<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20052

          __________________________________________________________

                                   FORM 10-Q

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

For the quarterly period ended June 30, 1999
                                      or

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

For the transition period from _______________ to _______________

                        Commission File Number  0-23751
                                               --------
     ________________________________________________________________________

                             SouthBanc Shares, Inc.
             (Exact Name of Registrant as Specified in its Charter)

          Delaware                          58-2361245
        -------------                       ----------
(State or other jurisdiction of          (I.R.S. employer
incorporation or organization)          identification no.)

                              907 N. Main Street
                        Anderson, South Carolina 29621
                        ------------------------------
                   (Address of Principal Executive Offices)

                                  (Zip Code)

                           (8 6 4 ) 2 2 5 - 0 2 4 1
                           ------------------------
             (Registrant's Telephone Number, Including Area Code)

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.

     (1)  Yes  X            No
              ---              ---


$0.01 par value of common stock                         3,242,107
-------------------------------                    ------------------
        (Class)                              (Outstanding at June 30, 1999)
<PAGE>

                     SouthBanc Shares, Inc. and Subsidiary

                                   FORM 10-Q

                      FOR THE QUARTER ENDED JUNE 30, 1999

                               TABLE OF CONTENTS


Item 1.   Financial Statements

          Consolidated Balance Sheets as of June 30, 1999 and
           September 30, 1998 (unaudited)...............................   3
          Consolidated Statements of Income for the Nine Months Ended
           June 30, 1999, and the Three Months Ended June 30, 1999
           (unaudited)..................................................   4
          Consolidated Statements of Stockholders' Equity
           for the Year Ended September 30, 1998 and
           the Nine Months Ended June 30, 1999 (unaudited)..............   5
          Consolidated Statements of Cash Flows for the Nine Months
           Ended June 30, 1999 and 1998 (unaudited).....................   6
          Notes to Consolidated Financial Statements (unaudited)........   8

Item 2.   Management's Discussion and Analysis of Financial Condition
           and Results of Operations for the Three Months Ended June 30,
           1999 and 1998, and the Nine Months Ended June 30, 1999
           and 1998.....................................................  11
          Liquidity and Capital Resources...............................  16
          Capital Compliance............................................  17
          Impact of New Accounting Pronouncements.......................  18
          Effect of Inflation and Changing Prices.......................  19
          Year 2000 Considerations......................................  19

Item 3.   Market Risk Disclosure........................................  21

Part II   Other Information
          Items:
          1.  Legal Proceedings.........................................  22
          2.  Changes in Securities and Use of Proceeds.................  22
          3.  Defaults Upon Senior Securities...........................  22
          4.  Submission of Matters to a Vote of Senior Holders.........  22
          5.  Other Materially Important Events.........................  22

          Signatures....................................................  23


                                       2

<PAGE>

                     SouthBanc Shares, Inc. and Subsidiary
                    Consolidated Balance Sheets (Unaudited)

Item I - Financial Statements
<TABLE>
<CAPTION>
                                                                                      June 30,                 September 30,
---------------------------------------------------------------------------------------------------------------------------------
                                                                                        1999                        1998
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                      <C>
Assets
------
Cash and cash equivalents                                                         $ 16,938,325             $ 21,197,419
Investment securities available for sale (amortized
 cost of $15,474,942 at June 30, 1999, $23,242,091 at
 September 30, 1998)                                                                14,828,939               23,300,684
Federal Home Loan Bank stock, at cost                                                3,100,000                3,289,200
Mortgage-backed securities available for sale
 (amortized cost of $72,374,478 at June 30, 1999,
 and $73,719,144 at September 30, 1998)                                             70,963,529               73,933,292
Loans receivable, (net of allowance for loan losses of
 $2,625,204 at June 30, 1999, and $2,374,044 at
 September 30, 1998)                                                               236,646,021              219,896,116
Investment in limited partnership                                                    1,225,373                  825,373
Real estate acquired in settlement of loans                                            437,200                   88,965
Real estate held for development                                                     2,039,437                1,909,394
Premises and equipment, net                                                          5,880,960                6,350,491
Accrued interest receivable
  Loans receivable                                                                   1,730,959                1,697,058
  Mortgage-backed and other securities                                                 518,975                  527,823
Cash surrender value of life insurance                                               7,762,675                7,473,136
Other                                                                                2,796,989                2,039,982
                                                                                  ------------             ------------
    Total Assets                                                                  $364,869,382             $362,528,933
                                                                                  ============             ============

Liabilities and Stockholders' Equity
------------------------------------
Deposits                                                                          $225,008,446             $207,790,775
Advances from the Federal Home Loan Bank ("FHLB")                                   62,000,000               56,000,000
Securities sold under agreements to repurchase                                      20,344,172               20,173,933
Advance payments by borrowers for property taxes and
 insurance                                                                             306,679                  333,681
Accrued interest payable                                                             1,340,301                1,418,770
Accrued expenses and other liabilities                                               2,724,581                2,404,448
                                                                                  ------------             ------------
    Total Liabilities                                                              311,724,179              288,121,607
                                                                                  ------------             ------------

Commitments and contingencies - Note 17

Stockholders' Equity
--------------------
Preferred stock ($0.01 par value; authorized 250,000 shares;
 none issued or outstanding at June 30, 1999, and
 September 30, 1998)                                                                         -                        -
Common stock ($0.01 par value; authorized 7,500,000
 shares; issued and outstanding 3,242,107 shares
 at June 30, 1999. $1.00 par value; authorized
 7,500,000 shares; issued and outstanding
 4,306,410 shares at September 30, 1998)                                                43,220                   43,064
Additional paid-in capital                                                          57,693,618               57,470,324
Retained earnings, restricted                                                       21,485,394               18,154,380
Treasury stock - at cost (1,079,923 shares)                                        (21,710,368)                       -
Accumulated other comprehensive income, net                                         (1,357,589)                 180,009
Indirect guarantee of ESOP debt                                                       (644,470)                (711,140)
Deferred compensation for Management
  Recognition Plan (MRP)                                                            (2,364,602)                (729,311)
                                                                                  ------------             ------------
    Total stockholders equity                                                       53,145,203               74,407,326
                                                                                  ------------             ------------
    Total liabilities and stockholders' equity                                    $364,869,382             $362,528,933
                                                                                  ============             ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>


                     SouthBanc Shares, Inc. and Subsidiary
                 Consolidated Statements of Income (Unaudited)


<TABLE>
<CAPTION>

                                                     For The Nine Months Ended            For The Three Months Ended
                                                              June 30,                              June 30,
-----------------------------------------------------------------------------------------------------------------------
                                                      1999              1998                  1999              1998
-----------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                  <C>                 <C>               <C>

Interest Income:
     Loans                                       $14,139,772          $12,554,182        $ 4,800,983       $ 4,362,767
     Mortgage-backed securities                    3,700,940            2,924,781          1,244,596         1,198,782
     Other investments                             1,740,958            1,660,195            523,266           816,504
                                                 -----------          -----------        -----------       -----------
        Total interest income                     19,581,670           17,139,158          6,568,845         6,378,053
                                                 -----------          -----------        -----------       -----------


