<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                                    FORM 10-Q

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

For the quarter ended September 30, 2002     Commission File No. 0-10852

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

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

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

Registrant's Telephone Number, including Area Code:       (919) 658-7000


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                  Yes X  No ___
                                     ---

Indicate the number of shares outstanding of the Registrant's common stock as of
the close of the quarter covered by this report.

                                 113,914 shares

Part i - FINANCIAL INFORMATION

Item 1 - Financial Statements.

<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                               (Unaudited)
                                                                                              September 30,        December 31,
                                                                                                  2002                 2001
                                                                                              -------------        ------------
(Dollars in thousands except per share data)
<S>                                                                                           <C>                  <C>
ASSETS
Cash and due from banks                                                                       $      41,479        $     40,811
Overnight funds sold                                                                                  7,535              22,365
Investment securities:
   Available-for-sale, at fair value (amortized cost $146,144 and $138,419, respectively)           166,065             154,932
   Held-to-maturity, at amortized cost (fair value $29,092 and $50,142, respectively)                28,422              49,351
Loans                                                                                               595,415             545,300
   Less allowance for loan losses                                                                    (8,646)             (7,636)
                                                                                              -------------        ------------
      Net loans                                                                                     586,769             537,664
Premises and equipment                                                                               32,210              32,683
Intangible assets                                                                                     7,607               9,916
Accrued interest receivable                                                                           5,890               6,097
Other assets                                                                                            545               1,409
                                                                                              -------------        ------------
          Total assets                                                                        $     876,522        $    855,228
                                                                                              =============        ============

LIABILITIES
Deposits:
   Noninterest-bearing                                                                        $     137,216        $    128,368
   Interest-bearing                                                                                 617,523             610,291
                                                                                              -------------        ------------
      Total deposits                                                                                754,739             738,659
Short-term borrowings                                                                                16,914              18,146
Long-term obligations                                                                                23,000              23,000
Accrued interest payable                                                                              1,803               3,228
Other liabilities                                                                                     4,668               4,766
                                                                                              -------------        ------------
      Total liabilities                                                                             801,124             787,799
                                                                                              -------------        ------------

SHAREHOLDERS' EQUITY
Series B non-cumulative preferred stock, no par value; 408,728 shares authorized;
   360,961 and 363,373 shares issued and outstanding at September 30, 2002 and
   December 31, 2001, respectively                                                                    1,758               1,770
Series C non-cumulative preferred stock, no par value; 43,631 shares authorized; 39,716
   shares issued and outstanding at both September 30, 2002 and December 31, 2001                       553                 553
Common stock, $5 par value; 158,485 shares authorized; 113,914 and 114,208 shares
   issued and outstanding at September 30, 2002 and December 31, 2001, respectively                     570                 571
Surplus                                                                                              10,000              10,000
Retained earnings                                                                                    50,276              44,388
Accumulated other comprehensive income                                                               12,241              10,147
                                                                                              -------------        ------------
   Total shareholders' equity                                                                        75,398              67,429
                                                                                              -------------        ------------

      Total liabilities and shareholders' equity                                              $     876,522        $    855,228
                                                                                              =============        ============
</TABLE>

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

<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
           INCOME

<TABLE>
<CAPTION>
                                                                           (Unaudited)                        (Unaudited)
                                                                Three Months Ended September 30,    Nine Months Ended September 30,
                                                                    2002              2001             2002              2001
                                                                    ----              ----             ----              ----
(Dollars in thousands except share and per share data)
<S>                                                             <C>                <C>              <C>                <C>
Interest income:
Loans                                                           $   10,447         $  11,015        $  30,686          $ 32,870
Investment securities:
    U.S. Government                                                  1,284             2,135            4,419             6,561
    State, county and municipal                                        294               318              903             1,133
    Other                                                              409                70            1,243               369
                                                                ----------         ----------       ---------          --------
            Total investment securities interest income              1,987             2,523            6,565             8,063
Overnight funds sold                                                   104               256              360               951
                                                                ----------         ----------       ---------          --------
                         Total interest income                      12,538            13,794           37,611            41,884

Interest expense:
       Deposits                                                      3,223             5,800           10,174            18,687
       Short-term borrowings                                            70               104              160               372
       Long-term obligations                                           518               518            1,553             1,553
                                                                ----------         ----------       ---------          --------
             Total interest expense                                  3,811             6,422           11,887            20,612
                                                                ----------         ----------       ---------          --------
                     Net interest income                             8,727             7,372           25,724            21,272
      Provision for loan losses                                        450               250            1,350               650
                                                                ----------         ----------       ---------          --------
                     Net interest income after
                       provision for loan losses                     8,277             7,122           24,374            20,622

Noninterest income:
    Service charges on deposit accounts                              1,426             1,293            4,024             3,759
    Other service charges and fees                                     455               375            1,269             1,100
    Investment securities gains, net                                   484                 -            1,262             4,624
    Gain on sale of loans                                              360               244              454               198
    Other                                                              125                57              160               540
                                                                ----------         ----------       ---------          --------
             Total noninterest income                                2,850             1,969            7,169            10,221

Noninterest expense:
    Personnel                                                        3,741             3,537           11,181            10,457
    Intangibles amortization                                           590               940            2,316             2,957
    Occupancy                                                          752               658            2,155             1,899
    Data processing                                                    708               617            2,025             1,843
    Furniture and equipment                                            428               442            1,431             1,186
    Professional fees                                                  146               120              544               420
    Other                                                            1,260               839            3,049             3,115
                                                                ----------         ----------       ---------          --------
             Total noninterest expense                               7,625             7,153           22,701            21,877
                                                                ----------         ----------       ---------          --------
Income before income taxes                                           3,502             1,938            8,842             8,966
Income taxes                                                           976               690            2,516             2,330
                                                                ----------         ----------       ---------          --------
                     Net income                                      2,526             1,248            6,326             6,636
                                                                ----------         ----------       ---------          --------
Other comprehensive income (loss) net of tax:
   Unrealized gains (losses) arising during period                    (898)           (1,921)           2,927             3,071
   Reclassification adjustment for (gains) losses included
    in net income                                                      320                 -              833            (3,052)
                                                                ----------         ----------       ---------          --------
   Other comprehensive (loss) income                                  (578)           (1,921)           2,094                19
                                                                ----------         ----------       ---------          --------
       Total comprehensive income (loss)                        $    1,948         $    (673)       $   8,420          $  6,655
                                                                ==========         ==========       =========          ========
Per share information:
   Net income per common share                                  $    21.36         $   10.07        $   53.10          $  55.41
   Cash dividends declared on common shares                           0.38              0.38             1.13              1.13
   Weighted average common shares outstanding                      113,951           114,796          114,065           114,848
                                                                ==========         ==========       =========          ========
</TABLE>

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

<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

(Dollars in thousands except per share data)
(Unaudited)

<TABLE>
<CAPTION>
                                                                    Preferred Stock                           Common Stock
                                                  ---------------------------------------------------   ------------------------
                                                           Series B                   Series C
                                                  -------------------------    ----------------------
                                                    Shares         Amount        Shares      Amount        Shares       Amount
                                                  -----------    ----------    ----------   ---------   ------------   ---------
<S>                                               <C>            <C>           <C>          <C>         <C>            <C>
Balance, December 31, 2000                            367,524    $    1,790        39,825   $     555        115,209   $     576
Net income
Purchase and retirement of stock                       (3,751)          (18)         (109)         (2)          (615)         (3)
Cash dividends:
  Common stock ($1.13 per share)
  Preferred B ($.67 per share)
  Preferred C ($.67 per share)
Unrealized gain on securities
  available-for-sale, net of tax
                                                  -----------    ----------    ----------   ---------   ------------   ---------
Balance, September 30, 2001                           363,773    $    1,772        39,716   $     553        114,594   $     573
                                                  ===========    ==========    ==========   =========   ============   =========

Balance, December 31, 2001                            363,373    $    1,770        39,716   $     553        114,208   $     571
Net income
Purchase and retirement of stock                       (2,412)          (12)            -           -           (294)         (1)
Cash dividends:
  Common stock ($1.13 per share)
  Preferred B ($.67 per share)
  Preferred C ($.67 per share)
  Other
Unrealized gain on securities
  available-for-sale, net of tax
                                                  -----------    ----------    ----------   ---------   ------------   ---------
Balance, September 30, 2002                           360,961    $    1,758        39,716   $     553        113,914   $     570
                                                  ===========    ==========    ==========   =========   ============   =========

<CAPTION>
                                                                               Accumulated
                                                                                  Other
                                                                                  Compre-             Total
                                                                  Retained        hensive         Shareholders'
                                                    Surplus       Earnings        Income             Equity
                                                  -----------    ----------    -----------     ------------------
<S>                                               <C>            <C>           <C>             <C>
Balance, December 31, 2000                        $    10,000    $   36,901    $     9,860     $           59,682
Net income                                                            6,636                                 6,636
Purchase and retirement of stock                                       (141)                                 (164)
Cash dividends:
  Common stock ($1.13 per share)                                       (130)                                 (130)
  Preferred B ($.67 per share)                                         (246)                                 (246)
  Preferred C ($.67 per share)                                          (26)                                  (26)
Unrealized gain on securities
  available-for-sale, net of tax                                                        19                     19
                                                  -----------    ----------    -----------     ------------------
Balance, September 30, 2001                       $    10,000    $   42,994    $     9,879     $           65,771
                                                  ===========    ==========    ===========     ==================

