SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-K405
                        FOR ANNUAL AND TRANSITION REPORTS
                    PURSUANT TO SECTIONS 13 OR 15 (D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(Mark One)
(X) Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
    Act of 1934

 For the fiscal year ended            December 31, 1999
                             ---------------------------------------------------

( ) 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 0-17939

                         CAROLINA FIRST BANCSHARES, INC.
          (Exact name of registrant as specified in its charter)

          North Carolina                                      56-1655882
----------------------------------                   ---------------------------
(State or other jurisdiction of                           (I.R.S. Employer
 incorporation or organization)                           Identification No.)

236 East Main Street, Lincolnton, N.C.                           28092
--------------------------------------------------------------------------------
 (Address of principal executive office)                      (Zip Code)

Registrant's telephone number, including area code            (704) 732-2222
                                                   -----------------------------

Securities registered pursuant to Section 12(b) of the Act:

     Title of each class               Name of each exchange on which registered
-------------------------------        -----------------------------------------

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $2.50 per share
                                (Title of class)

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

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)

     The  aggregate  market  value of the $2.50 par value  common  stock held by
non-affiliates  of  registrant as of March 23, 2000:  $165,415,301  based on the
last sale price on March 23, 2000, using the beneficial  ownership rules adopted
pursuant to Section 13 of the Securities  Exchange Act of 1934 to exclude voting
stock owned by directors and certain executive officers, some of whom may not be
held to be affiliates upon judicial determination.

     As of March 17, 2000,  6,028,443 shares of the registrant's $2.50 par value
common stock were issued and outstanding.


<PAGE>




                            SPECIAL CAUTIONARY NOTICE
                      REGARDING FORWARD LOOKING STATEMENTS

         Certain of the statements  made herein under the caption  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
elsewhere in this Annual Report are  forward-looking  statements for purposes of
the  Securities  Act of  1933,  as  amended  (the  "Securities  Act"),  and  the
Securities  Exchange Act of 1934, as amended (the "Exchange  Act"),  and as such
may involve known and unknown risks,  uncertainties  and other factors which may
cause the actual  results,  performance  or  achievements  of the  Company to be
materially different from future results,  performance or achievements expressed
or implied by such forward-looking  statements.  Such forward-looking statements
include  statements  using  the  words  such  as  "may,"  "will,"  "anticipate,"
"should," "would," "believe,"  "contemplate,"  "expect," "estimate," "continue,"
"intend" or other similar words and expressions of the future.

         These  forward-looking  statements  involve risks and uncertainties and
actual results may differ significantly due to a variety of factors,  including,
without  limitation:  the effects of future  economic  conditions;  governmental
monetary and fiscal policies, as well as legislative and regulatory changes; the
risks of changes in interest  rates on the level and  composition  of  deposits,
loan  demand,  and  the  values  of  loan  collateral,   securities,  and  other
interest-sensitive  assets and liabilities;  interest rate risks; the effects of
competition  from other  commercial  banks,  thrifts,  mortgage  banking  firms,
consumer finance companies, credit unions, securities brokerage firms, insurance
companies,  money market and other mutual funds and other financial institutions
operating in the Company's  market area and  elsewhere,  including  institutions
operating,  regionally,  nationally  and  internationally,  together  with  such
competitors offering banking products and services by mail, telephone,  computer
and the Internet; and the failure of assumptions underlying the establishment of
reserves  for  possible  loan  losses.  All  written  or  oral   forward-looking
statements attributable to the Company are expressly qualified in their entirety
by these cautionary statements.

                                     PART I
Item 1.  Business

         Carolina  First  BancShares,  Inc. (the  "Company"),  a North  Carolina
corporation, is registered as a bank holding company with the Board of Governors
of the Federal Reserve System ("Federal Reserve") under the Bank Holding Company
Act of 1956,  as amended (the "BHC Act").  Carolina  First was  incorporated  on
November 8, 1988, for purposes of becoming a bank holding company,  and acquired
Lincoln Bank of North Carolina  ("Lincoln Bank"), a North Carolina bank, on June
6, 1989. The Company also owns all the outstanding common stock of Cabarrus Bank
of North Carolina  ("Cabarrus Bank") and Community Bank & Trust Co.  ("Community
Bank"),  both of which are North Carolina  banks.  Cabarrus Bank was acquired on
January 30, 1992 and Community  Bank was acquired on December 23, 1998.  Lincoln
Bank,  Cabarrus Bank and Community Bank,  (collectively  the "Banks") operate 31
branch offices,  and through them the Company  provides a broad range of banking
and financial  services  principally  in the greater  Charlotte,  North Carolina
area,  including Lincoln County,  southeastern  Catawba County,  Iredell County,
Cabarrus County and north and west Mecklenburg  County.  Community Bank operates
in Avery,  Buncombe,  Jackson,  McDowell,  Rutherford and Transylvania Counties,
North  Carolina in the western  part of the state.  The Banks are members of the
Federal Deposit Insurance Corporation ("FDIC"), and Lincoln Bank's and Community
Bank's  deposits  are insured by the Bank  Insurance  Fund  ("BIF") and Cabarrus
Bank's deposits are insured by the Savings Association Insurance Fund ("SAIF").