Interest expense:
     Interest on deposits:
        Transaction accounts                         840,510              438,050            272,243           142,226
        Passbook accounts                            463,720              476,382            160,456           164,077
        Certificate accounts                       5,397,886            5,792,400          1,788,269         1,854,903
                                                 -----------          -----------        -----------       -----------
        Total interest on deposits                 6,702,116            6,706,832          2,220,968         2,161,206
     Interest on borrowings                        3,408,426            2,263,893          1,112,569           911,833
                                                 -----------          -----------        -----------       -----------
        Total interest expense                    10,110,542            8,970,725          3,333,537         3,073,039
                                                 -----------          -----------        -----------       -----------
Net interest income                                9,471,128            8,168,433          3,235,308         3,305,014
Provision for loan losses                            330,000              302,500            170,000            40,000
                                                 -----------          -----------        -----------       -----------
Net interest income after provision for
   loan losses                                     9,141,128            7,865,933          3,065,308         3,265,014
                                                 -----------          -----------        -----------       -----------
Other income:
   Loan and deposit account service charges        2,518,824            1,578,413            924,004           579,283
   Gain (Loss) on sale of investments                126,418               80,273           (170,888)           (9,995)
   Gain (Loss) on sale of real estate acquired
      in settlement of loans                          13,973               24,257             (9,310)           14,321
   Gain on sale of loans, net                         88,070                6,871              6,892            10,799
   Gain on sale of real estate
     held for development                            300,889              130,551            128,216            63,193
   (Loss) on sale of premises and equipment, net          --               (4,122)                --            (1,230)
   Other                                             923,651              728,374            381,820           220,740
                                                 -----------          -----------        -----------       -----------
        Total other income                         3,971,825            2,544,617          1,260,734           877,111
                                                 -----------          -----------        -----------       -----------
Decrease in loss reserve on limited
   partnership                                       400,000                   --            400,000                --
                                                 -----------          -----------        -----------       -----------
General and administrative expenses:
   Salaries and employee benefits                  3,476,736            3,465,476          1,201,462         1,199,305
   Occupancy                                         371,264              341,842            124,972           152,928
   Furniture and equipment expense                   818,064              750,596            258,196           244,981
   FDIC insurance premiums                            91,923               92,627             31,476            31,152
   Advertising                                       136,685              168,301             75,444            46,921
   Data processing                                   438,115              319,972            156,301           114,376
   Office supplies                                   216,771              255,107             77,738            90,460
   Other                                           1,082,549            1,082,886            420,854           446,057
                                                 -----------          -----------        -----------       -----------
        Total general and administrative
          expenses                                 6,632,107            6,476,807          2,346,443         2,326,180
                                                 -----------          -----------        -----------       -----------
Income before income taxes                         6,880,846            3,933,743          2,379,599         1,815,945
Income taxes                                       2,257,457            1,335,960            782,899           609,968
                                                 -----------          -----------        -----------       -----------
Net income                                       $ 4,623,389          $ 2,597,783        $ 1,596,700       $ 1,205,977
                                                 ===========          ===========        ===========       ===========
Basic earnings per share                               $1.34                $0.60              $0.51             $0.29
                                                 ===========          ===========        ===========       ===========
Diluted earnings per share                             $1.26                $0.59              $0.48             $0.27
                                                 ===========          ===========        ===========       ===========
Weighted average shares outstanding:
   Basic                                           3,463,213            4,303,977          3,137,542         4,185,897
                                                 ===========          ===========        ===========       ===========
   Diluted                                         3,670,966            4,410,161          3,350,282         4,411,353
                                                 ===========          ===========        ===========       ===========
Dividends per share                                    $0.39                $0.36              $0.15             $0.12
                                                 ===========          ===========        ===========       ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                     SouthBanc Shares, Inc. and Subsidiary
                Consolidated Statements of Stockholder's Equity
Year Ended September 30, 1998, and Nine Months Ended June 30, 1999 (Unaudited)

<TABLE>
<CAPTION>
                                                                                                               Accumulated
                                                                                                                  Other
                                                                               Additional      Retained       Comprehensive
                                                  Common         Common          Paid-in       Earnings          Income,
                                                  Shares          Stock          Capital      Restricted      Net of Taxes
                                                ----------     -----------     -----------    -----------     -------------
<S>                                              <C>            <C>             <C>            <C>             <C>
Balance at September 30, 1997                    1,508,873     $ 1,508,873     $11,651,917    $18,381,766      $    188,423
Net income                                                                                      1,262,043
Other comprehensive income/(loss)
     Unrealized loss on securities,  net                                                                            108,662

     Less reclassification adjustment for gains
     realized in net income,                                                                                       (117,076)
     net                                                                                                      -------------
Total other comprehensive
     income/(loss)                                                                                                   (8,414)
Comprehensive income

Exercise of stock options                            1,317           1,317          31,937
Reduction of ESOP debt
ESOP expense                                                                       187,592
Purchase of common stock
     for MRP
Earned portion of MRP
Dividends on common stock                                                                      (1,489,429)
Sale of common stock (less
     offering expenses of
     of $1,494,488)                              2,281,312          22,813      44,108,939
Par Value                                          514,908      (1,489,939)      1,489,939
                                                ----------     -----------     -----------    -----------       -----------

Balance at September 30, 1998                    4,306,410          43,064      57,470,324     18,154,380           180,009

Net income                                                                                      4,623,389
Other comprehensive
 income/(loss)
     Unrealized loss on securities,  net                                                                         (1,453,404)

     Less reclassification adjustment for gains
     realized in net income, net                                                                                    (84,194)
                                                                                                              -------------
Total other comprehensive
     income/(loss)                                                                                               (1,537,598)
Comprehensive income

Exercise of stock options                           15,620             156          68,057
Reduction of ESOP debt
ESOP expense                                                                       132,424
Earned portion of MRP
Dividends on common stock                                                                      (1,292,375)
Transfer from Treasury Stock to
     MRP                                            91,252                          22,813
Purchase of Treasury Stock                      (1,171,175)
                                                ----------     -----------     -----------    -----------       -----------
Balance at June 30, 1999                         3,242,107     $    43,220     $57,693,618    $21,485,394       ($1,357,589)
                                                ==========     ===========     ===========    ===========       ===========


































<CAPTION>
                                                                  Indirect
                                                                  Guarantee        Deferred
                                                                     of          Compensation
                                                  Treasury          ESOP             for
                                                    Stock           Debt             MRP           Total
                                                 ------------     ---------     -----------     ------------
<S>                                              <C>               <C>           <C>             <C>
Balance at September 30, 1997                   $           0     ($804,024)      ($325,212)    $ 30,601,743
Net income                                                                                         1,262,043
Other comprehensive income/(loss)
     Unrealized loss on securities,  net                                                        $    108,662

     Less reclassification adjustment for gains
     realized in net income,                                                                        (117,076)
     net                                                                                        ------------
Total other comprehensive
     income/(loss)                                                                                    (8,414)
Comprehensive income                                                                               1,253,629

Exercise of stock options                                                                             33,254
Reduction of ESOP debt                                               92,884                           92,884
ESOP expense                                                                                         187,592
Purchase of common stock
     for MRP                                                                       (616,558)        (616,558)
Earned portion of MRP                                                               212,459          212,459
Dividends on common stock                                                                         (1,489,429)
Sale of common stock (less
     offering expenses of
     of $1,494,488)                                                                               44,131,752
Par Value
                                                 ------------     ---------     -----------     ------------

Balance at September 30, 1998                   $           0      (711,140)       (729,311)      74,407,326

Net income                                                                                         4,623,389
Other comprehensive
 income/(loss)
     Unrealized loss on securities,  net                                                          (1,453,404)

     Less reclassification adjustment for gains
     realized in net income, net                                                                     (84,194)
                                                                                                ------------
Total other comprehensive
     income/(loss)                                                                                (1,537,598)
Comprehensive income                                                                               3,085,791

Exercise of stock options                                                                             68,213
Reduction of ESOP debt                                               66,670                           66,670
ESOP expense                                                                                         132,424
Earned portion of MRP                                                               218,037          218,037
Dividends on common stock                                                                         (1,292,375)
Transfer from Treasury Stock to
     MRP                                            1,830,515                    (1,853,328)
Purchase of Treasury Stock                        (23,540,883)                                   (23,540,883)
                                                 ------------     ---------     -----------     ------------
Balance at June 30, 1999                         ($21,710,368)    ($644,470)    ($2,364,602)    $ 53,145,203
                                                 ============     =========     ===========     ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

<TABLE>
<CAPTION>
                                               SouthBanc Shares, Inc. and Subsidiary
                                               Consolidated Statements of Cash Flows
                                       Nine Months Ended June 30, 1999 and 1998 (Unaudited)

-----------------------------------------------------------------------------------------------------------------------------------
                                                                             1999                   1998
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                   <C>
 Cash flows from operating activities:
    Net income                                                          $  4,623,389          $   2,597,783
    Adjustments to  reconcile net income to net
      cash provided by operating activities:
        Depreciation                                                         657,043                630,495
        Amortization (accretion), net                                       (683,828)              (353,439)
        Provision for loan losses                                            330,000                302,500
        (Earnings) on investment in limited
           partnership                                                      (400,000)               (40,413)
        Gain on sale of investments, net                                    (126,418)               (80,273)
        Gain on sale of real estate                                          (13,973)               (24,257)
        Gain on sale of loans, net                                           (88,070)                (6,871)
        Gain on sale of real estate held for development                    (300,889)              (130,551)
        Loss on sale of premises and equipment                                     -                  4,122
        Deferred compensation                                                350,461                295,253
        Increase in accrued interest
          receivable and other assets                                       (782,060)            (1,592,640)
        Increase in other liabilities                                        241,664              1,060,059
                                                                        ------------          -------------
          Net cash provided by operating activities                        3,807,319              2,661,768
                                                                        ------------          -------------