Balance, December 31, 2001                        $    10,000    $   44,388    $    10,147     $           67,429
Net income                                                            6,326                                 6,326
Purchase and retirement of stock                                        (73)                                  (86)
Cash dividends:
  Common stock ($1.13 per share)                                       (129)                                 (129)
  Preferred B ($.67 per share)                                         (242)                                 (242)
  Preferred C ($.67 per share)                                          (27)                                  (27)
  Other                                                                  33                                    33
Unrealized gain on securities
  available-for-sale, net of tax                                                     2,094                  2,094
                                                  -----------    ----------    -----------     ------------------
Balance, September 30, 2002                       $    10,000    $   50,276    $    12,241     $           75,398
                                                  ===========    ==========    ===========     ==================
</TABLE>

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

<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                            (Unaudited)
                                                                                                   Nine months ended September 30,
(Dollars in thousands)                                                                                 2002               2001
                                                                                                   -------------       -----------
<S>                                                                                                <C>                 <C>
OPERATING ACTIVITIES:
Net income                                                                                         $       6,326       $     6,636
Adjustments to reconcile net income to net cash
   provided by operating activities:
      Provision for loan losses                                                                            1,350               650
      Investment securities gain, net                                                                     (1,262)           (4,624)
      Gain on sale of loans                                                                                 (454)             (198)
      Premium amortization and discount accretion of investments, net                                        481               (36)
      Loss on sale or abandonment of property and equipment                                                  220                20
      Amortization of intangibles                                                                          2,530             2,957
      Depreciation                                                                                         1,799             1,583
      Net increase in intangible assets                                                                     (221)                -
      Net decrease (increase) in accrued interest receivable                                                 207              (460)
      Net decrease in accrued interest payable                                                            (1,425)             (113)
      Net decrease (increase) in other assets                                                              1,110              (113)
      Net increase (decrease) in other liabilities                                                        (1,412)            1,091
                                                                                                   -------------       -----------

NET CASH PROVIDED BY OPERATING ACTIVITIES                                                                  9,249             7,393
                                                                                                   -------------       -----------

INVESTING ACTIVITIES:
   Proceeds from maturities and issuer calls of investment securities available-for-sale                  27,726            34,378
   Proceeds from maturities and issuer calls of investment securities held-to-maturity                    38,622            40,443
   Proceeds from sale of investment securities available-for-sale                                          2,650                 -
   Proceeds from sales of loans                                                                           44,253            29,019
   Purchases of investment securities held-to-maturity                                                   (13,337)          (13,988)
   Purchases of investment securities available-for-sale                                                 (41,676)          (35,000)
   Net increase in loans                                                                                 (94,500)          (78,416)
   Purchases of fixed assets                                                                              (1,546)           (4,075)
                                                                                                   -------------       -----------

NET CASH USED BY INVESTING ACTIVITIES                                                                    (37,808)          (27,639)
                                                                                                   -------------       -----------

FINANCING ACTIVITIES:
   Net increase in demand and interest-bearing demand deposits                                            21,762            21,181
   Net (decrease) increase in time deposits                                                               (5,682)           19,807
   Net change in short-term borrowed funds                                                                (1,232)            4,606
   Other                                                                                                      33                 -
   Cash dividends paid                                                                                      (398)             (402)
   Purchase and retirement of stock                                                                          (86)             (164)
                                                                                                   -------------       -----------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                                                 14,397            45,028
                                                                                                   -------------       -----------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                               $     (14,162)      $    24,782
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR                                                        63,176            55,784
                                                                                                   -------------       -----------

CASH AND CASH EQUIVALENTS AT THE END OF PERIOD                                                     $      49,014       $    80,566
                                                                                                   =============       ===========

SUPPLEMENTAL DISCLOSURES OF CASH PAID DURING THE PERIOD FOR:

   Interest                                                                                        $       9,785       $    20,431
   Income taxes                                                                                    $       2,380       $     1,938
                                                                                                   =============       ===========

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Unrealized gain on securities available-for-sale, net of deferred tax                              $       2,094       $        19
                                                                                                   =============       ===========
Foreclosed loans transferred to other real estate                                                  $         246       $       154
                                                                                                   =============       ===========
</TABLE>

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

<PAGE>

SOUTHERN  BANCSHARES (N. C.), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Note 1. Summary Of Significant Accounting Policies

Basis of Financial Statement Presentation

Southern BancShares (N. C.), Inc. ("BancShares") is the holding company for
Southern Bank and Trust Company ("Southern"), which operates 48 banking offices
in eastern North Carolina, and Southern Capital Trust I (the "Trust"), a
statutory business trust that issued $23.0 million of 8.25% Capital Securities
("the Capital Securities") in June 1998 maturing in 2028. BancShares irrevocably
and unconditionally guarantees the Trust's obligations. Southern, which began
operations January 29, 1901, has a wholly-owned subsidiary, Goshen, Inc. which
acts as agent for credit life and credit accident and health insurance written
in connection with loans made by Southern. BancShares and Southern are
headquartered in Mount Olive, North Carolina.

The consolidated financial statements in this report are unaudited. In the
opinion of management, all adjustments (none of which were other than normal
accruals) necessary for a fair presentation of the financial position and
results of operations for the quarters presented have been included.

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses for the reporting periods. Actual results could differ from those
estimates. The statements should be read in conjunction with the consolidated
financial statements and accompanying notes for the year ended December 31,
2001, incorporated by reference in the 2001 Annual Report on Form 10-K.

Principles Of Consolidation

The consolidated financial statements include the accounts of BancShares and its
wholly-owned subsidiaries, Southern and the Trust. The statements also include
the accounts of Goshen, Inc., a wholly-owned subsidiary of Southern. BancShares'
financial resources are primarily provided by dividends from Southern. All
significant intercompany balances have been eliminated in consolidation.

                                        2

<PAGE>

Cash And Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash,
due from banks and overnight funds sold.

Goodwill and Other Intangible Assets

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

The following is a summary of the gross carrying amounts and accumulated
amortization of amortized intangible assets as of September 30, 2002 and
December 31, 2001 and the gross carrying amount of unamortized intangible assets
as of September 30, 2002:

<TABLE>
<CAPTION>
                                                 September 30, 2002                           December 31, 2001
                                                     (Unaudited)
(Dollars in thousands)                  Gross Carrying           Accumulated         Gross Carrying         Accumulated
                                            Amount              Amortization             Amount            Amortization
                                       ----------------      ------------------    ------------------    ----------------
<S>                                    <C>                   <C>                   <C>                   <C>
Amortized intangible assets:
   Branch acquisitions                  $       20,682        $         13,920      $         20,682      $       11,604
   Mortgage servicing rights                     1,742                   1,126                 1,521                 912
                                       ----------------      ------------------    ------------------    ----------------
            Total                       $       22,424        $         15,046      $         22,203      $       12,516
                                       ================      ==================    ==================    ================

Unamortized intangible assets:
   Goodwill                             $          229                       -      $            229                   -
                                       ================      ==================    ==================    ================

</TABLE>

The remaining unamortized intangible assets, totaling $7.6 million at September
30, 2002, relate to acquisitions of branches that are being accounted for in
accordance with Statement of Financial Accounting Standards No. 72 (Statement
72), "Accounting for Certain Acquisitions of Banking and Thrift Institutions"
and mortgage servicing rights. Statement 72, which was not amended by Statement
142, requires that identified intangible assets and unidentified intangible
assets associated with certain acquisitions of branches be amortized into
expense. Accordingly, these intangible assets will continue to be amortized over
their useful lives (generally 7 years). Management periodically reviews the
useful lives of these assets and adjusts them downward where appropriate. The
amortization expense associated with these branches was $2.3 million and $3.0
million for the nine months ended September 30, 2002 and 2001, respectively (see
discussion of Statement 147 below).

                                        3

<PAGE>

There was no change in the gross carrying amount of unamortized goodwill at
September 30, 2002 compared to December 31, 2001.

Amortization expense on goodwill for the nine months ended September 30, 2001
was $146,000.

The scheduled amortization expense for intangible assets (prior to the adoption
of Statement 147) at September 30, 2002 for the years ended December 31, 2002,
2003, 2004, 2005 and 2006 and thereafter is as follows:

                                                         Scheduled
(Dollars in thousands)                             Amortization Expense
                                                   --------------------
                                          2002        $           3,183
                                          2003                    2,489
                                          2004                    1,854
                                          2005                    1,260
                                          2006                      640
                                2007 and after                      261
                                                   --------------------
                                         Total        $           9,687
                                                   ====================

The actual amortization expense in future periods may be subject to change based
on changes in the useful life of the assets, expectations for loan prepayments,
future acquisitions and future loan sales.