         The Banks  jointly  own a mortgage  company,  Carolina  First  Mortgage
Corp., which originates mortgage loans for resale in the secondary market, and a
financial  services  company,  Carolina First  Financial  Services  Corporation,
("Financial  Services"),  which offers,  as an agent for its  customers,  mutual
funds and annuity  products.  During 1999,  Lincoln  Bank  acquired the majority
ownership  interest in Lincoln Center at Mallard Creek, LLC,  previously held by
the Company. Lincoln Center is a three-story office building occupied in part by
a branch of Lincoln  Bank.  During  1999,  Lincoln Bank  established  a Delaware
holding company,  CFBI Corp. which owns CFBI Mortgage,  Inc. ("CFBI  Mortgage"),
which holds a significant  portion of Lincoln Bank's real estate mortgage loans.
CFBI Mortgage has elected to be taxed as a "real estate investment trust".

         The Company owns  approximately  13% of the total common stock of First
Gaston  Bank of North  Carolina,  Gastonia,  North  Carolina  ("First  Gaston").
Gastonia,  which is located just west of Charlotte and south of  Lincolnton,  is
contiguous to the markets  served by Lincoln  Bank.  First Gaston opened in July
1995 and operates three branches in markets not currently served by the Company.
The Company provides certain operational functions for First Gaston. The Federal
Reserve, in approving this investment under the BHC Act, required the Company to
enter into a commitment to serve as a "source of strength" for First Gaston. The
Company's investment in First Gaston is accounted for under the equity method of
accounting  and thus the  Company's  portion of income or losses is reflected in
current period earnings. See "Supervision and Regulation."

         The  Company  engages  in no  significant  operations  other  than  the
ownership of its  subsidiaries.  The Company  maintains its principal  executive
offices at 236 East Main  Street,  Lincolnton,  North  Carolina  28092,  and its
telephone number is (704) 732-2222.

         The Banks  provide a wide  range of  commercial  banking  products  and
services. Services include checking accounts, interest bearing checking, savings
and other time  deposits of various  types,  including  retirement  accounts and
certificates of deposit. Loan services include mortgage loan originations, loans
for business,  real estate, personal and household purposes, and lines of credit
and credit cards. Considering the volatility of quality loan demand, the Company
maintains an investment  portfolio.  Other services  include safe deposit boxes,
wire transfer facilities, and electronic banking facilities.  Lincoln Bank began
exercising  trust powers at the end of 1994,  and at December 31, 1999,  Lincoln
Bank had trust assets under management of $33.2 million.

Competition

         Commercial banking is highly competitive.  The Banks compete with other
financial  institutions  located in  metropolitan  Charlotte  and  elsewhere  in
western  North  Carolina.  Other  competitors  include  banks,  savings and loan
associations,  finance  companies,  credit  unions,  mortgage  bankers,  pension
trusts,  out-of-state  banks  and  other  institutions  that  provide  loan  and
investment services and money market funds.  Competition between commercial bank
and  thrift  institutions  has  intensified  significantly  as a  result  of the
elimination of many previous distinctions between the various types of financial
institutions. The Banks also compete for interest-bearing funds with a number of
other financial  intermediaries  and investment  alternatives,  including mutual
funds,  brokerage and insurance  firms,  investment  advisors,  governmental and
corporate  bonds,  and short-term  money market  securities.  The ability of the
Banks to retain deposits depends on their ability to generally provide a rate of
return,  liquidity and risk  comparable to that offered by competing  investment
opportunities.

