<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, 2001         Commission File No. 0-10852

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

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

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.

                                 114,594 shares

<PAGE>

Part I - FINANCIAL INFORMATION

Item 1 - Financial Statements

<TABLE>
<CAPTION>
                                                                                              (Unaudited)
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES                                             September 30,      December 31,
CONSOLIDATED BALANCE SHEETS                                                                       2001               2000
                                                                                              -------------      ------------
<S>                                                                                           <C>                <C>
(Dollars in thousands except per share data)

ASSETS
Cash and due from banks                                                                       $      37,811      $    42,944
Overnight funds sold                                                                                 42,755           12,840
Investment securities:
   Available-for-sale, at fair value (amortized cost $101,604 and $96,633, respectively)            116,573          111,573
   Held-to-maturity, at amortized cost (fair value $70,678 and $96,416, respectively)                69,391           95,545
Loans                                                                                               546,291          496,966
    Less allowance for loan losses                                                                   (7,664)          (7,284)
                                                                                              -------------      -----------
Net loans                                                                                           538,627          489,682
Premises and equipment                                                                               31,817           29,313
Intangible assets                                                                                    10,800           13,789
Accrued interest receivable                                                                           6,942            6,482
Other assets                                                                                          1,386            1,273
                                                                                              -------------      -----------
              Total assets                                                                    $     856,102      $   803,441
                                                                                              =============      ===========

LIABILITIES
Deposits:
     Noninterest-bearing                                                                      $     122,732      $   107,695
     Interest-bearing                                                                               616,741          590,790
                                                                                              -------------      -----------
Total deposits                                                                                      739,473          698,485
Short-term borrowings                                                                                20,033           15,427
Long-term obligations                                                                                23,000           23,000
Accrued interest payable                                                                              4,004            4,117
Other liabilities                                                                                     3,821            2,730
                                                                                              -------------      -----------
          Total liabilities                                                                         790,331          743,759
                                                                                              -------------      -----------

SHAREHOLDERS' EQUITY
Series B non-cumulative preferred stock, no par value; 408,728 shares authorized;
   363,773 and 367,524 shares issued and outstanding at September 30, 2001 and
   December 31, 2000, respectively                                                                    1,772            1,790
Series C non-cumulative preferred stock, no par value; 43,631 shares authorized; 39,716
   and 39,825 shares  issued  and  outstanding at September 30, 2001 and December 31,
   2000, respectively                                                                                   553              555
Common stock, $5 par value; 158,485 shares authorized; 114,594 and 115,209
       shares issued and outstanding at September 30, 2001 and December 31,
       2000, respectively                                                                               573              576
Surplus                                                                                              10,000           10,000
Retained earnings                                                                                    42,994           36,901
Accumulated other comprehensive income                                                                9,879            9,860
                                                                                              -------------      -----------
       Total shareholders' equity                                                                    65,771           59,682
                                                                                              -------------      -----------

              Total liabilities and shareholders' equity                                      $     856,102      $   803,441
                                                                                              =============      ===========
</TABLE>

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

                                        2

<PAGE>

<TABLE>
<CAPTION>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES                              (Unaudited)                     (Unaudited)
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE                 Three Months Ended September 30, Nine Months Ended September 30,
           INCOME                                                            2001         2000           2001              2000
                                                                             ----         ----           ----              ----
<S>                                                                        <C>            <C>          <C>               <C>
(Dollars in thousands except share and per share data)

Interest income:
Loans                                                                      $  11,015      $   9,508    $  32,870         $  26,966
Investment securities:
    U. S. Government                                                           2,135          2,268        6,561             6,462
    State, county and municipal                                                  318            492        1,133             1,461
    Other                                                                         70            145          369               442
                                                                           ---------      ---------    ---------         ---------
            Total investment securities interest income                        2,523          2,905        8,063             8,365
Overnight funds sold                                                             256            197          951               808
                                                                           ---------      ---------    ---------         ---------
                 Total interest income                                        13,794         12,610       41,884            36,139

Interest expense:
       Deposits                                                                5,800          5,788       18,687            15,853
       Short-term borrowings                                                     104            115          372               275
       Long-term obligations                                                     518            519        1,553             1,554
                                                                           ---------      ---------    ---------         ---------
            Total interest expense                                             6,422          6,422       20,612            17,682
                                                                           ---------      ---------    ---------         ---------
               Net interest income                                             7,372          6,188       21,272            18,457
       Provision for loan losses                                                 250            150          650               300
                                                                           ---------      ---------    ---------         ---------
               Net interest income after provision for loan losses             7,122          6,038       20,622            18,157

Noninterest income:
     Investment securities gains (losses), net                                    --             97        4,624              (746)
     Service charges on deposit accounts                                       1,293          1,036        3,759             2,891
     Other service charges and fees                                              375            330        1,100               954
     Gain (loss) on sale of loans                                                244             (7)         198               (23)
     Other                                                                        57            353          540               669
                                                                           ---------      ---------    ---------         ---------
            Total noninterest income                                           1,969          1,809       10,221             3,745