Cash flows from investing activities:
    Increase in loans receivable, net                                       (791,767)           (21,602,824)
    Purchases of loans receivable                                        (24,253,800)           (40,012,887)
    Purchase of mortgage-backed securities                               (34,802,010)           (76,558,502)
    Purchases of investment securities                                    (5,052,771)           (21,542,571)
    Purchases of investments in limited partnership                                -               (181,125)
    Purchase of life insurance                                                     -             (1,386,538)
    Purchases of FHLB stock                                               (1,060,800)            (2,242,100)
    Purchase of premises and equipment                                      (187,512)              (853,174)
    Sales of loans receivable                                              7,476,562             28,185,649
    Proceeds from redemption of FHLB stock                                 1,250,000                802,900
    Principal repayments on mortgage-backed securities                    27,081,017             12,323,751
    Proceeds from sale of mortgage-backed securities,
      available for sale                                                   9,384,356             15,317,719
    Proceeds from maturities of investment securities                        500,000              4,327,517
    Proceeds from sale of investment securities,
      available for sale                                                  13,314,025                430,298
    Proceeds from sale of real estate owned                                  242,908                148,908
    Proceeds from sale of real estate held for development                   880,582                520,581
    Proceeds from sale of premises and equipment                                   -                 20,800
    Capital improvements of real estate held for development                (709,736)              (155,972)
                                                                        ------------          -------------
      Net cash used in investing activities                               (6,728,946)          (102,457,570)
                                                                        ------------          -------------
</TABLE>

                                   Continued
                                       6
<PAGE>

                     SouthBanc Shares, Inc. and Subsidiary

                     Consolidated Statements of Cash Flows

             Nine Months Ended June 30, 1999 and 1998 (Unaudited)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                                                                                1999             1998
---------------------------------------------------------------------------------------------------------

<S>                                                                       <C>               <C>

Cash flows from financing activities:
    Increase in deposit accounts                                             17,217,671         2,367,360
    Proceeds from FHLB Advances                                              67,000,000       116,813,120
    Repayment of FHLB Advances                                              (61,000,000)      (70,029,536)
    Proceeds from securities sold under agreements
         to repurchase                                                          170,239        20,080,031
    Proceeds from the sale of stock subscriptions                                     -        45,659,494
    Purchase of Treasury stock                                              (23,540,883)                -
    Exercise of stock options                                                    68,213                 -
    Payment of stock offering costs                                                   -        (1,451,738)
    Purchase of stock for MRP                                                         -          (612,448)
    Repayments of ESOP loan                                                      66,670            70,661
    Dividends paid on common stock                                           (1,292,375)         (972,661)
    Decrease in advance payments by borrowers
        for property taxes and insurance                                        (27,002)         (124,231)
                                                                          -------------     -------------
              Net cash provided by (used in) financing activities            (1,337,467)      111,800,052

Net increase (decrease) in cash and cash equivalents                         (4,259,094)       12,004,250

Cash and cash equivalents, beginning of year                                 21,197,419        13,499,332
                                                                          -------------     -------------
Cash and cash equivalents, end of year                                     $ 16,938,325     $  25,503,582
                                                                          =============     =============

Supplemental disclosures:
    Cash paid during the year for
        Interest                                                           $ 10,189,011     $   8,916,132
                                                                          =============     =============
        Taxes                                                              $  1,598,554     $     576,000
                                                                          =============     =============

Noncash investing activities:
    Additions to real estate acquired in settlement of loans               $    577,170     $     174,058
                                                                          =============     =============

    Loans receivable exchanged for mortgage-backed
        securities                                                                    -     $   5,167,985
                                                                          =============     =============
    Change in unrealized net gain (loss) on securities
        available for sale, net of tax                                      ($1,537,598)    $     102,289
                                                                          =============     =============
    Increase (decrease) in Employee Stock
        Ownership Plan debt guaranteed by the Bank                             ($66,670)         ($70,661)
                                                                          =============     =============



See accompanying notes to consolidated financial statements.
</TABLE>

                                       7
<PAGE>

                     SouthBanc Shares, Inc. and Subsidiary
             Notes to Consolidated Financial Statements (Unaudited)


1.   Basis of Presentation
     ---------------------

       The accompanying unaudited consolidated financial statements for
       SouthBanc Shares, Inc. ("Company") were prepared in accordance with
       instructions for Form 10-Q and, therefore, do not include all disclosures
       necessary for a complete presentation of financial condition, results of
       operations, and cash flows in conformity with generally accepted
       accounting principles. All adjustments, consisting only of normal
       recurring accruals, which are, in the opinion of management, necessary
       for fair presentation of the interim consolidated financial statements
       have been included. The results of operations for the period ended June
       30, 1999 are not necessarily indicative of the results that may be
       expected for the entire year. These consolidated financial statements do
       not include all disclosures required by generally accepted accounting
       principles and should be read in conjunction with the Company's audited
       consolidated financial statements and related notes for the year ended
       September 30, 1998.

2.   Principles of Consolidation
     ---------------------------

       The accompanying unaudited consolidated financial statements include the
       accounts of the Company, Perpetual Bank, A Federal Savings Bank,
       ("Savings Bank"), and the Savings Bank's wholly owned subsidiaries,
       Mortgage First Service Corporation and United Service Corporation, and
       United Service Corporation's wholly owned subsidiary, United Investment
       Services.

       United Service Corporation is a wholly-owned subsidiary of the Savings
       Bank.  At June 30, 1999, United Service had assets of $2.6 million.
       United Service is involved in two residential and two commercial real
       estate development projects.

       All significant intercompany items and transactions have been eliminated
       in consolidation.

3.   Payment of Dividends
     --------------------

       The payment of dividends by the Company depends primarily on the ability
       of the Savings Bank to pay dividends to the Company. The payment of
       dividends by the Savings Bank is subject to regulation by the Office of
       Thrift Supervision ("OTS"). The Savings Bank may not declare or pay a
       cash dividend if the effect thereof would cause the capital of the
       Savings Bank to be reduced below regulatory capital requirements imposed
       by the OTS or below the liquidation account established by the Savings
       Bank in connection with the conversion of the Savings Bank's former
       mutual holding company (SouthBanc Shares, M.H.C.) from the mutual to
       stock form of organization.

       The Company's Board of Directors declared a cash dividend of $.15 per
       share to its shareholders during the quarter ended June 30, 1999, payable
       to shareholders of record as of July 5, 1999.

4.   Earnings Per Share
     ------------------

       In February 1997, the Financial Accounting Standards Board (FASB) issued
       SFAS No. 128, "Earnings Per Share." SFAS No. 128 specifies the
       computation, presentation and disclosure requirements for earnings per
       share (EPS) for entities with publicly held common stock or potential
       common stock such as options, warrants, convertible securities or
       contingent stock agreements if those securities trade in a public market.
       This standard specifies computation and presentation requirements for
       both basic EPS and, for entities with complex capital structures, diluted
       EPS. Basic earnings per share are computed by dividing net income by the
       weighted average common shares outstanding. Diluted earnings per share is
       similar to the computation of

                                       8
<PAGE>

4.   Earnings Per Share (Continued)
     ------------------------------

       basic earnings per share except that the denominator is increased to
       include the number of additional common shares that would have been
       outstanding if the dilutive potential common shares had been issued. The
       dilutive effect of options outstanding under the Company's stock option
       plan is reflected in diluted earnings per share by application of the
       treasury stock method. SFAS No. 128 is effective for reporting periods
       ending after December 15, 1997. The Company adopted SFAS No. 128 during
       the quarter ended December 31, 1997. Accordingly, all prior period
       earnings per share have been restated for the purchase of Treasury Stock.


