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, 1999             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  quarter 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.

                                 119,000 shares
<PAGE>
<TABLE>
<CAPTION>
                                                                                             (Unaudited)
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES                                            September 30,       December 31,
CONSOLIDATED BALANCE SHEETS                                                                      1999                1998
                                                                                            ---------------  ------------------
                  (Dollars in thousands except per share data)
ASSETS
<S>                                                                                               <C>                 <C>
Cash and due from banks                                                                           $ 24,725            $ 37,419
Federal funds sold                                                                                  18,145              19,535
Investment securities:
   Available-for-sale, at fair value (amortized cost $96,175 and $92,012, respectively)            108,763             109,227
   Held-to-maturity,  at amortized cost (fair value $86,221 and $93,511, respectively)              85,993              92,340
Loans                                                                                              392,798             364,489
Less allowance for loan losses                                                                      (6,133)             (5,962)
                                                                                           ---------------  ------------------
Net loans                                                                                          386,665             358,527
Premises and equipment                                                                              20,099              18,902
Intangible assets                                                                                    6,904               6,972
Accrued interest receivable                                                                          5,689               4,571
Other assets                                                                                         1,632               1,932
                                                                                           ---------------  ------------------
              Total assets                                                                       $ 658,615           $ 649,425
                                                                                           ===============  ==================
LIABILITIES
Deposits:
     Noninterest-bearing                                                                          $ 81,602            $ 77,550
     Interest-bearing                                                                              485,127             479,202
                                                                                           ---------------  ------------------
Total deposits                                                                                     566,729             556,752
Short-term borrowings                                                                                7,160               5,124
Long-term obligations                                                                               23,000              23,000
Accrued interest payable                                                                             3,999               4,505
Other liabilities                                                                                    2,683               4,011
                                                                                           ---------------  ------------------
          Total liabilities                                                                        603,571             593,392
                                                                                           ---------------  ------------------
</TABLE>
(continued)
<PAGE>
<TABLE>
<CAPTION>
                                                                                             (Unaudited)
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES                                            September 30,       December 31,
CONSOLIDATED BALANCE SHEETS                                                                      1999                1998
                                                                                            ---------------  ------------------
                  (Dollars in thousands except per share data)
ASSETS
<S>                                                                                               <C>                 <C>
SHAREHOLDERS' EQUITY
Series B non-cumulative preferred stock, no par value; 408,728 shares authorized;
      397,638  and  398,653 shares issued and outstanding at  September  30, 1999  and
      December 31, 1998, respectively                                                                1,937              1,942
Series C non-cumulative preferred stock, no par value; 43,631 shares authorized;  39,825
      and  40,373  shares  issued  and outstanding at September 30, 1999 and December 31,
      1998, respectively                                                                               555                562
Common  stock,  $5  par  value;  158,485  shares authorized; 119,000 and 119,266 shares
       issued and outstanding at September 30, 1999 and December 31, 1998, respectively                595                596
Surplus                                                                                             10,000             10,000
Retained earnings                                                                                   33,649             31,571
Accumulated other comprehensive income                                                               8,308             11,362
                                                                                           ---------------    ----------------
        Total shareholders' equity                                                                  55,044             56,033
                                                                                           ---------------    ----------------

              Total liabilities and shareholders' equity                                         $ 658,615          $ 649,425
                                                                                           ================   ================
</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
<PAGE>
<TABLE>
<CAPTION>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME                                                       (Unaudited)         (Unaudited)
                                                                                    Three Months Ended   Nine  Months Ended
                                                                                       September 30,        September 30,
                                                                                      1999      1998      1999        1998
                                                                                      ----      ----      ----        ----
(Dollars in thousands except share and per share data)
<S>                                                                                  <C>       <C>       <C>        <C>
INTEREST INCOME:

Loans                                                                                $ 7,951   $ 7,956   $ 23,015   $ 23,256
Investment securities:
    U. S. Government                                                                   1,858     1,774      5,607      5,243
    State, county and municipal                                                          400       433      1,287      1,365
    Other                                                                                178        42        552        588
                                                                                     -------  --------  ---------   ---------
            Total investment securities interest income                                2,436     2,249      7,446      7,196
Federal funds sold                                                                       146       310        576        657
                                                                                     -------  --------  ---------   ---------
Total interest income                                                                 10,533    10,515     31,037     31,109

INTEREST EXPENSE:

       Deposits                                                                        4,352     4,688     13,053     14,047
       Short-term borrowings                                                              63        82        160        223
       Long-term obligations                                                             531       316      1,566        787
                                                                                     -------  --------  ---------   ---------
             Total interest expense                                                    4,946     5,086     14,779     15,057
                                                                                     -------  --------  ---------   ---------
                     NET INTEREST INCOME                                               5,587     5,429     16,258     16,052
      Provision for loan losses                                                          465        20        585        140
                                                                                     -------  --------  ---------   ---------
                     NET INTEREST INCOME AFTER PROVISION
                     FOR LOAN LOSSES                                                   5,122     5,409     15,673     15,912

NONINTEREST INCOME:

     Service charges on deposit accounts                                                 914       802      2,637      2,387
     Other service charges and fees                                                      296       302        815        693
     Gain (loss) on sale of loans                                                         52        38       (137)        68
     Investment securities gains, net                                                      -         -          1      1,788
     Other                                                                               218       250        512        608
                                                                                     -------  --------  ---------   ---------
           Total noninterest income                                                    1,480     1,392      3,828      5,544
</TABLE>
(continued)
<PAGE>
<TABLE>
<CAPTION>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME                                                       (Unaudited)         (Unaudited)
                                                                                    Three Months Ended   Nine  Months Ended
                                                                                       September 30,        September 30,
                                                                                      1999      1998      1999        1998
                                                                                      ----      ----      ----        ----
(Dollars in thousands except share and per share data)
<S>                                                                                   <C>       <C>          <C>        <C>
NONINTEREST EXPENSE:

      Personnel                                                                        2,730     2,415         8,137      7,134
      Data processing                                                                    458       513         1,419      1,411
      Intangibles amortization                                                           389       375         1,257      1,162
      Occupancy                                                                          406       390         1,185      1,140
      Furniture and equipment                                                            494       375         1,220      1,103
      Other                                                                              924     1,050         2,923      3,069
                                                                                     -------  --------  ------------   --------
             Total noninterest expense                                                 5,401     5,118        16,141     15,019
                                                                                     -------  --------  ------------   --------
INCOME BEFORE INCOME TAXES                                                             1,201     1,683         3,360      6,437
Income taxes                                                                             290       470           800      1,730
                                                                                     -------  --------  ------------   --------
                       NET INCOME                                                        911     1,213         2,560      4,707
                                                                                     -------  --------  ------------   --------
OTHER COMPREHENSIVE INCOME (LOSS) NET OF TAX:
   Unrealized losses arising during period                                              (866)     (880)       (3,054)    (2,995)
   Less: reclassification adjustment for gains included in net income                      -         -             -      1,180
                                                                                     -------  --------  ------------   --------
       COMPREHENSIVE INCOME (LOSS)                                                      $ 45     $ 333        $ (494)     $ 532
                                                                                     =======  ========  ============   ========
PER SHARE INFORMATION:

   Earnings per common share                                                          $ 6.81    $ 9.27       $ 19.02    $ 36.76
   Cash dividends declared on common shares                                             0.38      0.38          1.13       1.13
   Weighted average common shares outstanding                                        119,172   119,794       119,203    119,855
                                                                                     =======  ========  ============   ========
</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,
                                                                                               1999             1998
(Thousands)                                                                                -----------      -----------
<S>                                                                                            <C>              <C>
OPERATING ACTIVITIES:
Net income                                                                                     $ 2,560          $ 4,707
Adjustments to reconcile net income to net cash
      provided by operating activities:
            Provision for loan losses                                                              585              140
            Gains on sales and issuer calls of securities available-for-sale                        (1)          (1,788)
            Loss on sale and abandonment of premises and equipment                                  95               28
            Net accretion on discounts on investments                                              (54)             (53)
            Amortization of intangibles                                                          1,403            1,162
            Depreciation                                                                         1,105            1,029
            Net increase in accrued interest receivable                                         (1,118)          (1,485)
            Net (decrease) increase in accrued interest payable                                   (506)             399
            Net decrease (increase) in other assets                                                300           (1,279)
            Net decrease in other liabilities                                                   (1,331)            (130)
                                                                                           -----------      -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                                        3,038            2,730
                                                                                           -----------      -----------
INVESTING ACTIVITIES:
      Proceeds from maturities and issuer calls of investment securities available-for-sale     26,188           25,625
      Proceeds from maturities and issuer calls of investment securities held-to-maturity       32,131            4,678
      Proceeds from sales of investment securities available-for-sale                               30            1,976
      Purchases of investment securities held-to-maturity                                      (31,537)         (21,804)
      Purchases of investment securities available-for-sale                                    (23,000)         (14,420)
      Net increase in loans                                                                    (19,512)          (1,477)
      Proceeds from net cash received (paid) for bank and branches acquired                      3,991           (6,050)
      Purchases of premises and equipment                                                       (2,096)          (1,194)
                                                                                           -----------      -----------
NET CASH USED BY INVESTING ACTIVITIES                                                          (13,805)         (12,666)
                                                                                           -----------      -----------
</TABLE>
(continued)
<PAGE>
<TABLE>
<CAPTION>
                                                                                                    (Unaudited)
                                                                                          Nine months ended September 30,
                                                                                               1999             1998
(Thousands)                                                                                -----------      -----------
<S>                                                                                            <C>              <C>
FINANCING ACTIVITIES:
     Net (increase) decrease in demand and interest-bearing demand deposits                     (4,143)           1,500
     Net decrease in time deposits                                                                (715)          (2,778)
     Proceeds from issuance of long-term obligations                                                 -           23,000
     Payments on long-term obligations                                                               -           (4,750)
     Net proceeds of short-term borrowed funds                                                   2,036              391
     Cash dividends paid                                                                          (428)            (436)
     Purchase and retirement of stock                                                              (67)            (132)
                                                                                           -----------      -----------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES                                                (3,317)          16,795
                                                                                           -----------      -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                         $ (14,084)         $ 6,859
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR                                              56,954           38,621
                                                                                           -----------      -----------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD                                                $ 42,870         $ 45,480
                                                                                           ===========      ===========

SUPPLEMENTAL DISCLOSURES OF CASH PAID DURING THE PERIOD FOR:

     Interest                                                                                 $ 15,285         $ 14,658
     Income taxes                                                                                $ 543         $  2,386
                                                                                           ===========      ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Unrealized loss on securities available-for-sale, net of taxes                                $ (3,054)        $ (2,995)
                                                                                           ===========      ===========

</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, 1999 AND 1998

(Dollars in thousands except per share data)

(Unaudited)
<TABLE>
<CAPTION>
                                                     PREFERRED STOCK            COMMON  STOCK                   ACCUMULATED
                                       -------------------------------------  --------------------                OTHER      TOTAL
                                              SERIES B          SERIES C                                          COMPRE-    SHARE
                                       ----------------   ----------------                             RETAINED   HENSIVE   HOLDERS'
                                       SHARES    AMOUNT    SHARES  AMOUNT   SHARES    AMOUNT  SURPLUS  EARNINGS   INCOME     EQUITY
                                       --------  -------  -------- -------  --------  ------- ---------- -------- -------  ---------
<S>                                    <C>       <C>       <C>      <C>    <C>        <C>    <C>        <C>       <C>      <C>
Balance, December 31, 1997             405,645   $1,976    43,631   $578   119,918    $600   $10,000    $26,733   $15,097  $54,984

Net income                                                                                                4,707              4,707
Retirement of stock                       (852)      (4)     (708)    (3)     (652)     (4)                (121)              (132)
Cash dividends:

  Common stock ($1.13 per share)                                                                           (135)              (135)
  Preferred   B   ($.66   per   share)                                                                     (272)              (272)
  Preferred   C    ($.66  per   share)                                                                      (29)               (29)
Unrealized loss on securities

  available-for-sale, net of tax                                                                                   (2,995)  (2,995)
                                       --------  -------  -------- ------  --------  ------ ---------- ---------- -------- --------
BALANCE, SEPTEMBER 30, 1998            404,793   $1,972    42,923   $575   119,266    $596   $10,000    $30,883   $12,102  $56,128
                                       ========  =======  ======== ======  ========  ====== ========== ========== ======== ========