Noninterest expense:
     Personnel                                                                 3,537          2,959       10,457             8,684
     Intangibles amortization                                                    940            634        2,957             1,685
     Occupancy                                                                   658            509        1,899             1,519
     Data processing                                                             617            548        1,843             1,607
     Furniture and equipment                                                     442            438        1,186             1,250
     Professional fees                                                           120            152          420               561
     Other                                                                       839            951        3,115             2,768
                                                                           ---------      ---------    ---------         ---------
             Total noninterest expense                                         7,153          6,191       21,877            18,074
                                                                           ---------      ---------    ---------         ---------
Income before income taxes                                                     1,938          1,656        8,966             3,828
Income taxes                                                                     690            340        2,330               800
                                                                           ---------      ---------    ---------         ---------
               Net income                                                      1,248          1,316        6,636             3,028
                                                                           ---------      ---------    ---------         ---------
Other comprehensive income (loss) net of tax:
    Unrealized gains (losses) arising during period                           (1,921)         2,027        3,071              (196)
    Reclassification adjustment for (gains) losses included in net
     income                                                                       --            (64)      (3,052)              492
                                                                           ---------      ---------    ---------         ---------
    Other comprehensive (loss) income                                         (1,921)         1,963           19               296
                                                                           ---------      ---------    ---------         ---------
     Total comprehensive (loss) income                                     $    (673)     $   3,279    $   6,655         $   3,324
                                                                           =========      =========    =========         =========
Per share information:
    Net income per common share                                            $   10.07      $   10.41    $   55.41         $   23.22
    Cash dividends declared on common shares                                    0.38           0.38         1.13              1.13
    Weighted average common shares outstanding                               114,796        117,481      114,848           118,171
                                                                           =========      =========    =========         =========
</TABLE>

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

                                        3

<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

(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, 1999                    397,370     $      1,936          39,825   $        555        118,912  $        595
Net income
Purchase and retirement of stock              (29,846)            (146)                                       (2,073)          (11)
Cash dividends:
  Common stock ($1.13 per share)
  Preferred B ($.66 per share)
  Preferred C ($.66 per share)
Unrealized gain on securities
  available-for-sale, net of tax
  expense of $151
                                         ------------     ------------   -------------   ------------   ------------  ------------
Balance, September 30, 2000                   367,524     $      1,790          39,825   $        555        116,839  $        584
                                         ============     ============   =============   ============   ============  ============

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
  expense of $10
                                         ------------     ------------   -------------   ------------   ------------  ------------
Balance, September 30, 2001                   363,773     $      1,772          39,716   $        553        114,594  $        573
                                         ============     ============   =============   ============   ============  ============

<CAPTION>
                                                                          Accumulated
                                                                             Other
                                                                            Compre-          Total
                                                            Retained        hensive      Shareholders'
                                           Surplus          Earnings        Income          Equity
                                         ------------     ------------   -------------   -------------
<S>                                      <C>              <C>            <C>             <C>
Balance, December 31, 1999               $     10,000     $     34,606   $       7,252   $      54,944
Net income                                                       3,028                           3,028
Purchase and retirement of stock                                  (575)                           (732)
Cash dividends:
  Common stock ($1.13 per share)                                  (134)                           (134)
  Preferred B ($.66 per share)                                    (258)                           (258)
  Preferred C ($.66 per share)                                     (26)                            (26)
Unrealized gain on securities
  available-for-sale, net of tax
  expense of $151                                                                  296             296
                                         ------------     ------------   -------------   -------------
Balance, September 30, 2000              $     10,000     $     36,641   $       7,548   $      57,118
                                         ============     ============   =============   =============

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
  expense of $10                                                                    19              19
                                         ------------     ------------   -------------   -------------
Balance, September 30, 2001              $     10,000     $     42,994   $       9,879   $      65,771
                                         ============     ============   =============   =============
</TABLE>

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

                                        4

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                           (Unaudited)
                                                                                                 Nine months ended September 30,
(Thousands)                                                                                            2001            2000
                                                                                                     --------        --------
<S>                                                                                              <C>                 <C>
OPERATING ACTIVITIES:
Net income                                                                                           $  6,636        $  3,028
Adjustments to reconcile net income to net cash
    provided by operating activities:
       Provision for loan losses                                                                          650             300
       Investment securities (gain) loss, net                                                          (4,624)            746
       (Gain) loss on sale of loans                                                                      (198)             23
       Loss on sale and abandonment of premises and equipment                                              20               8
       Net accretion on discounts on investments                                                          (36)             --
       Amortization of intangibles                                                                      2,957           1,685
       Depreciation                                                                                     1,583           1,147
       Net increase in accrued interest receivable                                                       (460)         (1,990)
       Net decrease in accrued interest payable                                                          (113)           (648)
       Net increase in other assets                                                                      (113)           (148)
       Net increase (decrease) in other liabilities                                                     1,091             (94)
                                                                                                     --------        --------

NET CASH PROVIDED BY OPERATING ACTIVITIES                                                               7,393           4,057
                                                                                                     --------        --------
INVESTING ACTIVITIES:
    Proceeds from maturities and issuer calls of investment securities available-for-sale              34,378          12,022
    Proceeds from maturities and issuer calls of investment securities held-to-maturity                40,443          49,556
    Proceeds from sales of loans                                                                       29,019           1,600
    Purchases of investment securities held-to-maturity                                               (13,988)        (48,014)
    Purchases of investment securities available-for-sale                                             (35,000)        (26,000)
    Net increase in loans                                                                             (78,416)        (25,530)
    Net cash received for branches acquired                                                                --          26,074
    Purchases of fixed assets                                                                          (4,075)         (3,749)
                                                                                                     --------        --------

NET CASH USED BY INVESTING ACTIVITIES                                                                 (27,639)        (14,041)
                                                                                                     --------        --------

FINANCING ACTIVITIES:
    Net increase (decrease) in demand and interest-bearing demand deposits                             21,181            (153)
    Net increase in time deposits                                                                      19,807          18,179
    Net change in short-term borrowed funds                                                             4,606           2,998
    Cash dividends paid                                                                                  (402)           (418)
    Purchase and retirement of stock                                                                     (164)           (732)
                                                                                                     --------        --------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                                              45,028          19,874
                                                                                                     --------        --------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                                            $ 24,782        $  9,890
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR                                                     55,784          48,894
                                                                                                     --------        --------