       RECONCILIATION OF THE NUMERATORS AND DENOMINATORS OF THE BASIC AND
       DILUTED EPS COMPUTATIONS:

<TABLE>
<CAPTION>
                                       FOR THE QUARTER ENDED JUNE 30, 1999
                                      -------------------------------------
                                        INCOME         SHARE      PER SHARE
                                      (NUMERATOR)  (DENOMINATOR)   AMOUNT
                                      -----------  -------------  ---------
<S>                                   <C>          <C>            <C>

     BASIC EPS                        $1,596,700      3,137,542       $0.51

     Effect of Diluted Securities:
     Stock Options                             0        107,386
     ESOP                                      0        105,354
                                      ----------      ---------

     Diluted EPS                      $1,596,700      3,350,282       $0.48

<CAPTION>
                                       FOR THE QUARTER ENDED JUNE 30, 1998
                                      -------------------------------------
                                        INCOME         SHARE      PER SHARE
                                      (NUMERATOR)  (DENOMINATOR)   AMOUNT
                                      -----------  -------------  ---------
<S>                                   <C>          <C>            <C>

     BASIC EPS                        $1,205,977      4,185,897       $0.29

     Effect of Diluted Securities:
     Stock Options                             0        106,757
     ESOP                                      0        118,699
                                      ----------      ---------

     Diluted EPS                      $1,205,977      4,411,353       $0.27
</TABLE>

                                       9
<PAGE>

4.   Earnings Per Share (Continued)
     ------------------------------

     RECONCILIATION OF THE NUMERATORS AND DENOMINATORS OF THE BASIC AND DILUTED
     EPS COMPUTATIONS:

<TABLE>
<CAPTION>
                                     FOR THE NINE MONTHS ENDED JUNE 30, 1999
                                     ---------------------------------------
                                        INCOME         SHARE      PER SHARE
                                      (NUMERATOR)  (DENOMINATOR)   AMOUNT
                                      -----------  -------------  ---------
<S>                                   <C>          <C>            <C>

     BASIC EPS                        $4,623,389      3,463,213       $1.34

     Effect of Diluted Securities:
     Stock Options                             0        102,399
     ESOP                                      0        105,354
                                      ----------      ---------

     Diluted EPS                      $4,623,389      3,670,966       $1.26


<CAPTION>
                                      FOR THE NINE MONTHS ENDED JUNE 30, 1998
                                      ---------------------------------------
                                        INCOME         SHARE      PER SHARE
                                      (NUMERATOR)  (DENOMINATOR)   AMOUNT
                                      -----------  -------------  ---------
<S>                                   <C>          <C>            <C>

     BASIC EPS                        $2,597,783      4,185,278       $0.62

     Effect of Diluted Securities:
     Stock Options                             0        106,184
     ESOP                                      0        118,699
                                      ----------      ---------

     Diluted EPS                      $2,597,783      4,410,161       $0.59
</TABLE>

                                       10
<PAGE>

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

Comparison of Financial Condition at June 30, 1999 and September 30, 1998

Total assets increased 0.66% or $2.4 million to $364.9 million at June 30, 1999,
from $362.5 million at September 30, 1998, as a result of an increase in loans
receivable.  Loans receivable increased 7.59% or $16.7 million to $236.6 million
at June 30, 1999, from $219.9 million at September 30, 1998.  The increase in
loans receivable resulted from growth in first mortgage residential loans which
increased $5.3 million to $133.7 million at June 30, 1999, from $128.4 million
at September 30, 1998, residential construction loans which increased $3.6
million to $26.0 million at June 30, 1999 from $22.4 million at September 30,
1998, commercial real estate which increased $5.1 million to $40.2 million at
June 30, 1999, from $35.1 million at September 30, 1998, commercial loans which
increased $2.5 million to $13.7 million at June 30, 1999, from $11.2 million at
September 30, 1998, and consumer loans which increased $0.2 million to $23.0
million at June 30, 1999, from $22.8 million at September 30, 1998.

Cash and cash equivalents decreased 20.28% or $4.3 million to $16.9 million at
June 30, 1999, from $21.2 million at September 30, 1998.  These funds were used
to fund the common stock repurchase programs.  The Company received regulatory
approval to repurchase up to 26.53%  (or 1,141,523 shares) of its outstanding
shares of common stock.  The repurchases commenced on November 2, 1998, and were
completed by March 10, 1999, at an average cost of $20.06 per share.  The
Company received a second regulatory approval to repurchase up to 10.00% (or
317,270 shares) of its outstanding shares of common stock.  The repurchases
commenced on April 14, 1999 and at June 30, 1999, 29,652 shares had been
repurchased.

Investment securities available-for-sale decreased 36.48% or $8.5 million to
$14.8 million at June 30, 1999, from $23.3 million at September 30, 1998.  The
Company sold $3.0 million of equity investments and $4.1 million of a trust
preferred security, and $3.0 million of a municipal bond, and purchased $1.7
million of equity investments and $1.0 million of U. S. Treasury Note maturing
in March 2000, yielding 4.91%.  The Company also purchased $3.3 million of a
Federal Home Loan Mortgage Corporation note yielding 6.10% that was called in
February 1999.

Mortgage-backed securities available-for-sale decreased 3.92% or $2.9 million to
$71.0 million at June 30, 1999, from $73.9 million at September 30, 1998.  The
Company purchased $2.0 million of collateralized mortgage obligations with a
fixed coupon of 7.00% and purchased $32.8 million of Government National
Mortgage Association (GNMA) fixed rate mortgage-backed securities with a coupon
of 7.00% maturing in thirty years.  The Company sold $9.4 million GNMA
adjustable rate mortgage-backed securities with coupon rates between 5.50% and
6.50% maturing in thirty years.  Principal repayments on mortgage-backed
securities were $27.1 million.

The investment in the limited partnership was increased to $1,225,000 at June
30, 1999, from $825,000 at its March 31, 1999, December 31, 1998, and September
30, 1998, based upon an independent appraisal.  Future adjustments to the
valuation reserve will be recorded as deemed necessary.  The limited
partnership, an equity investment, invests in mortgage servicing rights tied to
a national portfolio of residential  mortgage loans.

Real estate held for development increased $0.1 million to $2.0 million at June
30, 1999, from $1.9 million at September 30, 1998.  United Service Corporation
sold eighteen single-family residential lots in The Meadows Subdivision at a
cost of $355,000.  Seven lots remain available for sale in Phase I in The
Meadows residential subdivision.  United Service Corporation sold one five-acre
tract of land in the commercial real estate in Perpetual Square at a cost of
$160,000.  One tract of 8.0 acres and another tract of 5.0 acres remain
available for sale in Perpetual Square.

Deposits increased 8.28% or $17.2 million to $225.0 million at June 30, 1999,
from $207.8 million at September 30, 1998.  Non interest bearing checking
accounts increased 11.84% or $1.8 million to $17.0 million at June 30, 1999,
from $15.2 million at September 30, 1998.  Interest bearing checking accounts
increased 22.63% or $8.1 million to $43.9 million at June 30, 1999, from $35.8
million at September 30, 1998, as the Company continues to offer checking
products that are more aggressively priced than those offered by competitors.
Statement savings accounts decreased 7.14% or $1.8 million to $27.0 million at
June 30, 1999, from $25.2 million at September 30, 1998.  Certificates of

                                       11
<PAGE>

deposits increased 4.18% or $5.5 million to $137.1 million at June 30, 1999,
from $131.6 million at September 30, 1998.

Advances from the Federal Home Loan Bank increased 10.71% or $6.0 million to
$62.0 million at June 30, 1999, from $56.0 million at September 30, 1998.  The
advances were used to fund the common stock repurchase program and to fund loan
originations and loan purchases from Mortgage First Service Corporation, a
subsidiary of the Savings Bank.

Stockholders equity decreased 28.63% or $21.3 million to $53.1 million at June
30, 1999, from $74.4 million at September 30, 1998.  Retained earnings were
offset by dividends paid in the amount of $1.3 million.  Common stock
repurchased through the common stock repurchase programs is recorded on the
Company's balance sheet as Treasury Stock, a contra-equity account, which was
$21.7 million at June 30, 1999. The Company received regulatory approval to
purchase up to 10% (or 317,270 shares) of its outstanding shares of common
stock; 29,652 shares had been purchased at June 30, 1999.  The repurchases
commenced on April 14, 1999, and are expected to be completed by October 14,
1999.  Accumulated other comprehensive income net decreased $1.5 million to a
($1.4) million at June 30, 1999, from $180,000 at September 30, 1998, due to a
decrease in the market value of the investment securities available for sale and
mortgage-backed securities available for sale resulting from an increase in
interest rates in the securities markets.

