UNITED STATES SECURITIES
                             AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-Q

(Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 1996

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
     For the transition period from           Commission file number
                 to                                  0-5583


                     UNITED CAROLINA BANCSHARES CORPORATION
             (Exact name of Registrant as specified in its Charter)

             North Carolina                        56-0954530
       (State of Incorporation)        (I.R.S. Employer Identification No.)

        127 West Webster Street
    Whiteville, North Carolina                          28472
 (Address of principal executive offices)             (Zip Code)

                                 (910) 642-5131
              (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. YES X NO

As  of  November  12,  1996,  there  were  24,266,175   outstanding   shares  of
Registrant's  $4.00 par value  common  capital  stock which is the only class of
securities issued by the Registrant.

                                                               Total of 30 pages

                                       1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements

             United Carolina Bancshares Corporation and Subsidiaries
                           Consolidated Balance Sheets

                                                  September 30,    December 31,
                                                      1996             1995
                                                  -------------    ------------
                                                        (In thousands)
Assets:
   Cash and due from banks - noninterest-bearing  $     184,770    $    179,679
   Federal funds sold and other short-term
            investments                                 100,922          45,413
   Securities available for sale (amortized
     costs of $843,846,000 in 1996
     and $764,923,000 in 1995)                          840,061         769,956
   Investment securities (approximate market
     values of $49,585,000 in 1996
     and $99,270,000 in 1995)                            48,446          97,354
   Loans, net of unearned income                      3,068,910       2,826,987
      Less reserve for credit losses                    (45,837)        (43,464)
                                                  -------------    ------------
              Net loans                               3,023,073       2,783,523
                                                  -------------    ------------
   Premises and equipment                                55,984          58,002
   Other assets                                         113,068         103,591
                                                  -------------    ------------
              Total assets                        $   4,366,324    $  4,037,518
                                                  =============    ============

Liabilities and stockholders' equity:
   Deposits:
      Noninterest-bearing demand deposits         $     616,201    $    578,864
      Interest-bearing deposits:
         NOW, savings, and money market deposits      1,420,125       1,354,193
         Certificates of deposit of
              $100,000 or more                          291,223         206,235
         Other time deposits                          1,608,101       1,498,359
                                                  -------------    ------------
              Total deposits                          3,935,650       3,637,651
   Short-term borrowings                                 39,437          30,439
   Mortgages and other notes payable                      2,815           2,975
   Other liabilities                                     47,108          43,305
                                                  -------------    ------------
              Total liabilities                       4,025,010       3,714,370
                                                  -------------    ------------
   Stockholders' equity:
      Preferred stock, par value $10 per share:
         Authorized 2,000,000 shares; none issued
      Common stock, par value $4 per share:
         Authorized 40,000,000 shares; issued
           24,265,134 shares in 1996 and
           24,137,791 shares in 1995                     97,061          96,551
      Surplus                                            50,787          50,183
      Retained earnings                                 195,989         173,491
      Unrealized gains (losses) on
        securities available for sale,
        net of deferred income taxes                     (2,523)          2,923
                                                  -------------    ------------
               Total stockholders' equity               341,314         323,148
                                                  -------------    ------------
               Total liabilities and
                 stockholders' equity             $   4,366,324    $  4,037,518
                                                  =============    ============

See accompanying Notes to Consolidated Financial Statements


                                       2
<PAGE>
             United Carolina Bancshares Corporation and Subsidiaries
                        Consolidated Statements of Income
<TABLE>
<CAPTION>
                                                              Three Months Ended                  Nine Months Ended
                                                                September 30,                        September 30,
                                                       ------------------------------      -------------------------------
                                                           1996              1995              1996               1995
                                                       ------------      ------------      ------------       ------------
                                                                (Dollars in thousands except per share amounts)
<S>                                                    <C>               <C>               <C>                <C>
Interest income:
   Interest on loans                                   $     69,629      $     65,620      $    201,256       $    189,283
Interest and dividends on:
      Taxable securities                                     12,882            10,710            36,017             26,974
      Tax-exempt securities                                     758               933             2,452              2,926
   Interest on federal funds sold and
       other short-term investments                             427             1,911             2,661              4,985
                                                       ------------      ------------      ------------       ------------
           Total interest income                             83,696            79,174           242,386            224,168
                                                       ------------      ------------      ------------       ------------
Interest expense:
   Interest on deposits                                      37,285            35,938           108,711             96,664
   Interest on short-term borrowings                            658               485             1,420              2,256
   Interest on mortgages and other notes payable                 42                46               127                126
                                                       ------------      ------------      ------------       ------------
           Total interest expense                            37,985            36,469           110,258             99,046
                                                       ------------      ------------      ------------       ------------
Net interest income                                          45,711            42,705           132,128            125,122
Provision for credit losses                                   1,900             1,077             6,000              4,558
                                                       ------------      ------------      ------------       ------------
Net interest income after provision for
  credit losses                                              43,811            41,628           126,128            120,564
                                                       ------------      ------------      ------------       ------------

Noninterest income:
   Service charges on deposit accounts                        6,087             5,998            18,645             17,656
   Trust income                                               1,403             1,168             4,339              3,844
   Insurance commissions                                      1,647             1,521             4,415              3,875
   Mortgage banking fees                                      1,150             1,187             3,549              2,964
   Brokerage and annuity commissions                            586               618             1,741              1,702
   Other service charges, commissions, and fees               1,869             1,426             5,040              3,712
   Gains on mortgages originated for resale                     210               263               552                472
   Gains on trading account securities                            -                 1                 1                  3
   Gains (losses) on dispositions of securities                   -                 4              (134)                 7
   Other operating income                                       297               204               319                554
                                                       ------------      ------------      ------------       ------------
           Total noninterest income                          13,249            12,390            38,467             34,789
                                                       ------------      ------------      ------------       ------------
Noninterest expenses:
   Personnel expense                                         21,631            19,914            64,245             58,644
   Occupancy expense                                          2,657             2,603             7,730              7,551
   Equipment expense                                          1,684             1,851             5,133              5,399
   Other operating expenses                                  12,558             9,230            33,052             29,642
                                                       ------------      ------------      ------------       ------------
           Total noninterest expenses                        38,530            33,598           110,160            101,236
                                                       ------------      ------------      ------------       ------------
Income before income taxes                                   18,530            20,420            54,435             54,117
   Income tax provision                                       6,481             7,325            19,206             19,286
                                                       ------------      ------------      ------------       ------------
Net income                                             $     12,049      $     13,095      $     35,229       $     34,831
                                                       ============      ============      ============       ============

Per share data:
   Net income                                          $        .50      $       .55       $       1.46       $       1.45
                                                       ============      ===========       ============       ============
   Cash dividends declared                             $        .18      $      .166       $        .54       $        .48
                                                       ============      ===========       ============       ============
   Book value at end of period                         $      14.07      $     12.99       $      14.07       $      12.99
                                                       ============      ===========       ============       ============
Average number of shares outstanding                     24,237,208       24,123,909         24,191,324         24,087,679
                                                       ============      ===========       ============       ============
</TABLE>

See accompanying Notes to Consolidated Financial Statements


                                        3
<PAGE>
             United Carolina Bancshares Corporation and Subsidiaries
                 Consolidated Statements of Stockholders' Equity
                  Nine Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
                                                                                                 Unrealized
                                             Common Stock                                         Gains
                                      --------------------------                                (Losses) on
                                       Number of      Aggregate                                  Securities          Total
                                        Shares           Par                       Retained      Available       Stockholders'
                                      Outstanding       Value         Surplus      Earnings     For Sale, Net        Equity
                                      -----------    -----------    ----------    ----------    -------------    -------------
                                                                     (Dollars in thousands)

