          |           |   |      |   |           |  
|Total investment securities                                                                                                                                            |  |                                          | 922,229   |   |      |   | 915,870   |  
|                                                                                                                                                                       |  |                                          |           |   |      |   |           |  
|Gross loans                                                                                                                                                            |  |                                          | 2,939,989 |   |      |   | 2,415,396 |  
|Less: Allowance for loan losses                                                                                                                                        |  |                                          | (51,268   | ) |      |   | (43,305   | )
|                                                                                                                                                                       |  |                                          |           |   |      |   |           |  
|Net loans                                                                                                                                                              |  |                                          | 2,888,721 |   |      |   | 2,372,091 |  
|                                                                                                                                                                       |  |                                          |           |   |      |   |           |  
|Premises and equipment, net                                                                                                                                            |  |                                          | 134,756   |   |      |   | 110,472   |  
|Interest receivable                                                                                                                                                    |  |                                          | 16,429    |   |      |   | 17,696    |  
|Intangible assets                                                                                                                                                      |  |                                          | 45,876    |   |      |   | 40,999    |  
|Goodwill                                                                                                                                                               |  |                                          | 24,525    |   |      |   | 4,479     |  
|Other assets                                                                                                                                                           |  |                                          | 47,594    |   |      |   | 38,896    |  
|                                                                                                                                                                       |  |                                          |           |   |      |   |           |  
|Total assets                                                                                                                                                           |  | $                                        | 4,301,460 |   |      | $ | 3,787,876 |  
|                                                                                                                                                                       |  |                                          |           |   |      |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                   |  |                                          |           |   |      |   |           |  
|Liabilities                                                                                                                                                            |  |                                          |           |   |      |   |           |  
|Deposits:                                                                                                                                                              |  |                                          |           |   |      |   |           |  
|Demand                                                                                                                                                                 |  | $                                        | 651,332   |   |      | $ | 575,632   |  
|Time and savings                                                                                                                                                       |  |                                          | 3,062,890 |   |      |   | 2,700,376 |  
|                                                                                                                                                                       |  |                                          |           |   |      |   |           |  
|Total deposits                                                                                                                                                         |  |                                          | 3,714,222 |   |      |   | 3,276,008 |  
|Securities sold under agreements to repurchase                                                                                                                         |  |                                          | 148,864   |   |      |   | 130,360   |  
|Long-term debt                                                                                                                                                         |  |                                          | 73,814    |   |      |   | 52,139    |  
|Other liabilities                                                                                                                                                      |  |                                          | 24,977    |   |      |   | 25,785    |  
|                                                                                                                                                                       |  |                                          |           |   |      |   |           |  
|Total liabilities                                                                                                                                                      |  |                                          | 3,961,877 |   |      |   | 3,484,292 |  
|                                                                                                                                                                       |  |                                          |           |   |      |   |           |  
|Commitments and contingencies (Note 15 )                                                                                                                               |  |                                          |          |   |      |   |          |  
|Stockholders equity                                                                                                                                                   |  |                                          |           |   |      |   |           |  
|Preferred stock                                                                                                                                                        |  |                                          | 3,111     |   |      |   | 3,173     |  
|Non-voting common stock$5.00 par value, authorized 1,000,000; 36,409 issued and outstanding at December 31, 2003 and at
December 31, 2002                             |  |                                          | 182       |   |      |   | 182       |  
|Voting common stock$5.00 par value, authorized 2,000,000; 869,072 issued and outstanding at December 31, 2003 and 874,837 issued
and outstanding at December 31, 2002 |  |                                          | 4,345     |   |      |   | 4,374     |  
|Surplus                                                                                                                                                                |  |                                          | 65,081    |   |      |   | 65,081    |  
|Undivided profits                                                                                                                                                      |  |                                          | 247,647   |   |      |   | 211,264   |  
|Accumulated other comprehensive income, net of deferred taxes of $10,348 at December 31, 2003 and $10,507 at December 31,
2002                                         |  |                                          | 19,217    |   |      |   | 19,510    |  
|                                                                                                                                                                       |  |                                          |           |   |      |   |           |  
|Total stockholders equity                                                                                                                                             |  |                                          | 339,583   |   |      |   | 303,584   |  
|                                                                                                                                                                       |  |                                          |           |   |      |   |           |  
|Total liabilities and stockholders equity                                                                                                                             |  | $                                        | 4,301,460 |   |      | $ | 3,787,876 |  
|                                                                                                                                                                       |  |                                          |           |   |      |   |           |  



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



34



---

CONSOLIDATED STATEMENTS OF INCOME



|                                                             |  |                                              |         |      |   |         |  |   |        
|------------------------------------------------------------ |  | -------------------------------------------- | ------- | ---- | - | ------- |  | - | -------
|                                                             |  | Year ended December 31,                     
|                                                             |  | 2003                                         |         | 2002 |   | 2001   
|                                                             |  | (dollars in thousands, except pershare data)
|INTEREST INCOME:                                             |  |                                              |         |      |   |         |  |   |        
|Interest and fees on loans                                   |  | $                                            | 170,801 |      | $ | 167,977 |  | $ | 180,967
|Interest on investment securities:                           |  |                                              |         |      |   |         |  |   |        
|Taxable                                                      |  |                                              | 25,096  |      |   | 37,393  |  |   | 42,425 
|Non-taxable                                                  |  |                                              | 536     |      |   | 606     |  |   | 964    
|Federal funds sold                                           |  |                                              | 1,763   |      |   | 2,397   |  |   | 7,768  
|                                                             |  |                                              |         |      |   |         |  |   |        
|Total interest income                                        |  |                                              | 198,196 |      |   | 208,373 |  |   | 232,124
|                                                             |  |                                              |         |      |   |         |  |   |        
|INTEREST EXPENSE:                                            |  |                                              |         |      |   |         |  |   |        
|Interest on deposits                                         |  |                                              | 42,057  |      |   | 54,722  |  |   | 88,169 
|Interest on short-term borrowings                            |  |                                              | 1,389   |      |   | 2,883   |  |   | 8,540  
|Interest on long-term debt                                   |  |                                              | 5,449   |      |   | 4,221   |  |   | 4,199  
|                                                             |  |                                              |         |      |   |         |  |   |        
|Total interest expense                                       |  |                                              | 48,895  |      |   | 61,826  |  |   | 100,908
|                                                             |  |                                              |         |      |   |         |  |   |        
|Net interest income                                          |  |                                              | 149,301 |      |   | 146,547 |  |   | 131,216
|Provision for loan losses                                    |  |                                              | 9,843   |      |   | 10,068  |  |   | 8,599  
|                                                             |  |                                              |         |      |   |         |  |   |        
|Net interest income after provision for loan losses          |  |                                              | 139,458 |      |   | 136,479 |  |   | 122,617
|                                                             |  |                                              |         |      |   |         |  |   |        
|NONINTEREST INCOME:                                          |  |                                              |         |      |   |         |  |   |        
|Service charges on deposits                                  |  |                                              | 35,444  |      |   | 30,923  |  |   | 26,433 
|Commissions and fees from fiduciary activities               |  |                                              | 3,520   |      |   | 3,416   |  |   | 2,782  
|Mortgage income                                              |  |                                              | 7,943   |      |   | 3,399   |  |   | 3,560  
|Bankcard discount and fees                                   |  |                                              | 6,230   |      |   | 5,705   |  |   | 5,382  
|Insurance premiums                                           |  |                                              | 1,971   |      |   | 1,761   |  |   | 1,681  
|Gain on sale of investment securities                        |  |                                              | 781     |      |   | 462     |  |   | 4,947  
|Other                                                        |  |                                              | 3,257   |      |   | 3,675   |  |   | 3,482  
|                                                             |  |                                              |         |      |   |         |  |   |        
|Total noninterest income                                     |  |                                              | 59,146  |      |   | 49,341  |  |   | 48,267 
|                                                             |  |                                              |         |      |   |         |  |   |        
|NONINTEREST EXPENSE:                                         |  |                                              |         |      |   |         |  |   |        
|Salaries and employee benefits                               |  |                                              | 69,896  |      |   | 63,769  |  |   | 54,804 
|Net occupancy expense                                        |  |                                              | 11,128  |      |   | 9,529   |  |   | 8,382  
|Furniture and equipment expense                              |  |                                              | 7,191   |      |   | 6,252   |  |   | 6,111  
|Amortization expense                                         |  |                                              | 8,326   |      |   | 8,163   |  |   | 9,852  
|Bankcard processing fees                                     |  |                                              | 6,517   |      |   | 6,098   |  |   | 5,484  
|Data processing fees                                         |  |                                              | 11,628  |      |   | 10,337  |  |   | 9,643  
|Donations                                                    |  |                                              | 499     |      |   | 552     |  |   | 4,498  
|Other                                                        |  |                                              | 21,804  |      |   | 21,408  |  |   | 22,108 
|                                                             |  |                                              |         |      |   |         |  |   |        
|Total noninterest expense                                    |  |                                              | 136,989 |      |   | 126,108 |  |   | 120,882
|                                                             |  |                                              |         |      |   |         |  |   |        
|Income before income tax expense                             |  |                                              | 61,615  |      |   | 59,712  |  |   | 50,002 
|Income tax expense                                           |  |                                              | 21,732  |      |   | 20,664  |  |   | 16,126 
|                                                             |  |                                              |         |      |   |         |  |   |        
|Net income                                                   |  | $                                            | 39,883  |      | $ | 39,048  |  | $ | 33,876 
|                                                             |  |                                              |         |      |   |         |  |   |        
|Net income per common sharebasic and diluted                |  | $                                            | 43.78   |      | $ | 42.38   |  | $ | 36.12  
|                                                             |  |                                              |         |      |   |         |  |   |        
|Weighted average common shares outstandingbasic and diluted |  |                                              | 907,770 |      |   | 917,426 |  |   | 933,480
|                                                             |  |                                              |         |      |   |         |  |   |        



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



35



---

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME



|                                                                                              |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   |         |                              |  |   |        |   |  |   |         |  
|--------------------------------------------------------------------------------------------- |  | ---------------------- | ----- | - | ------------------------ | - | ------------------- |  | - | ------- | - | ----------------- | - | ------ | -------------------------------------------- | - | ------- | ---------------------------- |  | - | ------ | - |  | - | ------- | -
|                                                                                              |  | Preferred Stock        |       |   | Non- Voting Common Stock |   | Voting Common Stock |  |   | Surplus |   | Undivided Profits |   |        | AccumulatedOther Comprehensive Income (Loss) |   |         | Total Stock- holders Equity | 
|                                                                                              |  | (dollars in thousands) |      
|Balance at December 31, 2000                                                                  |  | $                      | 3,219 |   |                          | $ | 182                 |  | $ | 4,499   |   |                   | $ | 65,081 |                                              | $ | 148,502 |                              |  | $ | 12,210 |   |  | $ | 233,693 |  
|Comprehensive income:                                                                         |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   |         |                              |  |   |        |   |  |   |         |  
|Net income                                                                                    |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   | 33,876  |                              |  |   |        |   |  |   |         |  
|Change in unrealized gain on investment securities available-for-sale, net of taxes of $3,981 |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   |         |                              |  |   | 7,394  |   |  |   |         |  
|Total comprehensive income                                                                    |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   |         |                              |  |   |        |   |  |   | 41,270  |  
|Reacquired preferred stock                                                                    |  |                        | (18   | ) |                          |   |                     |  |   |         |   |                   |   |        |                                              |   | 3       |                              |  |   |        |   |  |   | (15     | )
|Reacquired voting common stock                                                                |  |                        |       |   |                          |   |                     |  |   | (51     | ) |                   |   |        |                                              |   | (2,918  | )                            |  |   |        |   |  |   | (2,969  | )
|Common stock dividends                                                                        |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   | (898    | )                            |  |   |        |   |  |   | (898    | )
|Preferred stock dividends                                                                     |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   | (166    | )                            |  |   |        |   |  |   | (166    | )
|                                                                                              |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   |         |                              |  |   |        |   |  |   |         |  
|Balance at December 31, 2001                                                                  |  |                        | 3,201 |   |                          |   | 182                 |  |   | 4,448   |   |                   |   | 65,081 |                                              |   | 178,399 |                              |  |   | 19,604 |   |  |   | 270,915 |  
|Comprehensive income:                                                                         |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   |         |                              |  |   |        |   |  |   |         |  
|Net income                                                                                    |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   | 39,048  |                              |  |   |        |   |  |   |         |  
|Change in unrealized gain on investment securities available-for-sale, net of benefit of $49  |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   |         |                              |  |   | (94    | ) |  |   |         |  
|Total comprehensive income                                                                    |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   |         |                              |  |   |        |   |  |   | 38,954  |  
|Reacquired preferred stock                                                                    |  |                        | (28   | ) |                          |   |                     |  |   |         |   |                   |   |        |                                              |   | (1      | )                            |  |   |        |   |  |   | (29     | )
|Reacquired voting common stock                                                                |  |                        |       |   |                          |   |                     |  |   | (74     | ) |                   |   |        |                                              |   | (5,120  | )                            |  |   |        |   |  |   | (5,194  | )
|Common stock dividends                                                                        |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   | (897    | )                            |  |   |        |   |  |   | (897    | )
|Preferred stock dividends                                                                     |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   | (165    | )                            |  |   |        |   |  |   | (165    | )
|                                                                                              |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   |         |                              |  |   |        |   |  |   |         |  
|Balance at December 31, 2002                                                                  |  |                        | 3,173 |   |                          |   | 182                 |  |   | 4,374   |   |                   |   | 65,081 |                                              |   | 211,264 |                              |  |   | 19,510 |   |  |   | 303,584 |  
|Comprehensive income:                                                                         |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   |         |                              |  |   |        |   |  |   |         |  
|Net income                                                                                    |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   | 39,883  |                              |  |   |        |   |  |   |         |  
|Change in unrealized gain on investment securities available-for-sale, net of benefit of $159 |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   |         |                              |  |   | (293   | ) |  |   |         |  
|Total comprehensive income                                                                    |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   |         |                              |  |   |        |   |  |   | 39,590  |  
|Reacquired preferred stock                                                                    |  |                        | (62   | ) |                          |   |                     |  |   |         |   |                   |   |        |                                              |   | 21      |                              |  |   |        |   |  |   | (41     | )
|Reacquired voting common stock                                                                |  |                        |       |   |                          |   |                     |  |   | (29     | ) |                   |   |        |                                              |   | (2,310  | )                            |  |   |        |   |  |   | (2,339  | )
|Common stock dividends                                                                        |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   | (1,046  | )                            |  |   |        |   |  |   | (1,046  | )
|Preferred stock dividends                                                                     |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   | (165    | )                            |  |   |        |   |  |   | (165    | )
|                                                                                              |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   |         |                              |  |   |        |   |  |   |         |  
|Balance at December 31, 2003                                                                  |  | $                      | 3,111 |   |                          | $ | 182                 |  | $ | 4,345   |   |                   | $ | 65,081 |                                              | $ | 247,647 |                              |  | $ | 19,217 |   |  | $ | 339,583 |  
|                                                                                              |  |                        |       |   |                          |   |                     |  |   |         |   |                   |   |        |                                              |   |         |                              |  |   |        |   |  |   |         |  