         The Banks compete for deposits,  loans and other business with a number
of major  banks and bank  holding  companies  which have  numerous  offices  and
affiliates  operating over wide  geographic  areas.  Other  competitors  such as
thrifts, credit unions, mortgage companies,  brokerage firms, finance companies,
and specialty lenders and other local and non-local financial  institutions also
compete with the Banks,  through a local presence or through  offerings by mail,
telephone  or  over  the  Internet.   Among  the  advantages  certain  of  these
institutions  may  have  compared  to the  Banks,  are the  ability  to  finance
extensive advertising campaigns, and the ability to allocate and diversify their
assets among loans and  securities  of the highest  yield in locations  with the
greatest  demand.  Some of such  competitors  are subject to less regulation and
more  favorable tax  treatment  than the Company.  Many of the major  commercial
banks, or their affiliates, in the Company's service area offer services such as
international banking and investment services, which are not offered directly by
the Banks. Such competitors, because of their greater capitalization,  also have
substantially  higher lending  limits than the Banks,  and because of their size
and geographic diversification are better able to absorb risk.

Supervision And Regulation

         Bank  holding  companies  and banks  are  extensively  regulated  under
federal and state law. This discussion is qualified in its entirety by reference
to the particular  statutory and regulatory  provisions referred to below and is
not  intended  to be an  exhaustive  description  of the  status or  regulations
applicable to the Company's and the Banks'  business.  Supervision,  regulation,
and examination of the Company and the Banks and their  respective  subsidiaries
by the bank  regulatory  agencies are intended  primarily for the  protection of
depositors  rather  than  holders  of  Company  capital  stock.  Any  change  in
applicable  law or  regulation  may  have a  materiel  effect  on the  Company's
business.

         Bank Holding Company Regulation - The Company is subject to supervision
and regulation by the Federal Reserve under the BHC Act. The Company is required
to file with the Federal Reserve periodic reports and such other  information as
the Federal Reserve may request.  The Federal Reserve examines the Company,  and
may examine the Company's subsidiaries. The Company is also registered as a bank
holding   company   with  the  North   Carolina   Commissioner   of  Banks  (the
"Commissioner"), and files reports with the Commissioner.

         The BHC Act requires  prior Federal  Reserve  approval for, among other
things,  the  acquisition  by a bank  holding  company  of  direct  or  indirect
ownership or control of more than 5% of the voting shares or  substantially  all
the  assets of any  bank,  or for a merger or  consolidation  of a bank  holding
company with another bank holding company. With certain exceptions,  the BHC Act
prohibits a bank holding company from acquiring direct or indirect  ownership or
control  of voting  shares of any  company  which is not a bank or bank  holding
company and from  engaging  directly or  indirectly  in any activity  other than
banking  or  managing  or  controlling  banks  or  performing  services  for its
authorized  subsidiaries.  A bank holding company,  may,  however,  engage in or
acquire an interest in a company  that engages in  activities  which the Federal
Reserve  has  determined  by  regulation  or order to be so  closely  related to
banking or managing or  controlling  banks as to be a proper  incident  thereto.
Certain  acquisitions  by bank holding  companies are subject to approval by the
Commissioner.

         In November 1999, Congress enacted the  Gramm-Leach-Bliley  Act ("GLB")
which  made  substantial  revisions  to the  statutory  restrictions  separating
banking  activities  from certain other  financial  activities.  Under GLB, bank
holding   companies  that  are   well-capitalized   and  well-managed  and  have
satisfactory  or better CRA ratings and meet certain other  conditions can elect
to become "financial  holding  companies." As such, they and their  subsidiaries
are permitted to acquire or engage in previously  impermissible  activities such
as insurance  underwriting,  securities  underwriting and  distribution,  travel
agency activities,  broad insurance agency activities,  merchant bank, and other
activities  that the Federal  Reserve  determines  to be  financial in nature or
complementary thereto. Financial holding companies continue to be subject to the
overall  oversight and supervision of the Federal  Reserve,  but GLB applies the
concept of functional  regulation to the activities  conducted by  subsidiaries.
For example, insurance activities would be subject to supervision and regulation
by state insurance authorities.  The Company does not currently intend to become
a financial holding company.