<S>                                    <C>           <C>            <C>           <C>           <C>              <C>
Balance, January 1, 1996               24,137,791    $    96,551    $   50,183    $  173,491    $       2,923    $     323,148
   Net income                                   -              -             -        35,229                -           35,229
   Cash dividends declared,
      $.54 per share                            -              -             -       (12,778)               -          (12,778)
    Issuance of common stock:
       By pooled institution prior
          to acquisition                   29,949            120           327            45                -              492
      Under stock option plans             61,133            245           442             -                -              687
      Insurance agency merger              37,123            149          (147)            -                -                2
   Retirement of common stock                (862)            (4)          (18)            2                -              (20)
   Unrealized losses on securities
      available for sale, net of
      applicable deferred income
      taxes                                     -              -             -             -           (5,446)          (5,446)
                                      -----------    -----------    ----------    ----------    -------------    -------------
Balance, September 30, 1996            24,265,134    $    97,061    $   50,787    $  195,989    $      (2,523)   $     341,314
                                      ===========    ===========    ==========    ==========    =============    =============

 Balance, January 1, 1995              24,017,725         96,071        50,134       141,953           (5,560)         282,598
   Net income                                   -              -             -        34,831                -           34,831
   Cash dividends declared:
       $.48 per share                           -              -             -       (10,620)               -          (10,620)
       By pooled institution prior
          to merger                             -              -             -           (51)               -              (51)
   Issuance of common stock:
      Under stock option plan              36,691            147           149           (49)               -              247
      By pooled institution prior
          to merger                         3,171             13            12            16                -               41
      Insurance agency merger              66,320            265          (213)          (88)               -              (36)
   Unrealized gains on securities
      available for sale, net of
      applicable deferred income
      taxes                                     -              -             -             -            6,289            6,289
                                      -----------    -----------    ----------    ----------    -------------    -------------
Balance, September 30, 1995            24,123,907    $    96,496    $   50,082    $  165,992    $         729    $     313,299
                                      ===========    ===========    ==========    ==========    =============    =============
</TABLE>

See accompanying Notes to Consolidated Financial Statements

                                       4
<PAGE>

             United Carolina Bancshares Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows

                                                            Nine Months Ended
                                                              September 30,
                                                         ----------------------
                                                            1996         1995
                                                         ---------    ---------
                                                             (In thousands)
Increase  (decrease)  in cash and cash  equivalents:  Cash flows from  operating
activities:
   Net income                                            $  35,229    $  34,831
   Adjustments to reconcile net income to net cash
     provided by operating activities:
      Depreciation and amortization, net of accretio         9,537        7,436
      Provision for credit losses                            6,000        4,557
      Net (increase) decrease in loans originated
        for resale                                           6,711      (14,345)
      Provision for deferred taxes and increase
        (decrease)in taxes payable                            (330)       2,234
      Increase in accrued interest receivable               (1,905)      (4,505)
      (Increase) decrease in prepaid expenses               (5,358)       2,019
      Decrease in other accounts receivable                  2,485        1,048
      Increase (decrease) in accrued interest payable         (202)       2,391
      Increase  in accrued expenses                          3,419        1,572
      Decrease  in deferred loan fees,
        net of deferred costs                               (1,294)        (357)
      Other, net                                               697          194
                                                         ---------    ---------
           Total adjustments                                19,760        2,244
                                                         ---------    ---------
           Net cash provided by operating activities        54,989       37,075
                                                         ---------    ---------
Cash flows from investing activities:
   Proceeds from maturities and issuer calls of
     securities available for sale                         408,763      403,065
   Proceeds from sales of securities available for sale     10,539         --
   Proceeds from maturities and issuer calls of
     investment securities                                  12,468       12,722
   Proceeds from sales of investment securities               --          3,810
   Purchases of securities available for sale             (461,610)    (554,976)
   Purchases of investment securities                         --        (36,310)
   Net increase in loans outstanding                      (254,296)    (194,842)
   Purchases of premises and equipment                      (4,399)      (2,586)
   Proceeds from sales of premises and equipment             1,193          153
   Purchases of mortgage loan servicing rights              (1,658)      (1,400)
   Sales of  foreclosed assets                                 572        1,982
   Purchase of  branches, net of cash received                --        136,569
   Other, net                                               (1,152)      (2,571)
                                                         ---------    ---------
           Net cash used by investing activities          (289,580)    (234,384)
                                                         ---------    ---------

Cash flows from financing activities:
   Net increase in deposit accounts                        297,998      302,004
   Net increase  (decrease) in federal funds purchased      (8,935)       5,220
   Net decrease in securities sold under agreement
     to repurchase                                          (9,808)     (39,270)
   Net increase (decrease) in other short-term
     borrowings                                             27,740      (25,148)
   Proceeds from issuance of long-term debt                   --            702
   Repayments of mortgages and other notes payable            (185)         (28)
   Issuance of common stock, net                             1,159          288
   Dividends paid                                          (12,778)     (10,671)
                                                         ---------    ---------
           Net cash provided by financing activities       295,191      233,097
                                                         ---------    ---------
Net increase in cash and cash equivalents                   60,600       35,788
Cash and cash equivalents at beginning of period           225,092      244,660
                                                         ---------    ---------
Cash and cash equivalents at end of period               $ 285,692    $ 280,856
                                                         =========    =========


                        Statement Continued on Next Page

                                       5
<PAGE>

             United Carolina Bancshares Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows
                                    Continued


Supplemental  disclosures of cash flow information:
  Cash paid during the period for:
      Interest                                           $ 120,460    $  96,563
                                                         =========    =========
      Income taxes                                       $  19,536    $  17,197
                                                         =========    =========
Significant noncash transactions:
   Loans transferred to real estate acquired
     in settlement of debt                               $   3,870    $   1,294
                                                         =========    =========
   Loans originated to facilitate the sale
     of foreclosed assets                                $     547    $     397
                                                         =========    =========
   Unrealized gains (losses) on securities
     available for sale                                  $  (8,804)   $   8,962
                                                         =========    =========
   Investment securities transferred to
     available for sale portfolio in connection
     with business combinations                          $  36,646    $    --
                                                         =========    =========
  Available for sale securities transferred
    to investment portfolio in connection
    with business combinations                           $     240    $    --
                                                         =========    =========
  Issuance of common stock in merger acquisitions        $       2    $    (36)
                                                         =========    =========

See accompanying Notes to Consolidated Financial Statements


                                        6

<PAGE>

United Carolina Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements

Note 1.
      Basis of Presentation:

      The accompanying  consolidated financial statements,  which are unaudited,
reflect all adjustments which are, in the opinion of management, necessary for a
fair presentation of the financial  position at September 30, 1996, and December
31, 1995, and operating  results of United Carolina  Bancshares  Corporation and
its subsidiaries for the three- and nine-month  periods ended September 30, 1996
and 1995. All adjustments made to the unaudited  financial  statements were of a
normal recurring nature.  The results of operations for the first nine months of
1996 are not necessarily  indicative of the results of operations for the entire
year. As discussed in Note 13, during 1996, UCB  consummated  mergers with Triad
Bank  and  Seaboard   Savings  Bank,   both  of  which  were  accounted  for  as
poolings-of-interests.  Accordingly,  the consolidated financial statements have
been  restated to include the accounts of Triad Bank and  Seaboard  Savings Bank
for all periods presented.