The following table presents the adjusted effect on net income and net income
per share excluding the amortization of goodwill for the nine months ended
September 30, 2002 and 2001 and for the years ended December 31, 2001, 2000 and
1999:

<TABLE>
<CAPTION>
                                                           For the three months         For the nine months
                                                            ended September 30           ended September 30
(Dollars in thousands, except                                  (Unaudited)                  (Unaudited)
 per share data)                                           2002           2001          2002           2001
                                                        ---------     -----------     --------        -------
<S>                                                     <C>           <C>             <C>             <C>
Net income                                              $   2,526     $     1,248     $  6,326        $ 6,636
Add back: Goodwill amortization                                 -     $        44            -        $   146
                                                        ---------     -----------     --------        -------
                                                        $   2,526     $     1,292     $  6,326        $ 6,782
                                                        =========     ===========     ========        =======

Earnings per common share:
     As reported                                        $   21.36     $     10.07     $  53.10        $ 55.41
     Goodwill amortization                                      -     $      0.38            -        $  1.27
                                                        ---------     -----------     --------        -------
          Adjusted earnings per common share            $   21.36     $     10.45     $  53.10        $ 56.68
                                                        =========     ===========     ========        =======

(Dollars in thousands, except                               For the years ended December 31
 per share data)                                           2001           2000          1999
                                                        ---------     -----------     --------

Net income                                              $   8,241     $     3,734     $  3,679
Add back: Goodwill amortization                               186             260          509
                                                        ---------     -----------     --------
                                                        $   8,427     $     3,994     $  4,188
                                                        =========     ===========     ========

Earnings per common share:
     As reported                                        $   68.66     $     28.51     $  27.56
     Goodwill amortization                                   1.62            2.21         4.27
                                                        ---------     -----------     --------
          Adjusted earnings per common share            $   70.28     $     30.72     $  31.83
                                                        =========     ===========     ========
</TABLE>

In September 2002, the FASB issued Statement on Financial Accounting Standards
No. 147 (Statement 147) "Acquisitions of Certain Financial Institutions" which
brings all business combinations involving financial institutions, except
mutuals, into the scope of Statement 141, Business Combinations. Statement 147
requires that all acquisitions of financial institutions that meet the
definition of a business, including acquisitions of part of a financial
institution that meet the definition of a business, must be accounted for in
accordance with Statement 141 and the related intangibles accounted for in
accordance with Statement 142, Goodwill and Other Intangible Assets. Statement
147 removes such acquisitions from the scope of Statement 72 which was adopted
in February 1983 to address financial institutions' acquisitions during a period
when many of such acquisitions involved "troubled" institutions. Statement 147
also amends Statement 144, Accounting for the Impairment or Disposal of
Long-Lived Assets to include in its scope long-term customer-relationship
intangible assets of financial institutions. Statement 147 is generally
effective immediately and provides guidance with respect to amortization and
impairment of intangibles recognized in connection with acquisitions previously
within the scope of Statement 72.

                                       4

<PAGE>

BancShares will adopt Statement 147 during the fourth quarter of 2002 and will
restate its previously issued 2002 financial statements (including separate
quarterly results) to remove the effects of amortization of intangibles
previously recorded under Statement 72 to the extent that its prior acquisitions
are deemed to be "business combinations" as defined in Emerging Issues Task
Force (EITF) Consensus 98-3. BancShares expects to complete this analysis during
the fourth quarter of 2002. If all of its prior branch acquisitions are deemed
to meet the definition of a "business combination" pursuant to EITF 98-3, its
net income for the nine months ended September 30, 2002 would increase by $1.5
million.

Reclassifications

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

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Notes to consolidated financial statements
Dollars in thousands

<TABLE>
<CAPTION>
                                                                               (Unaudited)
Note 2. Investment securities                                               September 30, 2002

                                                    -----------------------------------------------------------------
(In thousands)                                                           Gross           Gross
                                                      Amortized       Unrealized       Unrealized          Fair
                                                         Cost            Gains           Losses            Value
                                                    --------------   -------------    ------------    ---------------
<S>                                                <C>               <C>              <C>             <C>
    SECURITIES HELD-TO-MATURITY:
         U.  S. Government                          $        6,006   $         124    $         (1)   $         6,129
         Obligations of states
             and political subdivisions                     22,416             547               -             22,963
                                                    --------------   -------------    ------------    ---------------
                                                            28,422             671              (1)            29,092
                                                    --------------   -------------    ------------    ---------------

    SECURITIES AVAILABLE-FOR-SALE:
         U.  S. Government                                 112,801           1,613               -            114,414
         Marketable equity securities                       11,540          17,321              (3)            28,858
         Obligations of states
            and political subdivisions                       7,656             478               -              8,134
         Mortgage-backed securities                         14,147             512               -             14,659
                                                    --------------   -------------    ------------    ---------------
                                                           146,144          19,924              (3)           166,065
                                                    --------------   -------------    ------------    ---------------
                          Totals                    $      174,566   $      20,595    $         (4)   $       195,157
                                                    ==============   =============    ============    ===============

<CAPTION>

Note 2. Investment securities                                               December 31, 2001

                                                     ---------------------------------------------------------------
(In thousands)                                                             Gross          Gross
                                                        Amortized       Unrealized      Unrealized        Fair
                                                          Cost             Gains          Losses          Value
                                                     ---------------   -------------   ------------   --------------
<S>                                                <C>               <C>              <C>             <C>
    SECURITIES HELD-TO-MATURITY:
         U.  S. Government                           $        33,057   $         468   $          -   $       33,525
         Obligations of states
             and political subdivisions                       16,294             335            (12)          16,617
                                                     ---------------   -------------   ------------   --------------
                                                              49,351             803            (12)          50,142
                                                     ---------------   -------------   ------------   --------------

    SECURITIES AVAILABLE-FOR-SALE:
         U.  S. Government                                   103,840           1,712            (14)         105,538
         Marketable equity securities                         11,044          14,880            (41)          25,883
         Obligations of states
            and political subdivisions                         7,916             243            (76)           8,083
         Mortgage-backed securities                           15,619              59           (250)          15,428
                                                     ---------------   -------------   ------------   --------------
                                                             138,419          16,894           (381)         154,932
                                                     ---------------   -------------   ------------   --------------
                          Totals                     $       187,770   $      17,697   $       (393)  $      205,074
                                                     ===============   =============   ============   ==============
</TABLE>

Note 3. ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
      (Dollars in thousands)                                    (Unaudited)
                                                      Nine Months Ended September 30,
                                                  ---------------------------------------
                                                        2002                  2001
                                                  -----------------     -----------------
    <S>                                           <C>                  <C>
    Balance at beginning of year                  $           7,636     $           7,284
      Provision for loan losses                               1,350                   650
      Loans charged off                                        (541)                 (395)
      Loan recoveries                                           201                   220
      Sale of credit card portfolio                               -                   (95)
                                                  -----------------     -----------------
    Balance at end of the period                  $           8,646     $           7,664
                                                  =================     =================
</TABLE>

Note 4. Earnings Per Common Share

Earnings per common share are computed by dividing income applicable to common
shares by the weighted average number of common shares outstanding during the
period. Income applicable to common shares represents net income reduced by
dividends paid to preferred shareholders. Since BancShares had no potentially
dilutive securities during 2002 or 2001, the computation of basic and diluted
earnings per share is the same. The following table presents the components of
the earnings per share computations:

<TABLE>
<CAPTION>
                                                            (Unaudited)                              (Unaudited)
      (Dollars in thousands)                     Three Months Ended September 30,          Nine Months Ended September 30,
                                             ---------------------------------------     ------------------------------------
                                                   2002                  2001                 2002                 2001
                                             -----------------     -----------------     --------------       ---------------
    <S>                                      <C>                   <C>                   <C>                  <C>
    Net income                               $           2,526     $           1,248     $        6,326       $         6,636
      Less: Preferred dividends                            (92)                  (92)              (269)                 (272)
                                             -----------------     -----------------     --------------       ---------------
    Net income applicable to common shares   $           2,434     $           1,156     $        6,057       $         6,364
                                             =================     =================     ==============       ===============

    Weighted average common shares
      outstanding during the period                    113,951               114,796            114,065               114,848
                                             =================     =================     ==============       ===============
</TABLE>

Note 5. Related Parties

BancShares has entered into various service contracts with another bank holding
company (the "Corporation") and its subsidiary (First Citizens). The Corporation
has two significant shareholders, who also are significant shareholders of
BancShares.

                                        5

<PAGE>

The first significant shareholder is a director of BancShares and, at September
30, 2002, beneficially owned 32,856 shares, or 28.84%, of BancShares'
outstanding common stock and 4,966 shares, or 1.38%, of BancShares' outstanding
Series B preferred stock. At the same date, the second significant shareholder
beneficially owned 27,422 shares, or 24.07%, of BancShares' outstanding common
stock.