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



36



---

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|------------------------------------------------------------------------------------------------------ |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                                       |  | Year ended December 31, |         
|                                                                                                       |  | 2003                    |          |   | 2002 |   |          | 2001 | 
|                                                                                                       |  | (dollars in thousands)  |         
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|Net income                                                                                             |  | $                       | 39,883   |   |      | $ | 39,048   |      |  | $ | 33,876   |  
|Adjustments to reconcile net income to net cash provided by operating activities:                      |  |                         |          |   |      |   |          |      |  |   |          |  
|Provision for loan losses                                                                              |  |                         | 9,843    |   |      |   | 10,068   |      |  |   | 8,599    |  
|Depreciation and amortization                                                                          |  |                         | 20,339   |   |      |   | 19,067   |      |  |   | 17,961   |  
|Amortization of investment securities                                                                  |  |                         | 1,043    |   |      |   | 1,112    |      |  |   | 1,263    |  
|Deferred income tax benefit                                                                            |  |                         | (2,028   | ) |      |   | (723     | )    |  |   | (2,637   | )
|Loss (gain) on sales of premises and equipment                                                         |  |                         | 38       |   |      |   | 49       |      |  |   | (487     | )
|Decrease in interest receivable                                                                        |  |                         | 1,267    |   |      |   | 2,559    |      |  |   | 4,102    |  
|Decrease in interest payable                                                                           |  |                         | (3,371   | ) |      |   | (2,222   | )    |  |   | (3,345   | )
|Origination of mortgage loans held-for-sale, net of principal collected                                |  |                         | (467,513 | ) |      |   | (337,867 | )    |  |   | (307,248 | )
|Proceeds from sales of mortgage loans held-for-sale                                                    |  |                         | 474,856  |   |      |   | 366,192  |      |  |   | 267,857  |  
|Gain on sale of mortgage loans held-for-sale                                                           |  |                         | (6,112   | ) |      |   | (3,674   | )    |  |   | (1,823   | )
|Gain on call or sale of investment securities                                                          |  |                         | (781     | ) |      |   | (462     | )    |  |   | (4,947   | )
|Decrease (increase) in other assets                                                                    |  |                         | 1,763    |   |      |   | (3,973   | )    |  |   | 155      |  
|Increase (decrease) in other liabilities                                                               |  |                         | 890      |   |      |   | 4,173    |      |  |   | (4,237   | )
|                                                                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                                                              |  |                         | 70,117   |   |      |   | 93,347   |      |  |   | 9,089    |  
|                                                                                                       |  |                         |         
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|Net increase in loans                                                                                  |  |                         | (341,622 | ) |      |   | (166,783 | )    |  |   | (146,867 | )
|Calls, maturities and prepayments of investment securities held-to-maturity                            |  |                         | 23,505   |   |      |   | 6,295    |      |  |   | 13,941   |  
|Purchases of investment securities held-to-maturity                                                    |  |                         | (5,520   | ) |      |   | (7,745   | )    |  |   | (4,994   | )
|Calls, maturities, prepayments, and proceeds from the sale of investment securities available-for-sale |  |                         | 485,442  |   |      |   | 468,720  |      |  |   | 461,460  |  
|Purchases of securities available-for-sale                                                             |  |                         | (492,273 | ) |      |   | (473,156 | )    |  |   | (614,584 | )
|Proceeds from sales of premises and equipment                                                          |  |                         | 317      |   |      |   | 94       |      |  |   | 4,643    |  
|Purchases of premises and equipment, net of disposals                                                  |  |                         | (30,763  | ) |      |   | (19,501  | )    |  |   | (14,696  | )
|Increase in other real estate owned                                                                    |  |                         | (2,065   | ) |      |   | (299     | )    |  |   | (497     | )
|Purchase of institutions, net of cash acquired                                                         |  |                         | 56,910   |   |      |   | 14,987   |      |  |   | 40,126   |  
|                                                                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash used by investing activities                                                                  |  |                         | (306,069 | ) |      |   | (177,388 | )    |  |   | (261,468 | )
|                                                                                                       |  |                         |         
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|Net increase in deposits                                                                               |  |                         | 154,996  |   |      |   | 205,464  |      |  |   | 414,395  |  
|Increase (decrease) in federal funds purchased and securities sold under agreements to repurchase      |  |                         | 18,504   |   |      |   | (83,663  | )    |  |   | (155,195 | )
|Cash dividends paid                                                                                    |  |                         | (1,211   | ) |      |   | (1,062   | )    |  |   | (1,064   | )
|Cash paid to reacquire preferred stock                                                                 |  |                         | (41      | ) |      |   | (29      | )    |  |   | (15      | )
|Cash paid to reacquire common stock                                                                    |  |                         | (2,339   | ) |      |   | (5,194   | )    |  |   | (2,969   | )
|                                                                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by financing activities                                                              |  |                         | 169,909  |   |      |   | 115,516  |      |  |   | 255,152  |  
|                                                                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|Net (decrease) increase in cash and due from banks                                                     |  |                         | (66,043  | ) |      |   | 31,475   |      |  |   | 2,773    |  
|Cash and cash equivalents due from banks at beginning of year                                          |  |                         | 287,373  |   |      |   | 255,898  |      |  |   | 253,125  |  
|                                                                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash and cash equivalents due from banks at end of year                                                |  | $                       | 221,330  |   |      | $ | 287,373  |      |  | $ | 255,898  |  
|                                                                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|                                                                                                       |  |                         |         
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                                     |  |                         |          |   |      |   |          |      |  |   |          |  
|Interest paid                                                                                          |  | $                       | 52,268   |   |      | $ | 64,048   |      |  | $ | 104,125  |  
|                                                                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|Income taxes paid                                                                                      |  | $                       | 25,047   |   |      | $ | 23,745   |      |  | $ | 18,612   |  
|                                                                                                       |  |                         |          |   |      |   |          |      |  |   |          |  
|                                                                                                       |  |                         |         
|SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|Subordinated notes were issued for the stock of First Banks, Inc. for $20,218.                         |  |                         |          |   |      |   |          |      |  |   |          |  



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



37



---

FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA, INC. AND SUBSIDIARIES (Bancorporation)

FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA, INC. (Parent)

FIRST-CITIZENS BANK AND TRUST COMPANY OF SOUTH CAROLINA AND SUBSIDIARIES (First Citizens)

THE EXCHANGE BANK OF SOUTH CAROLINA, INC. (Exchange)

CITIZENS BANK (Citizens)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(Dollars in thousands)



Nature of
Operations:



First Citizens Bancorporation of South
Carolina, Inc. (Bancorporation) is a three-bank financial holding company whose principal subsidiaries are First-Citizens Bank and Trust Company of South Carolina (First Citizens or the Bank), The Exchange Bank of
South Carolina, Inc. (Exchange), and Citizens Bank (Citizens). First Citizens is chartered under the laws of South Carolina to engage in general banking business.



Founded in 1964, First Citizens offers a complete array of services in commercial and retail banking through its 147 offices
in 101 communities in South Carolina and five offices in four communities in Georgia. The Bank provides a full range of financial services including deposit acceptance, corporate cash management, discount brokerage, IRA plans, trust services and
secured and unsecured loans. Trust services provide estate planning, estate and trust administration, IRA trust and personal investment, and pension and profit sharing administration. The Bank also originates and services mortgage loans and provides
financing for small businesses. First Banks, Inc. (First Banks), a two-bank holding company headquartered in Carnesville, Georgia, which was the parent company of First Bank and Trust and The Bank of Toccoa, was merged with First
Citizens effective April 1, 2003. The purpose of this acquisition was to expand First Citizens banking presence in Georgia.



Founded in 1932, Exchange is a community-oriented financial institution which offers a variety of financial services through its four branches in
Williamsburg and Georgetown counties in South Carolina. Exchange provides many traditional commercial and consumer banking services with its principal activities taking demand and time deposits and making secured and unsecured loans.



Founded in 1902, Citizens is a community-oriented financial institution which
offers a variety of financial services through its two branches in Warren and McDuffie counties in Georgia. Citizens provides traditional commercial and consumer banking services with its principal activities taking demand and time deposits and
making secured and unsecured loans.



The accounting and
reporting policies of Bancorporation conform to generally accepted accounting principles in all material respects.



NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Principles of consolidation and basis of presentation:



The consolidated financial statements include the accounts of Bancorporation and those subsidiaries that are majority-owned by Bancorporation and over
which Bancorporation exercises control. All significant intercompany accounts and transactions have been eliminated. Assets held by the Bank in trust or in other fiduciary capacities are not assets of the Bank and are not included in the
accompanying consolidated financial statements. Certain amounts in prior years have been reclassified to conform to the 2003 presentation. Such reclassifications had no effect on shareholders equity or net income.



Use of estimates:



In preparing the consolidated financial statements, management is required to make estimates based on available information
which can affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the related periods. Due to the inherent uncertainties associated with any estimation process and due to



38



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



possible future changes in market and economic conditions, it is possible that actual future
results could differ from the amounts reflected in the consolidated financial statements.



Goodwill and other intangible assets:



Bancorporation accounts for its acquisitions using the purchase method of accounting. When applying purchase accounting, net assets of entities acquired are recorded at fair value at the date of acquisition. The
reported income of Bancorporation includes the operations of the acquired company subsequent to acquisition. Goodwill represents the cost in excess of the fair value of net assets acquired in transactions considered business combinations. Effective
January 1, 2002, Bancorporation adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, which requires that goodwill no longer be amortized over an estimated useful life, but rather be tested annually for
impairment. Intangible assets other than goodwill, which are determined to have finite lives, are amortized over the period benefited, generally five to fifteen years. The recoverability of other intangibles is evaluated if events or circumstances
indicate a possible impairment.



Investment securities:



Bancorporation defines held-to-maturity securities as debt securities, which
management has the positive intent and ability to hold to maturity. Held-to-maturity securities are stated at cost, adjusted for amortization of premiums and accretion of discounts. Available-for-sale securities are defined as equity securities and
debt securities not classified as trading securities or held-to-maturity securities. Available-for-sale securities are recorded at fair value with unrealized holding gains and losses, net of deferred taxes, and are reported as a separate component
of shareholders equity as accumulated other comprehensive income. Bancorporation determines the appropriate classification of debt securities at the time of purchase.



Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the
securities. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment
losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of Bancorporation to retain its
investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.



Loans and the allowance for loan losses:



Loans are recorded at their principal amount outstanding. Interest is
accrued and recognized in operating income based upon the principal amount outstanding. Loan origination fees and direct loan origination costs are deferred and amortized over the estimated lives of the related loans as an adjustment to yield.



In many lending transactions, collateral is obtained to
provide an additional measure of security. Generally, the cash flow and earning power of the borrower represent the primary source of repayment and collateral is considered as an additional safeguard on an acceptable risk. The need for collateral is
determined on a case-by-case basis after considering the current and prospective credit worthiness of the borrower, terms of the lending transaction and economic conditions.



The accrual of interest is generally discontinued, except for installment and credit card loans, when substantial doubt
exists as to the collectibility of principal and interest or when a loan is 90 days past due as to interest or principal unless the loan is both adequately secured and in the process of collection. Generally, accrual of income on unsecured
installment loans is discontinued and the loans are charged off after a delinquency of 120 days and 180 days for secured loans and credit card loans.



39



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



Loans are measured for impairment when it is probable that all amounts,
including principal and interest, will not be collected in accordance with the contractual terms of the loan agreement. Bancorporation measures impairment based on discounted expected cash flows on a loan-by-loan basis or in the case of
collateral-dependent loans, the fair value of the underlying collateral.



The allowance for loan losses is managements estimate of probable inherent credit losses in the loan portfolios at the balance sheet date. Bancorporation determines the allowance based on an ongoing evaluation.
This evaluation is inherently subjective, as it requires material estimates, including the amounts and timing of cash flows expected to be received on impaired loans. Those estimates may be susceptible to significant change. Increases to the
allowance are made by charges to the provision for loan losses, which is reflected in the Consolidated Statements of Income. Loans deemed to be uncollectible are charged against the allowance. Recoveries of previously charged-off amounts are
credited to the allowance.



The allowance is the accumulation
of various components that are calculated based on independent methodologies. All components of the allowance represent an estimation performed pursuant to either SFAS No. 5 or SFAS No. 114. Managements estimate of each SFAS No. 5 component is
based on certain observable data that management believes are most reflective of the underlying credit losses being estimated. This evaluation includes credit quality trends; recent loan loss experience; collateral values; loan volumes; seasoning of
the loan portfolio; the findings of internal credit quality assessments and results from external bank regulatory examinations. All impaired commercial loans in excess of a defined threshold are analyzed for specific reserves on a loan-by-loan basis
based on managements evaluation of the exposure for each credit, given the current payment status of the loan and the value of any underlying collateral.



While management uses the best information available to establish the allowance for loan losses, future adjustments to the allowance may become
necessary if conditions differ substantially from the assumptions used in making the valuations. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss
levels may vary from previous estimates.



Mortgage banking activities:



Mortgage loans held-for-sale are stated at the lower of
aggregate cost or market, net of discounts and deferred loan fees and are included in loans in the Consolidated Statements of Condition. Nonrefundable deferred origination fees and costs and discount points collected at loan closing, net of
commitment fees paid, are deferred and recognized at the time of sale of the mortgage loans. Gain or loss on sales of mortgage loans is recognized based upon the difference between the selling price and the carrying amount of the mortgage loans
sold. Other fees earned during the loan origination process are also included in net gain or loss on sales of mortgage loans. Gain or loss on the sale of mortgage loans is a component of mortgage income in the Consolidated Statements of Income.



Bancorporation uses mandatory forward and best
efforts commitments to protect its mortgage loans held for sale from interest rate risk from the time of origination to the time of sale. In accordance with SFAS No. 133,  Accounting for Derivative Instruments and Hedging
Activities, these commitments are carried on the Consolidated Statements of Condition at fair market value. Unfunded residential mortgage loan commitments for loans to be sold are also accounted for at fair market value. These fair market
value adjustments are offset against mortgage income in the Consolidated Statements of Income. Related amounts in Bancorporations consolidated financial statements were insignificant as of and for the year ended December 31, 2003.



After a transfer of loans held-for-sale to a third party under a sale
contract, Bancorporation recognizes the mortgage servicing rights (MSRs) it retains and derecognizes the loans held-for-sale when control has been surrendered. The initial value of the MSR is included as a component of gain on sale
within mortgage income. Any other related financial assets and liabilities would be recognized at that point as well. Currently, all transfers of loans held-for-sale are accounted for as sales of those assets as control over those assets is
surrendered to a third party.