BALANCE, DECEMBER 31, 1998             398,653   $1,942    40,373   $562   119,266    $596   $10,000    $31,571   $11,362  $56,033
Net income                                                                                                2,560              2,560
Retirement of stock                     (1,015)      (5)     (548)    (7)     (266)     (1)                 (54)               (67)
Cash dividends:

  Common stock ($1.13 per share)                                                                           (135)              (135)
  Preferred B ($.66 per share)                                                                             (265)              (265)
  Preferred C  ($.66  per share)                                                                            (28)               (28)
Unrealized loss on securities

  available-for-sale, net of tax                                                                                   (3,054)  (3,054)
                                       --------  -------  -------- ------  --------  ------ ---------- ---------- -------- --------
BALANCE, SEPTEMBER 30, 1999            397,638   $1,937    39,825   $555   119,000    $595   $10,000    $33,649    $8,308  $55,044
                                       ========  =======  ======== ======  ========  ====== ========== ========== ======== ========
</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 46 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. 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 generally  accepted
accounting  principles  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,  1998,
incorporated by reference in the 1998 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.

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.

Reclassifications

Certain prior period  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.
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLARS IN THOUSANDS

NOTE 2. INVESTMENT SECURITIES
<TABLE>
<CAPTION>
                                                      SEPTEMBER 30, 1999                                  DECEMBER 31, 1998
                                       ---------------------------------------------  ----------------------------------------------
(IN THOUSANDS, UNAUDITED)                           GROSS       GROSS      ESTIMATED                GROSS       GROSS      ESTIMATED
                                       MORTIZED   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               $72,333       45        (268)      $72,110    $72,070        360         (41)    $72,389
         Obligations of states
             AND POLITICAL SUBDIVISIONS   13,560      455          (3)       14,012     20,170        850                  21,020
         CORPORATE DEBENTURE                 100        -          (1)           99        100          2                     102
                                       ---------  --------  ----------  ------------ ----------- ----------- -----------  ---------
                                         $85,993      500        (272)     $ 86,221      $92,340      1,212         (41)   $ 93,511
                                       =========  ========  ==========  ============ =========== =========== ===========  =========
    SECURITIES AVAILABLE-FOR-SALE:

         U.  S. Government               $70,967       32        (364)     $ 70,635      $71,046        369        (135)   $ 71,280
         Marketable equity securities     15,384   12,730           -        28,114       10,747     16,867        (487)     27,127
         Obligations of states
            and political subdivisions     8,343      235         (40)        8,538        8,539        573          (1)      9,111
        Mortgage-backed securities         1,481       23         (28)        1,476        1,680         38          (9)      1,709
                                       ---------  --------  ----------  ------------ ----------- ----------- -----------  ---------
                                         $96,175   13,020        (432)    $ 108,763      $92,012     17,847        (632)  $ 109,227
                                       =========  ========  ==========  ============ =========== =========== ===========  =========
</TABLE>
<PAGE>
Note 3.  LOANS
<TABLE>
<CAPTION>
      (Dollars in thousands, unaudited)                              September 30,      December 31,
                                                                          1999              1998
                                                                    ---------------   ---------------
<S>                                                                        <C>                <C>
    Commercial, financial and agricultural                                 $101,651           $86,980
    Real estate:
          Construction                                                        7,863             5,276
          Mortgage:
                One to four family residential                              111,378           113,984
                Commercial                                                   70,167            62,446
                Equityline                                                   30,230            28,698
                Other                                                        32,955            26,846
    Consumer                                                                 34,008            36,775
    Lease financing                                                           4,546             3,484
                                                                     --------------    --------------
      Total loans                                                         $ 392,798         $ 364,489
                                                                     ==============    ==============
    Loans held for sale, included above                                     $ 4,408           $ 6,858
    Loans serviced for others, not included above                         $ 179,406         $ 163,455
</TABLE>
<PAGE>
Note 4.  ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
                                                                                 (Unaudited)
      (Dollars in thousands                                           Nine Months Ended September 30,
                                                                    ---------------------------------
                                                                          1999              1998
                                                                     --------------    ---------------
<S>                                                                          <C>               <C>
    Balance at beginning of year                                             $5,962            $5,971
      Allowance from bank acquisition                                             -               269
      Provision for loan losses                                                 585               140
      Loans charged off                                                        (537)             (294)
      Loan recoveries                                                           123                70
                                                                     --------------    --------------
    Balance at end of the period                                             $6,133            $6,156
                                                                     ==============    ==============
</TABLE>
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 1999 or 1998, the  computation of basic and diluted
earnings per share is the same.  The following  table presents the components of
the earnings per share computations:

Note 5. EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
                                                      (Unaudited)                               (Unaudited)
      (Dollars in thousands)                    Three Months Ended September 30,          Nine Months Ended September 30,
                                               ---------------------------------         ----------------------------------
                                                    1999              1998                   1999               1998
                                               ---------------   ---------------         -------------    -----------------
<S>                                                      <C>             <C>                   <C>                   <C>
    Net income                                           $911            $1,213                $2,560                $4,707
      Less: Preferred dividends                          (100)             (103)                 (293)                 (301)
                                               ---------------   ---------------         -------------    -----------------
    Net income applicable to common shares               $811            $1,110                $2,267                $4,406
                                               ===============   ===============         =============    =================
    Weighted average common shares
      outstanding during the period                   119,172           119,794               119,203               119,855
                                               ===============   ===============         =============    =================
</TABLE>
Note 6. Acquisitions

On  September   20,1999   Southern   acquired  the  Ahoskie   branch  office  of
First-Citizens Bank & Trust Company ("FCB"), a related party. In connection with
that transaction,  Southern assumed total deposit  liabilities of $14.8 million,
purchased $9.2 million of loans and recorded $1.3 million in intangible assets.