CASH AND CASH EQUIVALENTS AT THE END OF PERIOD                                                       $ 80,566        $ 58,784
                                                                                                     ========        ========

SUPPLEMENTAL DISCLOSURES OF CASH PAID DURING THE PERIOD FOR:

     Interest                                                                                        $ 20,431        $ 18,330
     Income taxes                                                                                    $  1,938        $    915
                                                                                                     ========        ========

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Unrealized gain on securities available-for-sale, net of taxes of $10 and $151,
   respectively                                                                                      $     19        $    296
                                                                                                     ========        ========
Foreclosed loans transferred to other real estate                                                    $    154        $     37
                                                                                                     ========        ========
</TABLE>

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

                                        5

<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,
2000, incorporated by reference in the 2000 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.

                                        6

<PAGE>

Cash And Cash Equivalents

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


New Accounting Standards

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
133, "Accounting for Derivative Instruments and Hedging Activities, as further
amended by Statement of Financial Accounting Standards No. 138, "Accounting for
Certain Derivative Instruments and Hedging Activities, an amendment of FASB
Statement No. 133, " (collectively referred to herein as "Statement 133"). This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative depends on the intended use of the derivative and the resulting
designation. BancShares adopted this statement on January 1, 2001 with no
material impact to the Company's consolidated financial statements.

In July 2001, the 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 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of Statement 142. Statement 142 will
also require that 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 FAS Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. At this time BancShares has not determined what effect that the adoption of
SFAS No. 141 and 142 will have on the consolidated financial statements.


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, 2001                            December 31, 2000
                                         -------------------------------------------- ---------------------------------------------
(In thousands)                                        Gross       Gross                             Gross       Gross
                                         Amortized  Unrealized  Unrealized    Fair     Amortized  Unrealized  Unrealized     Fair
                                            Cost      Gains       Losses      Value      Cost       Gains       Losses       Value
                                         ---------  ----------  ----------  --------- ----------- ---------- ------------  --------
<S>                                      <C>        <C>         <C>         <C>       <C>         <C>        <C>           <C>
    SECURITIES HELD-TO-MATURITY:
         U. S. Government                $  61,064         845           -  $  61,909 $    73,215        433          (24) $ 73,624
         Obligations of states
             and political subdivisions      8,227         442          (1)     8,668      22,230        464           (1)   22,693
         Corporate debenture                   100           1           -        101         100          -           (1)       99
                                         ---------  ----------  ----------  --------- ----------- ---------- ------------  --------
                                            69,391       1,288          (1)    70,678      95,545        897          (26)   96,416
                                         ---------  ----------  ----------  --------- ----------- ---------- ------------  --------

    SECURITIES AVAILABLE-FOR-SALE:
         U. S. Government                $  81,073       2,097           -  $  83,170 $    73,997        509          (31) $ 74,475
         Marketable equity securities       11,764      12,689        (125)    24,328      13,324     14,232         (157)   27,399
         Obligations of states
            and political subdivisions       7,917         321         (36)     8,202       8,177        387            -     8,564
         Mortgage-backed securities            850          24          (1)       873       1,135         11          (11)    1,135
                                         ---------  ----------  ----------  --------- ----------- ---------- ------------  --------
                                           101,604      15,131        (162)   116,573      96,633     15,139         (199)  111,573
                                         ---------  ----------  ----------  --------- ----------- ---------- ------------  --------

                    Totals               $ 170,995  $   16,419  $     (163) $ 187,251 $   192,178 $   16,036 $       (225) $207,989
                                         =========  ==========  ==========  ========= =========== ========== ============  ========
</Table>

                                       7

<PAGE>

During the nine months ended September 30, 2000, management of BancShares
reviewed its portfolio of securities available-for-sale and determined that
certain marketable equity securities had declines in their value that were
deemed to be other than temporary. Accordingly, BancShares recorded a charge of
$855,000 to investment securities gains (losses) during the first quarter of
2000 for this amount and reduced the carrying amount of the related investments
accordingly. There is no assurance that future charges to earnings for other
than temporary declines in the fair values of these or other investment
securities will not be required.


Note 4.  ALLOWANCE FOR LOAN LOSSES
      (Dollars in thousands)                         (Unaudited)
                                           Nine Months Ended September 30,
                                           ----------------------------------
                                                2001                2000
                                           ---------------    ---------------
    Balance at beginning of year                $7,284             $6,188
      Provision for loan losses                    650                300
      Loans charged off                           (395)              (301)
      Loan recoveries                              220                263
      Sale of credit card portfolio                (95)                 -
                                           ---------------    -----------
    Balance at end of the period                 $7,664            $6,450
                                           ===============    ===========


Note 5. 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 2001 or 2000, 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,
                                                 --------------------------------   -------------------------------
                                                     2001               2000              2001              2000
                                                 -------------    ---------------    --------------     -----------
    <S>                                          <C>              <C>                <C>                <C>
     Net income                                       $  1,248           $  1,316          $  6,636        $  3,028

      Less: Preferred dividends                            (92)               (93)             (272)           (284)
                                                 -------------    ---------------    --------------     -----------
     Net income applicable to common shares           $  1,156           $  1,223          $  6,364        $  2,744
                                                 =============    ===============    ==============     ===========

     Weighted average common shares
      outstanding during the period                    114,796            117,481           114,848         118,171
                                                 =============    ===============    ==============     ===========
</TABLE>

Note 6. Related Parties

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

The first significant shareholder is a director of BancShares and, at September
30, 2001, beneficially owned 32,607 shares, or 28.45%, of BancShares'
outstanding common stock and 4,966 shares, or 1.37%, of BancShares' outstanding
Series B preferred stock. At the same date, the second significant shareholder
beneficially owned 27,522 shares, or 24.02%, of BancShares' outstanding common
stock.