40



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



MSRs are included in intangible assets in the Consolidated Statements of
Condition. The amount capitalized is determined by allocating the carrying amount between the loans and MSRs based on their relative fair values. Fair value is determined using analyses of discounted anticipated future net cash flows, considering
estimates of loan prepayments, interest rates and other economic factors. Amortization of the capitalized MSRs is based on a method which approximates the proportion of current net servicing income to the total estimated net servicing income
expected to be recognized over the average remaining lives of the underlying loans. Servicing income, net of related amortization expense, is included as a component of mortgage income in the Consolidated Statements of Income. For purposes of
impairment evaluation and measurement, MSRs are stratified based on predominant risk characteristics of the underlying loans, including loan type, amortization type (fixed or adjustable), and note rate. To the extent that the carrying value of the
MSRs exceeds fair value by individual stratum, a valuation allowance is established which may be adjusted in the future as the fair value of MSRs increases or decreases. Changes in the valuation allowance are recognized as a component of
amortization expense.



Premises and equipment:



Bank premises and equipment are reported at cost less accumulated
depreciation. Depreciation is included in noninterest expense over the estimated useful lives of the assets (generally fifteen to twenty-five years for buildings and improvements, and three to ten years for furniture and equipment). Leasehold
improvements are capitalized and amortized to noninterest expense over the terms of the leases or the estimated useful lives of the improvements, whichever is shorter. Depreciation and amortization are calculated using straight-line methods.
Maintenance, repairs and minor improvements are included in noninterest expense as incurred. Major improvements are capitalized. Gains or losses upon retirement or other dispositions are included in the Consolidated Statements of Income.



Other real estate owned:



Other real estate owned consists of real property acquired through
foreclosure. Subsequent to foreclosure, other real estate owned is carried at the lower of (1) original cost, or (2) the current fair value of the property, less estimated selling costs. Subsequent to foreclosure, gains or losses on the sales or the
periodic revaluation of other real estate owned are credited or charged to expense. Net costs of maintaining and operating foreclosed properties are expensed as incurred. Other real estate owned was $3,787 and $1,019 as of December 31, 2003 and
2002, respectively, and is included as a component of other assets in the Consolidated Statements of Condition.



Securities sold under agreements to repurchase:



Securities sold under agreements to repurchase represent overnight borrowings with the Banks customers and are secured by investment securities.



Income taxes:



Bancorporation recognizes deferred tax assets and liabilities for the
expected future tax consequences of the temporary differences between the carrying amounts and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be realized or settled.



Statement of cash flows:



For purposes of the
Consolidated Statements of Cash Flows, Bancorporation has defined cash on hand, amounts due from banks and federal funds sold as cash and cash equivalents.



41



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



Earnings per share:



Earnings per share are computed by dividing net income less preferred dividends noted in the Consolidated Statements of
Changes in Stockholders Equity and Comprehensive Income by the weighted average number of voting and non-voting common shares outstanding. The premium or discount paid on redemption of preferred stock is treated as dividends on preferred stock
and is included in the determination of net income available for common stockholders. As Bancorporation has no dilutive securities, there is no difference between basic and diluted EPS.



Segment information:



SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information, requires that public entities report certain information
about operating segments in their annual financial statements and in condensed financial statements of interim periods issued to shareholders. It also requires that public entities disclose information about products and services provided by
significant segments, geographic areas and major customers, differences between the measurements used in reporting segment information and those used in the entitys general-purpose financial statements, and changes in the measurement of
segment amounts from period to period.



Operating segments are
components of an entity about which separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources in evaluating performance. Bancorporation has determined that its
one operating segment is providing general financial services to customers located in South Carolina and four contiguous counties in Georgia. The various products are those generally offered by community banks and the allocation of resources is
based on the overall performance of the institution, versus individual branches or products.



Accounting policies adopted:



In June of 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. This Statement amends SFAS No. 19, Financial Accounting and Reporting by Oil and Gas Producing Companies. SFAS No. 143
applies to all entities and addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs will be accounted for consistently, resulting in
comparability among financial statements of different entities. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. Bancorporation adopted SFAS No. 143 effective January 1, 2003 which did not
have a material impact on Bancorporations financial position or results of operations.



In May of 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002. This Statement rescinds
Statements No. 4 and 64, Reporting Gains and Losses from Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements, respectively, and restricts the classification of early extinguishment of debt as an extraordinary item to the
provisions of APB Opinion No. 30, Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequent Occurring Events and Transactions. The Statement also
rescinds Statement No, 44, Accounting for Intangible Assets of Motor Carriers, which is no longer necessary because the transition to the provisions of the Motor Carrier Act of 1980 is complete. The Statement also amends Statement
No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. Finally, the Statement makes various technical corrections to existing pronouncements, which are not considered substantive.



The provisions of this Statement relating to the rescission of Statement No. 4 and 64 are effective for fiscal years beginning after May 15, 2002.
Additionally, there is retroactive application for any gain or loss on extinguishment of debt that was classified as extraordinary in a prior period that does not meet the criteria in Opinion No. 30, requiring reclassification of the gain or loss
with the exception of the rescission of Statement No. 4 and 64, which will eliminate the



42



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



extraordinary treatment for extinguishment of debt. Bancorporation adopted SFAS No. 145
effective January 1, 2003 which had no material impact on Bancorporations financial position or results of operations.



In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 provides guidance
on the recognition and measurement of liabilities for costs associated with exit or disposal activities. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this Statement did not
have a material impact on Bancorporations financial position or results of operations.



In June 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial Institutions, an amendment of FASB Statements No. 72 and 144 and Interpretation No. 9. Except for transactions between two or
more mutual enterprises, this Statement removes financial institutions from the scope of both Statement No. 72 and Interpretation 9 and requires that those transactions be accounting for in accordance with SFAS No. 141 and 142. The Statement
requires that financial institutions evaluate their accounting on branch acquisitions to determine whether or not they constitute the acquisition of a business. Pursuant to the guidance, transactions that are not acquisitions of a business do not
create goodwill, but may create identifiable intangible assets, including core deposit intangibles. SFAS No. 147 does not provide supplemental guidance for determining whether an acquisition of a branch constitutes the acquisition of a business, but
directs entities to the Emerging Issues Task Force (EITF) 98-3, Determining Whether a Nonmonetary Transaction Involves Receipt of a Productive Asset or of a Business. If a branch acquisition is determined to be an acquisition of a
business, core deposit intangible that is identified would continue to be amortized, but the unidentified intangible would cease being amortized. The unidentifiable intangible would constitute goodwill and be subjected to impairment testing in
subsequent accounting periods. Affected institutions were required to retroactively restate their income statements to reverse the unidentifiable intangible back to the beginning of the fiscal year in which it first applied SFAS No. 142, Goodwill
and Other Intangible Assets. For Bancorporation, this was as of January 1, 2002. Additionally, this Statement amends SFAS No. 144 to include in its scope long-term customer-relationship intangible assets of financial institutions. Bancorporation
adopted the Statement effective October 1, 2002 which did not have a material impact on Bancorporations financial position or results of operations.



In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. The Interpretation elaborates on the disclosures to be made by a guarantor in its financial statements under certain guarantees that it has issued. It also clarifies that a guarantor is required
to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of the Interpretation are effective and were adopted by Bancorporation as of December
31, 2002, and require disclosure of the nature of the guarantee, the maximum potential amount of future payments that the guarantor could be required to make under the guarantee, and the current amount of the liability, if any, for the
guarantors obligations under the guarantee. Please refer to Note 15 for disclosures with respect to Bancorporations guarantees. The recognition requirements of the interpretation were effective beginning January 1, 2003. The
implementation of this Statement did not have a material impact on Bancorporations financial position or results of operations.



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation, to provide three alternative methods of transition to SFAS 123s fair-value method of accounting for stock-based compensation. The Statement also amends disclosure provisions of SFAS
No. 123 and APB Opinion No. 28, Interim Financial Reporting, to require additional disclosures in annual and interim financial statements. The Statement is effective for fiscal years ending after December 15, 2002. Bancorporation adopted
SFAS No. 148 effective January 1, 2002 which did not have a material impact on Bancorporations financial position or results of operations.



In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). This
Interpretation provides guidance with respect to the identification of variable interest entities and when the assets, liabilities, noncontrolling interests, and results of operations of a variable interest entity need to be included in a
companys consolidated financial statements. The Interpretation requires consolidation by business enterprises of



43



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



variable interest entities in cases where the equity investment at risk is not sufficient to
permit the entity to finance its activities without additional subordinated financial support from other parties, which is provided through other interests that will absorb some or all of the expected losses of the entity, or in cases where the
equity investors lack one or more of the essential characteristics of a controlling financial interest, which include the ability to make decisions about the entitys activities through voting rights, the obligations to absorb the expected
losses of the entity if they occur, or the right to receive the expected residual returns of the entity if they occur. Due to significant implementation concerns, the FASB modified the wording of FIN 46 and issued FIN 46R in December of 2003. FIN
46R deferred the effective date for the provisions of FIN 46 to entities other than Special Purpose Entities (SPEs) until financial statements are issued for periods ending after March 15, 2004. Management has evaluated investments in
variable interest entities and potential variable interest entities or transactions, particularly a limited liability partnership involved in low-income housing development (LIHTC) and trust preferred securities structures because these
entities or transactions constitute Bancorporations primary FIN 46 and FIN 46R exposure. Under FIN 46, it was determined that Bancorporation is not the primary beneficiary of the FCB/SC Capital Trust I that issued trust preferred securities,
thus trust preferred securities were deconsolidated as of December 31, 2003. As a result, other assets and long-term debt increased by $1,547, respectively. As of December 31, 2003, Bancorporation has adopted FIN 46R. Adoption of FIN 46 and FIN 46R
did not have a material effect on Bancorporations consolidated financial position or consolidated results of operations beyond the impact of trust preferred securities because it was determined that Bancorporation is not the primary
beneficiary of the LIHTC investments. Bancorporations involvement with variable interest entities is limited to $1.5 million in outstanding balances in LIHTC investments with no additional monies in future funding commitments. Bancorporation
has utilized LIHTC investments to invest in areas serving low to moderate income communities since 2002. Because these investments generate tax credits which minimize the financial impact of a loss of capital, Bancorporation has chosen to utilize
established syndicators to reduce this risk. Interpretive guidance relating to FIN 46R is continuing to evolve and Bancorporations management will continue to assess various aspects of consolidations and variable interest entity accounting as
additional guidance becomes available.



In April 2003, the FASB
issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities which amends and clarifies accounting and reporting for derivative instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Specifically, this Statement clarifies under what circumstances a contract with an initial net investment meets the
characteristic of a derivative, and when a derivative contains a financing component that warrants special reporting in the Consolidated Statements of Cash Flows. This Statement is generally effective for contracts entered into or modified after
June 30, 2003 and provisions of this Statement should be applied prospectively. The implementation of this Statement did not have a material impact on Bancorporations financial position or results of operations.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that
an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances), because that financial instrument embodies an obligation of the issuer. This Statement is effective immediately for all financial
instruments entered into or modified after May 31, 2003, and was otherwise effective beginning July 1, 2003. The implementation of this Statement did not have a material impact on Bancorporations financial position or results of operations.



In December 2003, the FASB issued SFAS No. 132 (revised 2003),
Employers Disclosures about Pensions and Other Postretirement Benefits. SFAS No. 132 provides guidance to improve financial statement disclosures for defined benefit plans. The Statement includes the existing disclosures of the
original issued Statement as well as additional disclosures including: (a) a narrative description of the basis for determining the overall expected long-term rate of return, (b) measurement dates used for plans that make up the majority
of the plan assets and benefit obligations, (c) managements best estimate of its contributions to be paid to fund the plan for the next fiscal year beginning after the date of the lastest financials, and (d) the expected benefit
payments, including employees future service, for each of the next five years and thereafter, with a reconciliation to projected benefit obligation which would reflect interest future



44



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



service accruals. The Statement is effective beginning December 31, 2003. The implementation
of this Statement did not have a material impact on Bancorporations financial position or results of operations.



Recently issued accounting pronouncements:



In December 2003, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 03-3,
Accounting for Loans or Certain Debt Securities Acquired in a Transfer. The SOP addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investors initial investment in
loans or debt securities acquired in a transfer if those differences relate to a deterioration of credit quality. The SOP also prohibits companies from carrying over or creating a valuation allowance in the initial accounting for loans
acquired that meet the scope criteria of the SOP. The SOP is effective for loans acquired in fiscal years beginning after December 15, 2004.



In December 2003, the Securities and Exchange Commission (SEC) Staff announced that it will issue a Staff Accounting Bulletin
(SAB) addressing the accounting treatment for mortgage loan interest rate lock commitments. The SAB will require interest rate lock commitments that relate to mortgage loans held for sale to be accounted for, by the issuer of the
interest rate lock commitment, under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as written options that would be reported as liabilities until either they are exercised or they expire unexercised. The SAB
is expected to be effective for interest rate lock commitments entered into in the period beginning after March 15, 2004. In light of the SECs expected issuance of this SAB, the FASB has an active project underway to address accounting for
interest rate lock commitments. Had the accounting treatment prescribed in the SAB been in effect at December 31, 2003, Bancorporation estimates there would not have been a material impact on Bancorporations results of operations.



NOTE 2ACQUISITIONS



Five branch locations were acquired during 2003 from unrelated financial
institutions. First Citizens acquired deposits of $75,368, loans of $369, and other intangible assets of $8,679 in connection with these acquisitions. In 2002, two branch locations were acquired from unrelated financial institutions. First Citizens
acquired deposits of $15,672, loans of $3,158 and other intangible assets of $1,429 in connection with these acquisitions. These acquisitions were accounted for under the purchase method of accounting.



Effective April 1, 2003, First Citizens acquired First Banks, Inc., a
two-bank holding company headquartered in Carnesville, Georgia, which was the parent company of First Bank and Trust and The Bank of Toccoa (collectively First Banks). The results of First Banks operations have been included in the
consolidated financial statements since that date. The purpose of the acquisition was to expand First Citizens banking presence in Georgia. First Citizens acquired deposits of $207,850, loans of $188,558, and fixed assets of $2,967 in
connection with this acquisition. The total cost of the acquisition, recorded as a purchase, was $59,110. The breakdown of the purchase price is as follows:



|                                                  |  |   |       
|------------------------------------------------- |  | - | ------
|Cash                                              |  | $ | 38,892
|5 year First Citizens subordinated notes @ 7.50%  |  |   | 11,390
|7 year First Citizens subordinated notes @ 7.75%  |  |   | 3,208 
|10 year First Citizens subordinated notes @ 8.00% |  |   | 5,620 
|                                                  |  |   |       
|                                                  |  | $ | 59,110
|                                                  |  |   |       



Intangibles assets
associated with this acquisition are $22,753, of which $19,353 is goodwill and not subject to amortization.