Southern amortizes acquired  intangibles,  such as those indicated above for the
Ahoskie  acquisition,  utilizing an  accelerated  basis over a seven to ten year
period.
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS - NINE MONTHS ENDED 1999 VS. NINE MONTHS ENDED 1998

INTRODUCTION

In the  first  nine  months of 1999,  the net  income  of  BancShares  decreased
approximately $2.1 million from $4.7 million in the first nine months of 1998 to
$2.6  million  in the first nine  months of 1999,  a  decrease  of 45.61%.  This
decrease resulted primarily from the 1998 sale of available-for-sale securities,
which  resulted  in a  realized  gain  before  tax of $1.8  million.  One branch
acquisition  each in May 1998,  October 1998,  December 1998 and September  1999
resulted in increased personnel expense and other related operating expenses for
the nine months ended September 30, 1999.

Earnings  per  common  share for the first  nine  months of 1999 was  $19.02,  a
decrease  of $17.74,  or 48.26%,  from $36.76 for the first nine months of 1998.
The annualized return on average equity decreased to 6.15%, for the period ended
September 30, 1999,  from 14.59% for the period ended September 30, 1998 and the
return on average assets  decreased to 0.53%, for the period ended September 30,
1999, from 1.28% for the period ended September 30, 1998.

At September 30, 1999, BancShares' assets totaled $658.6 million, an increase of
$9.2 million,  or 1.42%,  from the $649.4 million reported at December 31, 1998.
During this nine month period,  cash and due from banks decreased $12.7 million,
or 33.95% from $37.4  million to $24.7  million.  During this nine month period,
federal funds sold decreased $1.4 million,  or 7.12% from $19.5 million to $18.1
million. During this nine month period, loans increased $28.3 million, or 7.77%,
from $364.5 million to $392.8 million. The increase in loans was principally due
to growth in existing  markets with only $9.2 million  related to the  September
1999  acquisition  discussed  below.  During the nine months ended September 30,
1999 investment  securities decreased $6.8 million, or 3.38% from $201.6 million
at December 31, 1998 to $194.8  million at September  30, 1999.  Total  deposits
increased  $10.0  million,  or 1.79% from $556.8 million at December 31, 1998 to
$566.7  million at September 30, 1999.  The deposit  increase  resulted from the
September acquisition of $14.8 discussed below.

ACQUISITIONS

In May 1998,  Southern  acquired $16.7 million of the loans and $18.0 million of
the  deposits of Enfield  Savings Bank  ("ESB").  Southern  simultaneously  sold
$3,000 of the ESB loans and $2.4 million of the ESB  deposits to  First-Citizens
Bank & Trust Company  ("FCB"),  a related party.  Southern  recorded  intangible
assets of $363,000 for the ESB acquisition.
<PAGE>
In October 1998, Southern acquired $226,000 of the loans and $5.3 million of the
deposits of the Gates  office of FCB.  Southern  recorded  intangible  assets of
$186,000 for the Gates acquisition.

In December 1998,  Southern  acquired  $76,000 of the loans and $16.4 million of
the deposits of the Red Springs office of First Union  National  Bank.  Southern
recorded intangible assets of $1.7 million for the Red Springs acquisition.

In September 1999, Southern acquired $9.2 million of the loans and $14.8 million
of the  deposits  of the Ahoskie  office of FCB.  Southern  recorded  intangible
assets of $1.3 million for the Ahoskie acquisition.

These acquisitions were accounted for as purchases,  and, therefore, the results
of  operations  prior to the  purchases  are not  included  in the  consolidated
financial statements.

The  comparisons of the nine months ended  September 30, 1999 to the nine months
ended September 30, 1998 are accordingly impacted by the above acquisitions.

INTEREST INCOME

Interest and fees on loans decreased $241,000,  or 1.04%, from $23.3 million for
the nine months ended  September  30, 1998 to $23.0  million for the nine months
ended  September 30, 1999.  This decrease was  principally  due to overall lower
loan  portfolio  yields.  Average loans for the nine months ended  September 30,
1999 were $376.4 million, an increase of 4.27% from $361.0 million for the prior
year period.  This increase in average loans was  principally  the result of the
growth  in  existing  markets.  As  discussed  above the only  significant  loan
acquisition  occurred in September  1999.  The yield on the loan  portfolio  was
8.53% in the nine months ended  September  30, 1998 and 8.08% in the nine months
ended September 30, 1999.

Interest  income  from  investment  securities,  including  U. S.  Treasury  and
Government  obligations,  obligations of state and county subdivisions and other
securities  increased  $250,000 or 3.47%,  from $7.2  million in the nine months
ended  September 30, 1998 to $7.4 million in the nine months ended September 30,
1999.  This increase was due to an increase in the volume of average  investment
securities  for the nine months ended  September  30, 1999 to $197.0  million as
compared  to $160.1  million  for the same 1998  period that more than offset an
overall  decrease in  portfolio  yields.  This  increase  in volume  principally
resulted  from  the  acquisitions  discussed  above.  The  yield  on  investment
securities  was 5.90% for the  nine-month  period ended  September  30, 1998 and
5.23% for the nine-month period ended September 30, 1999.
<PAGE>
Interest  income on  federal  funds sold  decreased  $81,000,  or  12.33%,  from
$657,000 for the nine months ended  September  30, 1998 to $576,000 for the nine
months ended September 30, 1999. This decrease in income resulted primarily from
a decrease in the yields on federal  funds from 5.48% for the nine months  ended
September 30, 1998 to 4.83% for the nine months ended  September  30, 1999.  The
average  federal funds sold also  decreased to $15.7 million for the nine months
ended  September  30, 1999 from an average of $15.8  million for the nine months
ended September 30, 1998.

Total interest  income  decreased  $72,000 or 0.23%,  from $31.1 million for the
nine months ended  September 30, 1998 to $31.0 million for the nine months ended
September  30, 1999.  This decrease was primarily the result of a 59 basis point
decrease in average  earning  asset  yields that more than offset an increase in
average earning assets.

Average  earning  asset  yields for the nine  months  ended  September  30, 1999
decreased to 7.07% from the 7.66% yield on average  earning  assets for the nine
months ended September 30, 1998.  Average  earning assets  increased from $536.9
million in the nine months  ended  September  30, 1998 to $583.1  million in the
nine months ended September 30, 1999. This $46.2 million increase in the average
earning assets resulted primarily from the acquisitions discussed above.