Note 2.
      Securities:

      The  following  is  a  summary  of  the  securities  portfolios  by  major
classification:
<TABLE>
<CAPTION>

                                                                       September 30, 1996
                                                   --------------------------------------------------------
                                                                                               Approximate
                                                    Amortized       Unrealized    Unrealized      Market
                                                      Cost             Gains        Losses         Value
                                                   -----------      -----------   -----------   -----------
                                                                        (In thousands)
<S>                                                <C>              <C>           <C>           <C>
Securities available for sale:
United States government securities                $   749,033      $       825   $     3,635   $   746,223
Obligations of United States government
  agencies and corporations                             52,174               54           243        51,985
Mortgage-backed securities                              27,199(1)            30           819        26,410(1)
Obligations of states and political subdivisions         1,100                3          --           1,103
Federal Home Loan Bank stock                            13,886             --            --          13,886
Other securities                                           454             --            --             454
                                                   -----------      -----------   -----------   -----------
  Total securities available for sale              $   843,846      $       912   $     4,697   $   840,061
                                                   ===========      ===========   ===========   ===========
Investment securities:
Obligations of states and political subdivisions   $    48,446      $     1,224   $        85   $    49,585
                                                   -----------      -----------   -----------   -----------
  Total investment securities                      $    48,446      $     1,224   $        85   $    49,585
                                                   ===========      ===========   ===========   ===========

<FN>
(1) At September 30, 1996, UCB owned collateralized  mortgage obligations issued
by the Federal Home Loan  Mortgage  Corporation  (FHLMC)  which had an amortized
cost of $9,603,000 and a market value of $9,396,000; and collateralized mortgage
obligations issued by the Federal National Mortgage Association (FNMA) which had
an amortized cost of $11,826,000 and a market value of $11,423,000. In addition,
UCB  also  owned  mortgage-backed  pass-through  securities  guaranteed  by  the
Government  National Mortgage  Association (GNMA) which had an amortized cost of
$226,000 and a market value of $232,000; mortgage-backed pass-through securities
issued  by FNMA  with an  amortized  cost of  $2,016,000  and  market  value  of
$1,936,000; and mortgage-backed pass-through securities guaranteed by FHLMC with
an amortized cost of $3,194,000 and a market value of $3,074,000. UCB also owned
collateralized mortgage obligations issued by a private issuer and guaranteed by
the Government National Mortgage  Association (GNMA) which had an amortized cost
of $334,000 and a market value of $349,000.  At September 30, 1996,  none of the
collateralized  mortgage  obligations  owned  by UCB were  considered  high-risk
mortgage securities under current regulatory guidelines.
</FN>
</TABLE>
                                       7

<PAGE>


Notes to Consolidated Financial Statements (Continued)

Note 2. Securities - Continued
<TABLE>
<CAPTION>
                                                                      December 31, 1995
                                                   -----------------------------------------------------
                                                                                             Approximate
                                                    Amortized    Unrealized    Unrealized      Market
                                                      Cost          Gains        Losses         Value
                                                   -----------   -----------   -----------   -----------
                                                                       (In thousands)
<S>                                                <C>           <C>           <C>           <C>
Securities available for sale:
United States government securities                $   585,795   $     5,521   $       127   $   591,189
Obligations of United States government
  agencies and corporations                            136,590             4            74       136,520
Mortgage-backed securities                              29,628            53           346        29,335
Obligations of states and political subdivisions         1,340             2          --           1,342
Federal Home Loan Bank stock                            10,941          --            --          10,941
Other securities                                           629          --            --             629
                                                   -----------   -----------   -----------   -----------
  Total securities available for sale              $   764,923   $     5,580   $       547   $   769,956
                                                   ===========   ===========   ===========   ===========
Investment securities:
United States government securities                $    10,396   $       141   $       168   $    10,369
Obligations of United States government
  agencies and corporations                             21,713          --            --          21,713
Mortgage-backed securities                               4,508            16            44         4,480
Obligations of states and political subdivisions        60,660         2,011            40        62,631
Other securities                                            77          --            --              77
                                                   -----------   -----------   -----------   -----------
  Total investment securities                      $    97,354   $     2,168   $       252   $    99,270
                                                   ===========   ===========   ===========   ===========
</TABLE>

Note 3.
      Loans:
      The consolidated  loan portfolio is summarized by major  classification as
 follows:
                                                  September 30,   December 31,
                                                      1996            1995
                                                  -------------   -------------
                                                            (In thousands)
Loans secured by real estate:
   Construction and land acquisition
     and development                              $     268,818   $     226,326
   Secured by nonfarm, nonresidential
     properties                                         655,490         620,367
   Secured by farmland                                   86,734          90,658
   Secured by multifamily residences                     68,221          65,097
                                                  -------------   -------------
     Total loans secured by real estate,
       excluding loans secured by
       1-4 family residences                          1,079,263       1,002,448
                                                  -------------   -------------
   Revolving credit secured by
     1-4 family residences                              148,165         140,032
   Other loans secured by
     1-4 family residences                              669,367         613,846
                                                  -------------   -------------
     Total loans secured by
       1-4 family residences                            817,532         753,878
                                                  -------------   -------------
     Total loans secured by real estate               1,896,795       1,756,326
Commercial, financial, and agricultural
  loans, excluding loans secured
  by real estate                                        333,403         296,778
Loans to individuals for household,
  family, and other personal
  expenditures, excluding loans
  secured by real estate                                721,101         691,193
All other loans                                         117,134          83,507
                                                  -------------   -------------
     Total loans                                      3,068,433       2,827,804
Net (unearned income) deferred
  origination costs                                         477            (817)
                                                  -------------   -------------
     Loans, net of unearned income                $   3,068,910   $   2,826,987
                                                  =============   =============

                                       8

<PAGE>
Notes to Consolidated Financial Statements (Continued)

Note 4.
      Nonperforming and Problem Assets:

      The following is a summary of nonperforming and problem assets:

                                                  September 30,   December 31,
                                                      1996            1995
                                                  -------------   -------------
                                                         (In thousands)

Foreclosed assets                                  $       8,782   $       5,234
Nonaccrual loans                                           2,769           6,403
                                                   -------------   -------------
    Total nonperforming assets                            11,551          11,637
Loans 90 days or more past due,
  excluding nonaccrual loans                               6,388           5,554
                                                   -------------   -------------
    Total problem assets                           $      17,939   $      17,191
                                                   =============   =============

     At September 30, 1996, the recorded investment in loans that are considered
impaired under Financial  Accounting  Statement No. 114 was  $2,769,000,  all of
which were on a  nonaccrual  basis.  Included in this amount was  $2,566,000  of
impaired loans for which $550,000 of the reserve for credit losses was assigned.
The average  recorded  investment  during the first nine months of 1996 in loans
classified as impaired at September 30, 1996, was approximately $2,857,000.  For
the nine months ended  September 30, 1996,  UCB  recognized  interest  income on
these impaired loans of $23,000 using the cash basis of accounting.