         The Company is a legal entity  separate and distinct from the Banks and
its other  subsidiaries.  Various  legal  limitations  restrict  the Banks  from
lending  or   otherwise   supplying   funds  to  the  Company  or  its  non-bank
subsidiaries.  The  Company  and the Banks are  subject  to  Section  23A of the
Federal Reserve Act. Section 23A defines "covered  transactions",  which include
extensions  of  credit,  and  limits  a  bank's  covered  transactions  with any
affiliate  to 10% of such  bank's  capital and  surplus.  All covered and exempt
transactions  between a bank and its affiliates  must be on terms and conditions
consistent   with  safe  and  sound  banking   practices  and  banks  and  their
subsidiaries are prohibited from purchasing  low-quality  assets from the bank's
affiliates.  Finally,  Section 23A requires  that all of a bank's  extensions of
credit to an  affiliate  be  appropriately  secured  by  acceptable  collateral,
generally  United States  government or agency  securities.  The Company and the
Banks  also are  subject  to  Section  23B of the  Federal  Reserve  Act,  which
generally  limits covered and other  transactions  among affiliates to terms and
under circumstances, including credit standards, that are substantially the same
or at least as favorable to the bank or its  subsidiaries  as  prevailing at the
time for transactions with unaffiliated companies.

          Since  September  29, 1995,  the BHC Act has permitted the Company and
any other bank  holding  companies  located in North  Carolina to acquire  banks
located in any other state,  and any bank holding  company located outside North
Carolina may lawfully  acquire any bank based in another  state,  regardless  of
state law to the contrary, in either case subject to certain deposit-percentage,
age of bank charter  requirements,  and other restrictions.  Since June 1, 1997,
national and state-chartered banks may branch interstate through acquisitions of
banks in other states. North Carolina adopted legislation opting into interstate
branching effective July 1, 1995,  including de novo interstate  branching prior
to July 1, 1997  with  states  where  reciprocal  branching  is  permitted,  and
thereafter without limit.

         Federal  Reserve  policy  requires a bank  holding  company to act as a
source of financial  strength and to take  measures to preserve and protect bank
subsidiaries in situations where  additional  investments in a troubled bank may
not  otherwise be  warranted.  In  addition,  under the  Financial  Institutions
Reform,  Recovery and Enforcement Act of 1989  ("FIRREA"),  where a bank holding
company has more than one bank or thrift  subsidiary,  each of the bank  holding
company's subsidiary  depository  institutions are responsible for any losses to
the Federal Deposit Insurance  Corporation ("FDIC") as a result of an affiliated
depository  institution's  failure.  As a result,  a bank holding company may be
required to loan money to its subsidiaries in the form of capital notes or other
instruments which qualify as capital under regulatory rules.  However, any loans
from the holding  company to a  subsidiary  bank likely  will be  unsecured  and
subordinated  to such bank's  depositors  and perhaps to other  creditors of the
bank.
          Bank And  Bank  Subsidiary  Regulation  - The  Banks  are  subject  to
supervision, regulation, and examination by the FDIC and the Commissioner, which
monitor all areas of the  operations of the Banks,  including  reserves,  loans,
mortgages,  issuances of  securities,  payment of  dividends,  establishment  of
branches,  capital adequacy,  and compliance with laws. The Banks are members of
the FDIC and  their  deposits  are  insured  by the FDIC to the  maximum  extent
provided by law. Lincoln Bank's and Community Bank's deposits are insured by the
FDIC's Bank  Insurance  Fund  ("BIF") and Cabarrus  Bank's  deposits are insured
primarily  by  the  Savings  Association  Insurance  Fund  ("SAIF").  See  "FDIC
Insurance Assessments."

         Under present  North  Carolina law, the Banks may establish and operate
branches  throughout the State of North Carolina,  subject to the maintenance of
adequate capital and the receipt of the necessary  approvals of the FDIC and the
Commissioner.