These two significant shareholders are directors and executive officers of the
Corporation and at September 30, 2001, beneficially owned 2,529,991 shares, or
28.71%, and 1,452,494 shares, or 16.48%, of the Corporation's outstanding Class
A common stock, and 649,188 shares, or 38.28%, and 199,052 shares, or 11.74%, of
the Corporation's outstanding Class B common stock. The above totals include
478,728 Class A common shares, or 5.43%, and 104,644 Class B Common shares, or
6.17%, that are considered to be beneficially owned by both of the shareholders
and, therefore, are included in each of their totals.

                                       8

<PAGE>


A subsidiary of the Corporation is First-Citizens Bank & Trust Company ("First
Citizens"). In the fourth quarter of 2000 Southern acquired two Rocky Mount,
North Carolina offices and one Nashville, North Carolina office of First
Citizens containing $66.1 million of deposits and $75.8 million of loans.
Southern paid $6.7 million to First Citizens for this acquisition. 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.

The following table lists the various charges paid to the Corporation during the
nine months ended September 30, 2001 and the nine months ended September 30,
2000 in accordance with the aforementioned service contracts:

<TABLE>
<CAPTION>
      (Dollars in thousands)                             (Unaudited)
                                              Nine Months Ended September 30,
                                              -------------------------------
                                                      2001           2000
                                              ---------------    ------------
    <S>                                        <C>               <C>
    Data and item processing                           $1,754        $  1,816
    Forms, supplies and equipment                         451             213
    Trustee for employee benefit plans                     51              74
    Consulting fees                                        73              55
    Other services                                        101              65
                                              ---------------    -----------

                                                       $2,430         $ 2,223
                                              ===============    ============

</TABLE>

                                        9

<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
2001 VS. NINE MONTHS ENDED 2000


INTRODUCTION

In the first nine months of 2001, the net income of BancShares increased
approximately $3.6 million from $3.0 million in the first nine months of 2000 to
$6.6 million in the first nine months of 2001, an increase of 119.15%. This
increase resulted primarily from $4.6 million of gains on available-for-sale
securities in 2001, and an $855,000 adjustment for unrealized investment
security losses, considered other than temporary, to reduce the carrying values
of certain marketable equity securities in the first nine months of 2000, that
did not recur in 2001. One branch acquisition in February 2000, three branch
acquisitions in April 2000, the opening of one new branch in September 2000 and
three branch acquisitions in November 2000 resulted in increased net interest
income, increased other noninterest income, increased personnel expense and
other related operating expenses for the nine months ended September 30, 2001.

Per share net income available to common shares for the first nine months of
2001 was $55.41, an increase of $32.19, or 138.63%, from $23.22 for the first
nine months of 2000. The annualized return on average equity increased to
11.76%, for the period ended September 30, 2001, from 7.33% for the period ended
September 30, 2000.

At September 30, 2001, BancShares' assets totaled $856.1 million, an increase of
$52.7 million, or 6.55%, from the $803.4 million reported at December 31, 2000.
During this nine month period, cash and due from banks decreased $5.1 million,
or 11.95% from $42.9 million to $37.8 million. During this nine month period,
overnight funds sold increased $29.9 million, or 232.98% from $12.8 million to
$42.8 million. During this nine month period, loans increased $49.3 million, or
9.93%, from $497.0 million to $546.3 million. During the nine months ended
September 30, 2001 investment securities decreased $21.1 million, or 10.21% from
$207.1 million at December 31, 2000 to $186.0 million at September 30, 2001.
Total deposits increased $41.0 million, or 5.87% from $698.5 million at December
31, 2000 to $739.5 million at September 30, 2001. The above changes resulted
principally from the seasonal impact of the agricultural markets served by
Southern .

                                       10

<PAGE>

ACQUISITIONS

In February 2000 Southern acquired $1.3 million of loans and $7.1 million of
deposits of the Robersonville, North Carolina office of Cooperative Bank for
Savings, Inc. In April 2000 Southern acquired $5.1 million of loans and $29.4
million of deposits of the Battleboro, Nashville and Sharpsburg, North Carolina
offices of Centura Bank. In November 2000 Southern acquired $75.8 million of
loans and $66.1 million of deposits of the Nashville and Rocky Mount, North
Carolina offices of First-Citizens Bank & Trust Company, a related party. These
acquisitions were accounted for as purchases, and, therefore, the results of
operations prior to purchase of the financial institutions are not included in
the consolidated financial statements.

The proforma impact of the acquisitions, as though they had been made at the
beginning of the period presented, is not material to BancShares' consolidated
financial statements, however the comparisons of the nine months ended September
30, 2001 to the nine months ended September 30, 2000 are impacted by the above
transactions.

In September 2000 Southern opened its first Greenville, North Carolina branch.