45



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



Effective October 1, 2002, Bancorporation acquired Citizens, a banking
corporation located in Warrenton, Georgia. Bancorporation acquired deposits of $39,918, loans of $18,548, and fixed assets of $1,229 in connection with this acquisition. The total cost of the acquisition, recorded as a purchase, was $7,204. The
breakdown of the purchase price is as follows:



|                                    |  |   |      
|----------------------------------- |  | - | -----
|Cash                                |  | $ | 6,028
|5 year Bancorporation notes @ 7.50% |  |   | 1,056
|7 year Bancorporation notes @ 7.75% |  |   | 120  
|                                    |  |   |      
|                                    |  | $ | 7,204
|                                    |  |   |      



Intangibles assets
associated with this acquisition are $3,910, of which $1,956 is goodwill and not subject to amortization.



NOTE 3CASH AND DUE FROM BANKS



The Bank is required to maintain reserve balances with the Federal Reserve, or in vault cash. As of December 31, 2003, the average required reserve balance was $55,533, compared to $47,266 as of December 31,
2002. Of this amount, $45,540 and $36,970 was met by vault cash and $9,993 and $10,296 was met with deposits at the Federal Reserve at December 31, 2003 and 2002, respectively. As of December 31, 2003 and 2002, approximately $13,125 and $13,350,
respectively, in cash and due from bank balances was restricted as to use as compensating balances with other financial institutions.



46



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



NOTE 4INVESTMENT SECURITIES



The amortized cost and the estimated fair value of investment securities
held-to-maturity and available-for-sale and their respective contractual maturities at December 31, 2003 and 2002 are presented below. Actual maturities may differ from contractual maturities or maturities shown below.



|                                                  |  |                |         |                        |   |                         |  |                     |     |  |   |        
|------------------------------------------------- |  | -------------- | ------- | ---------------------- | - | ----------------------- |  | ------------------- | --- |  | - | -------
|                                                  |  | Amortized Cost |         | Gross Unrealized Gains |   | Gross Unrealized Losses |  | EstimatedFair Value
|Held-to-maturity at December 31, 2003:            |  |                |         |                        |   |                         |  |                     |     |  |   |        
|U. S. government obligations:                     |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Within one year                                   |  | $              | 3,249   |                        | $ | 12                      |  | $                   |    |  | $ | 3,261  
|After one year but within five years              |  |                | 7,008   |                        |   | 4                       |  |                     | 44  |  |   | 6,968  
|After five years but within ten years             |  |                |        |                        |   |                        |  |                     |    |  |   |       
|After ten years                                   |  |                |        |                        |   |                        |  |                     |    |  |   |       
|                                                  |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Total                                             |  |                | 10,257  |                        |   | 16                      |  |                     | 44  |  |   | 10,229 
|                                                  |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Obligations of states and political subdivisions: |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Within one year                                   |  |                | 1,951   |                        |   | 15                      |  |                     |    |  |   | 1,966  
|After one year but within five years              |  |                | 5,713   |                        |   | 290                     |  |                     |    |  |   | 6,003  
|After five years but within ten years             |  |                |        |                        |   |                        |  |                     |    |  |   |       
|After ten years                                   |  |                |        |                        |   |                        |  |                     |    |  |   |       
|                                                  |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Total                                             |  |                | 7,664   |                        |   | 305                     |  |                     |    |  |   | 7,969  
|                                                  |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Other securities:                                 |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Within one year                                   |  |                |        |                        |   |                        |  |                     |    |  |   |       
|After one year but within five years              |  |                |        |                        |   |                        |  |                     |    |  |   |       
|After five years but within ten years             |  |                |        |                        |   |                        |  |                     |    |  |   |       
|After ten years                                   |  |                | 1,845   |                        |   | 21                      |  |                     |    |  |   | 1,866  
|                                                  |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Total                                             |  |                | 1,845   |                        |   | 21                      |  |                     |    |  |   | 1,866  
|                                                  |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Total held-to-maturity at December 31, 2003       |  | $              | 19,766  |                        | $ | 342                     |  | $                   | 44  |  | $ | 20,064 
|                                                  |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Available-for-sale at December 31, 2003:          |  |                |         |                        |   |                         |  |                     |     |  |   |        
|U. S. government obligations:                     |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Within one year                                   |  | $              | 390,035 |                        | $ | 2,654                   |  | $                   |    |  | $ | 392,689
|After one year but within five years              |  |                | 446,032 |                        |   | 1,408                   |  |                     | 860 |  |   | 446,580
|                                                  |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Total                                             |  |                | 836,067 |                        |   | 4,062                   |  |                     | 860 |  |   | 839,269
|                                                  |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Obligations of states and political subdivisions: |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Within one year                                   |  |                | 2,949   |                        |   | 85                      |  |                     |    |  |   | 3,034  
|After five years but within ten years             |  |                | 537     |                        |   | 19                      |  |                     | 10  |  |   | 546    
|After ten years                                   |  |                | 242     |                        |   | 17                      |  |                     |    |  |   | 259    
|                                                  |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Total                                             |  |                | 3,728   |                        |   | 121                     |  |                     | 10  |  |   | 3,839  
|                                                  |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Other securities:                                 |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Within one year                                   |  |                | 14,820  |                        |   | 110                     |  |                     | 68  |  |   | 14,862 
|After five years but within ten years             |  |                | 2,517   |                        |   | 62                      |  |                     | 17  |  |   | 2,562  
|After ten years                                   |  |                | 2,697   |                        |   | 35                      |  |                     | 20  |  |   | 2,712  
|                                                  |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Total                                             |  |                | 20,034  |                        |   | 207                     |  |                     | 105 |  |   | 20,136 
|                                                  |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Marketable equity securities                      |  |                | 13,069  |                        |   | 26,151                  |  |                     | 1   |  |   | 39,219 
|                                                  |  |                |         |                        |   |                         |  |                     |     |  |   |        
|Total available-for-sale at December 31, 2003     |  | $              | 872,898 |                        | $ | 30,541                  |  | $                   | 976 |  | $ | 902,463
|                                                  |  |                |         |                        |   |                         |  |                     |     |  |   |        



47



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



|                                                  |  |                |         |                        |   |                         |  |                     |   |  |   |        
|------------------------------------------------- |  | -------------- | ------- | ---------------------- | - | ----------------------- |  | ------------------- | - |  | - | -------
|                                                  |  | Amortized Cost |         | Gross Unrealized Gains |   | Gross Unrealized Losses |  | EstimatedFair Value
|Held-to-maturity at December 31, 2002:            |  |                |         |                        |   |                         |  |                     |   |  |   |        
|U. S. government obligations:                     |  |                |         |                        |   |                         |  |                     |   |  |   |        
|Within one year                                   |  | $              | 5,231   |                        | $ | 42                      |  | $                   |  |  | $ | 5,273  
|After one year but within five years              |  |                | 6,255   |                        |   | 81                      |  |                     |  |  |   | 6,336  
|After five years but within ten years             |  |                | 6,497   |                        |   | 41                      |  |                     |  |  |   | 6,538  
|After ten years                                   |  |                | 2,248   |                        |   | 55                      |  |                     |  |  |   | 2,303  
|                                                  |  |                |         |                        |   |                         |  |                     |   |  |   |        
|Total                                             |  |                | 20,231  |                        |   | 219                     |  |                     |  |  |   | 20,450 
|                                                  |  |                |         |                        |   |                         |  |                     |   |  |   |        
|Obligations of states and political subdivisions: |  |                |         |                        |   |                         |  |                     |   |  |   |        
|Within one year                                   |  |                | 2,495   |                        |   | 17                      |  |                     |  |  |   | 2,512  
|After one year but within five years              |  |                | 9,184   |                        |   | 422                     |  |                     |  |  |   | 9,606  
|After five years but within ten years             |  |                | 365     |                        |   | 36                      |  |                     |  |  |   | 401    
|After ten years                                   |  |                |        |                        |   |                        |  |                     |  |  |   |       
|                                                  |  |                |         |                        |   |                         |  |                     |   |  |   |        
|Total                                             |  |                | 12,044  |                        |   | 475                     |  |                     |  |  |   | 12,519 
|                                                  |  |                |         |                        |   |                         |  |                     |   |  |   |        
|Other securities:                                 |  |                |         |                        |   |                         |  |                     |   |  |   |        
|Within one year                                   |  |                |        |                        |   |                        |  |                     |  |  |   |       
|After one year but within five years              |  |                | 11      |                        |   | 1                       |  |                     |  |  |   | 12     
|After five years but within ten years             |  |                | 10      |                        |   | 1                       |  |                     |  |  |   | 11     
|After ten years                                   |  |                | 2,247   |                        |   | 29                      |  |                     |  |  |   | 2,276  
|                                                  |  |                |         |                        |   |                         |  |                     |   |  |   |        
|Total                                             |  |                | 2,268   |                        |   | 31                      |  |                     |  |  |   | 2,299  
|                                                  |  |                |         |                        |   |                         |  |                     |   |  |   |        
|Total held-to-maturity at December 31, 2002       |  | $              | 34,543  |                        | $ | 725                     |  | $                   |  |  | $ | 35,268 
|                                                  |  |                |         |                        |   |                         |  |                     |   |  |   |        
|                                                  |  |                |         |                       
|Available-for-sale at December 31, 2002:          |  |                |         |                        |   |                         |  |                     |   |  |   |        
|U. S. government obligations:                     |  |                |         |                        |   |                         |  |                     |   |  |   |        
|Within one year                                   |  | $              | 416,855 |                        | $ | 5,163                   |  | $                   |  |  | $ | 422,018
|After one year but within five years              |  |                | 416,605 |                        |   | 7,423                   |  |                     |  |  |   | 424,028
|                                                  |  |                |         |                        |   |                         |  |                     |   |  |   |        
|Total                                             |  |                | 833,460 |                        |   | 12,586                  |  |                     |  |  |   | 846,046
|                                                  |  |                |         |                        |   |                         |  |                     |   |  |   |        
|Obligations of states and political subdivisions: |  |                |         |                        |   |                         |  |                     |   |  |   |        
|After five years but within ten years             |  |                | 113     |                        |   | 5                       |  |                     |  |  |   | 118    
|After ten years                                   |  |                | 243     |                        |   | 11                      |  |                     |  |  |   | 254    
|                                                  |  |                |         |                        |   |                         |  |                     |   |  |   |        
|Total                                             |  |                | 356     |                        |   | 16                      |  |                     |  |  |   | 372    
|                                                  |  |                |         |                        |   |                         |  |                     |   |  |   |        
|Other securities:                                 |  |                |         |                        |   |                         |  |                     |   |  |   |        
|After five years but within ten years             |  |                | 4,636   |                        |   | 179                     |  |                     |   |  |   | 4,815  
|After ten years                                   |  |                | 2,701   |                        |   | 78                      |  |                     |  |  |   | 2,779  
|                                                  |  |                |         |                        |   |                         |  |                     |   |  |   |        
|Total                                             |  |                | 7,337   |                        |   | 257                     |  |                     |  |  |   | 7,594  
|                                                  |  |                |         |                        |   |                         |  |                     |   |  |   |        
|Marketable equity securities                      |  |                | 10,155  |                        |   | 17,164                  |  |                     | 4 |  |   | 27,315 
|                                                  |  |                |         |                        |   |                         |  |                     |   |  |   |        
|Total available-for-sale at December 31, 2002     |  | $              | 851,308 |                        | $ | 30,023                  |  | $                   | 4 |  | $ | 881,327
|                                                  |  |                |         |                        |   |                         |  |                     |   |  |   |        



Securities with
unrealized losses at December 31, 2003 were as follows:



|                                                 |  |                         |       |                     |   |                         |  |                     |   |  |   |  
|------------------------------------------------ |  | ----------------------- | ----- | ------------------- | - | ----------------------- |  | ------------------- | - |  | - | -
|                                                 |  | Less than Twelve Months |       | Over Twelve Months 
|                                                 |  | GrossUnrealizedLosses   |       | EstimatedFair Value |   | Gross Unrealized Losses |  | EstimatedFair Value
|U.S. government obligations                      |  | $                       | 904   |                     | $ | 194,928                 |  | $                   |  |  | $ | 
|Obligations of states and political subdivisions |  |                         | 10    |                     |   | 208                     |  |                     |  |  |   | 
|Mortgage-back securities                         |  |                         | 105   |                     |   | 12,823                  |  |                     |  |  |   | 
|Marketable equity securities                     |  |                         | 1     |                     |   |                        |  |                     |  |  |   | 
|                                                 |  |                         |       |                     |   |                         |  |                     |   |  |   |  
|Total securities with unrealized losses          |  | $                       | 1,020 |                     | $ | 207,959                 |  | $                   |  |  | $ | 
|                                                 |  |                         |       |                     |   |                         |  |                     |   |  |   |  



48



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



Gross unrealized losses noted above have been in an unrealized loss position
for less than twelve months. These temporary unrealized losses are due to market changes in interest rates and market changes in credit spreads resulting in temporary unrealized losses as a normal fluctuation in the market price of securities.



Proceeds from the sale of available-for-sale investments were
$42,337, $34,244, and $48,465 in 2003, 2002, and 2001, respectively. Gross realized gains were $781, $462, and $4,961 in 2003, 2002, and 2001, respectively. There were no gross realized losses in 2003 and 2002. Gross realized losses were $14 in
2001.



Excluding securities issued by the U.S. Government and
its agencies and corporations, there were no investments securities from one issuer that exceeded ten percent of stockholders equity at December 31, 2003 or 2002.



Investment securities with an amortized cost of $754,277 and $670,741 at December 31, 2003 and 2002, respectively, were
pledged to secure public deposits as collateral for securities sold under agreements to repurchase, and for other purposes as required by law.