These two significant shareholders are directors and executive officers of the
Corporation and at September 30, 2002, beneficially owned 2,529,158 shares, or
28.76%, and 1,384,121 shares, or 15.74%, of the Corporation's outstanding Class
A common stock, and 650,678 shares, or 38.68%, and 199,052 shares, or 11.83%, of
the Corporation's outstanding Class B common stock. The above totals include
472,855 Class A common shares, or 5.38%, and 104,644 Class B Common shares, or
6.22%, that are considered to be beneficially owned by both of the shareholders
and, therefore, are included in each of their totals.

In May 2001 Southern sold its $3.2 million credit card portfolio to First
Citizens, recording a gain of approximately $250,000 on the sale. Southern
continues to offer its customers a credit card with the Southern Bank brand
through First Citizens but the loans are owned by First Citizens. For the nine
months ended September 30, 2002 and 2001, Southern Bank received income of
$19,000 and $10,000, respectively, for referring credit card business to First
Citizens.

The following table lists the various charges paid to the Corporation during the
nine months ended September 30, 2002 and the nine months ended September 30,
2001 in accordance with the aforementioned service contracts:

      (Dollars in thousands)                            (Unaudited)
                                              Nine Months Ended September 30,
                                              -------------------------------
                                                   2002             2001
                                              -------------    --------------

    Data and item processing                        $1,809            $1,754
    Forms, supplies and equipment                      413               451
    Trustee for employee benefit plans                  45                51
    Consulting fees                                     71                73
    Other services                                     143               101
                                              -------------    --------------

                                                    $2,481            $2,430
                                              =============    ==============

                                       6

<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - NINE MONTHS ENDED
2002 VS. NINE MONTHS ENDED 2001

INTRODUCTION

The net income of BancShares decreased approximately $310,000 from $6.6 million
in the first nine months of 2001 to $6.3 million in the first nine months of
2002, a decrease of 4.67%. This decrease resulted primarily from $4.6 million of
gains on available-for-sale securities in 2001 that exceeded securities gains of
$1.3 million recorded in 2002. Increased support staff and the opening of a new
home office in September 2001 resulted in increased operating expenses for the
nine months ended September 30, 2002. The opening of a new branch in January
2002 resulted in increased net interest income, increased noninterest income,
increased personnel expense and increased operating expenses for the nine months
ended September 30, 2002.

Per share net income available to common shares for the first nine months of
2002 was $53.10, a decrease of $2.31, or 4.17%, from $55.41 for the first nine
months of 2001. The annualized return on average equity decreased to 11.55%, for
the period ended September 30, 2002, from 11.76% for the period ended September
30, 2001.

At September 30, 2002, BancShares' assets totaled $876.5 million, an increase of
$21.3 million, or 2.49%, from the $855.2 million reported at December 31, 2001.
During this nine month period, cash and due from banks increased $668,000, or
1.64% from $40.8 million to $41.5 million. During this nine month period,
overnight funds sold decreased $14.8 million, or 66.31% from $22.4 million to
$7.5 million. During this nine month period, loans increased $50.1 million, or
9.19%, from $545.3 million to $595.4 million. During the nine months ended
September 30, 2002 investment securities decreased $9.8 million, or 4.80% from
$204.3 million at December 31, 2001 to $194.5 million at September 30, 2002.
Total deposits increased $16.1 million, or 2.18% from $738.7 million at December
31, 2001 to $754.7 million at September 30, 2002. The above changes resulted
from both the seasonal impact of the agricultural markets served by Southern and
the significantly lower market interest rates during the nine months ended
September 30, 2002.

                                        7

<PAGE>

CRITICAL ACCOUNTING POLICIES

BancShares' significant accounting policies are set forth in note 1 of the
consolidated financial statements in the annual report on Form 10-K. Of these
significant accounting policies, BancShares considers its policy regarding the
allowance for loan losses to be its single critical accounting policy, because
it requires management's most subjective and complex judgments. In addition,
changes in economic conditions can have a significant impact on the allowance
for loan losses and therefore the provision for loan losses and results of
operations. BancShares has developed appropriate policies and procedures for
assessing the adequacy of the allowance for loan losses, recognizing that this
process requires a number of assumptions and estimates with respect to its loan
portfolio.

BancShares' assessments may be impacted in future periods by changes in economic
conditions, the impact of regulatory examinations, and the discovery of
information with respect to borrowers which is not known to management at the
time of the issuance of the consolidated financial statements. For additional
discussion concerning BancShares' allowance for loan losses and related matters,
see ASSET QUALITY AND PROVISION FOR LOAN LOSSES.

ACQUISITIONS, NEW OFFICES AND CONSOLIDATIONS

Southern did not acquire any additional locations in the nine months ended
September 30, 2002 or 2001. Southern did open an additional full service branch
in Rocky Mount in January 2002 and closed and consolidated its limited service
Turkey office in September 2002.

Southern closed and consolidated its limited service Calypso, North Carolina
location and acquired an existing RBC Centura branch in Scotland Neck, North
Carolina in October 2002. This acquisition increased Southern's deposits by
approximately $31.3 million and increased Southern's loans by approximately $4.1
million. Southern paid approximately $2.3 million for this acquisition.

Southern has received approval, pending approval of the North Carolina State
Historic Preservation Office, to open a denovo full service Branch in
Kenansville, North Carolina. This Branch is expected to open in the first
quarter of 2003.

                                        8

<PAGE>

INTEREST INCOME

Interest and fees on loans decreased $2.2 million, or 6.64%, from $32.9 million
for the nine months ended September 30, 2001 to $30.7 million for the nine
months ended September 30, 2002. This decrease resulted from decreased loan
portfolio yields that were not offset by increased average loan balances.
Average loans for the nine months ended September 30, 2002 were $554.4 million,
an increase of 6.19% from $522.1 million for the prior year period. This
increase in average loans was principally the result of growth within the
existing branches and the addition of one new branch in January 2002. The yield
on the loan portfolio decreased to 7.40% for the nine months ended September 30,
2002 from 8.35% for the nine months ended September 30, 2001.

Interest income from investment securities, including U. S. Treasury and
Government obligations, obligations of state and county subdivisions and other
securities decreased $1.5 million or 18.58%, from $8.1 million in the nine
months ended September 30, 2001 to $6.6 million in the nine months ended
September 30, 2002. This decrease was due to a decrease in yields for the nine
months ended September 30, 2002 that was not offset by an increase in average
investment securities. The average investment securities for the nine months
ended September 30, 2002 was $202.4 million as compared to $183.0 million for
the same 2001 period. The increase in volume principally resulted from decreased
average overnight investments. The yield on investment securities was 5.84% for
the nine-month period ended September 30, 2001 and 4.77% for the nine-month
period ended September 30, 2002.

Interest income on overnight funds sold decreased $591,000, or 62.15%, from
$951,000 for the nine months ended September 30, 2001 to $360,000 for the nine
months ended September 30, 2002. This decrease in income resulted from both a
decrease in the average overnight funds sold to $28.8 million for the nine
months ended September 30, 2002 from an average of $29.2 million for the nine
months ended September 30, 2001 and a decrease in the average overnight funds
sold yields from 4.30% for the nine months ended September 30, 2001, to 1.65%
for the nine months ended September 30, 2002.

Total interest income decreased $4.3 million or 10.20%, from $41.9 million for
the nine months ended September 30, 2001 to $37.6 million for the nine months
ended September 30, 2002. This decrease was the result of a 101 basis point
decrease in average earning asset yields and an increase of $32.7 million in
average earning assets.

Average earning asset yields for the nine months ended September 30, 2002
decreased to 6.56% from the 7.57% yield on average earning assets for the nine
months ended September 30, 2001 as a result of the overall decline in market
rates. Average earning assets increased from $734.3 million in the nine months
ended September 30, 2001 to $767.0 million in the nine months ended September
30, 2002. This $32.7 million increase in the average earning assets resulted
primarily from growth within the existing branches and the opening of a new
branch in January 2002.

                                        9

<PAGE>

INTEREST EXPENSE

Total interest expense decreased $8.7 million, or 42.33%, from $20.6 million in
the nine months ended September 30, 2001 to $11.9 million for the nine months
ended September 30, 2002. The principal reason for this decrease was the overall
decrease in the cost of funds. BancShares' total cost of funds decreased from
4.26% for the nine months ended September 30, 2001 to 2.43% for the nine months
ended September 30, 2002 as a result of the overall decline in market rates.
Average interest-bearing deposits were $613.5 million in the nine months ended
September 30, 2002, an increase of $9.2 million from the $604.3 million average
in the nine months ending September 30, 2001. The increase in interest-bearing
deposits was primarily the result of growth within the existing branches and the
opening of one new branch in January 2002.

NET INTEREST INCOME

Net interest income before provision for loan losses was $25.7 million for the
nine months ended September 30, 2002 and $21.3 million for the nine months ended
September 30, 2001. The increase in the interest rate spread was primarily due
to the average rate on interest-bearing liabilities repricing downward more
quickly than the average yield on interest-earning assets.

The interest rate spread for the nine months ended September 30, 2002 was 4.12%,
an increase of 81 basis points from the 3.31% interest rate spread for the nine
months ended September 30, 2001.