INTEREST EXPENSE

Total interest expense decreased  $278,000,  or 1.85%, from $15.1 million in the
nine months ended  September 30, 1998 to $14.8 million for the nine months ended
September 30, 1999.  The principal  reason for this decrease was the decrease in
the cost of deposits and the cost of short-term borrowings that more than offset
the increase in long-term  obligations  interest related to the $23.0 million of
8.25% Capital Securities issued by the Trust in June, 1998.  BancShares recorded
$1.6  million of interest  expense in the nine months ended  September  30, 1999
related to the capital securities  compared to $632,000 in the nine months ended
September 30, 1998. BancShares' total cost of funds decreased from 4.11% for the
nine  months  ended  September  30,  1998 to  3.91%  for the nine  months  ended
September 30, 1999. Average interest-bearing deposits were $473.4 million in the
nine months  ended  September  30, 1999,  an increase of $14.1  million from the
$459.3  million  average in the nine  months  ending  September  30,  1998.  The
increase  in   interest-bearing   deposits  resulted  from  the   aforementioned
acquisitions.

NET INTEREST INCOME

Net interest  income was $16.3  million for the nine months ended  September 30,
1999 and $16.1 million for the nine months ended September 30, 1998.

The interest rate spread for the nine months ended September 30, 1999 was 3.16%,
a decrease of 39 basis points from the 3.55%  interest  rate spread for the nine
months ended September 30, 1998.
<PAGE>
ASSET QUALITY AND PROVISION FOR LOAN LOSSES

For the nine months ended September 30, 1999 management made a $585,000 addition
to the provision  for loan losses.  Management  made a $140,000  addition to the
provision  for loan losses for the nine months ended  September  30, 1998.  This
$445,000 increase in the provision for loan losses is principally related to the
impact on eastern North  Carolina of hurricanes in September  1999. For the nine
months  ended  September  30,  1999  Southern  has  also  experienced  increased
charge-offs and increased non-performing assets.

Although the final impact of the September hurricanes on Southern's customers is
currently not completely  determined,  management  believes that the incremental
provision for loan losses should be  sufficient to cover known  probable  losses
arising from this event.

Due to an increase in non-performing  loans during the first nine months of 1999
management  charged-off  loans  totaling  $537,000  and received  recoveries  of
$123,000,  resulting in net  charge-offs of $414,000.  During the same period in
1998,  $294,000  of loans  were  charged-off  and  recoveries  of  $70,000  were
received, resulting in net charge-offs of $224,000.

The allowance for loan losses  accordingly  increased $171,000 from December 31,
1998.  The  following  table  presents   comparative  Asset  Quality  ratios  of
BancShares:
<TABLE>
<CAPTION>
                                                                                (Unaudited)
                                                                      September 30,      December 31,
                                                                          1999              1998
                                                                     ---------------   ---------------
<S>                                                                        <C>               <C>
Ratio of annualized net loans charged off
          to average loans                                                 0.15%             0.12%
Allowance for loan losses
           to loans                                                        1.56%             1.64%
Non-performing loans
            to loans                                                       0.40%             0.28%
Non-performing loans and assets
            to total assets                                                0.29%             0.17%
Allowance for loan losses
            to non-performing loans                                      392.14%           588.00%
</TABLE>
The ratio of annualized net charge-offs to average loans  outstanding  increased
to 0.15% for the nine months  ended  September  30, 1999 from 0.12% for the year
ended  December 31, 1998.  The  allowance for loan losses  represented  1.56% of
loans at September 30, 1999. The allowance for loan losses  represented 1.64% of
loans at December 31, 1998. Loans increased $28.3 million,  or 7.77% from $364.5
million at December 31, 1998 to $392.8 million at September 30, 1999.
<PAGE>
The ratio of nonperforming loans to loans,  increased from 0.28% at December 31,
1998 to 0.40% at  September  30, 1999.  Nonperforming  loans and assets to total
assets increased to 0.29% at September 30, 1999 from 0.17% at December 31, 1998.
The  allowance for loan losses to  nonperforming  loans  represented  392.14% of
nonperforming  loans at  September  30,  1999,  a decrease  from the  588.00% at
December 31, 1998. The above  performance  declines  resulted  primarily from an
increase  in  nonperforming  loans to $1.6  million at  September  30, 1999 from
$971,000 at December 31, 1998.  The  nonperforming  loans at September  30, 1999
included $274,000 of nonaccrual loans, $1.3 million of accruing loans 90 days or
more past due and no  restructured  loans.  BancShares  had  $356,000  of assets
classified as other real estate at September 30, 1999. BancShares had $84,000 of
assets classified as other real estate at December 31, 1998.

Management  considers  the  September  30, 1999  allowance for loan losses to be
adequate  to cover  the  losses  and risks  inherent  in the loan  portfolio  at
September  30, 1999 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
generally  accepted  accounting  principles and in  consideration of the current
economic  environment.  While management uses the best information  available to
make  evaluations,  future  adjustments  may be  necessary if economic and other
conditions differ substantially from the assumptions used.

In  addition,  various  regulatory  agencies,  as  an  integral  part  of  their
examination  process,  periodically review Southern's  allowance for loan losses
and losses on other real estate  owned.  Such  agencies may require  Southern to
recognize  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, 1998,  BancShares realized securities
gains of $1.8 million  arising from the sale of  available-for-sale  securities.
The decrease of such gains during the nine months ended  September  30, 1999 was
the primary reason for the decrease in noninterest  income.  Service  charges on
deposit accounts for the nine months ended September 30, 1999 increased $250,000
and other service  charges and fees for the nine months ended September 30, 1999
increased  $122,000 over the nine months ended September 30, 1998 primarily as a
result of the acquisitions discussed above. Losses on the sale of mortgage loans
for the nine months ended  September 30, 1999  increased  $205,000 over the nine
months ended  September 30, 1998  primarily as a result of  increasing  mortgage
interest rates in the nine months ended September 30, 1999.
<PAGE>
NONINTEREST EXPENSE

Noninterest  expense  increased $1.1 million or 7.47%, from $15.0 million in the
nine months ended  September  30, 1998 to $16.1 million in the nine months ended
September 30, 1999.

This  increase was  primarily  due to an increase in  personnel  expense of $1.0
million or 14.06%,  from $7.1 million at  September  30, 1998 to $8.1 million at
September 30, 1999 and increased occupancy,  furniture and equipment expense and
other expenses  resulting  principally  from the branch  acquisitions  discussed
above.