The components of other comprehensive income or loss are summarized below for the years ended December 31:



|                                                                   |  |                   |      |   |                          |   |      |                  |  |   |                   |   |  |                          |      |   |                  |   |      |                   |  |                          |     |   |                  |   |        |  |   |        |   |  |   |       
|------------------------------------------------------------------ |  | ----------------- | ---- | - | ------------------------ | - | ---- | ---------------- |  | - | ----------------- | - |  | ------------------------ | ---- | - | ---------------- | - | ---- | ----------------- |  | ------------------------ | --- | - | ---------------- | - | ------ |  | - | ------ | - |  | - | ------
|                                                                   |  | 2003              |      |   | 2002                     |   |      | 2001            
|                                                                   |  | Before Tax Amount |      |   | Tax (Expense) or Benefit |   |      | After Tax Amount |  |   | Before Tax Amount |   |  | Tax (Expense) or Benefit |      |   | After Tax Amount |   |      | Before Tax Amount |  | Tax (Expense) or Benefit |     |   | After Tax Amount
|Unrealized gains (losses) arising during period                    |  | $                 | 330  |   |                          | $ | (115 | )                |  | $ | 215               |   |  | $                        | 317  |   |                  | $ | (111 | )                 |  | $                        | 206 |   |                  | $ | 16,322 |  | $ | (5,712 | ) |  | $ | 10,610
|Less: reclassification adjustment for gains realized in net income |  |                   | 781  |   |                          |   | (273 | )                |  |   | 508               |   |  |                          | 462  |   |                  |   | (162 | )                 |  |                          | 300 |   |                  |   | 4,947  |  |   | (1,731 | ) |  |   | 3,216 
|                                                                   |  |                   |      |   |                          |   |      |                  |  |   |                   |   |  |                          |      |   |                  |   |      |                   |  |                          |     |   |                  |   |        |  |   |        |   |  |   |       
|Other comprehensive income                                         |  | $                 | (451 | ) |                          | $ | 158  |                  |  | $ | (293              | ) |  | $                        | (145 | ) |                  | $ | 51   |                   |  | $                        | (94 | ) |                  | $ | 11,375 |  | $ | (3,981 | ) |  | $ | 7,394 
|                                                                   |  |                   |      |   |                          |   |      |                  |  |   |                   |   |  |                          |      |   |                  |   |      |                   |  |                          |     |   |                  |   |        |  |   |        |   |  |   |       



NOTE 5LOANS



Gross loans are composed of the following:



|                                       |  |                    |           |      |   |          
|-------------------------------------- |  | ------------------ | --------- | ---- | - | ---------
|                                       |  | As of December 31,
|                                       |  | 2003               |           | 2002
|Real estateconstruction               |  | $                  | 128,997   |      | $ | 91,186   
|Real estatemortgage                   |  |                    | 1,936,883 |      |   | 1,476,497
|Installment loans to individuals       |  |                    | 532,624   |      |   | 546,947  
|Commercial, financial and agricultural |  |                    | 341,485   |      |   | 300,766  
|                                       |  |                    |           |      |   |          
|Total                                  |  | $                  | 2,939,989 |      | $ | 2,415,396
|                                       |  |                    |           |      |   |          



NOTE 6ALLOWANCE FOR LOAN
LOSSES



Activity in the allowance for loan losses is
summarized as follows:



|                                                      |  |                    |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------------- |  | ------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                      |  | As of December 31, |       
|                                                      |  | 2003               |        |   | 2002 |   |        | 2001 | 
|Balance at beginning of year                          |  | $                  | 43,305 |   |      | $ | 40,259 |      |  | $ | 37,001 |  
|Loans charged off                                     |  |                    | (8,023 | ) |      |   | (9,271 | )    |  |   | (6,640 | )
|Recoveries on loans previously charged off            |  |                    | 2,367  |   |      |   | 1,703  |      |  |   | 1,299  |  
|Provision for loan losses                             |  |                    | 9,843  |   |      |   | 10,068 |      |  |   | 8,599  |  
|Allowance for loans acquired in purchase transactions |  |                    | 3,776  |   |      |   | 546    |      |  |   |       |  
|                                                      |  |                    |        |   |      |   |        |      |  |   |        |  
|Balance at end of year                                |  | $                  | 51,268 |   |      | $ | 43,305 |      |  | $ | 40,259 |  
|                                                      |  |                    |        |   |      |   |        |      |  |   |        |  



49



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



Impaired loans are loans for which it is probable that all amounts,
including principal and interest, will not be collected in accordance with the contractual terms of the loan agreement. Bancorporation had no specific reserves recorded on impaired loans as of December 31, 2003 and $895 recorded on impaired loans as
of December 31, 2002 which represents the entire principal balance of the loans. Loans that were considered impaired under SFAS No. 114 at December 31, 2003 and 2002 held by Bancorporation, are summarized below:



|                                     |  |              |       |      |   |      
|------------------------------------ |  | ------------ | ----- | ---- | - | -----
|                                     |  | December 31,
|                                     |  | 2003         |       | 2002
|Nonaccrual loans                     |  | $            | 6,135 |      | $ | 5,204
|Loans past due 90 days or more       |  |              | 6,526 |      |   | 5,965
|Average investment in impaired loans |  |              | 9,613 |      |   | 6,470



At December 31, 2003
and 2002, Bancorporation did not have any loans for which terms had been modified in troubled debt restructurings. Interest income, which would have been recorded pursuant to the original terms of nonaccrual loans, was not significant.



NOTE 7PREMISES AND EQUIPMENT



Premises and equipment are summarized as follows:



|                                                |  |                    |         |   |      |   |         |  
|----------------------------------------------- |  | ------------------ | ------- | - | ---- | - | ------- | -
|                                                |  | As of December 31, |        
|                                                |  | 2003               |         |   | 2002 |  
|Land                                            |  | $                  | 46,305  |   |      | $ | 39,396  |  
|Buildings and improvements                      |  |                    | 94,988  |   |      |   | 77,114  |  
|Furniture and equipment                         |  |                    | 45,862  |   |      |   | 42,227  |  
|Leasehold improvements                          |  |                    | 1,477   |   |      |   | 1,350   |  
|Construction in progress                        |  |                    | 8,284   |   |      |   | 4,793   |  
|                                                |  |                    |         |   |      |   |         |  
|Total                                           |  |                    | 196,916 |   |      |   | 164,880 |  
|Less: Accumulated depreciation and amortization |  |                    | (62,160 | ) |      |   | (54,408 | )
|                                                |  |                    |         |   |      |   |         |  
|Total premises and equipment                    |  | $                  | 134,756 |   |      | $ | 110,472 |  
|                                                |  |                    |         |   |      |   |         |  



Provisions for
depreciation included in noninterest expense were $10,251, $8,105 and $7,401 for the years ended December 31, 2003, 2002, and 2001, respectively.



Bancorporation has entered into various noncancellable operating leases for land and buildings used in its operations. The leases expire over the next 25
years, and most contain renewal options from 1 to 25 years. Certain leases provide for periodic rate negotiation or escalation. The leases generally provide for payment of property taxes, insurance and maintenance costs by Bancorporation. Rental
expense, including month-to-month leases, reported in noninterest expense was $827, $889, and $906 for the years ended December 31, 2003, 2002, 2001, respectively. There are no contingent rentals, and the expense was offset by sublease rental income
of $1,082, $730, and $1,015 for the years ended December 31, 2003, 2002, and 2001, respectively.



At December 31, 2003 future minimum rental commitments under noncancellable operating leases that have a remaining life in excess of one year are
summarized as follows:



|                         |  |   |      
|------------------------ |  | - | -----
|2004                     |  | $ | 637  
|2005                     |  |   | 437  
|2006                     |  |   | 342  
|2007                     |  |   | 246  
|2008                     |  |   | 155  
|2009 and thereafter      |  |   | 240  
|                         |  |   |      
|Total minimum obligation |  | $ | 2,057
|                         |  |   |      



50



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



NOTE 8GOODWILL AND OTHER INTANGIBLES



In accordance with SFAS No. 142, no goodwill amortization was recorded for
the years ended December 31, 2003 and 2002. The discontinuation of amortization of goodwill had an immaterial effect on Bancorporations consolidated financial statements. Under the provisions of SFAS No. 142, goodwill is tested for impairment
on an annual basis to determine if the fair value of the reporting unit is below its carrying amount. Bancorporation completed its annual review as of December 31, 2003, and determined there was no impairment of goodwill as of this date. The changes
in the carrying amount of goodwill for the years ended December 31, 2002 and 2003 are as follows:



|                           |  |   |       
|-------------------------- |  | - | ------
|Balance, January 1, 2002   |  | $ | 3,217 
|Citizens Bank acquisition  |  |   | 1,262 
|Balance, December 31, 2002 |  |   | 4,479 
|First Banks acquisition    |  |   | 19,353
|Purchase price adjustments |  |   | 693   
|                           |  |   |       
|Balance, December 31, 2003 |  | $ | 24,525
|                           |  |   |       



During 2001,
Bancorporation recognized $228 of amortization expense related to goodwill. Bancorporation adopted SFAS No. 142, in its entirety, effective January 1, 2002. Proforma net income and net income per common share (basic and diluted) for 2001 was $34,031
and $36.28, respectively. Because there was no amortization expense related to goodwill in 2003 or 2002, the net income and net income per common share (basic and diluted) for these years were presented in the Consolidated Statements of Income.



The changes in the carrying amounts of other intangible assets
for the years ended December 31, 2002 and 2003 are as follows:



|                            |  |                       |        |   |                          |   |        |       |  |   |         |  
|--------------------------- |  | --------------------- | ------ | - | ------------------------ | - | ------ | ----- |  | - | ------- | -
|                            |  | CoreDepositIntangible |        |   | MortgageServicingRights* |   |        | Total | 
|Balance, January 1, 2002    |  | $                     | 40,432 |   |                          | $ | 4,462  |       |  | $ | 44,894  |  
|Amortization                |  |                       | (8,163 | ) |                          |   | (2,799 | )     |  |   | (10,962 | )
|Servicing rights originated |  |                       |       |   |                          |   | 3,702  |       |  |   | 3,702   |  
|Citizens Bank acquisition   |  |                       | 1,952  |   |                          |   |        |       |  |   | 1,952   |  
|Branch acquisitions         |  |                       | 1,413  |   |                          |   |       |       |  |   | 1,413   |  
|                            |  |                       |        |   |                          |   |        |       |  |   |         |  
|Balance, December 31, 2002  |  |                       | 35,634 |   |                          |   | 5,365  |       |  |   | 40,999  |  
|Amortization                |  |                       | (8,326 | ) |                          |   | (1,762 | )     |  |   | (10,088 | )
|Servicing rights originated |  |                       |       |   |                          |   | 2,855  |       |  |   | 2,855   |  
|First Banks acquisition     |  |                       | 3,400  |   |                          |   |        |       |  |   | 3,400   |  
|Branch acquisitions         |  |                       | 8,710  |   |                          |   |       |       |  |   | 8,710   |  
|                            |  |                       |        |   |                          |   |        |       |  |   |         |  
|Balance, December 31, 2003  |  | $                     | 39,418 |   |                          | $ | 6,458  |       |  | $ | 45,876  |  
|                            |  |                       |        |   |                          |   |        |       |  |   |         |  

---

|* |  | Valuation allowance for MSRs was $1,818 and $1,880 as of December 31, 2003 and 2002, respectively.
|- |  | --------------------------------------------------------------------------------------------------



Amortization expense on core deposit intangibles was $8,326, $8,163 and $9,624 for the years ended December 31, 2003,
2002, and 2001, respectively. The amortization expense related to mortgage servicing rights, included as a reduction of mortgage income in the Consolidated Statements of Income, was $1,762, $2,799, and $709 for the years ended December 31,
2003, 2002, and 2001, respectively. During 2003, amortization expense includes a net recapture of impairment of $62 ($1,801 of impairment charges and $1,863 recapture of impairment). Amortization expense includes $1,716 and $137 for impairment of
mortgage servicing rights for the year ended December 31, 2002 and 2001, respectively.



51



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



Key economic assumptions used to value total mortgage servicing rights as of
December 31, 2003 were as follows:



|                                  |  |           |  
|--------------------------------- |  | --------- | -
|Weighted-average life             |  | 3.5 years |  
|Discount rate                     |  | 8.00      | %
|Weighted average prepayment speed |  | 22.2      | %
|Weighted average coupon           |  | 5.95      | %



Bancorporation
projects the following aggregate amortization expense based on existing core deposit intangibles for each of the next five years:



For the year ended December 31:



|     |  |   |      
|---- |  | - | -----
|2004 |  | $ | 9,020
|2005 |  |   | 7,620
|2006 |  |   | 5,947
|2007 |  |   | 5,186
|2008 |  |   | 4,898



NOTE 9DEPOSITS



Deposits and related interest expense are summarized as
follows:



|                                                   |  |                       |           |                                          |   |           |  |      |        |      |   |        |  |   |       
|-------------------------------------------------- |  | --------------------- | --------- | ---------------------------------------- | - | --------- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                                   |  | Deposits December 31, |           | Interest Expense Year Ended December 31,
|                                                   |  | 2003                  |           | 2002                                     |   | 2003      |  | 2002 |        | 2001
|Demand                                             |  | $                     | 651,332   |                                          | $ | 575,632   |  | $    |       |      | $ |       |  | $ |      
|Savings:                                           |  |                       |           |                                          |   |           |  |      |        |      |   |        |  |   |       
|NOW accounts                                       |  |                       | 1,314,862 |                                          |   | 1,079,637 |  |      | 7,584  |      |   | 9,483  |  |   | 16,559
|Market rate accounts                               |  |                       | 342,452   |                                          |   | 316,405   |  |      | 1,918  |      |   | 3,233  |  |   | 6,900 
|Other                                              |  |                       | 25,083    |                                          |   | 15,272    |  |      | 107    |      |   | 94     |  |   | 223   
|Time:                                              |  |                       |           |                                          |   |           |  |      |        |      |   |        |  |   |       
|Certificates of deposit in excess of $100 thousand |  |                       | 304,620   |                                          |   | 259,959   |  |      | 7,462  |      |   | 8,401  |  |   | 9,173 
|Other certificates of deposit                      |  |                       | 1,075,873 |                                          |   | 1,029,103 |  |      | 24,986 |      |   | 33,511 |  |   | 55,314
|                                                   |  |                       |           |                                          |   |           |  |      |        |      |   |        |  |   |       
|Total                                              |  | $                     | 3,714,222 |                                          | $ | 3,276,008 |  | $    | 42,057 |      | $ | 54,722 |  | $ | 88,169
|                                                   |  |                       |           |                                          |   |           |  |      |        |      |   |        |  |   |       



NOTE 10INCOME TAXES



The components of consolidated income tax expense
(benefit) are as follows:



|                         |  |                                 |        |   |      |   |        |      |  |   |        |  
|------------------------ |  | ------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                         |  | For the Year Ended December 31, |       
|                         |  | 2003                            |        |   | 2002 |   |        | 2001 | 
|Current:                 |  |                                 |        |   |      |   |        |      |  |   |        |  
|Federal                  |  | $                               | 21,904 |   |      | $ | 19,606 |      |  | $ | 17,316 |  
|State                    |  |                                 | 1,856  |   |      |   | 1,781  |      |  |   | 1,447  |  
|                         |  |                                 |        |   |      |   |        |      |  |   |        |  
|                         |  |                                 | 23,760 |   |      |   | 21,387 |      |  |   | 18,763 |  
|                         |  |                                 |        |   |      |   |        |      |  |   |        |  
|Deferred                 |  |                                 | (2,028 | ) |      |   | (723   | )    |  |   | (2,637 | )
|                         |  |                                 |        |   |      |   |        |      |  |   |        |  
|Total income tax expense |  | $                               | 21,732 |   |      | $ | 20,664 |      |  | $ | 16,126 |  
|                         |  |                                 |        |   |      |   |        |      |  |   |        |  



52



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



The significant components of Bancorporations deferred tax liabilities
and assets recorded pursuant to SFAS No. 109, which are included in Other assets in the Consolidated Statements of Condition, are as follows:



|                                    |  |                    |        |      |   |        |  |   |       
|----------------------------------- |  | ------------------ | ------ | ---- | - | ------ |  | - | ------
|                                    |  | As of December 31,
|                                    |  | 2003               |        | 2002 |   | 2001  
|Deferred tax liabilities:           |  |                    |        |      |   |        |  |   |       
|Pension costs                       |  | $                  | 3,789  |      | $ | 3,757  |  | $ | 2,984 
|Mark-to-market of equity securities |  |                    | 10,348 |      |   | 10,507 |  |   | 10,556
|Tax depreciation over book          |  |                    | 673    |      |   | 478    |  |   |      
|Other, net                          |  |                    | 1,027  |      |   | 1,044  |  |   | 953   
|                                    |  |                    |        |      |   |        |  |   |       
|Total deferred tax liabilities      |  |                    | 15,837 |      |   | 15,786 |  |   | 14,493
|Deferred tax assets:                |  |                    |        |      |   |        |  |   |       
|Book depreciation over tax          |  |                    |       |      |   |       |  |   | 351   
|Allowance for loan losses           |  |                    | 17,944 |      |   | 15,157 |  |   | 14,327
|Employee benefits                   |  |                    | 1,702  |      |   | 1,680  |  |   | 1,261 
|Amortizationintangibles            |  |                    | 8,491  |      |   | 9,480  |  |   | 8,609 
|Other, net                          |  |                    | 1,317  |      |   | 1,459  |  |   | 1,163 
|                                    |  |                    |        |      |   |        |  |   |       
|Total deferred tax assets           |  |                    | 29,454 |      |   | 27,776 |  |   | 25,711
|                                    |  |                    |        |      |   |        |  |   |       
|Net deferred tax asset              |  | $                  | 13,617 |      | $ | 11,990 |  | $ | 11,218
|                                    |  |                    |        |      |   |        |  |   |       



Bancorporation has no
valuation allowance for deferred tax assets based on managements belief that it is more likely than not that the deferred tax assets will be realized.