ASSET QUALITY AND PROVISION FOR LOAN LOSSES

For the nine months ended September 30, 2002 management recorded $1.4 million as
a provision for loan losses. Management recorded a $650,000 provision for loan
losses for the nine months ended September 30, 2001. Management increased the
provision in consideration of loan growth, increased net loan charge offs and
the continued recessionary economy.

During the first nine months of 2002 management charged-off loans totaling
$541,000 and received recoveries of $201,000, resulting in net charge-offs of
$340,000. During the same period in 2001, $395,000 in loans were charged-off and
recoveries of $220,000 were received, resulting in net charge-offs of $175,000.
The ratio of net charge-offs to average loans decreased from 0.10% for the year
ended December 31, 2001 to an annualized 0.08% for the nine months ended
September 30, 2002. For the nine months ended September 30, 2002, $1.4 million
was added to the allowance for loan losses through charges to the operations of
BancShares. The allowance for loan losses accordingly increased $1.0 million
from December 31, 2001. The following table presents comparative Asset Quality
ratios of BancShares:

                                       10

<PAGE>

<TABLE>
<CAPTION>
                                                     September 30,       December 31,       September 30,
                                                         2002               2001                2001
                                                    --------------      -------------      --------------
<S>                                                 <C>                 <C>                    <C>
Ratio of annualized net loans charged off
          to average loans                                   0.08%              0.10%               0.04%

Allowance for loan losses
          to loans                                           1.45%              1.40%               1.40%

Non-performing loans
          to loans                                           0.31%              0.37%               0.40%

Non-performing loans and assets
          to total assets                                    0.24%              0.24%               0.27%

Allowance for loan losses
          to non-performing loans                          463.34%            381.80%             350.76%
</TABLE>

The allowance for loan losses represented 1.45% of loans at September 30, 2002
compared to 1.40% of loans at December 31, 2001. The allowance for loan losses
to loans ratio was also impacted by the net growth in loans of $50.1 million, or
9.19% from $545.3 million at December 31, 2001 to $595.4 million at September
30, 2002. During the second quarter of 2001 BancShares sold its credit card
portfolio which totaled approximately $3.2 million. The allowance related to
this portfolio was $95,000 at the time of sale. See footnote 3 to the financial
statements for the effect of the sale on the allowance.

The ratio of nonperforming loans to total loans decreased from 0.37% at December
31, 2001 to 0.31% at September 30, 2002. Nonperforming loans and assets to total
assets were 0.24% at both September 30, 2002 and December 31, 2001. The
allowance for loan losses to nonperforming loans represented 463.34% of
nonperforming loans at September 30, 2002, an increase from the 381.80% at
December 31, 2001.

Performance improvements resulted primarily from loan growth while maintaining
nonperforming loans at $1.9 million and $2.0 million at September 30, 2002 and
December 31, 2001, respectively. The nonperforming loans at September 30, 2002
included $428,000 of nonaccrual loans, $1.4 million of accruing loans 90 days or
more past due and $26,000 of restructured loans. The nonperforming loans at
December 31, 2001 included $407,000 of nonaccrual loans, $1.6 million of
accruing loans 90 days or more past due and $28,000 of restructured loans.
BancShares had $222,000 of assets classified as other real estate at September
30, 2002. BancShares had $64,000 of assets classified as other real estate at
December 31, 2001. Other real estate is recorded at the lower of cost or fair
value less estimated costs to sell. Subsequent costs directly related to
development and improvement of property are capitalized, whereas costs relating
to holding the property are expensed.

Management considers the September 30, 2002 allowance for loan losses to be
adequate to cover the losses and risks inherent in the loan portfolio at
September 30, 2002 and will continue to monitor its portfolio and to adjust the
relative level of the allowance as needed. BancShares' had impaired loans of
$314,000 at September 30, 2002 compared to $197,000 at December 31, 2001. No
additional allowances for loan losses were required for these impaired loans.

Management actively maintains a current loan watch list and knows of no other
loans which are material and (i) represent or result from trends or
uncertainties which management reasonably expects will materially impact future
operating results, liquidity or capital resources, or (ii) represent material
credits about which management is aware of any information which causes
management to have serious doubts as to the ability of such borrowers to comply
with the loan repayment terms.

                                       11

<PAGE>

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

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

NONINTEREST INCOME

During the nine months ended September 30, 2002, BancShares realized a $3.1
million decrease in noninterest income primarily as a result of $4.6 million in
gains on the sales of available-for-sale investment securities in the nine
months ended September 30, 2001 compared to $1.3 million in gains on the sales
of available-for-sale investment securities in the nine months ended September
30, 2002. In May 2001 Southern sold its $3.2 million credit card portfolio,
recording a gain of approximately $250,000 on the sale.

Service charges on deposit accounts for the nine months ended September 30, 2002
increased $265,000 and other service charges and fees for the nine months ended
September 30, 2002 increased $169,000 over the nine months ended September 30,
2001 primarily as a result of growth within the existing branches and the one
new branch opened January 2002.

NONINTEREST EXPENSE

Noninterest expense increased $824,000 or 3.77%, from $21.9 million in the nine
months ended September 30, 2001 to $22.7 million in the nine months ended
September 30, 2002.

This increase was primarily due to an increase in personnel expense of $724,000,
or 6.92%, from $10.5 million at September 30, 2001 to $11.2 million at September
30, 2002 and increased occupancy, data processing and other expenses resulting
principally from the existing branches and one new branch opened in Janaury,
2002 offset by a $641,000 reduction in intangibles amortization. The decrease in
intangibles amortization expense principally resulted from the reduction of
expense related to amortizing intangibles of $495,000 and the absence of
amortization expense related to goodwill from the adoption of Statement 142 (see
note 1 to Consolidated Financial Statements), which resulted in a reduction of
$146,000 for the nine months ending September 30, 2002 compared to the nine
months ending September 30, 2001.

                                       12

<PAGE>

INCOME TAXES

In the nine months ended September 30, 2002 BancShares recorded income tax
expense of $2.5 million. In the nine months ended September 30, 2001, BancShares
recorded income tax expense of $2.3 million. The resulting effective tax rate
for the nine months ended September 30, 2002 was 28.46%. The effective tax rate
for the nine months ended September 30, 2001 was 25.99%. The estimated effective
tax rate was higher in 2002 due to a decrease in tax-exempt income in 2002 as a
percentage of total income before taxes. The effective rate for the nine months
ended September 30, 2002 increased compared to the effective rate for the nine
months ended September 30. 2001 primarily due to a lower proportion of
non-taxable investments. The effective tax rates in 2002 of 28.46% and in 2001
of 25.99% differ from the federal statutory rate of 34.00% primarily due to tax
exempt income.

                                       13

<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - THIRD QUARTER OF
2002 VS. THIRD QUARTER OF 2001

INTRODUCTION

In the three months ended September 30, 2002, the net income of BancShares
increased $1.3 million from $1.2 million in the three months ended September 30,
2001 to $2.5 million in the three months ended September 30, 2002, an increase
of 102.40%. The increase in net income for the quarter ended September 30, 2002
is attributed to both an increase in net interest income and noninterest income.
In addition, BancShares effective tax rate decreased significantly in the third
quarter of 2002 compared to the third quarter of 2001. The third quarter 2002
provision for loan losses was higher than the 2001 provision for loan losses,
primarily due to loan growth and the continued slowness of the economy in 2002.

Per share net income available to common shares for the three months ended
September 30, 2002 was $21.36, an increase of $11.29, or 112.12%, from $10.07
for the three months ended September 30, 2001.

ACQUISITIONS

Southern had no acquisitions in the quarter ended September 30, 2001 or the
quarter ended September 30, 2002.

INTEREST INCOME

Interest and fees on loans decreased $568,000 or 5.16% to 10.4 million for the
quarter ended September 30, 2002 from $11.0 million for the quarter ended
September 30, 2001. This decrease was due to increased loan balances that did
not offset lower loan portfolio yields. Average loans for the quarter ended
September 30, 2002 were $574.8 million, an increase of 5.70% from $543.8 million
for the prior year quarter. The yield on the loan portfolio was 7.27% for the
three months ended September 30, 2002 and 7.96% for the three months ended
September 30, 2001.

Interest income from investment securities, including U. S. Treasury and
Government obligations, obligations of state and county subdivisions and other
securities decreased $536,000, or 21.24%, from $2.5 million in the three months
ended September 30, 2001 to $2.0 million in the three months ended September 30,
2002. This decrease was primarily due to an increase in the average investment
portfolio that was offset by decreased yields. Average investment securities for
the quarter ended September 30, 2002 increased to $178.1 million as compared to
$173.6 million for the same 2001 quarter. The yield on investment securities was
5.66% for the quarter ended September 30, 2001 and 4.46% for the quarter ended
September 30, 2002.

                                       14

<PAGE>

Interest income on overnight funds sold decreased $152,000, or 59.38%, from
$256,000 for the quarter ended September 30, 2001 to $104,000 for the quarter
ended September 30, 2002. This decrease in income resulted from both a decrease
in volume and a decrease in yield. The average overnight funds sold was
$25.0 million for the quarter ended September 30, 2002 compared to an average of
$31.2 million for the quarter ended September 30, 2001. Average overnight funds
sold yields were 1.68% for the quarter ended September 30, 2002 down from 2.92%
for the quarter ended September 30, 2001.