BancShares recorded $111,000 in losses, net of estimated insurance proceeds, for
furniture  and equipment  damage  related to the  hurricanes of September  1999.
Management  does not anticipate any additional  material  occupancy or furniture
and equipment expenses related to the September 1999 hurricanes.

INCOME TAXES

In the nine months ended  September 30, 1999,  BancShares had income tax expense
of $800,000,  a decrease of $930,000 from $1.7 million in the prior year period.
The majority of this decrease is due to the effect of the 1998  securities  gain
discussed  above.  The  resulting  effective  tax rate for the nine months ended
September 30, 1999 was 23.81%.  The effective tax rate for the nine months ended
September 30, 1998 was 26.88%.  The effective tax rate in 1999 of 23.81% differs
from the federal statutory rate of 35.00% primarily due to tax exempt income.

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS - THIRD QUARTER OF 1999 VS. THIRD QUARTER OF 1998

INTRODUCTION

In the third quarter of 1999,  the net income of BancShares  decreased  $302,000
from $1.2 million in the third  quarter of 1998 to $911,000 in the third quarter
of 1999, a decrease of 24.90%.  One branch acquisition each in May 1998, October
1998,  December 1998 and September 1999 resulted in increased  personnel expense
and other related  operating  expenses for the quarter ended September 30, 1999.
As a result of the hurricanes of September  1999,  Bancshares  added $355,000 to
its  loan  loss  reserve  and  recorded  $111,000,  net of  estimated  insurance
proceeds, in furniture and equipment related losses.

Earnings per common share for the third quarter of 1999 was $6.81, a decrease of
$2.46, or 26.54%, from $9.27 in 1998.

ACQUISITIONS

In September 1999, Southern acquired $9.2 million of the loans and $14.8 million
of the  deposits  of the Ahoskie  office of FCB.  Southern  recorded  intangible
assets of $1.3 million for the Ahoskie acquisition. Southern had no acquisitions
in the quarter ended  September 30, 1998.  The  comparisons  of the three months
ended  September  30,  1999 to the three  months  ended  September  30, 1998 are
accordingly impacted by the 1999 acquisition and the 1998 acquisitions discussed
above.
<PAGE>
INTEREST INCOME

Interest and fees on loans, at $8.0 million for both the quarter ended September
30, 1998 and the quarter ended September 30, 1999,  decreased  $5,000, or 0.06%.
This decrease was due  primarily to lower overall 1999 interest  rates that more
than offset an increase in average  loans.  Average  loans for the quarter ended
September 30, 1999 were $380.1 million, an increase of 2.79% from $369.8 million
for the prior year  quarter.  The yield on the loan  portfolio was 8.45% for the
three  months  ended  September  30, 1998 and 8.14% for the three  months  ended
September 30, 1999.

Interest  income  from  investment  securities,  including  U. S.  Treasury  and
Government  obligations,  obligations of state and county subdivisions and other
securities  increased  187,000,  or 8.31%, from $2.2 million in the three months
ended September 30, 1998 to $2.4 million in the three months ended September 30,
1999.  This increase was due primarily to an increase in the average  investment
portfolio resulting from the acquisitions  discussed above that more than offset
lower overall interest rates.

The  acquisitions  discussed  above  resulted in  increased  average  investment
securities  for the  quarter  ended  September  30,  1999 to $197.9  million  as
compared to $160.8  million for the same 1998  quarter.  The yield on investment
securities was 5.80% for the quarter ended  September 30, 1998 and 5.17% for the
quarter ended September 30, 1999.

Interest  income on  federal  funds sold  decreased  $164,000,  or 52.90%,  from
$310,000 for the quarter  ended  September  30, 1998 to $146,000 for the quarter
ended  September 30, 1999. This decrease in income resulted from both a decrease
in rates and a decrease  in volume.  The  average  federal  funds sold was $11.2
million for the quarter ended September 30, 1999 compared to an average of $21.7
million for the quarter  ended  September 30, 1998.  Average  federal funds sold
yields were 5.08% for the quarter  ended  September 30, 1999 down from 5.63% for
the quarter ended September 30, 1998.

Total interest income, at $10.5 million for both the quarter ended September 30,
1999 and the quarter ended September 30, 1998, increased $18,000, or 0.17%.

Average  earning asset yields for the quarter ended September 30, 1999 decreased
to 7.13% from the 7.57% yield on average  earning  assets for the quarter  ended
September 30, 1998.  Average earning assets increased from $552.3 million in the
quarter  ended  September  30,  1998 to  $582.9  million  in the  quarter  ended
September 30, 1999.  This $30.6 million  increase in the average  earning assets
resulted primarily from the acquisitions discussed above.

INTEREST EXPENSE

Total interest  expense  decreased  $140,000 or 2.75%,  from $5.1 million in the
three months  ended  September  30, 1998 to $4.9  million for the quarter  ended
September 30, 1999.  The  principal  reason for this decrease was lower costs of
deposits  and  short-term  borrowings  that more than  offset  the  increase  in
long-term  obligations  interest  related to the $23.0  million of 8.25% Capital
Securities  issued by the Trust in June, 1998.  BancShares  recorded $531,000 of
interest  expense in the three  months ended  September  30, 1999 related to the
capital securities.
<PAGE>
NET INTEREST INCOME

Net interest  income was $5.6 million for the three months ended  September  30,
1999 and $5.4 million for the three months ended September 30, 1998.

The interest rate spread for the quarter ended  September 30, 1999 was 3.24%,  a
decrease of 21 basis points from the 3.45%  interest rate spread for the quarter
ended September 30, 1998.

ASSET QUALITY AND PROVISION FOR LOAN LOSSES

For the  quarter  ended  September  30,  1999  management  recorded  $465,000 as
provision for loan losses  primarily as a result of the impact of the hurricanes
that eastern North Carolina  experienced in September  1999.  Management  made a
$20,000 provision for loan losses for the quarter ended September 30, 1998.

During the third quarter of 1999 management  charged-off loans totaling $114,000
and received recoveries of $37,000, resulting in net charge-offs for the quarter
ended September 30, 1999 of $77,000.  During the same quarter in 1998,  $175,000
in loans were charged-off and recoveries of $18,000 were received,  resulting in
net charge-offs of $157,000.