Total income tax expense differs from the amount of income tax determined by applying the U. S. statutory federal income tax rate (35%) to pretax income
as a result of the following differences:



|                                                      |  |                                 |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                      |  | For the Year Ended December 31, |       
|                                                      |  | 2003                            |        |   | 2002 |   |        | 2001 | 
|Tax expense at statutory rate                         |  | $                               | 21,565 |   |      | $ | 20,899 |      |  | $ | 17,501 |  
|Increase (decrease) in taxes resulting from:          |  |                                 |        |   |      |   |        |      |  |   |        |  
|Non-taxable interest                                  |  |                                 | (653   | ) |      |   | (753   | )    |  |   | (1,473 | )
|State income taxes, net of federal income tax benefit |  |                                 | 1,206  |   |      |   | 1,158  |      |  |   | 941    |  
|Other, net                                            |  |                                 | (386   | ) |      |   | (640   | )    |  |   | (843   | )
|                                                      |  |                                 |        |   |      |   |        |      |  |   |        |  
|                                                      |  | $                               | 21,732 |   |      | $ | 20,664 |      |  | $ | 16,126 |  
|                                                      |  |                                 |        |   |      |   |        |      |  |   |        |  



NOTE 11MORTGAGE SERVICING
ACTIVITY



Bancorporations mortgage servicing
portfolio approximated $1,017,912 and $918,680 at December 31, 2003 and 2002, respectively. Loans serviced for unrelated third parties are not included in the accompanying consolidated financial statements.



Bancorporation has issued mortgage-backed securities guaranteed by GNMA under
the provisions of the National Housing Act. The issuance of these securities, and the simultaneous placement of the related mortgages in trust, have been accounted for as sales of the related mortgages. The outstanding balances of the securities and
the related mortgages held in trust of, $3,153 and $4,433 at December 31, 2003 and 2002, respectively, are not considered to be assets or liabilities of the Bancorporation and, accordingly, are not included in the consolidated financial statements.



53



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



NOTE 12LONG-TERM DEBT



Components of long-term debt as of December 31 were as follows:



|                                                                                                                                         |  |      |        |      |   |       
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------
|                                                                                                                                         |  | 2003 |        | 2002
|Guaranteed Preferred Beneficial Interest in Bancorporations Junior Subordinated Deferrable Interest Debenture 8.25%, due March 15,
2028 |  | $    | 51,547 |      | $ | 50,000
|Subordinated notes payable:                                                                                                              |  |      |        |      |   |       
|7.50% maturing August 20, 2004                                                                                                           |  | $    |       |      | $ | 90    
|7.50% maturing October 1, 2007                                                                                                           |  |      | 1,056  |      |   | 1,056 
|7.50% maturing April 1, 2008 (issued by First Citizens)                                                                                  |  |      | 11,390 |      |   |      
|7.75% maturing August 20, 2009                                                                                                           |  |      | 873    |      |   | 873   
|7.75% maturing October 1, 2009                                                                                                           |  |      | 120    |      |   | 120   
|7.75% maturing April 1, 2010 (issued by First Citizens)                                                                                  |  |      | 3,208  |      |   |      
|8.00% maturing April 1, 2013 (issued by First Citizens)                                                                                  |  |      | 5,620  |      |   |      
|                                                                                                                                         |  |      |        |      |   |       
|                                                                                                                                         |  | $    | 22,267 |      | $ | 2,139 
|                                                                                                                                         |  |      |        |      |   |       
|Total long-term debt                                                                                                                     |  | $    | 73,814 |      | $ | 52,139
|                                                                                                                                         |  |      |        |      |   |       



Principal amounts due
for the next five years on long-term debt at December 31, 2003 are: 2004$90; 2005none; 2006none; 2007$1,056; and 2008$11,390.



A $15,000 committed unsecured revolving line of credit was established in 1997 with an unrelated financial institution and provides an interest rate
indexed to the London Interbank Offered Rate (LIBOR) plus 70 basis points. This line of credit contains certain restrictive covenants including limits on indebtedness, encumbrances, dividends and minimum net worth. Bancorporation was in
compliance with the covenants at December 31, 2003 and 2002, respectively. The line of credit outstanding which is included in Other liabilities in the Consolidated Statements of Condition was $-0- and $1,000 as of December 31, 2003 and
2002, respectively. The line of credit was extended to December 18, 2004 with an increase in the line amount to $25,000.



FCB/SC Capital Trust I, a statutory business trust (the Trust) created by Bancorporation, had outstanding at December 31, 2003, $50,000 (par
value $50,000) of 8.25% Capital Securities which will mature on March 15, 2028 (the Capital Securities). The principal assets of the Trust are $51,547 of Bancorporations 8.25% Junior Subordinated Deferrable Interest Debentures
which will mature on March 15, 2028. The balance of the securities can be prepaid, subject to possible regulatory approval, in whole or part at any time on or after March 15, 2008. Additionally, the Trust has issued $1,547 in liquidation amount of
its Common Securities which constitute all of its outstanding Common Securities to Bancorporation.



Under FIN 46, Bancorporation discontinued the consolidation of the Trust, totaling $1,547, within its consolidated financial statements. Effective
December 31, 2003, the deconsolidated portion of the Trust is reflected in the Consolidated Statements of Condition in Long-term debt at December 31, 2003. Bancorporation also recorded in the Consolidated Statements of Condition in
Other assets at December 31, 2003 the common capital securities issued by the Trust.



The Capital Securities and the Common Securities are included in Tier 1 capital for regulatory capital adequacy purposes. The obligations of
Bancorporation with respect to the issuance of the Capital Securities and the Common Securities constitute a full and unconditional guarantee by Bancorporation of the Trusts obligations with respect to the Capital Securities and Common
Securities. Subject to certain exceptions and limitations, Bancorporation may elect from time to time to defer subordinated debenture interest payments, which would result in a deferral of distribution payments on the related Capital Securities or
Common Securities.



54



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



NOTE 13STOCKHOLDERS EQUITY



Each share of voting common and preferred stock is entitled to one vote on
all matters on which stockholders vote. In certain cases, South Carolina law provides for class voting of shares and for voting rights for non-voting shares. Dividend rights of each series of preferred stock are cumulative, and upon liquidation,
each preferred stockholder is entitled to payment of par value or call amount for each share owned before any distribution to holders of common stock.



Series A, B, and F preferred stock may be redeemed by Bancorporation, at its option, at par or stated value. Series C, Series E, and G preferred stock may
be redeemed by Bancorporation, at its option, at a call price of $100, $200 and $50 per share, respectively. Series E preferred stock has no par value and is considered non-voting. Par value, number of shares authorized and outstanding, and
dividends paid for each series of redeemable preferred stock at December 31, 2003 and 2002 follows:



|       |  |                                                             |     |                            |        |        |   |                         |  |                            |       |        |        |                         |   |       |  |   |      
|------ |  | ----------------------------------------------------------- | --- | -------------------------- | ------ | ------ | - | ----------------------- |  | -------------------------- | ----- | ------ | ------ | ----------------------- | - | ----- |  | - | -----
|       |  |                                                             |     | 2003                       |        | 2002  
|Series |  | Par Value                                                   |     | Authorized And Outstanding |        | Amount |   | Cash Dividend Per Share |  | Authorized And Outstanding |       | Amount |        | Cash Dividend Per Share
|       |  | (dollars in thousands, except per share and par value data)
|A      |  | $                                                           | 50  |                            | 6,596  |        | $ | 330                     |  | $                          | 2.50  |        | 7,838  |                         | $ | 392   |  | $ | 2.50 
|B      |  |                                                             | 50  |                            | 11,810 |        |   | 591                     |  |                            | 2.50  |        | 11,810 |                         |   | 591   |  |   | 2.50 
|C      |  |                                                             | 20  |                            | 5,838  |        |   | 117                     |  |                            | 2.00  |        | 5,838  |                         |   | 117   |  |   | 2.00 
|E      |  |                                                             | NA  |                            | 498    |        |   | 100                     |  |                            | 10.00 |        | 498    |                         |   | 100   |  |   | 10.00
|F      |  |                                                             | 50  |                            | 31,365 |        |   | 1,567                   |  |                            | 2.50  |        | 31,365 |                         |   | 1,567 |  |   | 2.50 
|G      |  |                                                             | N/A |                            | 8,113  |        |   | 406                     |  |                            | 2.50  |        | 8,113  |                         |   | 406   |  |   | 2.50 
|       |  |                                                             |     |                            |        |        |   |                         |  |                            |       |        |        |                         |   |       |  |   |      
|       |  |                                                             |     |                            |        |        | $ | 3,111                   |  |                            |       |        |        |                         | $ | 3,173 |  |   |      
|       |  |                                                             |     |                            |        |        |   |                         |  |                            |       |        |        |                         |   |       |  |   |      



The Bank and Exchange
are subject to dividend limitations mandated by the South Carolina State Board of Financial Institutions. Citizens is subject to dividend limitations mandated by the Georgia Department of Banking and Finance. Bancorporations dividends may be
restricted by the requirements of the term loan agreement described in Note 12 which requires that the Bank maintain a regulatory leverage capital ratio of 4.00%. At December 31, 2003 the Banks leverage capital ratio was 7.22%.



55



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



NOTE 14EMPLOYEE BENEFITS



The Bank has a noncontributory defined benefit pension plan (the
Plan) which covers substantially all of its employees. Retirement benefits under the Plan are based on an employees length of service and highest average annual compensation for five consecutive years during the last ten years of
employment. Contributions to the Plan are based upon the projected unit credit actuarial funding method and are limited to the amounts that are currently deductible for tax reporting purposes. Employees must be employed by the Bank for at least one
year to participate in the Plan. The employees fully vest in the Plan after five years of service. The Bank uses a December 31 measurement date for this Plan.



The following table details the changes both in the actuarial present value of the pension benefit obligation and in the Plans assets, presents
the funded status of the Plan at each year end and identifies the related amounts recognized and unrecognized in Bancorporations Consolidated Statements of Condition. The table also presents the weighted-average assumptions used to determine
the benefit obligation at each year end.



|                                                                                 |  |              |        |   |      |   |        |  
|-------------------------------------------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                                                                 |  | December 31, |       
|                                                                                 |  | 2003         |        |   | 2002 |  
|Change in benefit obligation:                                                    |  |              |        |   |      |   |        |  
|Benefit obligation at beginning of year                                          |  | $            | 45,772 |   |      | $ | 38,195 |  
|Service cost                                                                     |  |              | 2,576  |   |      |   | 1,924  |  
|Interest cost                                                                    |  |              | 3,047  |   |      |   | 2,777  |  
|Actuarial loss                                                                   |  |              | 7,408  |   |      |   | 4,430  |  
|Benefits paid                                                                    |  |              | (2,022 | ) |      |   | (1,554 | )
|                                                                                 |  |              |        |   |      |   |        |  
|Benefit obligation at end of year                                                |  |              | 56,781 |   |      |   | 45,772 |  
|Change in plan assets:                                                           |  |              |        |   |      |   |        |  
|Fair value of plan assets at beginning of year                                   |  |              | 42,562 |   |      |   | 41,192 |  
|Actual return on plan assets                                                     |  |              | 5,388  |   |      |   | 112    |  
|Employer contribution                                                            |  |              | 4,013  |   |      |   | 2,812  |  
|Benefits paid                                                                    |  |              | (2,022 | ) |      |   | (1,554 | )
|                                                                                 |  |              |        |   |      |   |        |  
|Fair value of plan assets at end of year                                         |  |              | 49,941 |   |      |   | 42,562 |  
|                                                                                 |  |              |        |   |      |   |        |  
|Funded status and amounts recognized and unrecognized:                           |  |              |        |   |      |   |        |  
|Funded status                                                                    |  |              | (6,840 | ) |      |   | (3,210 | )
|Unrecognized prior service cost                                                  |  |              |       |   |      |   | 83     |  
|Unrecognized loss                                                                |  |              | 17,691 |   |      |   | 13,009 |  
|                                                                                 |  |              |        |   |      |   |        |  
|Net amount recognized                                                            |  | $            | 10,851 |   |      | $ | 9,882  |  
|                                                                                 |  |              |        |   |      |   |        |  
|Weighted-average assumptions used to determine benefit obligations, end of year: |  |              |        |   |      |   |        |  
|Discount rate                                                                    |  |              | 6.00   | % |      |   | 6.75   | %
|Rate of future compensation increases                                            |  |              | 4.00   | % |      |   | 4.00   | %



The accumulated
benefit obligation was $45,352 and $36,971 at December 31, 2003 and 2002, respectively. The estimated employer contributions for 2004 are $3,710.