Note 5.
      Reserve for Credit Losses:

      The following  table sets forth the analysis of the  consolidated  reserve
for credit losses:

                                    Three Months Ended      Nine Months Ended
                                      September 30,           September 30,
                                   --------------------    --------------------
                                     1996        1995        1996        1995
                                   --------    --------    --------    --------
                                                  (In thousands)

Balance, beginning of period       $ 45,212    $ 43,393    $ 43,464    $ 41,341
  Provision for credit losses         1,900       1,077       6,000       4,558
  Recovery of losses previously
    charged off                         845         555       2,702       2,652
  Losses charged to reserve          (2,120)     (1,855)     (6,329)     (5,381)
                                   --------    --------    --------    --------
Balance, end of period             $ 45,837    $ 43,170    $ 45,837    $ 43,170
                                   ========    ========    ========    ========

                                       9

<PAGE>
Notes to Consolidated Financial Statements (Continued)

Note 6.
      Short-Term Borrowings

      The  following  table  sets  forth  certain  data  with  respect  to UCB's
short-term borrowings:
<TABLE>
<CAPTION>


                                             September 30, 1996                             December 31, 1995
                                --------------------------------------------   --------------------------------------------
                                            Securities              Federal                Securities              Federal
                                            Sold Under   Treasury     Home                 Sold Under   Treasury     Home
                                 Federal    Agreement    Tax and      Loan      Federal    Agreement    Tax and      Loan
                                  Funds         to        Loan        Bank       Funds         to        Loan        Bank
                                Purchased   Repurchase    Notes     Advances   Purchased   Repurchase    Notes     Advances
                                ---------   ----------   --------   --------   ---------   ----------   --------   --------
                                                                         (Dollars in thousands)
<S>                             <C>         <C>          <C>        <C>        <C>         <C>          <C>        <C>
Balance outstanding at end
  of period                     $   7,885   $    1,128   $ 10,424   $ 20,000   $  16,820   $   10,936   $  2,683   $    -
Maximum amount outstanding
  at any month-end during
  the period                       29,250       40,040     14,373     20,000      22,610       28,216      4,250     25,000
Average balance outstanding
  during the period                19,761        6,737      5,923      5,036      17,227       11,636      3,098     13,412
Average interest rate paid
  during the period                 5.11%        4.48%      5.04%      5.72%       5.79%        5.25%      5.62%      6.48%
Average interest rate
  payable at end of period          5.69%        3.71%      5.20%      5.63%       5.50%        4.70%      5.15%        - %

</TABLE>

      Federal  funds  purchased  represent   unsecured   borrowings  from  other
financial institutions by UCB's subsidiary banks for their own temporary funding
requirements.

      Securities  sold  under  agreement  to  repurchase   represent  short-term
borrowings by UCB's subsidiary  banks with maturities  ranging from 1 to 89 days
collateralized by securities of the United States government or its agencies.

      Treasury Tax and Loan notes consist of the balances  outstanding  in UCB's
subsidiary  banks'  treasury  tax and loan  depository  note  accounts  that are
payable on demand to the United States Treasury and  collateralized by qualified
debt  securities.  Interest on borrowings  under these  arrangements  is payable
monthly at 1/4% below the  average  federal funds rate as quoted by the  Federal
Reserve Board.

      Federal Home Loan Bank advances represent borrowings from the Federal Home
Loan Bank of  Atlanta  by UCB's  subsidiary  banks  pursuant  to lines of credit
collateralized  by blanket liens on qualifying  loans secured by first mortgages
on 1-4 family  residences.  These advances have an initial maturity of less than
one year with interest payable monthly.

                                       10
<PAGE>
Notes to Consolidated Financial Statements (Continued)

Note 7.
      Mortgages and Other Notes Payable:

      Mortgages  payable  totaled $99,000 at September 30, 1996, and $121,000 at
December 31, 1995.  The  mortgages  bear  interest at annual rates  ranging from
8.75%  to  10%  and  are   collateralized   by  premises  with  book  values  of
approximately $542,000 at September 30, 1996, and $470,000 at December 31, 1995.
The  mortgages   are  payable   primarily  in  monthly   installments   totaling
approximately $3,000, including interest.

      Other notes payable  totaled  $125,000 at December 31, 1995, and consisted
of an  unsecured  note  payable  which bore  interest  at an annual rate of 12%,
payable monthly, with the principal paid on March 1, 1996.

      Advances  from  the  Federal  Home  Loan  Bank  of  Atlanta  with  initial
maturities of more than one year totaled  $2,716,000 at September 30, 1996,  and
$2,729,000 at December 31, 1995.  The advances are  collateralized  by a blanket
lien on qualifying loans secured by first mortgages on 1-4 family residences and
bear  interest  at rates  ranging  from 3.50% to 8.30%,  payable  monthly,  with
principal due in various maturities beginning November 24, 1996.


Note 8.
      Income Taxes:

      The  effective  tax rate on income  before  income taxes is lower than the
combined  statutory federal and state rates primarily because interest earned on
investments in debt instruments of state,  county,  and municipalities is exempt
from  federal   income  tax  and   partially   exempt  from  state  income  tax.
Substantially all income earned on securities of the United States government or
its agencies is exempt from state income taxes.

                                       11

<PAGE>
Notes to Consolidated Financial Statements (Continued)


Note 9.
      Supplementary Income Statement Information:

      The  following  is a  breakdown  of items  included  in  "Other  operating
expenses" on the consolidated statements of income:

<TABLE>
<CAPTION>
                                                         Three Months Ended   Nine Months Ended
                                                           September 30,        September 30,
                                                         ------------------   ------------------
                                                           1996      1995       1996      1995
                                                         --------  --------   --------  --------
                                                                    (In thousands)
<S>                                                      <C>       <C>        <C>       <C>
Other operating expenses:
  Data processing fees and software expense              $  2,234  $  1,280   $  5,791  $  3,719
  Marketing and business development                        1,234     1,142      3,551     3,380
  Professional services                                     1,222       868      3,326     2,545
  Postage and delivery                                      1,126     1,040      3,164     2,963
  Printing, stationery, and supplies                          986       904      2,852     2,947
  Telephone expense                                           962       804      2,749     2,185
  FDIC deposit insurance premiums                             962       (61)     1,173     3,465
  Noncredit losses                                            955       356      1,418       860
  Amortization of goodwill and other intangible assets        637       815      1,917     1,407
  Travel expense                                              538       484      1,525     1,416
  Insurance and taxes, other than taxes on income             330       375      1,016     1,156
  Amortization of capitalized mortgage servicing rights       261       175        720       472
  Donations                                                    97        76        309       239
  Other expenses                                            1,014       972      3,541     2,888
                                                         --------  --------   --------  --------
       Total other operating expenses                    $ 12,558  $  9,230   $ 33,052  $ 29,642
                                                         ========  ========   ========  ========
</TABLE>


Note 10.
      Per Share Data:

      Earnings per share are computed  based on the weighted  average  number of
shares   outstanding  during  each  period,   adjusted   retroactively  for  the
pooling-of-interests  mergers with Seaboard Savings Bank and Triad Bank, and the
3-for-2 stock split  effected in the form of a stock dividend  declared  January
17, 1996.  Cash dividends per share are computed based on the historical  number
of shares  outstanding at date of  declaration  adjusted  retroactively  for the
3-for-2 stock split.  Book values per share are computed  based on the number of
shares  outstanding at the end of each period,  adjusted  retroactively  for the
mergers with  Seaboard  Savings Bank and Triad Bank and the 3-for-2 stock split.
Dilution  of  earnings  per share that would  result  from the  exercise  of all
outstanding stock options was immaterial.