INTEREST INCOME

Interest and fees on loans increased $5.9 million, or 21.89%, from $27.0 million
for the nine months ended September 30, 2000 to $32.9 million for the nine
months ended September 30, 2001. This increase resulted from both overall higher
loan portfolio yields and increased balances. Average loans for the nine months
ended September 30, 2001 were $522.1 million, an increase of 25.99% from $414.4
million for the prior year period. This increase in average loans was
principally the result of the acquisitions discussed. The yield on the loan
portfolio was 8.89% for the nine months ended September 30, 2000 and 8.35% in
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 $302,000 or 3.61%, from $8.4 million in the nine months
ended September 30, 2000 to $8.1 million in the nine months ended September 30,
2001. This decrease was due to a decrease in the volume of average investment
securities for the nine months ended September 30, 2001 to $183.0 million as
compared to $209.8 million for the same 2000 period. The decrease in volume
principally resulted from the loan growth discussed. The yield on investment
securities was 5.53% for the nine-month period ended September 30, 2000 and
5.84% for the nine-month period ended September 30, 2001.

                                       11

<PAGE>

Interest income on overnight funds sold increased $143,000, or 17.70%, from
$808,000 for the nine months ended September 30, 2000 to $951,000 for the nine
months ended September 30, 2001. This increase in income resulted from an
increase in the average overnight funds sold to $29.2 million for the nine
months ended September 30, 2001 from an average of $17.9 million for the nine
months ended September 30, 2000. The increase in average overnight funds sold
resulted primarily from the acquisitions discussed above. Average overnight
funds sold yields were 4.30% for the nine months ended September 30, 2001, down
from 5.95% for the nine months ended September 30, 2000.

Total interest income increased $5.8 million or 15.90%, from $36.1 million for
the nine months ended September 30, 2000 to $41.9 million for the nine months
ended September 30, 2001. This increase was the result of a 1 basis point
decrease in average earning asset yields and an increase of $101.2 million in
average earning assets.

Average earning asset yields for the nine months ended September 30, 2001
decreased to 7.57% from the 7.58% yield on average earning assets for the nine
months ended September 30, 2000. Average earning assets increased from $633.1
million in the nine months ended September 30, 2000 to $734.3 million in the
nine months ended September 30, 2001. This $101.2 million increase in the
average earning assets resulted primarily from the acquisitions discussed above.


INTEREST EXPENSE

Total interest expense increased $2.9 million, or 16.57%, from $17.7 million in
the nine months ended September 30, 2000 to $20.6 million for the nine months
ended September 30, 2001. The principal reason for this increase was the
increase in deposits primarily from the acquisitions discussed above.
BancShares' total cost of funds decreased from 4.34% for the nine months ended
September 30, 2000 to 4.26% for the nine months ended September 30, 2001.
Average interest-bearing deposits were $604.3 million in the nine months ended
September 30, 2001, an increase of $91.0 million from the $513.3 million average
in the nine months ending September 30, 2000. The increase in interest-bearing
deposits was primarily the result of the aforementioned acquisitions.


NET INTEREST INCOME

Net interest income was $21.3 million for the nine months ended September 30,
2001 and $18.5 million for the nine months ended September 30, 2000.

The interest rate spread for the nine months ended September 30, 2001 was 3.31%,
an increase of 6 basis points from the 3.25% interest rate spread for the nine
months ended September 30, 2000.

                                       12

<PAGE>

ASSET QUALITY AND PROVISION FOR LOAN LOSSES

For the nine months ended September 30, 2001 management recorded $650,000 as a
provision for loan losses. Management made a $300,000 addition to the provision
for loan losses for the nine months ended September 30, 2000. Management
increased the provision in consideration of loan growth, increased net loan
charge offs, increased nonperforming loans and the continued overall slowing of
the economy.

During the first nine months of 2001 management charged-off loans totaling
$395,000 and received recoveries of $220,000, resulting in net charge-offs of
$175,000. During the same period in 2000, $301,000 in loans were charged-off and
recoveries of $263,000 were received, resulting in net charge-offs of $38,000.
For the nine months ended September 30, 2001 $650,000 was added to the allowance
for loan losses through charges to the operations of BancShares. The allowance
for loan losses accordingly increased $380,000 from December 31, 2000. The
following table presents comparative Asset Quality ratios of BancShares:



                                                   (Unaudited)
                                                   September 30,   December 31,
                                                       2001           2000
                                                  --------------   -----------
Ratio of annualized net loans charged off
      to average loans                                0.04%         0.04%

Allowance for loan losses
      to loans                                        1.40%         1.47%

Non-performing loans
      to loans                                        0.40%         0.31%

Non-performing loans and assets
      to total assets                                 0.27%         0.19%

Allowance for loan losses
      to non-performing loans                       350.76%       467.22%

The ratio of annualized net charge-offs to average loans outstanding was 0.04%
for both the nine months ended September 30, 2001 and the year ended December
31, 2000. The allowance for loan losses represented 1.40% of loans at September
30, 2001. The allowance for loan losses represented 1.47% of loans at December
31, 2000. The allowance for loan losses to loans ratio was also impacted by the
net growth in loans of $49.3 million, or 9.93% from $497.0 million at December
31, 2000 to $546.3 million at September 30, 2001. During the second quarter of
2001 BancShares sold its credit card portfolio which totaled approximately $3.2
million. Credit card loans were considered by management to be one of the
highest risk loan types and accordingly had been assigned a high reserve
requirement. The allowance related to this portfolio was $95,000 at the time of
sale. See footnote 4 to the financial statements for the effect of the sale on
the allowance.

The ratio of nonperforming loans to total loans increased from 0.31% at December
31, 2000 to 0.40% at September 30, 2001. Nonperforming loans and assets to total
assets increased to 0.27% at September 30, 2001 from 0.19% at December 31, 2000.
The allowance for loan losses to nonperforming loans represented 350.76% of
nonperforming loans at September 30, 2001, a decrease from the 467.22% at
December 31, 2000.