NONINTEREST INCOME

During the three months ended September 30, 1999, BancShares' noninterest income
increased $88,000  principally as a result of the acquisitions  discussed above.
Service  charges on deposit  accounts for the three months ended  September  30,
1999 increased $112,000 over the three months ended September 30, 1998 primarily
as a result of the acquisitions discussed above.

NONINTEREST EXPENSE

Noninterest  expense including  personnel,  occupancy,  furniture and equipment,
data processing, FDIC insurance, state assessments, printing, supplies and other
expenses,  increased  $283,000 or 5.53%,  from $5.1  million in the three months
ended September 30, 1998 to $5.4 million in the three months ended September 30,
1999.

This increase was primarily due to an increase in personnel expense of $315,000,
or 13.04%,  from $2.4 million for the quarter  ended  September 30, 1998 to $2.7
million for the  quarter  ended  September  30,  1999 and  increased  occupancy,
furniture and equipment  expense and other expenses  resulting  principally from
the branch acquisitions discussed above.

BancShares recorded $111,000 in losses of furniture and equipment related to the
hurricanes of September  1999.  Management  does not  anticipate  any additional
material  occupancy or furniture and equipment expenses related to the September
1999 hurricanes.

INCOME TAXES

In the three months ended September 30, 1999,  BancShares had income tax expense
of $290,000,  a decrease of $180,000  from  $470,000 in the prior year  quarter.
This  decrease  resulted  from both  reduced  earnings  and a  reduction  in the
estimated effective tax rate for the quarter ended September 30, 1999 to 24.15%.
<PAGE>
The estimated  effective  tax rate for the quarter ended  September 30, 1998 was
27.93%.  The  effective  tax rate for the quarter  ended  September  30, 1999 of
24.15% differs from the federal  statutory  rate of 35.00%  primarily due to tax
exempt income.

SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY

Sufficient  levels of capital are necessary to sustain growth and absorb losses.
To this end, the Federal Reserve Board, which regulates BancShares, and the FDIC
, which regulates Southern,  have established minimum capital guidelines for the
institutions they supervise.

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.  With  respect to the
Capital Securities,  BancShares  irrevocably and unconditionally  guarantees the
Trust's  obligations.  Using  the  proceeds  from the  offering  of the  Capital
Securities  discussed  above in June  1998,  BancShares  paid off the  remaining
balance of a long-term  obligation,  $4.3 million, and contributed an additional
$12.0 million in capital to Southern which  improved each of Southern's  capital
ratios.

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, 1999 was 8.55%. At December 31, 1998,  Southern's
leverage  capital  ratio was 8.44%.  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, 1999,  Southern's Total RBC
ratio was 16.57%.  At December 31, 1998 the RBC ratio was 17.10%.  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.

Accumulated other  comprehensive  income was $8.3 million at September 30, 1999,
and $11.4 million at December 31, 1998.  Accumulated other comprehensive  income
consists entirely of unrealized gains on securities  available-for-sale,  net of
taxes.
<PAGE>
Accumulated other comprehensive  income consists entirely of unrealized gains on
marketable equity  securities.  Although a part of total  shareholders'  equity,
only  45%  of  accumulated  other  comprehensive   income  is  included  in  the
calculation  of the RBC and  leverage  capital  ratios  pursuant  to  regulatory
definitions of these capital requirements.  The following table presents capital
adequacy calculations and ratios of Southern:
<TABLE>
<CAPTION>
                                                                       (Unaudited)
                                                                      September 30,      December 31,
                                                                          1999              1998
                                                                     ---------------   ---------------
      (Dollars in thousands)
<S>                                                                   <C>               <C>
Risk-based capital:
   Tier 1 capital                                                     $   53,419        $   49,198
   Total capital                                                          61,077            53,234
Risk-adjusted assets                                                     368,639           311,341
Average tangible assets                                                  624,753           582,955

Tier 1 capital ratio  (1)                                                  14.49%            15.80%
Total capital ratio  (1)                                                   16.57%            17.10%
Leverage capital ratio  (1)                                                 8.55%             8.44%
</TABLE>
(1)  These ratios exceed the minimum ratios required for a bank to be classified
     as "well capitalized" as defined by the FDIC.

At September 30, 1999 and December 31, 1998,  BancShares  was also in compliance
with its  regulatory  capital  requirements  and all of its  regulatory  capital
ratios  exceeded the minimum ratios  required by the regulators to be classified
as "well capitalized".

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 31.65% at September 30, 1999 and
30.78% at December 31, 1998.
<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, 1999 and for the nine months ended  September  30, 1998.  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, 1999 jumbo time deposits  represented  10.98% of total
deposits.  At December 31, 1998 jumbo time deposits  represented 10.79% 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.

ACCOUNTING AND OTHER MATTERS

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

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

The FASB also  issues  exposure  drafts for  proposed  statements  of  financial
accounting  standards.  Such  exposure  drafts are  subject to comment  from the
public, to revisions by the FASB and to final issuance by the FASB as statements
of  financial  accounting  standards.  Management  considers  the  effect of the
proposed statements on the consolidated  financial  statements of BancShares and
monitors  the  status of  changes  to issued  exposure  drafts  and to  proposed
effective dates.
<PAGE>
Year 2000 Issue

Introduction

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

Awareness

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

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

Risks

Like most  financial  service  providers,  BancShares  and its operations may be
significantly  affected  by  the  year  2000  issue  due to  its  dependence  on
information  technology and date-sensitive  data. Computer hardware and software
and other equipment,  both within and outside  BancShares'  direct control,  and
third parties with whom BancShares  electronically  or operationally  interfaces
(including  without  limitation  its customers  and third party  vendors) may be
affected.  If computer  systems are not modified in order to be able to identify
the year  2000,  many  computer  applications  could  fail or  create  erroneous
results. As a result, many calculations that rely on the date field information,
such as  interest,  payments,  due dates and other  operating  functions,  could
generate results which are significantly misstated.
<PAGE>
BancShares  could  experience  an  inability  to process  transactions,  prepare
statements or engage in similar  normal  business  activities.  Likewise,  under
certain circumstances, a failure to adequately address the year 2000 issue could
adversely  affect the  viability of  BancShares'  suppliers,  creditors  and the
creditworthiness of its borrowers.  Thus, if not adequately addressed,  the year
2000  issue  could  result  in  a  significant  adverse  impact  on  BancShares'
operations, financial condition and results of operations.