Total interest income decreased $1.3 million, or 9.11%, from $13.8 million for
the quarter ended September 30, 2001 to $12.5 million for the quarter ended
September 30, 2002. This decrease was primarily the result of a decrease in the
yields on average earning assets resulting primarily from the overall lower
market interest rates during the quarter ended September 30, 2002.

Average earning asset yields for the quarter ended September 30, 2002 decreased
to 6.45% from the 7.24% yield on average earning assets for the quarter ended
September 30, 2001. Average earning assets increased from $748.6 million in the
quarter ended September 30, 2001 to $777.9 million in the quarter ended
September 30, 2002.

INTEREST EXPENSE

Total interest expense decreased $2.6 million from $6.4 million for the three
months ended September 30, 2001 to $3.8 million for the three months ended
September 30, 2002. Interest expense decreased as the impact of the increased
balances was offset by significantly decreased costs of deposits and short-term
borrowings.

Interest-bearing liability rates for the quarter ended September 30, 2002
decreased to 2.32% from the 4.34% cost for the quarter ended September 30, 2001.
Average interest-bearing liabilities increased from $653.5 million in the
quarter ended September 30, 2001 to $655.5 million in the quarter ended
September 30, 2002.

NET INTEREST INCOME

Net interest income before provision for loan losses was $8.7 million for the
three months ended September 30, 2002 and $7.4 million for the three months
ended September 30, 2001.

The interest rate spread for the quarter ended September 30, 2002 was 4.10%, an
increase of 74 basis points from the 3.36% interest rate spread for the quarter
ended September 30, 2001. The increase in the interest rate spread was primarily
due to the average rate on interest-bearing liabilities repricing downward more
quickly than the average yield on interest-earning assets.

                                       15

<PAGE>

ASSET QUALITY AND PROVISION FOR LOAN LOSSES

For the three months ended September 30, 2002 management recorded $450,000 as a
provision for loan losses. Management made a $250,000 provision for loan losses
for the quarter ended September 30, 2001.

During the three months ended September 30, 2002 management charged-off loans
totaling $137,000 and received recoveries of $114,000, resulting in $23,000 of
net charge-offs for the three months ended September 30, 2002. During the three
months ended September 30, 2001, $44,000 in loans were charged-off and
recoveries of $162,000 were received, resulting in net recoveries of $118,000
for the three months ended September 30, 2001. BancShares recorded an increase
in the provision for loan losses due to loan growth, the continued overall
recession of the economy and the trends in charge-offs for the quarter ended
September 30, 2002.

NONINTEREST INCOME

During the three months ended September 30, 2002, BancShares' noninterest income
increased $881,000 principally as a result of investment securities gains of
$484,000. Service charges on deposit accounts for the three months ended
September 30, 2002 increased $133,000 and other service charges and fees for the
three months ended September 30, 2002 increased $80,000 over the three months
ended September 30, 2001 primarily as a result of growth within the existing
branches and one new branch that opened in January 2002. Gains on the sale of
loans increased $116,000 over the three months ended September 30, 2001 as a
result of the overall favorable third quarter 2002 market interest rate trends.

NONINTEREST EXPENSE

Noninterest expense including personnel, occupancy, furniture and equipment,
data processing, FDIC insurance, state assessments, printing, supplies and other
expenses, increased $472,000 or 6.60%, from $7.2 million in the three months
ended September 30, 2001 to $7.6 million in the three months ended September 30,
2002.

This increase was primarily due to an increase in personnel expense of $204,000,
or 5.77%, from $3.5 million for the quarter ended September 30, 2001 to $3.7
million for the quarter ended September 30, 2002 and increased occupancy,
furniture and equipment expense and other expenses resulting principally from
the growth within the existing branches and one new branch that was opened in
January 2002 offset by a $350,000 decrease in intangibles amortization for the
quarter ended September 30, 2002.

                                       16

<PAGE>

INCOME TAXES

In the three months ended September 30, 2002, BancShares had income tax expense
of $976,000, an increase of $286,000 from $690,000 in the prior year quarter.
This increase is due to increased earnings as the estimated effective tax rate
decreased to 27.87% for the quarter ended September 30, 2002 compared to 35.60%
for the quarter ended September 30, 2001. The estimated effective tax rate was
revised in 2001 due to a change in management's estimate of taxable income for
2001. During the quarter ended September 30, 2001, management determined that
tax exempt income would represent a smaller proportion of total income than
previously projected. The effective tax rates for the quarters ended September
30, 2002 of 27.87% and September 30, 2001 of 35.60% differ from the federal
statutory rate of 34.00% primarily due to the relative proportion of tax exempt
income offset by the September 30, 2001 change in projection noted above.

SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY

Sufficient levels of capital are necessary to sustain growth and absorb losses.
Southern Capital Trust I (the "Trust"), a statutory business trust issued $23.0
million of 8.25% Capital Securities ("the Capital Securities") in June 1998
maturing in 2028. The Trust invested the $23.0 million proceeds in Junior
Subordinated Debentures issued by BancShares (the "Junior Debentures"), which
upon consolidation of BancShares are eliminated. The Junior Debentures are the
primary assets of the Trust. BancShares irrevocably and unconditionally
guarantees the Trust's obligations.

BancShares contributed Capital Securities proceeds of $12.0 million to Southern
which are included in Tier I capital for Southern's regulatory capital adequacy
requirements. BancShares has similar regulatory capital adequacy requirements
and is in compliance with those capital adequacy requirements at September 30,
2002.

The Federal Reserve Board, which regulates BancShares, and the Federal Deposit
Insurance Corporation, which regulates Southern, have established minimum
capital guidelines for the institutions they supervise.

Regulatory guidelines define minimum requirements for Southern's leverage
capital ratio. Leverage capital equals total equity less goodwill and certain
other intangibles and is measured relative to total adjusted assets as defined
by regulatory guidelines. According to these guidelines, Southern's leverage
capital ratio at September 30, 2002 was 8.09%. At December 31, 2001, Southern's
leverage capital ratio was 7.19%. Both of these ratios are greater than the
level designated as "well capitalized" by the FDIC.

                                       17

<PAGE>

Southern is also required to meet minimum requirements for Risk Based Capital
("RBC"). Southern's assets, including loan commitments and other off-balance
sheet items, are weighted according to federal guidelines for the risk
considered inherent in each asset. At September 30, 2002, Southern's Total RBC
ratio was 11.25%. At December 31, 2001 the RBC ratio was 12.92%. Both of these
ratios are greater than the level designated as "well capitalized" by the FDIC.

The regulatory capital ratios above reflect increases in assets and liabilities
from acquisitions Southern has made. Each acquisition resulted in BancShares
recording intangible assets in its consolidated financial statements, which are
deducted from total equity in the ratio calculations.

The accumulated other comprehensive income was $12.2 million at September 30,
2002 compared to $10.1 million at December 31, 2001. Comprehensive income
consists entirely of unrealized gains on securities available-for-sale, net of
taxes. Although a part of total shareholders' equity, comprehensive income is
not included in the calculation of either the RBC or leverage capital ratios
pursuant to regulatory definitions of these capital requirements. The following
table presents capital adequacy calculations and ratios of Southern:

                                                    September 30,
                                                        2002
                                                   --------------
   (Dollars in thousands)


Tier 1 capital                                       $   67,323
Total capital                                            78,541
Risk-adjusted assets                                    598,502
Average tangible assets                                 832,617

Tier 1 capital ratio (1)                                  11.25%
Total capital ratio (1)                                   13.12%
Leverage capital ratio (1)                                 8.09%

(1) These ratios exceed the minimum ratios required for a bank to be classified
    as "well capitalized" as defined by the FDIC.

LIQUIDITY

Liquidity refers to the ability of Southern to generate sufficient funds to meet
its financial obligations and commitments at a reasonable cost. Maintaining
liquidity ensures that funds will be available for reserve requirements,
customer demand for loans, withdrawal of deposit balances and maturities of
other deposits and liabilities. Past experiences help management anticipate
cyclical demands and amounts of cash required. These obligations can be met by
existing cash reserves or funds from maturing loans and investments, but in the
normal course of business are met by deposit growth.

In assessing liquidity, many relevant factors are considered, including
stability of deposits, quality of assets, economy of the markets served,
business concentrations, competition and BancShares' overall financial
condition. BancShares' liquid assets include cash and due from banks, overnight
funds sold and investment securities available-for-sale. The liquidity ratio,
which is defined as cash plus short term available-for-sale securities divided
by deposits plus short term liabilities, was 18.26% at September 30, 2002 and
26.33% at December 31, 2001.

                                       18

<PAGE>

The Statement of Cash Flows discloses the principal sources and uses of cash
from operating, investing and financing activities for the nine months ended
September 30, 2002 and for the nine months ended September 30, 2001. Southern
has no brokered deposits. Jumbo time deposits are considered to include all time
deposits of $100,000 or more. Southern has never aggressively bid on these
deposits. Almost all jumbo time deposit customers have other relationships with
Southern, including savings, demand and other time deposits, and in some cases,
loans. At September 30, 2002 jumbo time deposits represented 13.98% of total
deposits. At December 31, 2001 jumbo time deposits represented 14.23% of total
deposits.