                                       13

<PAGE>

Performance declines resulted primarily from an increase in nonperforming loans
to $2.2 million at September 30, 2001 from $1.6 million at December 31, 2000.
The nonperforming loans at September 30, 2001 included $84,000 of nonaccrual
loans, $2.1 million of accruing loans 90 days or more past due and $28,000 of
restructured loans. The nonperforming loans at December 31, 2000 included
$478,000 of nonaccrual loans, $1.1 million of accruing loans 90 days or more
past due and no restructured loans. There were no significant impaired loans at
September 30, 2001. BancShares had $154,000 of assets classified as other real
estate at September 30, 2001. BancShares had no assets classified as other real
estate at December 31, 2000. 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, 2001 allowance for loan losses to be
adequate to cover the losses and risks inherent in the loan portfolio at
September 30, 2001 and will continue to monitor its portfolio and to adjust the
relative level of the allowance as needed.

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.

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, 2001, BancShares realized a $6.5
million increase in noninterest income primarily as a result of a gains recorded
on the sales of available-for-sale investment securities.

                                       14

<PAGE>

During the nine months ended September 30, 2001 investment securities were sold
for a net gain of $4.6 million. During the nine months ended September 30, 2000,
management of BancShares reviewed its portfolio of securities available-for-sale
and determined that certain marketable equity securities had declines in their
value that were deemed to be other than temporary. Accordingly, BancShares
recorded a charge of $855,000 to investment securities gains (losses) in the
accompanying consolidated statement of income and comprehensive income for the
nine months ended September 30, 2000 for this amount and reduced the carrying
amount of the related investments accordingly. There is no assurance that future
charges to earnings for other than temporary declines in the fair values of
these or other investment securities will not be required.

Service charges on deposit accounts for the nine months ended September 30, 2001
increased $868,000 and other service charges and fees for the nine months ended
September 30, 2001 increased $146,000 over the nine months ended September 30,
2000 primarily as a result of the aforementioned acquisitions.

NONINTEREST EXPENSE

Noninterest expense increased $3.8 million or 21.04%, from $18.1 million in the
nine months ended September 30, 2000 to $21.9 million in the nine months ended
September 30, 2001.

This increase was primarily due to an increase in personnel expense of $1.8
million, or 20.42%, from $8.7 million at September 30, 2000 to $10.5 million at
September 30, 2001 and increased occupancy, data processing and other expenses
resulting principally from the aforementioned branch acquisitions.

INCOME TAXES

In the nine months ended September 30, 2001 BancShares recorded income tax
expense of $2.3 million. In the nine months ended September 30, 2000, BancShares
recorded income tax expense of $800,000. The resulting effective tax rate for
the nine months ended September 30, 2001 was 25.99%. The effective tax rate for
the nine months ended September 30, 2000 was 20.90%. The estimated effective tax
rate was higher in 2001 due to a decrease in tax-exempt income in 2001 as a
percentage of total income before taxes. The effective tax rates in 2001 of
25.99% and in 2000 of 20.90% differ from the federal statutory rate of 34.00%
primarily due to tax exempt income.

                                       15

<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - THIRD QUARTER OF
2001 VS. THIRD QUARTER OF 2000

INTRODUCTION

In the three months ended September 30, 2001, the net income of BancShares
decreased $68,000 from $1.3 million in the three months ended September 30, 2000
to $1.2 million in the three months ended September 30, 2001, a decrease of
5.17%. The decrease in net income for the quarter ended September 30, 2001 is
attributed to an increase in noninterest expenses and the provision for loan
losses which were not fully offset by growth in net interest income and
noninterest income. In addition, BancShares effective tax rate increased
significantly in 2001 compared to 2000. The third quarter 2001 provision for
loan losses was higher than the 2000 provision for loan losses, primarily due to
loan growth and the continued slowdown of the economy in 2001.

Per share net income available to common shares for the three months ended
September 30, 2001 was $10.07, a decrease of $0.34, or 3.27%, from $10.41 in the
three months ended September 30, 2000.

ACQUISITIONS

Southern had no acquisitions in the quarter ended September 30, 2000 or the
quarter ended September 30, 2001.

INTEREST INCOME

Interest and fees on loans increased $1.5 million, or 15.85%, from $9.5 million
for the quarter ended September 30, 2000 to $11.0 million for the quarter ended
September 30, 2001. This increase was due to increased loan balances. Average
loans for the quarter ended September 30, 2001 were $543.8 million, an increase
of 27.00% from $428.2 million for the prior year quarter. The yield on the loan
portfolio was 8.77% for the three months ended September 30, 2000 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 $382,000, or 13.15%, from $2.9 million in the three months
ended September 30, 2000 to $2.5 million in the three months ended September 30,
2001. This decrease was primarily due to a decrease in the average investment
portfolio resulting from loan growth. Average investment securities for the
quarter ended September 30, 2001 decreased to $173.6 million as compared to
$212.7 million for the same 2000 quarter. The yield on investment securities was
5.62% for the quarter ended September 30, 2000 and 5.66% for the quarter ended
September 30, 2001.



                                       16

<PAGE>

Interest income on overnight funds sold increased $59,000, or 29.95%, from
$197,000 for the quarter ended September 30, 2000 to $256,000 for the quarter
ended September 30, 2001. This increase in income resulted from an increase in
volume. Approximately $75.8 million of the volume increase resulted from the
aforementioned acquisitions. The average overnight funds sold was $31.2 million
for the quarter ended September 30, 2001 compared to an average of $12.0 million
for the quarter ended September 30, 2000. Average overnight funds sold yields
were 2.92% for the quarter ended September 30, 2001 down from 6.67% for the
quarter ended September 30, 2000.