Deferred compensation for Management Recognition Plan (MRP) increased $1.9
million to ($2.4) million at June 30, 1999, from ($0.7) million at September 30,
1998, due to the transfer of 91,252 shares of common stock valued at $1.8
million from Treasury Stock.  The MRP was approved at the January 27, 1999
stockholders meeting.


Comparison of Operating Results for the Three Months Ended June 30, 1999, and
1998

Net Income
----------

Net income for the three months ended June 30, 1999, increased 32.40% to $1.6
million or $0.51 basic earnings per share and $0.48 diluted earnings per share,
compared to $1.2 million or $0.29 basic earnings per share and $0.27 diluted
earnings per share for the same three months a year ago.

Net Interest Income
-------------------

Net interest income decreased $70,000 to $3.2 million for the three months ended
June 30, 1999, from $3.3 million for the three months ended June 30, 1998.
Total interest income increased 2.99% or $191,000 to $6.6 million for the three
months ended June 30, 1999, from $6.4 million for the three months ended June
30, 1998, due primarily to a higher average balance of outstanding loans which
increased $35.3 million or 17.65% to an average of $235.3 million yielding 8.16%
for the three months ended June 30, 1999, from $200.0 million yielding 8.73% for
the three months ended June 30, 1998.  Interest income on mortgage-backed
securities increased 3.82% or $46,000 to $1.2 million for the three months ended
June 30, 1999, as the average yield increased to 6.55% for the three months
ended June 30, 1999, from 6.07% for the three months ended June 30, 1998 and the
average balance decreased $3.0 million to $76.0 million for the three months
ended June 30, 1999, from $79.0 million.  Interest income on other investments
decreased 35.91% or $293,000 due primarily to a lower average balance of
investment securities and interest bearing securities which decreased 40.27% or
$21.1 million, to an average balance of $31.3 million yielding 6.69% for the
three months ended June 30, 1999, from $52.4 million yielding 6.24% for the
three months ended June 30, 1998.  The higher average balance of investment
securities and interest bearing securities for the three months ended June 30,
1998, was due to the over-subscription of the stock offering in April 1998.

Interest Expense
----------------

Interest expense on deposits increased 2.77% or $60,000 as the average
outstanding balance increased 10.75% or $22.0 million to $226.7 million at an
average cost of 3.92% for the three months ended June 30, 1999, from $204.7
million at an average cost of 4.22% for the three months ended June 30, 1998.
Interest on borrowings increased $201,000 to $1.1 million for the three months
ended June 30, 1999, from $912,000 for the three months ended June 30, 1998, as
the

                                       12
<PAGE>

average borrowings increased 14.66% or $11.1 million to $86.8 million for the
three months ended June 30, 1999, from $75.7 million for the three months ended
June 30, 1998.

Provisions for Loan Losses
--------------------------

Provisions for loan losses are charges to earnings to bring the total allowance
for loan losses to a level considered adequate by management to provide for
management's best estimate of inherent loan losses.  In determining the adequacy
of the allowance for loan losses, management evaluates various factors including
the market value of the underlying collateral, growth, and composition of the
loan portfolio, the relationship of the allowance for loan losses to outstanding
loans, loss experience, delinquency trends and economic conditions.  Management
evaluates the carrying value of loans periodically, and the allowance for loan
losses is adjusted accordingly.

The provision for loan losses increased 325.0% or $130,000 to $170,000 for the
three months ended June 30, 1999, from $40,000 for the three months ended June
30, 1998, due to an increase of net charge-offs and an increase in non-
performing assets.  Net charge-offs increased $46,000 to $52,000 for the three
months ended June 30, 1999, from $6,000 for the three months ended June 30,
1998.

Non-performing assets at June 30, 1999, were $2.3 million consisting of $87,000
of residential mortgage construction loans, $437,000 of real estate acquired in
settlement of loans, $705,000 of single family residential loans, $842,000 of a
commercial real estate loan, $35,000 of land loans, $136,000 of commercial
loans, and $107,000 of consumer loans.

Non-performing assets at September 30, 1998, were $1.3 million consisting of
$383,000 of residential mortgage construction loans, $90,000 of real estate
acquired in settlement of loans, $499,000 of single family residential loans,
$35,000 of commercial real estate loans, $31,000 of land loans, $206,000 of
commercial loans, and $20,000 of consumer loans.

The allowance for loan losses to total loans was 1.10% at June 30, 1999, and
1.07% at September 30, 1998.

Decrease In Loss Reserve On Limited Partnership
-----------------------------------------------

Decrease in loss reserve on limited partnership was $400,000 for the three
months ended June 30, 1999, compared to no change in the reserve for the three
months ended June 30, 1998.  Based on an independent appraisal, the loss reserve
established for the limited partnership was decreased resulting in an increase
in the book value of the limited partnership and income before taxes of
$400,000.  Recent ascension in market interest rates have improved the value of
the limited partnership.  The limited partnership, an equity investment, invests
in mortgage servicing rights tied to a national portfolio of residential
mortgage loans.

Other Income
------------

Total other income increased 43.78% or $384,000 to $1.3 million for the three
months ended June 30, 1999, from $877,000 for the three months ended June 30,
1998.  Loan and deposit service charges increased $345,000 to $924,000 from
$579,000 for the three months ended June 30, 1998, as a result of an increase in
the number of checking accounts and changes to the fee structure of deposit
accounts.  Gain (loss) on sale of investments was a loss of $171,000 for the
three months ended June 30, 1999, compared to a loss of $10,000 for the three
months ended June 30, 1998.  Gain or loss on sale of real estate acquired in
settlement of loans was a loss of $9,000 for the three months ended June 30,
1999, compared to a gain of $14,000 for the three months ended June 30, 1998.

Gain on sale of loans was $7,000 for the three months ended June 30, 1999,
compared to a gain of $11,000 for the three months ended June 30, 1998.  Gain on
sale of real estate held for development was $128,000 for the three months ended
June 30, 1999, as eight residential lots were sold by the United Service
Corporation in The Meadows residential subdivision and two two-acre tracts of
industrial real estate sold in Northpark Industrial Park compared to $63,000 for
the three months ended June 30, 1998, as four residential lots were sold in The
Meadows and one one-acre tract of industrial real estate was sold in Northpark
Industrial Park.  Other income increased $161,000 to $382,000 for the three

                                       13
<PAGE>

months ended June 30, 1999, compared to $221,000 for the three months ended June
30, 1998, due to earnings from cash surrender value of life insurance and the
account receivable processing service.

General and Administrative Expense
----------------------------------

Salaries and employee benefits increased 0.17% or $2,000 and remained at $1.2
million for the three months ended June 30, 1999, and for the three months ended
June 30, 1998, as staff realignments in an effort to reduce costs resulted in a
decrease of sixteen employees to 105 employees for the three months ended June
30, 1999, from 121 for the three months ended June 30, 1998.  Office occupancy
decreased 18.30% or $28,000 to $125,000 for the three months ended June 30,
1999, from $153,000 for the three months ended June 30, 1998, due to a decrease
in building maintenance.  Furniture and equipment expenses increased 5.31% or
$13,000 to $258,000 for the three months ended June 30, 1999, from $245,000 for
the three months ended June 30, 1998.  Advertising decreased 59.57% or  $28,000
to $75,000 for the three months ended June 30, 1999, from $47,000 for the three
months ended June 30, 1998, as a result of an advertising campaign promoting
enhanced checking products, to increase checking fee income. Data processing
increased 36.84% or $42,000 to $156,000 for the three months ended June 30,
1999, from $114,000 for the three months ended June 30, 1998, as a result of
increased volume and cost of ATM and debit card processing and Year 2000
computer and computer software testing costs of $5,000.  Office supplies
decreased 13.33% or $12,000 to $78,000 for the three months ended June 30, 1999,
from $90,000 for the three months ended June 30, 1998, due to a decrease in the
purchase of data processing supplies.  Other operating expenses decreased 5.61%
or $25,000 to $421,000 for the three months ended June 30, 1999, from $446,000
for the three months ended June 30, 1998, due to consultant fees for sales
training, staff realignment and product fee enhancements.