                                       12
<PAGE>
Notes to Consolidated Financial Statements (Continued)

Note 11.
      Statements of Cash Flows:

      For purposes of the statements of cash flows,  UCB considers cash and cash
equivalents  to include cash and due from banks,  federal funds sold,  and other
short-term investments.


Note 12.
      Legal Proceedings:

      Various legal  proceedings  are pending or threatened  against UCB and its
subsidiaries. All the foregoing are routine proceedings,  pending or threatened,
which are  incidental  to the  ordinary  course  of UCB's and its  subsidiaries'
business. In the judgment of management and its counsel, none of such pending or
threatened  legal  proceedings  will  have  a  material  adverse  effect  on the
consolidated financial position of UCB and its subsidiaries.


Note 13.
      Mergers and Acquisitions:

      On April 28, 1995,  UCB issued 66,320 shares of common stock to consummate
the merger with United  Agencies,  Inc., a general  insurance  agency located in
Wilmington,  North  Carolina.  Total  assets of  $252,000  were  acquired in the
transaction.  The merger was accounted for as a  pooling-of-interests;  however,
due to the  immateriality  of the transaction in relation to UCB's  consolidated
financial position and operating results, prior period financial statements have
not been restated.

     On May 19, 1995, UCB's North Carolina subsidiary bank acquired the deposits
and certain  other assets of twelve North  Carolina  bank  branches from another
financial institution. At the date of the acquisition, the acquired branches had
$26.8  million  in loans and  $178.7  million  in  deposits.  Subsequent  to the
acquisition,  two of the  branches not located in existing UCB markets were sold
to two  commercial  banks.  These  branches  had $4.8 million in loans and $32.6
million in  deposits  when  sold.  A premium  of $10.1  million  was paid on the
assumed deposit base of the branches retained.

      Effective January 25, 1996, UCB consummated a merger with Seaboard Savings
Bank,  Inc.,  headquartered  in  Plymouth,  North  Carolina.  Under terms of the
agreement,  UCB  exchanged  418,641  shares  of  common  stock  for  all  of the
outstanding  shares of Seaboard common stock.  The merger was accounted for as a
pooling-of-interests,  and accordingly,  the accompanying consolidated financial
statements  have been restated to include the accounts of Seaboard  Savings Bank
for all periods presented.

      Effective  March 29,  1996,  UCB  consummated  a merger  with  Triad  Bank
headquartered in Greensboro,  North Carolina.  Under terms of the agreement, UCB
exchanged  1,551,874 shares of common stock for all of the outstanding shares of
Triad common stock. The merger was accounted for as a pooling-of-interests,  and
accordingly,  the  accompanying  consolidated  financial  statements  have  been
restated to include the accounts of Triad Bank for all periods presented.

                                       13
<PAGE>
Notes to Consolidated Financial Statements (Continued)

      On August 30, 1996, UCB issued 37,123 shares of common stock to consummate
the  merger  with  Tomlinson  Insurors,  Inc.  a  general  insurance  agency  in
Fayetteville,  North  Carolina.  Total assets of $361,000  were  acquired in the
transaction.  The merger was accounted for as a  pooling-of-interests;  however,
due to the  immateriality  of the transaction in relation to UCB's  consolidated
financial position and operating results, prior period financial statements have
not been restated.

Note 14.
       Subsequent Event:

      On  November 1, 1996,  UCB  executed a definitive  merger  agreement  with
Southern National  Corporation  headquartered in Winston-Salem,  North Carolina.
The  transaction  will be  accounted  for as a pooling of interests in which UCB
shareholders  will receive  1.135 shares of Southern  National  common stock for
each share of UCB common stock held. The merger, which is subject to approval by
the  shareholders  of both  companies  as well as by federal  and state  banking
regulators, is expected to be completed by the second quarter of 1997.

                                       14


<PAGE>

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

Results of Operations - Nine Months Ended September 30, 1996, Compared to 1995

Summary

         Net income totaled  $35,229,000 for the nine months ended September 30,
1996,  an increase of 1.1% over the  $34,831,000  earned in 1995. On a per share
basis, net income amounted to $1.46 per share for the first nine months of 1996,
an increase of .7% over the $1.45 per share earned in the  comparable  period of
1995. The increase in 1996 earnings  resulted from growth in net interest income
and in  noninterest  income from the 1995  period.  The increase in net interest
income  resulted  from  growth  in  average  earning  assets  of 9.8%  over  the
corresponding period of 1995. The majority of the increase in noninterest income
resulted from increased service charges on deposits as well as increases in fees
and commissions  from nondeposit  services  including trust,  mortgage  banking,
credit cards, and general insurance.
         The 1996  results  included  the  effects of  nonrecurring  charges and
expenses totaling $1,531,000, net of applicable income tax benefits, incurred in
connection with completing the mergers with Seaboard Savings Bank and Triad Bank
which were  completed  during the first quarter of the year.  The current year's
earnings  were also  affected by a special  assessment  by the  Federal  Deposit
Insurance Corporation (FDIC) for the recapitalization of the Savings Association
Insurance Fund (SAIF) which amounted to $815,000, or $489,000, net of applicable
income tax  benefits.  Excluding the effects of these  nonrecurring  charges and
expenses,  on a pro forma  basis,  earnings  for the first  nine  months of 1996
amounted  to  $37,249,000,  or $1.54 per  share,  an  increase  of 6.8% over the
operating  earnings for the first nine months of 1995. Both mergers  referred to
above  were  accounted  for  as  poolings-of-interests,  and,  accordingly,  all
financial data

                                       15

<PAGE>

has been  restated to include the  accounts of Seaboard  Savings  Bank and Triad
Bank for all periods presented.

Net Interest Income
         Net interest income increased $7,006,000,  or 5.6%, for the nine months
ended  September  30,  1996,  compared to the same period of 1995.  This was the
result of an increase of $345,306,000,  or 9.8%, in the level of average earning
assets  with a decrease of .16% in the overall  tax-equivalent  yield,  combined
with  an  increase  of  $297,611,000,  or  10.3%,  in  the  average  balance  of
interest-bearing liabilities with an increase of .04% in the average rate paid.
         The net tax-equivalent yield on earning assets decreased to 4.61% on an
annualized  basis in the first nine months of 1996 from 4.82% in the same period
of 1995. The continued  competition  for core deposits and changes in the mix of
interest-bearing  deposits to a higher percentage of certificates of deposit and
a lower percentage of NOW,  savings,  and money market deposits have resulted in
the average annualized rate paid on total  interest-bearing  deposits increasing
by .05% in the first nine  months of 1996  compared to 1995.  Reductions  in the
prime lending rate and a highly competitive  lending market have resulted in the
annualized yield on average earning assets decreasing by .16% in the first three
quarters of 1996  compared  to the 1995  measurement  period.  In  addition,  an
increase  in  the  percentage  of  earning  assets  funded  by  interest-bearing
liabilities  from the prior year and a change in the mix of earning  assets from
loans to securities and short-term  investments  both had adverse effects on the
net  tax-equivalent  yield on earning  assets in 1996 as compared  to 1995.  The
percentage  of average  earning  assets funded by  interest-bearing  liabilities
increased to 82.71% in the first nine months of 1996 from 82.37% in