Total interest income increased $1.2 million, or 9.39%, from $12.6 million for
the quarter ended September 30, 2000 to $13.8 million for the quarter ended
September 30, 2001. This increase was primarily the result of an increase in the
average earning assets resulting primarily from the aforementioned acquisitions.

Average earning asset yields for the quarter ended September 30, 2001 decreased
to 7.24% from the 7.73% yield on average earning assets for the quarter ended
September 30, 2000. Average earning assets increased from $653.5 million in the
quarter ended September 30, 2000 to $748.6 million in the quarter ended
September 30, 2001. Approximately $75.8 million of this $95.1 million increase
in average earning assets resulted from the aforementioned acquisitions.

INTEREST EXPENSE

Total interest expense was $6.4 million for both the three months ended
September 30, 2000 and the three months ended September 30, 2001. There was no
change in interest expense as the impact of the increased balances resulting
from the aforementioned acquisitions was offset by decreased costs of deposits
and short-term borrowings.

NET INTEREST INCOME

Net interest income was $7.4 million for the three months ended September 30,
2001 and $6.2 million for the three months ended September 30, 2000.

The interest rate spread for the quarter ended September 30, 2001 was 3.36%, an
increase of 21 basis points from the 3.15% interest rate spread for the quarter
ended September 30, 2000.

ASSET QUALITY AND PROVISION FOR LOAN LOSSES

For the three months ended September 30, 2001 management recorded $250,000 as a
provision for loan losses. Management made a $150,000 provision for loan losses
for the quarter ended September 30, 2000.

                                       17

<PAGE>

During the three months ended September 30, 2001 management charged-off loans
totaling $44,000 and received recoveries of $162,000, resulting in net
recoveries for the three months ended September 30, 2001 of $118,000. During the
three months ended September 30, 2000, $146,000 in loans were charged-off and
recoveries of $95,000 were received, resulting in net charge-offs of $51,000 for
the three months ended September 30, 2000. In spite of the net recoveries
realized during the quarter ended September 30, 2001, BancShares recorded an
increase in the provision for loan losses due to strong loan growth and the
effects of the slowing economy on borrowers.


NONINTEREST INCOME

During the three months ended September 30, 2001, BancShares' noninterest income
increased $164,000 principally as a result of the aforementioned acquisitions.
Service charges on deposit accounts for the three months ended September 30,
2001 increased $257,000 and other service charges and fees for the three months
ended September 30, 2001 increased $45,000 over the three months ended September
30, 2000 primarily as a result of the aforementioned acquisitions.


NONINTEREST EXPENSE

Noninterest expense including personnel, occupancy, furniture and equipment,
data processing, FDIC insurance, state assessments, printing, supplies and other
expenses, increased $962,000 or 15.60%, from $6.2 million in the three months
ended September 30, 2000 to $7.2 million in the three months ended September 30,
2001.

This increase was primarily due to an increase in personnel expense of $578,000,
or 19.53%, from $3.0 million for the quarter ended September 30, 2000 to $3.5
million for the quarter ended September 30, 2001 and increased occupancy,
furniture and equipment expense and other expenses resulting principally from
the aforementioned acquisitions.


INCOME TAXES

In the three months ended September 30, 2001, BancShares had income tax expense
of $690,000, an increase of $350,000 from $340,000 in the prior year quarter.
This increase is due to both increased earnings and an increase in the estimated
effective tax rate to 35.60% for the quarter ended September 30, 2001 to adjust
the estimated year-to-date tax rate to 25.99%. The estimated effective tax rate
for the quarter ended September 30, 2000 was 20.53%. The estimated effective tax
rate was revised due to a change in management estimates 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

                                       18

<PAGE>

September 30, 2001 of 35.60% and September 30, 2000 of 20.53% differ from the
federal statutory rate of 34.00% primarily due to tax exempt income.


SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY

Sufficient levels of capital are necessary to sustain growth and absorb losses.

In June 1998, the Trust issued $23.0 million of 8.25% Capital Securities
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, with a
maturity of 2028, 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 as
Southern and is in compliance with those capital adequacy requirements at
September 30, 2001.

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, 2001 was 7.19%. At December 31, 2000, Southern's
leverage capital ratio was 6.97%. Both of these ratios are greater than the
level designated as "well capitalized" by the FDIC.

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, 2001, Southern's Total RBC
ratio was 12.51%. At December 31, 2000 the RBC ratio was 12.59%. 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 the acquisitions Southern has made. Each of the acquisitions required the
payment of a premium for the deposits received. Each of these premiums resulted
in increased intangible assets on BancShares' financial statements, which is
deducted from total equity in the ratio calculations.

The accumulated other comprehensive income was $9.9 million at both September
30, 2001 and December 31, 2000. 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

                                       19

<PAGE>

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:


                                                                 (Unaudited)
                                                                September 30,
                                                                    2001
                                                                -------------



      (Dollars in thousands)

Tier 1 capital                                                      $  58,398
Total capital                                                          68,146
Risk-adjusted assets                                                  544,626
Average tangible assets                                               812,483

Tier 1 capital ratio (1)                                                10.72%
Total capital ratio (1)                                                 12.51%
Leverage capital ratio (1)                                               7.19%

(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, federal
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 26.07% at September 30, 2001 and
33.48% at December 31, 2000.

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, 2001 and for the nine months ended September 30, 2000. 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, 2001 jumbo time deposits represented 14.36% of total
deposits. At December 31, 2000 jumbo time deposits represented 11.69% 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.