Income Taxes
------------

Income taxes increased 28.36% or $173,000 to $783,000 for the three months ended
June 30, 1999, from $610,000 for the three months ended June 30, 1998.  This was
due to an increase in income before taxes of 31.33% or $564,000 to $2.4 million
from $1.8 million for the three months ended June 30, 1999, and 1998,
respectively.


Comparison of Operating Results for the Nine Months Ended June 30, 1999, and
1998

Net Income
----------

Net income for the nine months ended June 30, 1999, increased 77.97% to $4.6
million or $1.34 basic earnings per share and $1.26 diluted earnings per share,
compared to $2.6 million or $0.60 basic earnings per share and $0.59 diluted
earnings per share for the same nine months a year ago.

Net Interest Income
-------------------

Net interest income increased $1.3 million to $9.5 million for the nine months
ended June 30, 1999, from $8.2 million for the nine months ended June 30, 1998.
Total interest income increased 14.62% or $2.5 million to $19.6 million for the
nine months ended June 30, 1999, from $17.1 million for the nine months ended
June 30, 1998, due primarily to a higher average balance of outstanding loans
which increased $41.8 million or 21.71% to an average of $234.3 million yielding
8.05% for the nine months ended June 30, 1999, from $192.5 million yielding
8.70% for the nine months ended June 30, 1998.  Interest income on mortgage-
backed securities increased 26.76% or $776,000 to $3.7 million for the nine
months ended June 30, 1999, from $2.9 million for the nine months ended June 30,
1998, due primarily to a higher average balance of mortgage-backed securities
available for sale which increased $14.7 million or 23.63% to an average of
$76.9 million yielding 6.42% for the nine months ended June 30, 1999, from $62.2
million yielding 6.27% for the nine months ended June 30, 1998.  Interest income
on other investments increased 4.88% or $81,000 as the average balance of
investment securities and interest bearing deposits increased 9.12% or $3.0
million.

                                       14
<PAGE>

Interest Expense
----------------

Interest expense on deposits decreased 0.07% or $5,000 as the average cost of
deposits decreased to 4.06% for the nine months ended June 30, 1999, from 4.38%
for the nine months ended June 30, 1998, and the average outstanding balance
increased 7.81% or $16.0 million.  Interest on borrowings increased 47.83% or
$1.1 million to $3.4 million for the nine months ended June 30, 1999, from $2.3
million for the nine months ended June 30, 1998, as the average borrowings
increased 48.15% or $28.6 million to $88.0 million for the nine months ended
June 30, 1999, from $59.4 million for the nine months ended June 30, 1998.

Provision For Loan Losses
-------------------------

Provisions for loan losses are charges to earnings to bring the total allowance
for loan losses to a level considered adequate by management to provide for
management's best estimate of inherent loan losses.  In determining the adequacy
of the allowance for loan losses, management evaluates various factors including
the market value of the underlying collateral, growth, and composition of the
loan portfolio, the relationship of the allowance for loan losses to outstanding
loans, loss experience, delinquency trends and economic conditions.  Management
evaluates the carrying value of loans periodically, and the allowance for loan
losses is adjusted accordingly.

The provision for loan losses increased 9.09% or $27,500 to $330,000 for the
nine months ended June 30, 1999, from $302,500 for the nine months ended June
30, 1998, as the non-performing assets increased $1.0 million to $2.3 million at
June 30, 1999, compared to $1.3 million at September 30, 1998.

Decrease In Loss Reserve On Limited Partnership
-----------------------------------------------

Decrease in loss reserve on limited partnership was $400,000 for the nine months
ended June 30, 1999, compared to no change in the reserve for the nine months
ended June 30, 1998. Based on an independent appraisal, the loss reserve
established for the limited partnership was decreased resulting in an increase
in the book value of the limited partnership and income before taxes of
$400,000.  Recent ascension in market interest rates have improved the value of
the limited partnership.   The limited partnership, an equity investment,
invests in mortgage servicing rights tied to a national portfolio of residential
mortgage loans.


Other Income
------------

Total other income increased 60.00% or $1.5 million to $4.0 million for the nine
months ended June 30, 1999, from $2.5 million for the nine months ended June 30,
1998.  Loan and deposit service charges increased $900,000 to $2.5 million for
the nine months ended June 30, 1999, from $1.6 million for the nine months ended
June 30, 1998, as a result of an increase in the number of checking accounts and
changes to the fee structures of deposit accounts.  Gain (loss) on sale of
investments was $126,000 for the nine months ended June 30, 1999, from the
profit of $435,000 on the sale of equity investments, and the loss of $309,000
from the sale of a municipal bond and a trust preferred bond, compared to a gain
of $80,000 for the nine months ended June 30, 1998.  Gain (loss) on sale of real
estate acquired in settlement of loans was a gain of $14,000 for the nine months
ended June 30, 1999, compared to a gain of $24,000 for the nine months ended
June 30, 1998.  Gain on sale of loans, net, was a gain of $88,000 for the nine
months ended June 30, 1999, compared to a gain of $7,000 for the nine months
ended June 30, 1998.  Gain on sale of real estate held for development was
$301,000 for the nine months ended June 30, 1999, as fifteen residential lots
were sold by the United Service Corporation in The Meadows residential
subdivision, one five-acre tract of commercial real estate was sold in Perpetual
Square and two two-acre tracts of industrial real estate sold in Northpark
Industrial Park, compared to a gain of $131,000 for the nine months ended June
30, 1998, as six residential lots were sold in The Meadows and three tracts of
industrial real estate was sold in Northpark Industrial Park.  Other income
increased $196,000 to $924,000 for the nine months ended June 30, 1999, compared
to $728,000 for the nine months ended June 30, 1998, due to earnings from the
cash surrender value of life insurance.

                                       15
<PAGE>

General and Administrative
---------------------------

General and administrative expenses increased 1.54% or $100,000 to $6.6 million
for the nine months ended June  30, 1999, from $6.5 million for the nine months
ended June 30, 1998.  Salaries and employee benefits increased 0.35% or $12,000
due to normal salary increases, which were offset by staff realignments in an
effort to reduce costs, which resulted in a decrease of sixteen employees to 105
employees for the nine months ended June 30, 1999, compared to 121 employees for
the nine months ended June 30, 1998.  Office occupancy increased 8.48% or
$29,000 to $371,000 for the nine months ended June 30, 1999, from $342,000, due
to increases in property taxes and building maintenance.  Furniture and
equipment expenses increased 8.92% or $67,000 to $818,000 for the nine months
ended June 30, 1999, from $751,000 for the nine months ended June 30, 1998, due
to upgrades in data processing equipment and software resulting in an increase
of depreciation expense of $27,000 and an increase in service contracts of
$30,000.  Advertising decreased 18.45% or $31,000 to $137,000 for the nine
months ended June 30, 1999, from $168,000 for the nine months ended June 30,
1998, as a result of winding down the Free Checking Advertising Campaign that
began in October 1994.  Data processing increased 36.88% or $118,000 to $438,000
for the nine months ended June 30, 1999, from $320,000 for the nine months ended
June 30, 1998, as a result of increased volume and cost of ATM and debit card
processing, and Year 2000 computer and computer software testing costs of
$35,000.  Office supplies decreased 14.90% or $38,000 to $217,000 for the nine
months ended June 30, 1999, from $255,000 for the nine months ended June 30,
1998, due to a decrease in the purchase of data processing supplies.  Other
operating expenses were $1.1 million for the nine months ended June 30, 1999 and
1998.

Income Taxes
------------

Income taxes increased 76.92% or $1.0 million to $2.3 million for the nine
months ended June 30, 1999, from $1.3 million for the nine months ended June 30,
1998.  This was due to an increase in income before taxes of 76.92% or $3.0
million to $6.9 million from $3.9 million for the nine months ended June 30,
1999 and 1998, respectively.