         The  FDIC  adopted  the  Federal  Financial  Institutions   Examination
Council's  ("FFIEC")  updated  statement of policy entitled  "Uniform  Financial
Institutions  Rating System"  ("UFIRS"),  effective January 1, 1997. UFIRS is an
internal  rating system used by the federal and state  regulators  for assessing
the soundness of financial  institutions  on a uniform basis and for identifying
those institutions  requiring special supervisory  attention.  Under UFIRS, each
financial  institution was assigned a confidential  composite rating based on an
evaluation and rating of five essential components of an institution's financial
condition and operations including capital adequacy, asset quality,  management,
earnings,  liquidity  and  sensitivity  to market   risk.  The  quality  of risk
management practices has been emphasized.  For most institutions,  the FFIEC has
indicated that market risk primarily  reflects  exposures to changes in interest
rates. When regulators evaluate this component,  consideration is expected to be
given to: (i) management's  ability to identify,  measure,  monitor, and control
market risk; (ii) the institution's size; (iii) the nature and complexity of its
activities  and its risk  profile;  and (iv) the  adequacy  of its  capital  and
earnings in relation to its level of market risk exposure.  Market risk is rated
based  upon,  but not  limited  to,  an  assessment  of the  sensitivity  of the
financial institution's earnings or the economic value of its capital to adverse
changes in interest rates,  foreign exchange rates,  commodity prices, or equity
prices;  management's ability to identify, measure, monitor and control exposure
to market risk;  and the nature and  complexity  of interest  rate risk exposure
arising from nontrading positions.

         GLB  requires  the Banks and their  affiliated  companies  to adopt and
disclose  privacy  policies  regarding  the sharing of personal  information  it
obtains from its  customers  with third  parties.  GLB also permits the Banks to
engage in "financial  activities" through subsidiaries similar to that permitted
financial holding companies.  See the discussion  regarding GLB in "Bank Holding
Company Regulation" above.

          Community  Reinvestment Act - The Company and the Banks are subject to
the provisions of the Community Reinvestment Act of 1977, as amended (the "CRA")
and the federal banking  agencies'  regulations  thereunder.  Under the CRA, all
banks and thrifts have a continuing and affirmative obligation,  consistent with
their safe and sound  operation  to help meet the credit  needs for their entire
communities,  including low- and moderate-income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial  institutions,
nor does it limit an  institution's  discretion to develop the types of products
and  services  that it  believes  are best suited to its  particular  community,
consistent  with the CRA. The CRA requires a  depository  institution's  primary
federal  regulator,  in connection with its examination of the  institution,  to
assess the institution's record of assessing and meeting the credit needs of the
community  served  by  that  institution,  including  low-  and  moderate-income
neighborhoods. The regulatory agency's assessment of the institution's record is
made  available  to the  public.  Further,  such  assessment  is required of any
institution  which has  applied  to: (i)  charter a national  bank;  (ii) obtain
deposit insurance coverage for a newly-chartered institution;  (iii) establish a
new branch office that accepts deposits;  (iv) relocate an office;  (v) merge or
consolidate  with,  or  acquire  the  assets or  assume  the  liabilities  of, a
federally  regulated  financial  institution;  or (vi) expand  other  activities
including  engaging in financial  services  activities authorized by GLB. In the
case of a bank holding company  applying for approval to acquire a bank or other
bank holding  company or to become a "financial  holding  company",  the Federal
Reserve will assess the records of each subsidiary depository institution of the
applicant  bank holding  company,  and such records may be the basis for denying
the application.  A less than satisfactory CRA rating will slow, if not preclude
the  expansion  of  banking  activities,  however,  the Banks  each  received  a
satisfactory rating upon recent examinations.

         The recently  enacted GLB Act makes various  changes to the CRA.  Among
other changes,  CRA agreements with private parties must be disclosed and annual
CRA reports must be made to a bank's primary federal  regulator.  A bank holding
company will not be permitted to become a financial  holding  company and no new
activities  authorized  under GLB may be commenced by a holding  company or by a
bank financial  subsidiary if any of it bank  subsidiaries  received less than a
"satisfactory" CRA rating in its latest CRA examination.

         The Banks also are subject to, among other  things,  the  provisions of
the Equal  Credit  Opportunity  Act (the  "ECOA") and the Fair  Housing Act (the
"FHA"), both of which prohibit  discrimination based on race or color, religion,
national  origin,  sex and  familial  status  in the  aspect  of a  consumer  or
commercial  credit or residential real estate  transaction.  Based on heightened
concerns  that  some   prospective  home  buyers  and  other  borrowers  may  be
experiencing  discriminatory  treatment in their  efforts to obtain  loans,  the
Department  of Housing and Urban  Development,  the  Department  of Justice (the
"DOJ"),  and the federal  banking  agencies in April 1994 issued an  Interagency
Policy  Statement on  Discrimination  in Lending in order to provide guidance to
financial  institutions in determining  whether  discrimination  exists, how the
agencies  will respond to lending  discrimination,  and what steps lenders might
take to prevent discriminatory lending practices. The DOJ also has increased its
efforts to prosecute what it regards as violations of the ECOA and FHA.