                                       20

<PAGE>

ACCOUNTING AND OTHER MATTERS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative depends on the intended use of the derivative and the resulting
designation. This statement, as amended by Statements 137 and 138, was effective
for all fiscal quarters of fiscal years beginning after June 15, 2000.
BancShares adopted this statement on January 1, 2001, with no material impact
upon adoption.

In July 2001, the 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 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of Statement 142. Statement 142 will
also require that 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 FAS Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. At this time BancShares has not determined what effect that the adoption of
SFAS No. 141 and 142 will have on the consolidated financial statements.

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

OTHER MATTERS

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.



                                       21

<PAGE>

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 and the core deposits without contractual maturity
level as of September 30, 2001. Management seeks to manage this risk through the
use of shorter term maturities. The composition and size of the investment
portfolio is managed so as to reduce the interest rate risk in the deposit and
loan portfolios while at the same time maximizing the yield generated from the
loan portfolio.

The table below presents in tabular form the contractual balances and the
estimated fair value of financial instruments at their expected maturity dates
as of September 30, 2001. The expected maturity categories take into
consideration historical prepayment experience as well as management's
expectations based on the interest rate environment as of September 30, 2001.
For core deposits without contractual maturity (i.e., interest bearing checking,
savings and money market accounts), the table presents principal cash flows as
maturing in 2002 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, 2001. Overall loan and deposit balance
maturities are shorter at September 30, 2001 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
                                      2002        2003        2004         2005       2006     Thereafter     Total      Fair Value
 <S>                                 <C>         <C>         <C>          <C>        <C>       <C>          <C>          <C>
Assets
  Loans
      Fixed rate                    $  78,492   $  48,035   $  53,728    $ 31,190   $ 37,252   $   85,304   $ 334,001    $  353,210
      Average rate (%)                   8.40%       8.65%       8.36%       8.18%      8.23%        7.13%       8.07%

      Variable rate                 $ 123,171   $  16,936   $  13,861    $ 13,879   $ 11,031   $   33,412   $ 212,290    $  212,290
      Average rate (%)                   8.18%       6.89%       6.97%       6.98%      6.84%        7.33%       7.72%

  Investment securities
      Fixed rate                    $  93,434   $  52,812   $   2,063    $  1,592   $  1,630   $   18,744   $ 170,275    $  185,244
      Average rate (%)                   6.27%       4.83%       7.95%       8.37%      8.28%        6.22%       5.88%

      Variable rate                         -           -           -           -          -   $      720   $     720    $      720
      Average rate (%)                      -           -           -           -          -         7.03%       7.03%

Liabilities
      Savings and interest
        bearing checking

      Fixed rate                    $ 219,917           -           -           -          -            -   $ 219,917    $  219,917
      Average rate (%)                   1.17%          -           -           -          -            -        1.17%

Certificates of deposit
      Fixed rate                    $ 351,414   $  23,870   $   6,050    $  8,881          -            -   $ 390,215    $  394,939
      Average rate (%)                   4.78%       6.04%       5.16%       5.35%         -            -        4.87%

      Variable rate                 $   4,650   $   1,959           -           -          -            -   $   6,609    $    6,609
      Average rate (%)                   2.63%       2.71%          -           -          -            -        2.65%

Long-term debt

      Fixed rate                            -           -           -           -          -       23,000   $  23,000    $   24,150
      Average rate (%)                      -           -           -           -          -         8.25%       8.25%
</TABLE>

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, 2001, which reflected a one
year negative interest-sensitivity gap of $258.2 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 interest sensitivity of financial
instruments is significantly higher at September 30, 2001 as compared to
December 31, 2000.

                                       22

<PAGE>

The total cumulative interest sensitivity gap has also increased significantly
at September 30, 2001 as compared to December 31, 2000.


INTEREST-SENSITIVITY ANALYSIS

(Dollars in thousands, unaudited)

<TABLE>
<CAPTION>
                                                                               September 30, 2001

                                                                                                       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                                                 $ 147,351       $  26,434       $  27,878       $ 344,628      $ 546,291
Investment securities                                    32,988          21,222          39,222          77,563        170,995
Temporary investments                                    42,755               -               -               -         42,755
                                                      ---------       ---------       ---------       ---------      ---------
      Total earning assets                            $ 223,094       $  47,656       $  67,100       $ 422,191      $ 760,041
                                                      =========       =========       =========       =========      =========
Interest-Bearing Liabilities:
Savings and core time deposits                          340,696          91,168          45,902          32,765        510,531

Time deposits of $100,000 and more                       47,099          34,530          16,586           7,995        106,210

Short-term borrowings                                    20,033               -               -               -         20,033
Long-term obligations                                         -               -               -          23,000         23,000
                                                      ---------       ---------       ---------       ---------      ---------
      Total interest bearing liabilities              $ 407,828       $ 125,698       $  62,488       $  63,760      $ 659,774
                                                      =========       =========       =========       =========      =========

Interest sensitivity gap                              $(184,734)      $ (78,042)          4,612       $ 358,431      $ 100,267
                                                      =========       =========       =========       =========      =========

Cumulative interest sensitivity gap                   $(184,734)      $(262,776)      $(258,164)      $ 100,267      $ 100,267
                                                      =========       =========       =========       =========      =========
</TABLE>

Part ii - OTHER INFORMATION

Item 5. Other Information.

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.

                                       23

<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 06, 2001             /s/ John C. Pegram, Jr.
------------------            -------------------------------------------------
    Date                      John C. Pegram, Jr.,
                              President and Chief Executive Officer



November 06, 2001             /s/ David A. Bean
------------------            -------------------------------------------------
    Date                      David A. Bean,
                              Secretary, Treasurer and Chief Financial Officer

                                       24