The following table details the components of pension expense recognized in Bancorporations Consolidated Statements of Income:



|                                   |  |                                |        |   |      |   |        |      |  |   |        |  
|---------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                   |  | For the Year EndedDecember 31, |       
|                                   |  | 2003                           |        |   | 2002 |   |        | 2001 | 
|Service costs                      |  | $                              | 2,576  |   |      | $ | 1,924  |      |  | $ | 1,397  |  
|Interest costs                     |  |                                | 3,047  |   |      |   | 2,777  |      |  |   | 2,482  |  
|Expected return on plan assets     |  |                                | (3,589 | ) |      |   | (3,566 | )    |  |   | (3,366 | )
|Amortization of prior service cost |  |                                | 83     |   |      |   | 183    |      |  |   | 183    |  
|Recognized net actuarial loss      |  |                                | 926    |   |      |   | 176    |      |  |   |       |  
|                                   |  |                                |        |   |      |   |        |      |  |   |        |  
|Net pension expense                |  | $                              | 3,043  |   |      | $ | 1,494  |      |  | $ | 696    |  
|                                   |  |                                |        |   |      |   |        |      |  |   |        |  



56



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



Bancorporation used the following weighted-average assumptions in
determining the net pension expense for each of the three years ended December 31, 2003:



|                                         |  |      |   |  |      |   |  |      |  
|---------------------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                                         |  | 2003 |   |  | 2002 |   |  | 2001 |  
|Discount rate                            |  | 6.50 | % |  | 7.25 | % |  | 7.75 | %
|Rate of future compensation increases    |  | 4.00 | % |  | 4.00 | % |  | 4.00 | %
|Expected long-term return on plan assets |  | 8.00 | % |  | 8.50 | % |  | 8.50 | %



The following table
presents the percentage allocation of Plan assets by investment category at:



|                     |  |              |   |  |        |  
|-------------------- |  | ------------ | - |  | ------ | -
|                     |  | December 31, |  
|                     |  | 2003         |   |  | 2002   |  
|Asset allocation:    |  |              |   |  |        |  
|Equity securities    |  | 40.1         | % |  | 36.7   | %
|Debt securities      |  | 49.5         |   |  | 50.7   |  
|Cash and equivalents |  | 10.4         |   |  | 12.6   |  
|                     |  |              |   |  |        |  
|Total                |  | 100.00       | % |  | 100.00 | %
|                     |  |              |   |  |        |  



The investment policy
for this Plan establishes an asset allocation whereby fixed income securities must comprise no lower than 50% of Plan assets and whereby equity securities cannot exceed 50% of Plan assets. Equity securities include $1,919 and $1,628 of
Bancorporations Capital Securities and $4,038 and $3,093 of Bancorporations common stock as of December 31, 2003 and 2002, respectively.



The Bancorporation pension investment committee establishes investment policies and strategies and regularly monitors the performance of the funds.
Bancorporations investment strategy with respect to pension assets is to invest the assets in accordance with ERISA and fiduciary standards. The long-term primary objectives for the Plan are to provide for a reasonable amount of long-term
growth of capital, without undue exposure to risk and provide investment results that meet or exceed the Plans actuarially long-term rate of return.



The weighted average expected long-term rate of return on Plan assets represents the average rate of return expected to be earned on Plan assets over the
period the benefits included in the benefit obligation are to be paid. In developing the expected rate of return, Bancorporation considers the actual historical and current returns on Plan assets. Using this reference information, Bancorporation
develops forward-looking return expectations for the Plan.



The
employees of Citizens became participants in the Plan effective October 1, 2002 and receive service credit back to date of hire for vesting purposes only. The employees of First Banks became participants in the Plan effective April 1, 2003 and
receive service credit back to date of hire for vesting purposes only. Neither of these participants have prior credit for purposes of benefit accrual.



Bancorporation has a contributory savings plan covering full-time employees who elect to participate including the employees of Citizens and First Banks
effective October 1, 2002 and April 1, 2003, respectively. Bancorporation matches 100% of the employees contribution of up to 3% of compensation and 50% of the employees contribution over 3% but not to exceed 6% of compensation. The
matching funds contributed by Bancorporation are immediately 100% vested. Matching contributions provided by Bancorporation were $1,820, $1,382, and $1,309 for the years ended December 31, 2003, 2002, and 2001, respectively, and are included in
salaries and employee benefits expense in the Consolidated Statements of Income. The Bank and Exchange contributory savings plan merged in 2001.



57



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



Bancorporation provides a supplemental retirement plan (the
Supplemental Plan) for certain members of management. Benefits under the Supplemental Plan are based on a percentage of the participants 2002 salary and will be paid evenly over a ten-year period after retirement. The present value
of the payments at retirement for current employees and the present value of remaining payments being paid to prior employees was determined using a discount rate of 6%, and totals $4,421.



According to the Supplemental Plan, if a participant dies before retirement,
death benefits will be paid to the participants designated beneficiary or estate for a ten-year period. In the event of death following retirement, but before the ten-year period payout is complete, the participants beneficiary or estate
will receive the remaining payments due at the same monthly rate. If employment is terminated, Bancorporation has no obligation under the Supplemental Plan. Bancorporation has the right to terminate the Supplemental Plan at any time.



Costs recognized under the Supplemental Plan for the years
ended December 31, 2003, 2002, and 2001 totaled $222, $1,107, and $537, respectively, and are included in salaries and employee benefits in the Consolidated Statements of Income.



NOTE 15COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS

WITH OFF-BALANCE SHEET RISK



While Bancorporation sees the opportunities and benefits of utilizing derivative financial instruments such as interest rate swaps and caps and floors to improve net interest income, Bancorporation has elected not to use such instruments
given their risk. Financial instruments with off-balance sheet risk include commitments to extend credit, standby letters of credit and commitments on mortgage loans held for resale. Generally, Bancorporation charges a fee to the customer to extend
these commitments as part of its normal banking activities. These fees are initially deferred and included in loans in the Consolidated Statements of Condition. Ultimately, such fees are recorded as an adjustment to yield over the related life of
the loan or, if the commitment expires unexercised, recognized in income upon expiration of the commitment.



A summary of the significant financial instruments with off-balance sheet risk follows:



|                                           |  |                                 |         |      |   |        
|------------------------------------------ |  | ------------------------------- | ------- | ---- | - | -------
|                                           |  | Contract Amount at December 31,
|                                           |  | 2003                            |         | 2002
|Commitments to extend credit               |  | $                               | 719,571 |      | $ | 670,007
|Letters of credit and financial guarantees |  |                                 | 6,154   |      |   | 6,367  
|                                           |  |                                 |         |      |   |        
|Total                                      |  | $                               | 725,725 |      | $ | 676,374
|                                           |  |                                 |         |      |   |        



Commitments to extend
credit are agreements to lend to a borrower as long as there are no violations of any conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many
of the commitments are expected to expire without being drawn upon, the total commitments do not necessarily represent future cash requirements. Bancorporation evaluates each borrowers credit worthiness on a case-by-case basis using the same
credit policies for on-balance sheet financial instruments. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on managements credit evaluation of the borrower. The type of collateral held varies, but may
include accounts receivable, inventory, property, plant and equipment, and income producing property.



Letters of credit and financial guarantees are conditional commitments issued by Bancorporation to guarantee the performance of a borrower to a third
party. As of December 31, 2003, Bancorporation had issued $6,154 in such guarantees predominantly for terms of one year or less and represent the maximum exposure under such instruments. These guarantees are primarily issued to support public and
private borrowing arrangements. The evaluations of credit worthiness, consideration of need for collateral, and credit risk involved in issuing letters of credit are essentially the same as that involved in extending loans to borrowers.



58



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



Most of Bancorporations business activity is with customers located in
South Carolina. A significant economic downturn in South Carolina could have a material adverse impact on the operations of Bancorporation. As of December 31, 2003, Bancorporation had no other significant concentrations of credit risk in the
loan portfolio.



Bancorporation is a defendant in litigation
arising out of normal banking activities. In the opinion of management and Bancorporations counsel, the ultimate resolution of these matters will not have a material effect on Bancorporations financial condition or results of operations.



NOTE 16RELATED PARTY TRANSACTIONS



Bancorporation has, and expects to have in the future, transactions in the
ordinary course of business with its directors, officers, principal stockholders and their associates on substantially the same terms (including interest rates and collateral on loans) as those prevailing for comparable transactions with others.
However, subject to the completion of length of service requirements and credit approval, all employees are eligible to receive reduced interest rates on extensions of credit. The transactions do not involve more than the normal risk of
collectibility.



Aggregate balances and activity related to
extensions of credit to officers, directors and their associates were as follows:



|                              |  |                   |       |  
|----------------------------- |  | ----------------- | ----- | -
|                              |  | December 31, 2003 |      
|Balance at beginning of year  |  | $                 | 3,393 |  
|New loans and additions       |  |                   | 413   |  
|Payments and other deductions |  |                   | (532  | )
|                              |  |                   |       |  
|Balance at end of year        |  | $                 | 3,274 |  
|                              |  |                   |       |  



Bancorporation has a
contract with First-Citizens Bank & Trust Company, Raleigh, North Carolina (FCBNC) for the purpose of outsourcing data processing and other services to include item processing, deposits, loans, general ledger and statement rendering
functions. Total expenses incurred under this contract were $12,253, $11,407 and $10,814 for the years ended December 31, 2003, 2002 and 2001, respectively. Bancorporation also has a correspondent banking relationship with FCBNC which also acts as
an investment custodian.Fees paid for this service were minimal for the three years ended December 31, 2003.



NOTE 17DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS



SFAS No. 107, Disclosure About Fair Value of Financial Instruments extends existing fair value disclosure practices for some instruments by
requiring entities to disclose the fair value of financial instruments, both assets and liabilities, recognized and not recognized in the Consolidated Statements of Condition.



For Bancorporation, approximately 95% of its assets and liabilities are considered financial instruments, as defined in SFAS
No. 107. Many of Bancorporations financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. It is not the intent of Bancorporation to liquidate
and therefore realize the difference between market value and carrying value and, even if it were, there is no assurance that the estimated market values could be realized. Therefore, significant estimates and present value calculations were used by
Bancorporation for the purposes of this disclosure. Such estimates involve judgments as to economic conditions, risk characteristics and future expected loss experience of various financial instruments and other factors that cannot be determined
with precision. Thus, the information presented is not particularly relevant to predicting Bancorporations future earnings or cash flow.



59



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



Following is a description of the methods and assumptions used to estimate
the fair value of each class of Bancorporations financial instruments:



Cash and short-term investments:



The carrying
value is a reasonable estimation of fair value.



Investment securities:



Fair value is based upon quoted market prices, if
available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.



Loans:



For certain homogeneous categories of loans such as residential mortgages, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value for other types of loans is estimated by discounting the expected future cash flows using Bancorporations current interest rates at which loans would be made to borrowers with similar credit risk.



Deposits:



The fair value of demand deposits, savings accounts and money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity time deposits is estimated using the rates currently offered for deposits of similar remaining maturities.



Federal funds purchased and securities sold under agreements to repurchase:



The carrying value is a reasonable estimation of fair value.



Long-term debt:



Rates currently available to Bancorporation for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.



Commitments to extend credit and standby letters of credit:



The fair values of commitments to extend credit and standby letters of
credit are generally based upon fees charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counter parties credit standing. The estimated fair value of the Bancorporations standby
letters of credit is nominal. The estimated fair value of the off-balance sheet commitments is nominal since the committed rates approximate current rates offered for commitments with similar rate and maturity characteristics and since the estimated
credit risk associated with such commitments is not significant.



60



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



The carrying amounts and estimated fair values of Bancorporations
financial instruments are as follows:



|                                                                           |  |                   |           |                      |   |                 |  |                      |           |  |   |          
|-------------------------------------------------------------------------- |  | ----------------- | --------- | -------------------- | - | --------------- |  | -------------------- | --------- |  | - | ---------
|                                                                           |  | December 31, 2003 |           | December 31, 2002   
|                                                                           |  | Carrying Amount   |           | Estimated Fair Value |   | Carrying Amount |  | Estimated Fair Value
|Financial assets:                                                          |  |                   |           |                      |   |                 |  |                      |           |  |   |          
|Cash and federal funds sold                                                |  | $                 | 221,330   |                      | $ | 221,330         |  | $                    | 287,373   |  | $ | 287,373  
|Investment securities                                                      |  |                   | 922,229   |                      |   | 922,527         |  |                      | 915,870   |  |   | 916,595  
|Loans                                                                      |  |                   | 2,939,989 |                      |   | 2,944,859       |  |                      | 2,415,396 |  |   | 2,438,630
|Financial liabilities:                                                     |  |                   |           |                      |   |                 |  |                      |           |  |   |          
|Deposits                                                                   |  |                   | 3,714,222 |                      |   | 3,714,519       |  |                      | 3,276,008 |  |   | 3,282,294
|Federal funds purchased and securities sold under agreements to repurchase |  |                   | 148,864   |                      |   | 148,864         |  |                      | 130,360   |  |   | 130,360  
|Long-term debt                                                             |  |                   | 73,814    |                      |   | 74,619          |  |                      | 52,139    |  |   | 56,077   



NOTE 18CAPITAL MATTERS



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



61



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



Quantitative measures established by regulation to ensure capital adequacy
require Bancorporation to maintain minimum amounts and ratios of Total and Tier I capital to risk weighted assets, and of Tier I capital to average assets. Management believes, as of December 31, 2003, that Bancorporation meets all capital adequacy
requirements to which it is subject.



To be categorized as
well-capitalized, Bancorporation must maintain minimum Total risk-based and Tier I risk-based ratios as set forth in the table below. As seen below, Bancorporation is considered to be a well-capitalized institution per
regulatory definitions. There are no conditions or events subsequent to December 31, 2003, that management believes would change the capital amounts and ratios presented below for Bancorporation, Bank, Exchange or Citizens.