         Payment  Of  Dividends - The Company  is a legal  entity  separate  and
distinct from its banking and other subsidiaries. The prior approval of the FDIC
is required if the total of all dividends  declared by a state  non-member  bank
(such as the Banks) in any calendar  year will exceed the sum of such bank's net
profits for the year and its retained net profits for the preceding two calendar
years, less any required transfers to surplus. North Carolina law also prohibits
any state  non-member bank from paying dividends if its surplus is less than 50%
of its paid-in capital stock.

         The  Company and the Banks are  subject to various  general  regulatory
policies  and  requirements  relating  to the  payment of  dividends,  including
requirements  to  maintain  adequate  capital  above  regulatory  minimums.  The
appropriate  federal  regulatory  authority is  authorized  to  determine  under
certain circumstances  relating to the financial condition of a state non-member
bank or bank holding company that the payment of dividends would be an unsafe or
unsound practice and to prohibit  payment  thereof.  The FDIC has indicated that
paying  dividends  that  deplete a state  non-member  bank's  capital base to an
inadequate level would be an unsound and unsafe banking  practice.  The FDIC and
the Federal Reserve have each indicated that financial  depository  institutions
and their holding companies,  respectively,  should generally pay dividends only
out of current operating earnings.

         Capital - The Federal  Reserve  and the FDIC  have  risk-based  capital
guidelines for bank holding companies and state non-member banks,  respectively.
These  guidelines  require a minimum  ratio of capital to  risk-weighted  assets
(including  certain  off-balance-sheet  activities,  such as standby  letters of
credit)  of 8%.  At least  half of the  total  capital  must  consist  of Tier I
capital, which includes common equity, retained earnings and a limited amount of
qualifying  preferred stock, less goodwill and certain core deposit  intangibles
("Tier  I  capital").  The  remainder,  or  Tier  II  capital,  may  consist  of
non-qualifying  preferred  stock,  qualifying  subordinated,  perpetual,  and/or
mandatory  convertible  debt,  term  subordinated  debt  and  intermediate  term
preferred  stock  and  up  to  45%  of  pretax   unrealized   holding  gains  on
available-for-sale  equity  securities with readily  determinable  market values
that are  prudently  valued,  and a limited  amount  of any loan and lease  loss
allowance (up to 1.25% of risk-weighted  assets).  The sum of Tier I capital and
Tier II capital equals Total capital.

         In addition,  the Federal Reserve and the FDIC have established minimum
leverage ratio guidelines for bank holding companies and state non-member banks,
which provide for a minimum leverage ratio of Tier I capital to adjusted average
quarterly assets ("leverage  ratio") equal to 3%, plus an additional  cushion of
1.0% - 2.0%, if the institution has less than the highest regulatory rating. The
guidelines also provide that institutions experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without significant  reliance on intangible
assets.  Higher  capital may be required in individual  cases,  depending upon a
bank holding  company's risk profile.  All bank holding  companies and banks are
expected to hold capital  commensurate  with the level and nature of their risks
including the volume and severity of their problem  loans.  Lastly,  the Federal
Reserve's guidelines indicate that the Federal Reserve will continue to consider
a "Tangible Tier I leverage  ratio"  (deducting all  intangibles)  in evaluating
proposals for expansion or new activity.  The Federal  Reserve,  the FDIC or the
Commissioner  have not advised the Company or the Banks of any specific  minimum
leverage ratio or tangible Tier I leverage ratio applicable to them.

         The  Federal  Deposit  Insurance  Corporation  Improvement  Act of 1991
("FDICIA"),  among other things,  requires the federal banking  agencies to take
"prompt  corrective action" regarding  depository  institutions that do not meet
minimum capital  requirements.  FDICIA establishes five capital tiers: (i) "well
capitalized";  (ii) "adequately  capitalized";  (iii)  "undercapitalized";  (iv)
"significantly  undercapitalized";  and  (v)  "critically  undercapitalized."  A
depository  institution's  capital tier will depend upon how its capital  levels
compare to various  relevant  capital  measures and certain  other  factors,  as
established by regulation.