                                       16

<PAGE>

the  comparable  period of 1995 while the  percentage of average  earning assets
comprised of loans  declined to 75.95% for the nine months ended  September  30,
1996, compared to 76.79% the prior year.
         For the nine months  ended  September  30, 1996,  interest  income from
loans  increased  $11,973,000,  or 6.3%,  over the first three quarters of 1995.
This  was  due to an  increase  of  $232,760,000,  or  8.6%,  in  average  loans
outstanding as the annualized  tax-equivalent yield on average loans declined to
9.16% from 9.37% in 1995.  The decrease in the yield on the loan  portfolio  for
1996 was  primarily  the result of a lower  prevailing  prime lending rate which
averaged  8.28%  during the first nine  months of 1996  compared to 8.86% in the
first three quarters of 1995.
         Interest income from investment securities and securities available for
sale for the first three quarters of 1996 increased  $8,569,000,  or 28.7%, from
the corresponding  period of 1995. This was due to an increase in the annualized
tax-equivalent  yield on the  aggregate  portfolio  to 6.15%  from  5.94% a year
earlier, primarily due to higher rates earned on U.S. government securities, and
an  increase in the  aggregate  average  balance of  investment  securities  and
securities  available for sale of  $156,055,000,  or 22.1%,  from the nine month
period of 1995.
         Interest   income  from  federal   funds  sold  and  other   short-term
investments  totaled  $2,661,000 in the first nine months of 1996, a decrease of
$2,324,000  from the same  period of 1995.  This was the result of a decrease of
$43,509,000 in the average balances  invested and a decline in the average yield
to 5.32% for the first three quarters of 1996 from 6.04% in 1995.
         Interest  expense on deposits  increased  $12,047,000,  or 12.5% in the
nine months ended  September 30, 1996,  compared to 1995. The average balance of
total interest-bearing deposits

                                       17

<PAGE>

increased  $311,453,000,  or 10.9%, in the first three quarters of 1996 compared
to 1995.  This was the result of an increase of  $172,265,000,  or 13.8%, in the
average  balances of  certificates of deposit less than $100,000 and an increase
of $126,448,000,  or 9.2%, in the average balances of NOW, savings, money market
accounts,  and other time deposits.  Certificates of deposit of $100,000 or more
increased  $12,740,000,  or 5.8%,  compared to the prior year.  Certificates  of
deposit less than  $100,000 as a percentage of total  interest-bearing  deposits
increased to 45.0% during the nine months ended  September 30, 1996,  from 43.9%
in the first three quarters of 1995.  The change in the mix of deposits  coupled
with active competition for deposits in general combined to increase the average
annualized rate paid on total  interest-bearing  deposits to 4.59% for the first
nine months of 1996 from 4.54% in the same period of 1995.
         The average  annualized  interest  rate paid on  borrowings  during the
first three quarters of 1996 decreased to 5.13% from 5.88% in 1995,  principally
due to a decrease in rates paid on Federal funds  purchased and securities  sold
under agreement to repurchase.  The average balances of borrowed funds decreased
by $13,842,000 in the first nine months of 1996 from the corresponding period of
1995.

Provision and Reserve for Credit Losses
         The  provision for credit  losses  amounted to $6,000,000  for the nine
months ended  September 30, 1996,  compared to  $4,558,000  in 1995.  Net credit
losses  amounted to  $3,627,000,  or .16% of average  loans  outstanding,  on an
annualized  basis,  in the first nine months of 1996 compared to $2,729,000,  or
 .13% of average loans outstanding, on an annualized basis,

                                       18

<PAGE>

for the comparable  period of 1995.  The increase in net credit losses  resulted
primarily from an increase in losses on consumer loans.
         Nonperforming   assets  (foreclosed   assets,   nonaccrual  loans,  and
restructured loans) totaled $11,551,000, or .38% of loans and foreclosed assets,
at September 30, 1996, compared to $11,637,000,  or .41% of loans and foreclosed
assets,  at December 31, 1995.  Loans 90 days or more past due that  continue to
accrue interest totaled $6,388,000 at September 30, 1996, compared to $5,554,000
at December 31, 1995.
         At  September  30,  1996,  the  recorded  investment  in loans that are
considered  impaired  under  FAS  114 was  $2,769,000,  all of  which  were on a
nonaccrual  basis.  Included in this amount was $2,566,000 of impaired loans for
which  $550,000  of the  reserve  for credit  losses was  assigned.  The average
recorded  investment during the first nine months of 1996 in loans classified as
impaired at  September  30, 1996,  was  approximately  $2,857,000.  For the nine
months  ended  September  30,  1996,  UCB  recognized  interest  income on these
impaired loans of $23,000 using the cash basis of accounting.
         In addition to the  nonperforming  and problem assets  described above,
which included loans considered impaired under FAS 114, UCB had loans to various
borrowers  totaling  approximately  $9,151,000 at September 30, 1996,  for which
management  has  serious  concerns  regarding  the ability of the  borrowers  to
continue to comply with present loan repayment  terms which could result in some
or all of these loans  becoming  classified as problem  assets.  These  concerns
resulted from various credit  considerations,  including the financial position,
operating results and cash flow of the borrowers, and the current estimated fair
value of the underlying collateral.

                                       19
<PAGE>

         The reserve for credit  losses  amounted  to  $45,837,000,  or 1.49% of
loans outstanding,  at September 30, 1996, compared to $43,464,000,  or 1.54% of
loans outstanding, at December 31, 1995. In determining the level of the reserve
for  credit  losses,  management  takes  into  consideration  loan  volumes  and
outstandings, loan loss experience, delinquency trends, risk ratings assigned to
nonconsumer  loans,  identified problem loans, the present and expected economic
conditions in general, and, in particular, how such conditions relate to UCB. In
management's  opinion,  UCB's  reserve for credit  losses was adequate to absorb
losses from the loan portfolio at September 30, 1996;  however,  adverse changes
in the economic  conditions  in UCB's market area could lead to a decline in the
overall  quality of the loan portfolio and necessitate  future  additions to the
reserve  for  credit  losses.  Also,  examiners  from bank  regulatory  agencies
periodically  review UCB's loan  portfolio  and may require the  corporation  to
charge off loans and/or  increase the reserve for credit losses to reflect their
assessment of the  collectibility of loans in the portfolio based on information
available to them at the time of their examination.

Noninterest Income and Expense
         Total noninterest income increased  $3,678,000,  or 10.6%, in the first
nine  months of 1996 over the same  period of 1995.  Service  charges on deposit
accounts  increased  $989,000,  or 5.6%,  principally due to increased  business
volume and price increases for certain deposit services.  Other service charges,
commissions, and fees increased $2,987,000 to $19,084,000 during the first three
quarters  of 1996  primarily  due to  increases  in  trust  revenues,  insurance
commissions,  fees for the use of automated teller machines,  fees from issuance
and usage of credit and debit cards,  and mortgage  banking fees. Trust revenues
increased $495,000, or 12.9%, primarily due