Liquidity and Capital Resources
-------------------------------

The Company's primary sources of funds are deposits, repayment of loan
principal, and repayment of mortgage backed securities and collateralized
mortgage obligations, and, to a lesser extent, maturities of investment
securities, and short-term investments and operations.  While scheduled loan
repayments and maturing investments are relatively predictable, deposit flows
and early loan repayments are more influenced by interest rates, general
economic conditions, and competition.  The Company attempts to price its
deposits to meet its asset/liability objectives consistent with local market
conditions.  Excess balances are invested in overnight funds.  In addition, the
Company is eligible to borrow funds from the FHLB of Atlanta.  Under OTS
regulations, a member thrift institution is required to maintain an average
daily balance of liquid assets (cash, certain time deposits and savings
accounts, bankers' acceptances, and specified U. S. government, state or federal
agency obligations and certain other investments) equal to a monthly average of
not less than a specified percentage of its net withdrawable accounts plus
short-term borrowings.  This liquidity requirement, which is currently 4.0%, may
be changed from time to time by the OTS to any amount within the range of 4.0%
to 10.0%, depending upon economic conditions and the savings flow of member
associations.  Monetary penalties may be imposed for failure to meet liquidity
requirements.  The liquidity of the Company at June 30, 1999, was 20.52%.

The primary investing activity of the Company is lending.  During the nine
months ended June 30, 1999, the Company originated $78.5 million of loans, $7.5
million of which were sold.  The Company also purchased $24.3 million of loans.
The retained originations were primarily funded by increases in deposits,
principal repayments of loans and mortgage-backed securities and collateralized
mortgage obligations, Federal Home Loan Bank Advances, and reverse repurchase
agreements.

Liquidity management is both a short and long-term responsibility of management.
The Company adjusts its investments in liquid assets based upon management's
assessment of (i) expected loan demand, (ii) projected loan sales, (iii)
expected deposit flows, (iv) yields available on interest-bearing deposits, and
(v) liquidity of its asset/liability management program.  Excess liquidity is
generally invested in interest-bearing overnight deposits and other short-term
government and agency obligations.  If the Company requires funds beyond its
ability to

                                       16
<PAGE>

generate them internally, it has additional borrowing capacity with the FHLB and
collateral eligible for repurchase agreements.

The Company anticipates that it will have sufficient funds available through
normal loan repayments to meet current loan commitments.  At June 30, 1999, the
Company had outstanding commitments to originate loans of approximately $56.7
million.

Certificates of deposit scheduled to mature in one year or less at June 30,
1999, totaled $122.0 million.  Based upon management's experience and
familiarity with the customers involved and the Company's pricing policy
relative to that of its perceived competitors, management believes that a
significant portion of such deposits will remain with the Company.

The Company plans to repurchase up to 288,273 shares of its common stock before
October 14, 1999, subject to market conditions.   The Company intends to fund
the repurchase program through cash on hand and/or liquidation of some of its
other interest earning assets.

Capital Compliance
------------------

The Company is not subject to any regulatory capital requirements.  The Savings
Bank's actual capital and ratios as required by the OTS, as well as those
required to be considered well capitalized according to the Prompt Corrective
Action Provisions are presented in the following table.  As of June 30, 1999,
the most recent notification from the OTS categorized the Savings Bank as well
capitalized under the regulatory framework for prompt corrective action.  To be
categorized as well capitalized, the Savings Bank must maintain minimum total
risk-based, Tier I risked-based, and Tier I core ("leverage") ratios as set
forth in the table.  There are no conditions or events since that notification
that management believes have changed the Savings Bank's category.

                                       17
<PAGE>

Capital Compliance Continued
----------------------------

<TABLE>
<CAPTION>
                                                                                               To Be Well
                                                                                           Capitalized Under
                                                                   For Capital Adequacy    Prompt Corrective
                                                     Actual              Purposes          Action Provisions
                                                 ---------------  -----------------------  ------------------
                                                 Amount   Ratio     Amount       Ratio      Amount     Ratio
                                                 -------  ------  -----------  ----------  ---------  -------
                                                                  (Dollars in Thousands)
<S>                                              <C>      <C>     <C>          <C>         <C>        <C>
As of June 30, 1999:
-----------------------------------------------

Tangible Capital (To Total Assets)               $39,820  11.30%      $ 5,284       1.50%  $          %

Core Capital (To Total Assets)                   $39,820  11.30%      $14,090       4.00%    $17,613    5.00%

Tier I Capital (To Risk-Based Assets)            $39,820  17.88%            -          -     $13,336    6.00%

Risk-Based Capital (To Risk-Based Assets)        $42,202  18.95%      $17,818       8.00%    $22,272   10.00%
</TABLE>

If the Savings Bank were to fail to meet the minimum capital requirements, it
will be required to file a written capital restoration plan with regulatory
agencies and would be subject to various mandatory and discretionary
restrictions on its operations.


Impact of New Accounting Pronouncements
---------------------------------------

Reporting Comprehensive Income
------------------------------

The Financial Accounting Standards Board (FASB) issued SFAS No. 130, "Reporting
Comprehensive Income," in June 1997.  The purpose of SFAS 130 is to address
concerns over the practice of reporting elements of comprehensive income
directly in equity.  This SFAS requires all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed in equal prominence with the
other financial statements.  This statement is effective for periods beginning
after December 15, 1997.  Comparative financial statements are required to be
reclassified to reflect the provisions of this statement.  The Company adopted
the provisions of this SFAS beginning with the quarter ending December 31, 1998,
and has included the appropriate components in the Company's Consolidated
Statement of Stockholders' Equity.

Disclosures about Segments of an Enterprise and Related Information
-------------------------------------------------------------------

The FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," in June 1997.  This statement applies to all public
entities.  The provisions of SFAS 131 require certain disclosures regarding
material industry segments within an entity.  Due to the Company's structure,
SFAS 131 is not expected to have a material impact.  The Company plans to adopt
this SFAS for the period ending September 30, 1999.

Employers' Disclosures about Pensions and Other Postretirement Benefits
-----------------------------------------------------------------------

In February 1998, the FASB issued SFAS 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits".  The new statement revises required
disclosures for employee benefit plans, but does not change the measurement or
recognition of such plans.  While the new standard requires some additional
information about benefit plans, it helps preparers of financial statements by
eliminating certain disclosures and by standardizing the disclosures for
pensions and other Post-retirement benefits to the extent practicable.  SFAS 132
supersedes the disclosure requirements in SFAS 87, "Employers' Accounting for
Pensions", SFAS 88, "Employers Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits", and SFAS 106
"Employers Accounting for Postretirement Benefits Other than Pensions".  The new
disclosures are effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS will not have a material impact on the financial statements
of the Company due to the disclosure only requirements.

                                       18
<PAGE>

Accounting for Derivative Instruments and Hedging Activities
------------------------------------------------------------

In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities".  SFAS 133
establishes new accounting and reporting requirements for derivative
instruments, including certain derivative instruments embedded in other
contracts and hedging activities.  The standard requires all derivatives to be
measured at fair value and recognized as either assets or liabilities in the
statement of condition.  Under certain conditions, a derivative may be
specifically designated as a hedge.  Accounting for the changes in fair value of
a derivative depends on the intended use of the derivative.  Adoption of this
standard is required for all fiscal years and quarters beginning after June 15,
1999.  Because the Company has a limited use of derivative transactions,
management does not expect that this standard would have a material effect on
the Company's financial statements.

Accounting for Mortgage-Backed Securities Retained after the Securitization of
------------------------------------------------------------------------------
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise
-------------------------------------------------------------

In October 1998, FASB issued SFAS No. 134 "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise" which is effective for the first fiscal quarter
beginning after December 15, 1998.  This statement conforms the subsequent
accounting for securities retained after the securitization of mortgage loans by
a mortgage banking enterprise with the subsequent accounting for securities
retained after the securitization of other types of assets by a non-mortgage
banking enterprise.  The adoption of this standard is not expected to have a
material effect on the Company's financial statements.

Effect of Inflation and Changing Prices
---------------------------------------

The Consolidated Financial Statements and related financial data presented
herein have been prepared in accordance with Generally Accepted Accounting
Principles ("GAAP") which require the measurement of financial position and
operating results in terms of historical dollars, without considering the
changes in relative purchasing power of money over time due to inflation.  The
primary impact of inflation on operations of the Company is reflected in
increased operating costs.  Unlike most industrial companies, virtually all the
assets and liabilities of a financial institution are monetary in nature.  As a
result, interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation.  Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.