|                                        |  |                         |         |           |                               |   |        |                                                                  |           |  |      |        |  |           |         |  |       |  
|--------------------------------------- |  | ----------------------- | ------- | --------- | ----------------------------- | - | ------ | ---------------------------------------------------------------- | --------- |  | ---- | ------ |  | --------- | ------- |  | ----- | -
|                                        |  | Actual                  |         |           | For Capital Adequacy Purposes |   |        | To Be Well Capitalized Under Prompt Corrective Action Provisions |          
|                                        |  | Amount                  |         | Ratio (%) |                               |   | Amount |                                                                  | Ratio (%) |  |      | Amount |  | Ratio (%) |        
|                                        |  | As of December 31, 2003 |        
|Total capital to risk weighted assets:  |  |                         |         |           |                               |   |        |                                                                  |           |  |      |        |  |           |         |  |       |  
|Bancorporation                          |  | $                       | 361,513 |           | 12.18                         | % |        | $                                                                | 237,534   |  | 8.00 | %      |  | $         | 296,918 |  | 10.00 | %
|Bank                                    |  |                         | 326,331 |           | 11.38                         |   |        |                                                                  | 229,346   |  | 8.00 |        |  |           | 286,683 |  | 10.00 |  
|Exchange                                |  |                         | 16,658  |           | 23.69                         |   |        |                                                                  | 5,626     |  | 8.00 |        |  |           | 7,032   |  | 10.00 |  
|Citizens                                |  |                         | 4,209   |           | 16.59                         |   |        |                                                                  | 2,029     |  | 8.00 |        |  |           | 2,537   |  | 10.00 |  
|Tier I capital to risk weighted assets: |  |                         |         |           |                               |   |        |                                                                  |           |  |      |        |  |           |         |  |       |  
|Bancorporation                          |  |                         | 306,423 |           | 10.32                         |   |        |                                                                  | 118,767   |  | 4.00 |        |  |           | 178,151 |  | 6.00  |  
|Bank                                    |  |                         | 272,388 |           | 9.50                          |   |        |                                                                  | 114,673   |  | 4.00 |        |  |           | 172,010 |  | 6.00  |  
|Exchange                                |  |                         | 15,831  |           | 22.51                         |   |        |                                                                  | 2,813     |  | 4.00 |        |  |           | 4,219   |  | 6.00  |  
|Citizens                                |  |                         | 3,889   |           | 15.33                         |   |        |                                                                  | 1,015     |  | 4.00 |        |  |           | 1,522   |  | 6.00  |  
|Tier I capital to average assets:       |  |                         |         |           |                               |   |        |                                                                  |           |  |      |        |  |           |         |  |       |  
|Bancorporation                          |  |                         | 306,423 |           | 7.29                          |   |        |                                                                  | 168,142   |  | 4.00 |        |  |           | 210,178 |  | 5.00  |  
|Bank                                    |  |                         | 272,388 |           | 7.22                          |   |        |                                                                  | 150,903   |  | 4.00 |        |  |           | 188,629 |  | 5.00  |  
|Exchange                                |  |                         | 15,831  |           | 15.53                         |   |        |                                                                  | 4,077     |  | 4.00 |        |  |           | 5,097   |  | 5.00  |  
|Citizens                                |  |                         | 3,889   |           | 8.78                          |   |        |                                                                  | 1,773     |  | 4.00 |        |  |           | 2,216   |  | 5.00  |  
|                                        | 
|                                        |  | As of December 31, 2002 |        
|Total capital to risk weighted assets:  |  |                         |         |           |                               |   |        |                                                                  |           |  |      |        |  |           |         |  |       |  
|Bancorporation                          |  | $                       | 325,282 |           | 13.01                         | % |        | $                                                                | 199,966   |  | 8.00 | %      |  | $         | 249,957 |  | 10.00 | %
|Bank                                    |  |                         | 296,348 |           | 12.35                         |   |        |                                                                  | 192,008   |  | 8.00 |        |  |           | 240,010 |  | 10.00 |  
|Exchange                                |  |                         | 15,247  |           | 21.08                         |   |        |                                                                  | 5,787     |  | 8.00 |        |  |           | 7,234   |  | 10.00 |  
|Citizens                                |  |                         | 4,516   |           | 20.60                         |   |        |                                                                  | 1,754     |  | 8.00 |        |  |           | 2,192   |  | 10.00 |  
|Tier I capital to risk weighted assets: |  |                         |         |           |                               |   |        |                                                                  |           |  |      |        |  |           |         |  |       |  
|Bancorporation                          |  |                         | 293,961 |           | 11.76                         |   |        |                                                                  | 99,983    |  | 4.00 |        |  |           | 149,974 |  | 6.00  |  
|Bank                                    |  |                         | 266,205 |           | 11.09                         |   |        |                                                                  | 96,004    |  | 4.00 |        |  |           | 144,006 |  | 6.00  |  
|Exchange                                |  |                         | 14,339  |           | 19.82                         |   |        |                                                                  | 2,894     |  | 4.00 |        |  |           | 4,341   |  | 6.00  |  
|Citizens                                |  |                         | 4,239   |           | 19.34                         |   |        |                                                                  | 877       |  | 4.00 |        |  |           | 1,315   |  | 6.00  |  
|Tier I capital to average assets:       |  |                         |         |           |                               |   |        |                                                                  |           |  |      |        |  |           |         |  |       |  
|Bancorporation                          |  |                         | 293,961 |           | 7.91                          |   |        |                                                                  | 148,605   |  | 4.00 |        |  |           | 185,756 |  | 5.00  |  
|Bank                                    |  |                         | 266,205 |           | 7.53                          |   |        |                                                                  | 141,470   |  | 4.00 |        |  |           | 176,838 |  | 5.00  |  
|Exchange                                |  |                         | 14,339  |           | 13.98                         |   |        |                                                                  | 4,104     |  | 4.00 |        |  |           | 5,130   |  | 5.00  |  
|Citizens                                |  |                         | 4,239   |           | 9.50                          |   |        |                                                                  | 1,785     |  | 4.00 |        |  |           | 2,232   |  | 5.00  |  



62



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



NOTE 19BANCORPORATION (PARENT COMPANY INFORMATION ONLY)



Bancorporations principal asset is its investments in its wholly-owned
subsidiaries, the Bank, Exchange, and Citizens, and its principal source of income is dividends from the Bank. As discussed in Note 13, the Bank, Exchange, and Citizens have dividend limitations regulated by the applicable state regulatory agencies.



Bancorporations condensed balance sheets and the related
condensed statements of income and of cash flows are as follows:



BALANCE
SHEET DATA



|                                                                          |  |              |         |      |   |        
|------------------------------------------------------------------------- |  | ------------ | ------- | ---- | - | -------
|                                                                          |  | December 31,
|                                                                          |  | 2003         |         | 2002
|Assets:                                                                   |  |              |         |      |   |        
|Cash                                                                      |  | $            | 1,092   |      | $ | 58     
|Investments in the subsidiaries ($685 related to nonbanking subsidiaries) |  |              | 358,954 |      |   | 335,166
|Other assets                                                              |  |              | 44,589  |      |   | 30,903 
|                                                                          |  |              |         |      |   |        
|Total assets                                                              |  | $            | 404,635 |      | $ | 366,127
|                                                                          |  |              |         |      |   |        
|Liabilities and stockholders equity:                                     |  |              |         |      |   |        
|Long term debt                                                            |  | $            | 53,686  |      | $ | 53,686 
|Other liabilities                                                         |  |              | 11,366  |      |   | 8,857  
|Stockholders equity                                                      |  |              | 339,583 |      |   | 303,584
|                                                                          |  |              |         |      |   |        
|Total liabilities and stockholders equity                                |  | $            | 404,635 |      | $ | 366,127
|                                                                          |  |              |         |      |   |        



INCOME STATEMENT DATA



|                                                                              |  |                                |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                              |  | For the Year EndedDecember 31, |       
|                                                                              |  | 2003                           |        |   | 2002 |   |        | 2001 | 
|Income:                                                                       |  |                                |        |   |      |   |        |      |  |   |        |  
|Dividends received from banking subsidiaries                                  |  | $                              | 11,344 |   |      | $ | 9,761  |      |  | $ | 233    |  
|Other                                                                         |  |                                | 694    |   |      |   | 761    |      |  |   | 4,458  |  
|                                                                              |  |                                |        |   |      |   |        |      |  |   |        |  
|                                                                              |  |                                | 12,038 |   |      |   | 10,522 |      |  |   | 4,691  |  
|Expenses:                                                                     |  |                                |        |   |      |   |        |      |  |   |        |  
|Interest                                                                      |  |                                | 4,423  |   |      |   | 4,349  |      |  |   | 4,327  |  
|Other                                                                         |  |                                | 476    |   |      |   | 278    |      |  |   | 4,080  |  
|                                                                              |  |                                |        |   |      |   |        |      |  |   |        |  
|                                                                              |  |                                | 4,899  |   |      |   | 4,627  |      |  |   | 8,407  |  
|                                                                              |  |                                |       
|Income before equity in undistributed earnings subsidiaries and income taxes  |  |                                | 7,139  |   |      |   | 5,895  |      |  |   | (3,716 | )
|Equity in undistributed earnings of the subsidiaries and associated companies |  |                                | 31,261 |   |      |   | 31,844 |      |  |   | 35,644 |  
|                                                                              |  |                                |        |   |      |   |        |      |  |   |        |  
|Income before income taxes                                                    |  |                                | 38,400 |   |      |   | 37,739 |      |  |   | 31,928 |  
|Applicable income tax benefit                                                 |  |                                | (1,483 | ) |      |   | (1,309 | )    |  |   | (1,948 | )
|                                                                              |  |                                |        |   |      |   |        |      |  |   |        |  
|Net income                                                                    |  | $                              | 39,883 |   |      | $ | 39,048 |      |  | $ | 33,876 |  
|                                                                              |  |                                |        |   |      |   |        |      |  |   |        |  



63



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(Dollars in thousands)



CASH FLOWS DATA



|                                                                                  |  |                                 |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                  |  | For the Year Ended December 31, |        
|                                                                                  |  | 2003                            |         |   | 2002 |   |         | 2001 | 
|Cash flows from operating activities:                                             |  |                                 |         |   |      |   |         |      |  |   |         |  
|Net income                                                                        |  | $                               | 39,883  |   |      | $ | 39,048  |      |  | $ | 33,876  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                 |         |   |      |   |         |      |  |   |         |  
|Equity in undistributed earnings of the subsidiaries and associated companies     |  |                                 | (31,261 | ) |      |   | (31,844 | )    |  |   | (35,644 | )
|Gain on sale of investment securities                                             |  |                                 |        |   |      |   |        |      |  |   | (3,748  | )
|(Increase) decrease in other assets                                               |  |                                 | (54     | ) |      |   | (878    | )    |  |   | 91      |  
|Increase in other liabilities                                                     |  |                                 | 369     |   |      |   | 127     |      |  |   | 876     |  
|                                                                                  |  |                                 |         |   |      |   |         |      |  |   |         |  
|Net cash used in operating activities                                             |  |                                 | 8,937   |   |      |   | 6,453   |      |  |   | (4,549  | )
|                                                                                  |  |                                 |        
|Cash flows from investing activities:                                             |  |                                 |         |   |      |   |         |      |  |   |         |  
|Purchases of held-to-maturity and available-for-sale securities                   |  |                                 | (3,112  | ) |      |   | (4,303  | )    |  |   | (3,081  | )
|Sales and maturities held-to-maturity and available-for-sale securities           |  |                                 |        |   |      |   |        |      |  |   | 15,440  |  
|Payments for investments to subsidiaries                                          |  |                                 | (200    | ) |      |   | (6,160  | )    |  |   |        |  
|                                                                                  |  |                                 |         |   |      |   |         |      |  |   |         |  
|Net cash (used in) provided by investing activities                               |  |                                 | (3,312  | ) |      |   | (10,463 | )    |  |   | 12,359  |  
|                                                                                  |  |                                 |        
|Cash flows from financing activities:                                             |  |                                 |         |   |      |   |         |      |  |   |         |  
|Net change in short-term borrowings                                               |  |                                 | (1,000  | ) |      |   | 1,000   |      |  |   |        |  
|Purchase of stock                                                                 |  |                                 | (2,380  | ) |      |   | (5,225  | )    |  |   | (2,984  | )
|Cash dividends paid                                                               |  |                                 | (1,211  | ) |      |   | (1,061  | )    |  |   | (1,064  | )
|                                                                                  |  |                                 |         |   |      |   |         |      |  |   |         |  
|Net cash used in financing activities                                             |  |                                 | (4,591  | ) |      |   | (5,286  | )    |  |   | (4,048  | )
|                                                                                  |  |                                 |         |   |      |   |         |      |  |   |         |  
|Net increase (decrease) in cash                                                   |  |                                 | 1,034   |   |      |   | (9,296  | )    |  |   | 3,762   |  
|Cash at beginning of year                                                         |  |                                 | 58      |   |      |   | 9,354   |      |  |   | 5,592   |  
|                                                                                  |  |                                 |         |   |      |   |         |      |  |   |         |  
|Cash at end of year                                                               |  | $                               | 1,092   |   |      | $ | 58      |      |  | $ | 9,354   |  
|                                                                                  |  |                                 |         |   |      |   |         |      |  |   |         |  
|Supplemental disclosure of cash flows information:                                |  |                                 |         |   |      |   |         |      |  |   |         |  
|Interest paid                                                                     |  | $                               | 4,288   |   |      | $ | 4,199   |      |  | $ | 4,125   |  
|                                                                                  |  |                                 |         |   |      |   |         |      |  |   |         |  



64



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FIRST CITIZENS BANCORPORATION BOARD OF DIRECTORS

(Directors of First Citizens Bank are identical to those of First Citizens Bancorporation)



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Jim B. Apple1,2 Chairman of the Board,
Chief Executive Officer and President First Citizens Bancorporation of South Carolina, Inc. Chairman of the Board and Chief Executive Officer First-Citizens Bank and Trust Company of South Carolina,
Columbia  Richard W. Blackmon1,2 Owner Richard Blackmon Construction Company, Lancaster  Peter M. Bristow1 Executive Vice President and Chief Operating Officer First Citizens Bancorporation of South Carolina, Inc.
President and Chief Operating Officer First-Citizens Bank and Trust
Company of South Carolina, Columbia  George H. Broadrick5 Retired, Charlotte, NC  Walter C. Cottingham, DVM Cottingham Veterinary Hospital, Kingstree  David
E. Dukes5 Attorney and Managing Partner Nelson Mullins Riley & Scarborough, L.L.P., Columbia  William E.
Hancock, III President Hancock Buick Company,
Columbia  Robert B. Haynes Vice President and Secretary C. W. Haynes and Company, Inc.,
Columbia  Wycliffe E. Haynes Vice President and Treasurer C. W. Haynes and Company, Inc.,
Columbia  Lewis M. Henderson3 Henderson and Associates, CPAs, Columbia  Carmen H. Ames San Francisco, CA  Frank B. Holding1,2 Vice Chairman First Citizens Bancorporation of South Carolina, Inc. First-Citizens Bank and Trust Company of South Carolina, Columbia Executive Vice Chairman First Citizens BancShares, Inc. First Citizens Bank and Trust Company, Raleigh, NC |  | Dan H. Jordan Farmer, Nichols  Charles S. McLaurin III Vice Chairman The Exchange Bank of South Carolina, Inc., Kingstree Executive Vice President First-Citizens Bank and Trust Company of
South Carolina, Columbia  N. Welch Morrisette, Jr. Retired, Columbia  E. Perry Palmer President E. P. Palmer Corporation Palmer Memorial Chapel, Columbia  William E.
Sellars1 President C. W. Haynes and Company,
Inc., Columbia  Henry F. Sherrill1 Attorney-at-Law, Columbia  M. Craig Garner, Jr.4 Attorney McNair Law Firm, P.A., Columbia  Kevin B.
Marsh4 Senior Vice President and Chief Financial Officer SCANA Corporation, Columbia  1   Member of the Executive Committee, First Citizens Bancorporation and First Citizens Bank 2   Member of the Investment Committee, First Citizens Bank 3   Member of the Audit Committee, First Citizens Bancorporation and First Citizens Bank 4   Elected as member of the Audit Committee, First Citizens Bancorporation and First Citizens Bank in
January 2004. Elected to the Board of Directors in January 2004. 5   Member of the Audit
Committee, First Citizens Bancorporation and First Citizens Bank until January 2004.  FIRST CITIZENS BANCORPORATION EXECUTIVE OFFICERS  Jim B. Apple Chairman/Chief Executive
Officer/President  Frank B. Holding Vice Chairman  Peter M. Bristow Executive Vice President/Chief Operating Officer  Craig L. Nix Executive Vice President/Chief Financial Officer/Treasurer  Charles D. Cook Corporate Secretary  Jay D. Weir Senior Vice President/Audit
Director



65