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

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

CONTRACTUAL OBLIGATIONS

As of September 30, 2002
(In thousands)

<TABLE>
<CAPTION>
                                                                 Payments due by period
                                                                 ----------------------

                                  Less than 1 year       1-3 years      4-5 years  Over 5 years       Total
                                  ----------------       ---------      ---------  ------------       -----
<S>                               <C>                    <C>            <C>        <C>               <C>
Deposits                              $686,056            $56,530        $12,153            -        $754,739
Short-term borrowings                   16,914                  -              -            -          16,914
Long-term obligations                        -                  -              -       23,000          23,000
Lease obligations                           52                 73              -            -             125
-------------------------------------------------------------------------------------------------------------
   Total contractual obligations      $703,022            $56,603        $12,153      $23,000        $794,778
=============================================================================================================
</TABLE>

                                       19

<PAGE>

ACCOUNTING AND OTHER MATTERS

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

BancShares adopted the provisions of Statement 141 as of June 30, 2001 and fully
adopted Statement 142 effective January 1, 2002. Goodwill and intangible assets
acquired in business combinations completed before July 1, 2001 continued to be
amortized in 2001 prior to the adoption of Statement 142 on January 1, 2002.

Statement 141 requires, upon adoption of Statement 142, that BancShares evaluate
its existing intangible assets and goodwill that were acquired in a prior
purchase business combination, and to make any necessary reclassifications in
order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, BancShares was required to
reassess the useful lives and residual values of all identifiable intangible
assets acquired in purchase business combinations.

As of September 30, 2002, BancShares had intangible assets totaling $7.6
million. Management evaluated BancShares' existing intangible assets and
goodwill as of January 1, 2002 and has made appropriate reclassifications in
order to conform to the new criteria in Statement 141 for recognition apart from
goodwill, as further described below.

BancShares determined that, upon adoption of Statement 142 on January 1, 2002,
BancShares had $229,000 of goodwill that would no longer be amortized beginning
in 2002. The amortization expense associated with this goodwill during the nine
months ended September 30, 2001 was $146,000. In accordance with Statement 142,
BancShares performed a transitional impairment test of this goodwill in the
first six months of 2002, and will perform an annual impairment test of the
goodwill in 2002 and thereafter.

                                       20

<PAGE>

In September 2002, the FASB issued Statement on Financial Accounting Standards
No. 147 (Statement 147) "Acquisitions of Certain Financial Institutions" which
brings all business combinations involving financial institutions, except
mutuals, into the scope of Statement 141, Business Combinations. Statement 147
requires that all acquisitions of financial institutions that meet the
definition of a business, including acquisitions of part of a financial
institution that meet the definition of a business, must be accounted for in
accordance with Statement 141 and the related intangibles accounted for in
accordance with Statement 142, Goodwill and Other Intangible Assets. Statement
147 removes such acquisitions from the scope of Statement 72 which was adopted
in February 1983 to address financial institutions' acquisitions during a period
when many of such acquisitions involved "troubled" institutions. Statement 147
also amends Statement 144, Accounting for the Impairment or Disposal of
Long-Lived Assets to include in its scope long-term customer-relationship
intangible assets of financial institutions. Statement 147 is generally
effective immediately and provides guidance with respect to amortization and
impairment of intangibles recognized in connection with acquisitions previously
within the scope of Statement 72. BancShares will adopt Statement 147 during the
fourth quarter of 2002 and will restate its previously issued 2002 financial
statements (including separate quarterly results) to remove the effects of
amortization of intangibles previously recorded under Statement 72. To the
extent that its prior acquisitions are deemed to be "business combinations" as
defined in Emerging Issues Task Force (EITF) Consensus 98.3. BancShares expects
to complete this analysis during the fourth quarter of 2002. If all of its prior
branch acquisitions are deemed to meet the definition of a "business
combination" pursuant to EITF 98.3, its net income for the nine months ended
September 30, 2002 would increase by $1.5 million.

In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 144 (Statement 144), "Accounting
for the Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This standard provides guidance on differentiating between long-lived assets to
be held and used, long-lived assets to be disposed of other than by sale and
long-lived assets to be disposed of by sale. Statement 144 supersedes FASB
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Statement 144 also supersedes Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." This statement is effective for fiscal years beginning
after December 15, 2001. BancShares' adoption of this statement on January 1,
2002 did not have a material effect on its consolidated financial statements.

                                       21

<PAGE>

In June 2002, the FASB issued Statement of Financial Accounting Standards No.
146 (Statement 146), "Accounting for Costs Associated with Exit or Disposal
Activities," which addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." This Statement applies to costs associated
with an exit activity that does not involve an entity newly acquired in a
business combination or with a disposal activity covered by FASB Statement No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. Those costs
include, but are not limited to, the following: a) termination benefits provided
to current employees that are involuntarily terminated under the terms of a
benefit arrangement that, in substance, is not an ongoing benefit arrangement or
an individual deferred compensation contract (hereinafter referred to as
one-time termination benefits), b) costs to terminate a contract that is not a
capital lease and c) costs to consolidate facilities or relocate employees. This
Statement does not apply to costs associated with the retirement of a long-lived
asset covered by FASB Statement No. 143, Accounting for Asset Retirement
Obligations. A liability for a cost associated with an exit or disposal activity
shall be recognized and measured initially at its fair value in the period in
which the liability is incurred. A liability for a cost associated with an exit
or disposal activity is incurred when the definition of a liability in
Statements of Financial Accounting Concepts No. 6, Elements of Financial
Statements, is met. The provisions of this Statement are effective for exit or
disposal activities that are initiated after December 31, 2002, with early
application encouraged. The impact of adoption on BancShares is not known at
this time.

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

Other Matters

Southern closed and consolidated its limited service Calypso, North Carolina
location and acquired an existing RBC Centura branch in Scotland Neck, North
Carolina in October 2002. This acquisition increased Southern's deposits by
approximately $31.3 million and increased Southern's loans by approximately $4.1
million. Southern paid approximately $2.3 million for this acquisition.

Southern has received approval, pending approval of the North Carolina State
Historical Preservation Office, to open a denovo full service Branch in
Kenansville, North Carolina. This Branch is expected to open in the first
quarter of 2003.

                                       22

<PAGE>

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

Item 3 - Quantitative and Qualitative Disclosures About Market Risk:

Market risk reflects the risk of economic loss resulting from adverse changes in
market price and interest rates. This risk of loss can be reflected in either
diminished current market values or reduced potential net interest income in
future periods. BancShares' market risk arises primarily from interest rate risk
inherent in its lending and deposit taking activities. The structure of
BancShares' loan and deposit portfolios is such that a significant increase in
the prime rate may adversely impact net interest income. Historical prepayment
experience is considered as well as management's expectations based on the
interest rate environment as of September 30, 2002. Management seeks to manage
this risk through the use of shorter term maturities. The composition and size
of the investment portfolio is managed so as to reduce the interest rate risk in
the deposit and loan portfolios while at the same time maximizing the yield
generated from the investment portfolio.

The table below presents in tabular form the contractual balances and the
estimated fair value of financial instruments at their expected maturity dates
as of September 30, 2002. The expected maturity categories take into
consideration historical prepayment experience as well as management's
expectations based on the interest rate environment as of September 30, 2002.
For core deposits without contractual maturity (i.e., interest bearing checking,
savings and money market accounts), the table presents principal cash flows as
maturing in 2003 since they are subject to immediate repricing. Weighted average
variable rates in future periods are based on the implied forward rates in the
yield curve as of September 30, 2002. Overall loan and deposit balance
maturities are shorter at September 30, 2002 and overall rates have declined
significantly, primarily as a result of market conditions and management's
responses thereto.