                                       20
<PAGE>

to growth in the  number of  managed  trust  accounts  as well as  increases  in
pricing on certain trust services. Commissions from the general insurance agency
operations increased $550,000,  or 20.4%,  primarily as the result of the merger
with an insurance  agency in Wilmington,  North  Carolina,  in April 1995 and an
agency in Fayetteville,  North Carolina,  in August 1996. Fees collected for the
use of UCB's  automated  teller  machines by  depositors  of other  institutions
increased  $122,000,  or 13.4%, due to increased  transaction  volume.  Bankcard
merchant discount and fees increased  $434,000,  or 21.4%, due to higher volumes
of credit cards issued and merchant transactions  processed.  The implementation
of a consumer debit card program in November 1995 produced  $450,000 in merchant
discounts and $136,000 in fees from cardholders  during the first nine months of
1996. Mortgage banking fees increased $585,000,  or 19.7%, due to an increase in
loan originations.
         Net gains on sales of mortgage loans into the secondary market amounted
to $552,000 in the  nine-month  period of 1996  compared to $472,000 a year ago.
Included  in these  amounts  were gains  recorded  as a result of the April 1995
adoption of the provisions of Financial  Accounting  Standards No. 122 (FAS 122)
totaling $741,000 in 1996 and $328,000 in 1995.
         Losses on the sale of  securities  totaled  $134,000 in the nine months
ended  September  30,  1996,  compared  to gains of $7,000 in the same period of
1995. The 1996 amount includes  $198,000 in losses related to the disposition of
certain securities obtained in the previously  mentioned merger with Triad Bank.
These securities, which consisted of structured notes and other investments with
derivative  features,  did not  comply  with  UCB's  investment  policy and were
therefore   reclassified  from  investment  securities  to  available  for  sale
securities and written down to the then current market value at the merger date.
These securities were actually sold during

                                       21
<PAGE>
the second  quarter of 1996.  Losses on the  disposition of fixed assets totaled
$422,000  during the first three  quarters of 1996 compared to losses of $77,000
in the similar period of 1995. The 1996 loss included $568,000 in write-downs on
fixed  assets  rendered  obsolete  or  redundant  as a result of the two mergers
completed during the first quarter.
         Total noninterest expenses increased  $8,924,000,  or 8.8%, in the nine
months  ended  September  30, 1996,  compared to the same period of 1995.  Total
personnel  expense  increased  $5,601,000,  or 9.6%, in the nine-month period of
1996 compared to 1995.  Regular and part-time  salaries increased by $2,429,000,
or 5.6%, in the first nine months of 1996 due to increases in base  compensation
and an increase of 50, or 2.7%,  in the average  number of full-time  equivalent
employees.  The increase in the average number of full-time equivalent employees
was  principally  due to the  purchase of twelve  branch  offices  from  another
financial  institution  in May 1995 and the  acquisitions  of the Wilmington and
Fayetteville   insurance   agencies.   Other   compensation   expense  increased
$1,175,000,  or 100.8%,  due in large measure to nonrecurring  charges  totaling
$860,000 incurred in connection with completing the two mergers during the first
quarter of 1996.
         Occupancy  expense increased  $179,000,  or 2.4%, during the first nine
months of 1996 as compared to 1995. Rental expense increased $127,000,  or 5.3%,
and repairs and maintenance  expense  increased  $105,000,  or 6.8%.  These cost
increases were principally due to the increase in branch locations and insurance
agency offices from the prior year.
          Equipment expense decreased  $266,000,  or 4.9%, for the first half of
1996 as  compared  to the same  period of 1995.  Depreciation  expense  declined
$216,000,  or 7.9%, primarily due to a merchandising  display system utilized in
the branch offices becoming fully depreciated during the

                                       22
<PAGE>

second  half of 1995  and  the  elimination  of  computer  equipment  previously
utilized by Seaboard Savings Bank.  Equipment rental expense decreased  $38,000,
or 11.2%,  due to the  purchase  during  1996 of  computer  equipment  which had
previously been leased.
         Other operating expenses  increased  $3,410,000,  or 11.5%,  during the
first nine  months of 1996 as  compared  to 1995.  The most  significant  factor
affecting  other  operating  expenses was a decline of $2,292,000,  or 66.2%, in
deposit insurance premiums from the nine-month period of 1995. This was due to a
reduction in the assessment rate from $.23 to $.04 effective  September 1, 1995,
and a subsequent  reduction to virtually  zero on nonthrift  deposits  effective
January 1, 1996. This reduction was partially  offset by the special  assessment
by the FDIC previously mentioned for the recapitalization of the SAIF. Marketing
and business development expenses increased $171,000,  or 5.3%, primarily due to
increased advertising related to campaigns designed to increase installment loan
volume and deposit  balances.  Professional  services expense for the first nine
months of 1996 increased  $780,000,  or 30.6%.  The current year's  professional
services  included  expenses  applicable  to UCB's  acquisitions  by  merger  of
Seaboard  Savings  Bank and Triad  Bank and the  Fayetteville  insurance  agency
totaling $262,000 and approximately  $487,000 for system wide training for a new
central computer software applications system. The 1995 expenses were reduced by
legal fees refunded in a bankruptcy proceeding involving a former customer.
         Outside data processing fees increased  $2,072,000,  or 45.2%, compared
to 1995 primarily due to increased software amortization expense ($1,481,000, or
153.2% increase), increased software maintenance costs ($196,000, or 36.4%), and
processing  expenses  related to the  consumer  debit card  transaction  program
referred  to  previously   ($289,000   increase).   The

                                       23
<PAGE>
increases in software  amortization and software  maintenance  costs principally
relate to the replacement of mainframe applications software.
         The   amortization  of  capitalized   mortgage  loan  servicing  rights
increased  $248,000,  or  52.5%,  from  the  prior  year  due  primarily  to the
capitalization  of  originated  servicing  rights  beginning  April 1, 1995,  as
previously  discussed.  Telephone  expense  increased  $564,000,  or 25.8%, as a
result of increased use of the automated voice response  customer service system
and the  introduction  in  1995  of a  staffed  bank-by-phone  customer  service
department,  both  of  which  are  accessed  by  customers  utilizing  toll-free
telephone numbers.  Amortization of deposit base premiums increased to $508,000,
or 57.3% as the result of the May 1995 branch purchases  referred to previously.
Increases in other categories of noninterest  expenses were generally the result
of increases in the costs related to purchased services.

Income Tax Provision
         The provision for income tax decreased $80,000 in the nine months ended
September 30, 1996,  compared to the corresponding  period of 1995. The decrease
in the income tax  provision  was  principally  the net result of an increase of
$374,000  in  tax-exempt   income  which  offset  an  increase  of  $183,000  in
nondeductible merger related expenses.
         The effective  income tax rate on income before taxes is lower than the
combined  statutory federal and state rates primarily because interest earned on
investments  in debt  instruments of states,  counties,  and  municipalities  is
exempt  from  federal  income  tax and may be  exempt  from  state  income  tax.
Substantially all income earned on securities of the United States government or
its agencies is exempt from state income taxes.

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<PAGE>

Results of Operations - Three Months Ended September 30, 1996, Compared to 1995

Summary
         Net income for the three months ended  September 30, 1996,  amounted to
$12,049,000,  or $.50 per share, compared to $13,095,000, or $.55 per share, for
the third quarter of 1995.  The 1996 operating  results  represent a decrease of
$1,046,000,  or 8.0%,  from the third quarter of 1995 (9.1% decrease in earnings
per share).  The decrease in earnings was primarily the result of an increase in
the provision for credit  losses as a result of continued  growth in loans,  the
previously  mentioned special  assessment by the FDIC, and costs associated with
the implementation of a new central computer software applications system.

Net Interest Income
         Net interest income increased $3,006,000 (7.0%) in the third quarter of
1996  compared to 1995.  This was the net result of an increase of  $251,872,000
(6.8%)  in the  average  level of  earning  assets,  a  decrease  of .08% in the
annualized  tax-equivalent yield on earning assets, combined with an increase of
$205,165,000 (6.7%) in the average balance of interest-bearing  liabilities, and
a  decrease  of .09% in the  average  annualized  rate paid on  interest-bearing
liabilities. The annualized tax-equivalent net interest yield on average earning
assets was 4.63% in the third quarter of both 1996 and 1995.