Year 2000 Considerations
------------------------

The Company is a user of computers, computer software and equipment utilizing
embedded microprocessors that will be effected by the year 2000 issue.  The year
2000 issue exists because many computer systems and applications use two-digit
date fields to designate a year.  As the century date change occurs, date-
sensitive systems may recognize the year 2000 as 1900, or not at all.  This
inability to recognize or properly treat the year 2000 may cause erroneous
results, ranging from system malfunctions to incorrect or incomplete processing.

The Company's Year 2000 Committee consists of the Information Services Steering
Committee, consisting of a representative of each user department.  The
committee coordinator makes a quarterly or, as major events are completed,
progress report to the Board of Directors.  The committee has developed and is
implementing a comprehensive plan to make all information and non-information
technology assets Year 2000 compliant.  The plan is comprised of the following
phases:

     1.  Awareness - Educational initiatives on Year 2000 issues and concerns.
         This phase is ongoing, especially as it relates to informing customers
         of the Company's Year 2000 preparedness. Additional emphasis will be
         placed on customer awareness during the third and fourth quarters of
         1999 as the end of the year approaches.

                                       19
<PAGE>

     2.  Assessment - Inventory of all technology assets and identification of
         third-party vendors and service providers. This phase was completed as
         of September 30, 1997.

     3.  Renovation - Review of vendor and service providers responses to the
         Company's Year 2000 inquiries and development of a follow-up plan and
         timeline. This phase was completed as of December 31, 1998.

     4.  Validation - The Company has successfully completed the validation
         phase of the Y2K plan. Testing was completed on mission critical
         systems as of December 10, 1998. Baseline, future date and user
         acceptance tests were performed at a test site, using six critical
         dates, covering all applications used by the Company. Third party
         vendors were identified through software inventory and department
         interviews conducted by the Year 2000 coordinator. These applications
         were successfully tested and validated as of June 25, 1999. Tests were
         performed on site using Y2K compliant hardware and software. System
         dates were rolled to the dates deemed critical by the Company. Other
         parties whose Year 2000 compliance may effect the Company include the
         Federal Home Loan Bank of Atlanta, brokerage firms, the Company's ATM
         network provider, and the Company's pension plan administrator. These
         third parties have indicated their compliance. Where testing was not
         possible, the Company relied on certifications from vendors and service
         providers. The responses from all system vendors and other company's
         are monitored and tracked using a computer tracking system.

     5.  Implementation - Replacement or repair of non-compliant technology. The
         Company has completed the readiness phase of the Y2K plan. All hardware
         and software the bank utilizes has been upgraded or replaced to be Y2K
         compliant. The readiness phase was completed by June 30, 1999, meeting
         FFIEC guidelines.

The Company estimated its total cost to replace computer equipment, software
programs or other equipment that were not Year 2000 compliant to be
approximately $150,000, of which $118,139 has been incurred as of June 30, 1999.
System maintenance or modification costs are charged to expense as incurred,
while the cost of new hardware, software or other equipment is capitalized and
amortized over their estimated useful lives.  The Company does not separately
track the internal costs and time that its own employees spend on year 2000
issues, which are principally payroll costs.

Because the Company depends substantially on its computer systems and those of
third parties, the failure of these systems to be Year 2000 compliant could
cause substantial disruption of the Company's business and could have a material
adverse financial impact on the Company.  Failure to resolve Year 2000 issues
presents the following risks to the Company which the Company believes is the
most reasonably likely worst  case scenario:

     1.  The Company could lose customers to other financial institutions,
         resulting in a loss of revenue, if the Company's in-house computer
         system is unable to properly process customer transactions;

     2.  Governmental agencies, such as the Federal Home Loan Bank, and
         correspondent institutions could fail to provide funds to the Company,
         which could materially impair the Company's liquidity and affect the
         Company's ability to fund loans, and deposit withdrawals;

     3.  Concern on the part of depositors that Year 2000 issues could impair
         access to their deposit account balances could result in the Company
         experiencing deposit outflows prior to December 31, 1999; and

     4.  The Company could incur increased personnel costs if additional staff
         is required to perform functions that inoperative systems would have
         otherwise performed. Management believes that it is not possible to
         estimate the potential lost revenue due to the Year 2000 issue, as the
         extent and longevity of any potential problem cannot be predicted.

                                       20
<PAGE>

The Company has formulated a company-wide Y2K business resumption contingency
plan that includes management efforts in the area of cash and liquidity planning
for the time period prior to and immediately following the Year 2000.  Business
functions have been prioritized based on the probability of a system failure in
that area and its impact to that function.  The plan provides for the majority
of institution functions to be supported at a reduced level in the event of a
Y2K disaster.  An alternate power source will be in place to support item
processing and data processing functions.  An "event planning" timeline has been
developed and is already operational with specific strategies documented for the
time period from December 31, 1999 through January 3, 2000 and beyond.

Because a substantial portion of the Company's loan portfolio consists of loans
to individuals rather than commercial enterprises, management believes that Year
2000 issues will not impair the ability of the Company's borrowers to repay
their debt.  An evaluation of the Company's commercial portfolio has been made
and a determination made that in the event of losses from the commercial loans
that could possibly be affected by Year 2000 failure, it would not have a
significant impact on the Company's financial condition at this particular time.
Each commercial borrower must complete a Y2K work sheet and business plan
referencing their Year 2000 plan no later than June 30, 1999.

The Company has no plans to contract with an independent or outside firm to
conduct an analysis of its Year 2000 exposure.  The Company's Year 2000 risk
analysis and exposure are currently being assessed by the internal auditor and
Year 2000 coordinator.

There can be no assurances that the Company's Year 2000 plan will effectively
address the Year 2000 issue, that the Company's estimates of the timing and
costs of completing the plan will ultimately be accurate or that the impact of
any failure of the Company or its third-party vendors and service providers to
be Year 2000 compliant will not have a material adverse effect on the Company's
business, financial condition or results of operations.


ITEM 3 - Market Risk Disclosure
-------------------------------

There have been no material changes to the market risk information set forth
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Market Risk and Asset Liability Management" in the Company's
Annual Report dated September 30, 1998.

                                       21
<PAGE>

                                    PART II

Item 1.    Legal Proceedings
-------    -----------------

The Company is not a party to any legal proceedings at this time.  The Savings
Bank from time to time and currently is involved as plaintiff or defendant in
various legal actions incident to its business.  These actions are not believed
to be material, either individually or collectively, to the consolidated
financial condition or results of operations of the Savings Bank.

Item 2.    Changes in Securities and Use of Proceeds
-------    -----------------------------------------

None

Item 3.    Defaults Upon Senior Securities
-------    -------------------------------

Not applicable

Item 4.    Submission of Matters to a Vote of Security Holders
-------    ---------------------------------------------------

None

Item 5.    Other Information
---------  -----------------

None

Item 6.    Exhibits and Reports on Form 8-K
-------    --------------------------------
<TABLE>
<CAPTION>

A.  Exhibits:
    ---------
<S>             <C>                                          <C>

       3(a)     Certificate of Incorporation of the Company   *
       3(b)     Bylaws of the Company                         *
      10(a)     Employment Agreement with Robert W. Orr       **
      10(b)     Employment Agreement with Thomas C. Hall      **
      10(c)     Employment Agreement with Barry C. Visioli    **
      10(d)     Company's 1998 Stock Option Plan              ***
      10(e)     Company's Management Recognition and
                Development Plan                              ***
      27        Financial Data Schedule
</TABLE>
          *   Incorporated by reference to the Company's Registration
              Statement on Form S-1, as amended (File No. 333-42517).

          **  Incorporated by reference to the Company's Quarterly
              Report on Form 10-Q for the quarter ended March 31, 1998.

          *** Incorporated by reference to the Company's Definitive Proxy
              Statement dated December 18, 1998.

B.  Reports on Form 8-K
    -------------------

          The Company did not file any reports on Form 8-K during the quarter
          ended June 30, 1999.

                                       22
<PAGE>

                                   SIGNATURES



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


                                  SouthBanc Shares,  Inc.


Date:  August 10,  1999           /s/ Robert W. Orr
                                  --------------------------------
                                  Robert W. Orr
                                  President and Managing Officer
                                  (Duly Authorized Representative)



Date:  August 10,  1999           /s/ Thomas C. Hall
                                  ---------------------------------
                                  Thomas C. Hall
                                  Chief Financial Officer

                                       23