<TABLE>
<CAPTION>
  (Dollars in thousands, unaudited)                  Maturing in the years ended September 30
                                 2003         2004         2005         2006         2007      Thereafter      Total      Fair Value
<S>                           <C>          <C>          <C>          <C>          <C>          <C>          <C>           <C>
Assets
  Loans
    Fixed rate                $ 122,745    $  34,368    $  31,724    $  53,258    $  60,056    $  94,935    $  397,086    $  398,062
    Average rate (%)               7.93%        7.91%        7.75%        7.67%        7.37%        7.34%         7.71%

    Variable rate             $  88,795    $  26,079    $  19,823    $  18,781    $  28,774    $  16,077    $  198,329    $  198,329
    Average rate (%)               6.10%        6.04%        5.75%        5.80%        5.82%        5.99%         5.98%

  Investment securities
    Fixed rate                $  81,942    $  53,426    $   1,547    $   1,579    $     903    $  35,169    $  174,566    $  195,157
    Average rate (%)               4.08%        3.44%        8.28%        8.23%        8.09%        5.90%         4.35%


Liabilities
    Savings and interest
     bearing checking

    Fixed rate                $ 241,802            -            -            -            -            -    $  241,802    $  241,802
    Average rate (%)               0.78%           -            -            -            -            -          0.78%

Certificates of deposit
    Fixed rate                $ 303,036    $  35,768    $  18,685    $  12,153            -            -    $  369,642    $  373,372
    Average rate (%)               2.62%        3.42%        4.30%        5.20%           -            -          2.87%

    Variable rate             $   4,002    $   2,077            -            -            -            -    $    6,079    $    6,079
    Average rate (%)               1.61%        1.64%           -            -            -            -          1.62%

Long-term debt

    Fixed rate                        -            -            -            -            -       23,000    $   23,000    $   23,322
    Average rate (%)                  -            -            -            -            -         8.25%         8.25%
</TABLE>

                                       23

<PAGE>

A principal objective of BancShares' asset/liability function is to manage
interest rate risk or the exposure to changes in interest rates. Management
maintains portfolios of interest-earning assets and interest-bearing liabilities
with maturities or repricing opportunities that will protect against wide
interest rate fluctuations, thereby limiting, to the extent possible, the
ultimate interest rate exposure. The table below provides BancShares'
interest-sensitivity position as of September 30, 2002, which reflected a one
year negative interest-sensitivity gap of $264.7 million. As a result of this
one year negative gap, increases in interest rates could have an unfavorable
impact on net interest income. It should be noted that this analysis reflects
BancShares' interest sensitivity as of a single point in time and may not
reflect the effects of repricings of assets and liabilities in various interest
rate environments. The overall one-year negative interest sensitivity of
financial instruments is significantly higher at September 30, 2002 as compared
to December 31, 2001 as a result of deposit customers, in anticipation of higher
rates, continuing to invest in primarily short term deposits. The total
cumulative negative interest sensitivity gap has also increased at September 30,
2002 as compared to December 31, 2001.

INTEREST-SENSITIVITY ANALYSIS

(Dollars in thousands, unaudited)

<TABLE>
<CAPTION>
                                                                                    September 30, 2002
                                                                                                       Non-Rate
                                                                1-90         91-180      181-365      Sensitive
                                                                Days          Days         Days         & Over
                                                             Sensitive     Sensitive     Sensitive      1 year         Total
<S>                                                         <C>           <C>           <C>          <C>           <C>
Earning Assets:

Loans                                                       $   136,824   $    51,296   $    23,420  $   383,875   $   595,415
Investment securities                                            19,721        24,193        38,028       92,624       174,566
Temporary investments                                             7,535             -             -            -         7,535
                                                            -----------   -----------   -----------  -----------   -----------
      Total earning assets                                  $   164,080   $    75,489   $    61,448  $   476,499   $   777,516
                                                            ===========   ===========   ===========  ===========   ===========

Interest-Bearing Liabilities:
Savings and core time deposits                                  329,783        65,461        62,327       54,452       512,023

Time deposits of $100,000 and more                               37,120        24,328        29,821       14,231       105,500

Short-term borrowings                                            16,914             -             -            -        16,914
Long-term obligations                                                 -             -             -       23,000        23,000
                                                            -----------   -----------   -----------  -----------   -----------
      Total interest-bearing liabilities                    $   383,817   $    89,789   $    92,148  $    91,683   $   657,437
                                                            ===========   ===========   ===========  ===========   ===========

Interest sensitivity gap                                    $  (219,737)  $   (14,300)  $   (30,700) $   384,816   $   120,079
                                                            ===========   ===========   ===========  ===========   ===========

Cumulative interest sensitivity gap                         $  (219,737)  $  (234,037)  $  (264,737) $   120,079   $   120,079
                                                            ===========   ===========   ===========  ===========   ===========
</TABLE>

FORWARD-LOOKING STATEMENTS

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

                                       24

<PAGE>

Item 4 - Disclosure controls and procedures:

During the 90-day period prior to the filing date of this report, management,
including BancShares Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design and operation of BancShares'
disclosure controls and procedures. As of the date of that evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that the disclosure
controls and procedures were effective, in all material respects, to ensure that
the information required to be disclosed in the reports BancShares files and
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods required.

There have been no significant changes in BancShares' internal controls or in
other factors which could significantly affect internal controls subsequent to
the date BancShares carried out its evaluation. There were no significant
deficiencies or material weaknesses identified in the evaluation and therefore,
no corrective actions were taken.

Part II - OTHER INFORMATION

Item 6 - Exhibits and Reports on Form 8K:

      a.  The following exhibits are incorporated by reference to Form 10-K:

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

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

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

      b.  No reports on Form 8-K were filed during this period.

                                       25

<PAGE>

                                   SIGNATURES

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

                        SOUTHERN BANCSHARES (N.C.), INC.


November 13, 2002               /s/ John C. Pegram, Jr.

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


November 13, 2002               /s/ David A. Bean

-----------------               ------------------------------------------------
      Date                      David A. Bean,
                                Secretary, Treasurer and Chief Financial Officer


                                  CERTIFICATION


     I, John C. Pegram, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Southern BancShares (N.
C.), Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

                                       26

<PAGE>

         4.     The registrant's other certifying officers and I are responsible
         for establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

                a)  designed such disclosure controls and procedures to ensure
                that material information relating to the registrant, including
                its consolidated subsidiaries, is made known to us by others
                within those entities, particularly during the period in which
                this quarterly report is being prepared;

                b)  evaluated the effectiveness of the registrant's disclosures,
                controls and procedures as of a date within 90 days prior to the
                filing date of this quarterly report (the "Evaluation Date");
                and

                c)  presented in this quarterly report our conclusions about the
                effectiveness of the disclosure controls and procedures based on
                our evaluation as of the Evaluation Date;

         5.     The registrant's other certifying officers and I have disclosed,
         based on our most recent evaluation, to the registrant's auditors and
         the audit committee of registrant's Board of Directors (or persons
         performing the equivalent functions):

                a)  all significant deficiencies in the design or operation of
                internal controls which could adversely affect the registrant's
                ability to record, process, summarize and report financial data
                and have identified for the registrant's auditors any material
                weaknesses in internal controls; and

                b)  any fraud, whether or not material, that involves management
                or other employees who have a significant role in the
                registrant's internal controls; and

         6.     The registrant's other certifying officers and I have indicated
         in this quarterly report whether or not there were significant changes
         in internal controls or in other factors that could significantly
         affect internal controls subsequent to the date of our most recent
         evaluation, including any corrective actions with regard to significant
         deficiencies and material weaknesses.

         Date: November 13, 2002           /s/ John C. Pegram, Jr.
                                           -------------------------------------
                                           John C. Pegram, Jr.,
                                           President and Chief Executive Officer

                                       27

<PAGE>

                                  CERTIFICATION

       I, David A. Bean, certify that:

     1.   I have reviewed this quarterly report on Form 10-Q of Southern
     BancShares (N.C.), Inc.;

     2.   Based on my knowledge, this quarterly report does not contain any
     untrue statement of a material fact or omit to state a material fact
     necessary to make the statements made, in light of the circumstances under
     which such statements were made, not misleading with respect to the period
     covered by this quarterly report;

     3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

     4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

          a)   designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this quarterly
          report is being prepared;

          b)   evaluated the effectiveness of the registrant's disclosures,
          controls and procedures as of a date within 90 days prior to the
          filing date of this quarterly report (the "Evaluation Date"); and

          c)   presented in this quarterly report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
     on our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's Board of Directors Directors (or persons
     performing the equivalent functions):

          a.   all significant deficiencies in the design or operation of
          internal controls which could adversely affect the registrant's
          ability to record, process, summarize and report financial data and
          have

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<PAGE>

          identified for the registrant's auditors any material weaknesses in
          internal controls; and

          b.   any fraud, whether or not material, that involves management or
          other employees who have a significant role in the registrant's
          internal controls; and

     6.   The registrant's other certifying officers and I have indicated in
     this quarterly report whether or not there were significant changes in
     internal controls or in other factors that could significantly affect
     internal controls subsequent to the date of our most recent evaluation,
     including any corrective actions with regard to significant deficiencies
     and material weaknesses

     Date: November 13, 2002    /s/ David A. Bean
                                ------------------------------------------------
                                David A. Bean,
                                Secretary, Treasurer and Chief Financial Officer

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<PAGE>

                                  CERTIFICATION
                      (Pursuant to 18 U.S.C. Section 1350)

The undersigned hereby certifies that (i) the foregoing Quarterly Report on Form
10-Q filed by Southern BancShares (N.C.), Inc. (the "issuer") for the quarter
ended September 30, 2002, fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934 and (ii) the information
contained in that Report fairly presents, in all material respects, the
financial condition and results of operations of the issuer on the dates and for
the periods presented therein.


Date: November 13, 2002         /s/ John C. Pegram, Jr.
                                ------------------------------------------------
                                John C. Pegram, Jr.,
                                President and Chief Executive Officer


Date: November 13, 2002         /s/ David A. Bean
                                ------------------------------------------------
                                David A. Bean,
                                Secretary, Treasurer and Chief Financial Officer

                                       30