Provision for Credit Losses
         The  provision  for  credit  losses   increased   $823,000  (76.4%)  to
$1,900,000  in the third  quarter of 1996  compared to 1995.  The  increase  was
principally due to growth in loans

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<PAGE>

outstanding  compared to the prior year.  Net credit losses for the three months
ended  September  30,  1996,  were  $1,275,000,  or .17% of average  loans on an
annualized  basis,  compared  to  $1,300,000,  or .18% of average  loans,  on an
annualized basis in 1995.

Noninterest Income and Expense
         Noninterest  income increased  $859,000 (6.9%) during the third quarter
of 1996 compared to 1995.  Service charges on deposit accounts increased $89,000
(1.5%) over the prior year due to increased  business  volume.  Fees received on
credit  cards and  discounts  from  clearing  merchant's  credit  card  receipts
increased  $74,000,  or 8.9%,  as the result of higher  volumes of credit  cards
issued and merchant  transactions  processed.  The  consumer  debit card program
discussed  previously  added $236,000 in merchant  discount and cardholder fees.
Gains on the  origination  of mortgage  loans for sale in the  secondary  market
amounted to $210,000 in the third quarter of 1996, compared to gains of $263,000
realized in the same period of 1995. The gains in 1996 include $194,000 recorded
as a result of the adoption of the provisions of FAS 122 compared to $249,000 in
the third quarter of 1995.
     Total  noninterest  expense increased  $4,932,000  (14.7%) during the three
months ended September 30, 1996,  compared to 1995.  Deposit insurance  premiums
amounted to $962,000 for the third quarter of 1996,  $815,000 of which relate to
the special assessment  previously  discussed.  This compares to a net credit of
$61,000 in 1995 resulting from the reduction in the assessment rate from $.23 to
$.04 per  $100 of  deposits  that was  adopted  by the  FDIC in  September  1995
retroactive to June 1, 1995. Changes in other categories of expenses were mainly
the result of those factors covered in the nine-month discussion.
                                       26
<PAGE>

Financial Condition
         The financial  condition of the Corporation,  with respect to liquidity
and  dividends  at  September  30,  1996,  has not changed  significantly  since
December 31, 1995. At September 30, 1996, stockholders' equity amounted to 7.82%
of total assets  compared to 8.00% at December 31, 1995.  At September 30, 1996,
UCB had a ratio of core capital to weighted risk assets of approximately  11.29%
and a ratio of total  capital to weighted risk assets of  approximately  12.54%,
computed  using  the  Federal   Reserve   guidelines   for  risk-based   capital
requirements,  and a ratio of  quarter-end  core capital to average total assets
for the three months ended September 30, 1996, of 7.84%.
         On  an  annualized  basis,  net  income  as  a  percentage  of  average
stockholders'  equity  amounted  to  14.27%  for the first  nine  months of 1996
compared  to  15.74%  for the same  period  of  1995.  Cash  dividends  declared
represented 36.27% of net income in the first three quarters of 1996 compared to
30.67% for the nine months ended September 30, 1995.
         At September  30,  1996,  UCB owned debt  securities  that had not been
rated by a rating  agency with a book value of  $1,404,000.  In  addition,  debt
securities  with a book value of $152,000 were owned at September 30, 1996, that
had less than investment grade ratings.  Included in the unrated securities were
bonds with a book value of $1,352,000 that are collateralized by U.S. government
securities.  Substantially  all of these  investments were securities  issued by
municipalities located within UCB's market area. It is management's opinion that
no more than a normal risk of loss exists on these securities.

                                       27


<PAGE>

Accounting and Regulatory Issues
         In March 1995, the FASB issued Financial  Accounting  Standards No. 121
(FAS 121),  "Accounting  for Impairment of Long-Lived  Assets and for Long-Lived
Assets to Be  Disposed  Of,"  which  establishes  accounting  standards  for the
impairment of long-lived assets, certain identifiable intangibles,  and goodwill
related  to those  assets to be held and used and for those to be  disposed  of.
This  statement  requires  that  long-lived  assets and certain  intangibles  be
reviewed for impairment  whenever  events or changes in  circumstances  indicate
that the carrying  value may not be  recoverable.  An impairment  loss should be
recognized  if the sum of the  undiscounted  future  cash flows is less than the
carrying amount of the asset.  Those assets to be disposed of are to be reported
at the  lower of the  carrying  amount or fair  value  less  costs to sell.  UCB
adopted FAS 121 on January 1, 1996, with no material effect on the  consolidated
financial statements.
         In October 1995, the FASB issued Financial Accounting Standards No. 123
(FAS 123), "Accounting for Stock-Based Compensation," which encourages companies
to account for stock  compensation  awards based on their fair value at the date
the awards are granted.  The  resulting  compensation  cost would be shown as an
expense on the income  statement.  Companies  may choose to  continue to measure
compensation  for  stock-based   plans  using  the  intrinsic  value  method  of
accounting  prescribed  by APB  Opinion No. 25 (APB 25),  "Accounting  for Stock
Issued to Employees." Entities electing to continue the accounting prescribed in
APB 25 will be required to  disclose  in the notes to the  financial  statements
what net income and  earnings  per share would have been if the fair value based
method of accounting defined in FAS 123 had been applied. UCB adopted FAS 123 on
January 1, 1996, and elected to continue to measure  compensation cost using APB
25. UCB will make any appropriate disclosures in the consolidated

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<PAGE>
financial  statements  for the year ending  December 31, 1996, of net income and
earnings per share as if the fair  value-based  method of accounting  defined in
FAS 123 had been  applied.  Management  has not yet  quantified  these pro forma
disclosures.
         In September 1996, the FASB issued Financial  Accounting  Standards No.
125 (FAS 125),  "Accounting for Transfers and Servicing of Financial  Assets and
Extinguishments  of Liabilities,"  which  establishes  accounting  standards for
determining  when a  liability  should be  considered  extinguished  through the
transfer of assets to a creditor or setting aside assets dedicated to eventually
settling a liability.  The statement  provides  conditions for  determining if a
transferor  has  surrendered  control  over  transferred  financial  assets  and
requirements  for  derecognizing  a  liability  when  it  is  extinguished.  The
statement  also  requires  the  recognition  of  either a  servicing  asset or a
servicing liability when an entity undertakes an obligation to service financial
assets. Such servicing assets or liabilities shall be amortized in proportion to
and  over  the  period  of the  estimated  net  servicing  income  or  loss,  as
appropriate.  FAS 125 is  effective  for  transfers  and  servicing of financial
assets and extinguishments of liabilities  occurring after December 31, 1996, to
be only  applied  on a  prospective  basis.  The  application  of FAS 125 is not
anticipated to have a material impact on UCB's financial condition or results of
operations.

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

     UCB and its subsidiaries are subject to regulation and examination by state
and federal  bank  regulatory  agencies  and are subject to the  accounting  and
disclosure requirements of the Securities and Exchange Commission.  There are no
pending material regulatory recommendations or actions concerning UCB with which
management has not complied.
                                       29
<PAGE>



                                    SIGNATURE




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



                     UNITED CAROLINA BANCSHARES CORPORATION



November 13, 1996                      By /s/John F. Watson
                                             --------------------------
                                             John F. Watson
                                             Controller



November 13, 1996                      By /s/Ronald C. Monger
                                             --------------------------
                                             Ronald C. Monger
                                             Executive Vice President &
                                             Chief Financial Officer

                                       30