State of Readiness

During  October  1997,  BancShares  developed  its plan to address the year 2000
issue.  A  substantial  portion of  BancShares'  data  processing  functions are
performed by FCB on its mainframe  systems  and/or on systems  supported by FCB.
FCB also  provides  similar  services to several other  financial  institutions.
Accordingly,  BancShares'  plan for  addressing  the  year  2000  issue  divides
information  technology  systems ("IT  Systems")  into groups which  include (i)
FCB's  mainframe  systems  used  for  processing   BancShares'  data  ("Group  A
Systems"),  (ii)  BancShares'  non-mainframe  systems which are supported by FCB
("Group  B  Systems"),  and (iii)  BancShares'  separate  non-mainframe  systems
("Group C Systems").  BancShares' year 2000 plan also addresses  non-information
technology  systems  ("Non-IT  Systems").  As to  Group A  Systems  and  Group B
Systems,  BancShares'  year 2000 plan  necessarily is designed to be implemented
jointly with FCB. FCB has retained an outside  consultant to plan and direct its
year 2000 compliance efforts.  BancShares participates in a committee made up of
representatives  of the consultant,  FCB and each of the financial  institutions
for  which  FCB  provides  data  processing   services.   This  committee  meets
periodically to monitor the status of FCB's compliance efforts.

Periodic progress reports are made to BancShares' Board of Directors.

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

Assessment Phase

During the assessment  phase, a year 2000 corporate  inventory and business risk
assessment was made (jointly with FCB in the case of Group A Systems and Group B
Systems,  and  separately in the case of Group C Systems and Non-IT  Systems) to
quantify the extent of BancShares'  year 2000 exposure and identify systems that
required  remediation.  Each Group B and C  application  or system was given two
separate  codes; a Priority Code and a Status Code. The Priority Code quantifies
the importance of each asset to BancShares'  daily  operations.  The Status Code
represents  the  current  claim of  compliance  by the asset's  vendor.  Used in
concert,  these  codes  prioritize  the  remediation,  testing  and  contingency
planning processes. This phase is complete.
<PAGE>
Remediation and Testing Phase

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

Validation Phase

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

Implementation Phase

Under  BancShares' plan, once new and modified systems that require testing have
been tested for  functionality,  they are put into  production.  BancShares' has
completed the implementation phases for all such systems.

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

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

During  early  1998,  BancShares  identified  those  borrowing  customers  whose
existing  aggregate  borrowings  from  BancShares met certain  criteria based on
aggregate credit exposure, loan collateral and whose businesses were of a nature
that they could be adversely affected by the year 2000 issue. A meeting was held
individually  with each such borrowing  customer to assess the  customer's  plan
for, and progress toward, addressing the year 2000 issue. Follow-up meetings are
being held with each customer whose  assessment  indicated a higher than typical
level of risk. With respect to new and renewed loans, an assessment of year 2000
risk and steps being  taken by the  customer to address the year 2000 issue have
been made a part of the credit approval process.
<PAGE>
Costs

BancShares is expensing all costs  associated  with required  system  changes as
those costs are incurred, and such costs are being funded through operating cash
flows.  Because a substantial  portion of BancShares' data processing  functions
are performed by FCB on its  mainframe  systems  and/or on systems  supported by
FCB,  FCB is  bearing a  substantial  portion  of the  expenses  related  to the
remediation and testing of systems that affect BancShares.  BancShares initially
estimated  that  approximately  $200,000 would be expensed for its separate year
2000  project   expenses  but  now  expects  final  year  2000  expenses  to  be
significantly less. The initial plan anticipated  substantial outside consultant
expenditures  that were later  determined to be unnecessary.  Expenses  actually
incurred  through  September  30, 1999 were not  material.  BancShares  does not
expect  significant  increases in future data processing  costs relating to year
2000 compliance.

Contingency Plans

During  the  assessment  phase,  BancShares  began  to  identify  a  back-up  or
contingency  plan for  systems or non-IT  assets  which may be  affected by year
2000.  Virtually  all of  BancShares'  systems  are  dependent  upon third party
vendors or service providers;  therefore,  contingency plans include selecting a
new  vendor or service  provider  and  converting  to their  system.  BancShares
believes its most  reasonably  likely worst case  scenario  will be a failure by
certain  customers and vendors to achieve year 2000  readiness.  For BancShares'
most  reasonably  likely  worst case  sceniaro,  contingency  plans are  already
active.  Contingency  plans for system failures on or after January 1, 2000 have
been accepted by the Bank's regulators. Validation of these contingency plans is
complete.

Other Matters

BancShares has announced plans to purchase,  subject to regulatory approval, the
Robersonville office of Cooperative Bank for Savings, Inc., SSB ("Cooperative").
The acquisition is planned for the first quarter of 2000.  BancShares expects to
purchase  approximately  $7.0 million of deposits,  $1.8 million of loans and to
record   approximately   $525,000  of  intangible  assets  for  the  Cooperative
acquisition.  BancShares plans to consolidate this acquisition into its existing
Robersonville facility and to sell the existing Cooperative facility.

At  September  30,  1999  BancShares  had  regulatory  approval  to open de novo
branches in four eastern North  Carolina  markets.  These include a full service
branch in  Clinton,  North  Carolina,  that opened on November 1, 1999 and three
branches opening in 2000.

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.
<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
diminished current market values and/or reduced potential net interest income in
future periods.

As  of  September  30,  1999,  Management  believes  that  there  have  been  no
significant  changes in market risk as disclosed in BancShares' Annual Report on
Form 10-K for the year ended December 31, 1998.

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.

Dated: November 3, 1999         /s/John C. Pegram, Jr.
                                ----------------------------------------
                                John C. Pegram, Jr.,
                                President and Chief Executive Officer

Dated: November 3, 1999         /s/David A. Bean
                                ----------------------------------------
                                David A. Bean,
                                Secretary, Treasurer and Chief Financial Officer