         All  of  the  federal   banking   agencies  have  adopted   regulations
establishing relevant capital measures and relevant capital levels. The relevant
capital  measures are the Total capital  ratio,  Tier I capital  ratio,  and the
leverage ratio. Under the regulations, a state non-member bank will be: (i) well
capitalized if it has a Total capital ratio of 10% or greater,  a Tier I capital
ratio of 6% or greater, a leverage ratio of 5% or greater, and is not subject to
any written agreement,  order,  capital  directive,  or prompt corrective action
directive  by a federal bank  regulatory  agency to meet and maintain a specific
capital level for any capital measure;  (ii) adequately  capitalized if it has a
Total capital  ratio of 8% of greater,  a Tier I capital ratio of 4% or greater,
or a  leverage  ratio of 4% or  greater  (3% in  certain  circumstances);  (iii)
undercapitalized  if it has a Total  capital  ratio  of less  than  8%, a Tier I
capital ratio of less than 4% (3% in certain circumstances);  (iv) significantly
undercapitalized  if it has a Total  capital  ratio of less than 6%, or a Tier I
capital  ratio of less  than 3%,  or a  leverage  ratio of less  than 3%; or (v)
critically  undercapitalized  if its tangible equity is equal to or less than 2%
of average quarterly tangible assets.

         As of December 31, 1999, the consolidated capital ratios of the Company
and the Banks were as follows:
<TABLE>
<CAPTION>
                            Regulatory                           Lincoln          Cabarrus         Community
                              Minimum          Company            Bank              Bank              Bank
<S>                         <C>                 <C>               <C>              <C>               <C>
Tier I Capital ratio           4.0%             11.9%             11.0%            10.2%             12.7%
Total Capital ratio            8.0%             13.1%             12.3%            11.5%             14.0%
Leverage ratio              3.0 - 5.0%           8.3%             8.4%              7.7%              6.6%
</TABLE>


         FDICIA - FDICIA directs that each  federal  banking  regulatory  agency
prescribe  standards for  depository  institutions  and  depository  institution
holding companies relating to internal controls,  information systems,  internal
audit systems, loan documentation,  credit underwriting, interest rate exposure,
asset  growth  compensation,  maximum  ratio  of  classified  assets-to-capital,
minimum  earnings  sufficient  to  absorb  losses,  a  minimum  ratio of  market
value-to-book  value for publicly traded shares, and such other standards as the
federal regulatory agencies deem appropriate.

         FDICA  generally  prohibits a  depository  institution  from making any
capital distribution  (including payment of a dividend) or paying any management
fee to its holding  company if the depository  institution  would  thereafter be
undercapitalized. Undercapitalized depository institutions are subject to growth
limitations and are required to submit a capital  restoration plan for approval.
For a capital  restoration plan to be acceptable,  the depository  institution's
parent  holding  company must guarantee  that the  institution  comply with such
capital  restoration plan. The aggregate liability of the parent holding company
is limited to the lesser of 5% of the depository  institution's  total assets at
the time it  became  undercapitalized  and the  amount  necessary  to bring  the
institution  into balance with  applicable  capital  standards.  If a depository
institution  fails to submit  an  acceptable  plan,  it is  treated  as if it is
significantly  undercapitalized.  If the  controlling  holding  company fails to
fulfill  its  obligations  under  FDICIA and files (or has filed  against  it) a
petition  under the federal  Bankruptcy  Code,  the claim would be entitled to a
priority in such bankruptcy  proceeding over  third-party  creditors of the bank
holding company.  Significantly  undercapitalized depository institutions may be
subject to a number of requirements and  restrictions,  including orders to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets,  and cessation of receipt of deposits  from  correspondent  banks.
Critically  undercapitalized  institutions  are subject to the  appointment of a
receiver or  conservator.  Because the Company and the Banks  exceed  applicable
capital requirements,  the respective management of the Company and the Banks do
not believe that the  provisions  of FDICIA have had any material  impact on the
Company and the Banks or their respective operations.

         FDICIA also contains a variety of other  provisions that may affect the
operations  of the  Company  and the Banks,  including  reporting  requirements,
regulatory standards for real estate lending, "truth in savings" provisions, the
requirement that a depository institution give 90 days prior notice to customers
and regulatory  authorities  before closing any branch, and a prohibition on the
acceptance or renewal of brokered  deposits by depository  institutions that are
not well  capitalized or adequately  capitalized  and have not received a waiver
from the FDIC. Under regulations  relating to brokered  deposits,  the Banks are
well capitalized and not restricted.

          Enforcement - Policies And Actions The Federal  Reserve,  the FDIC and
the Commissioner  monitor  compliance with laws and  regulations.  Violations of
laws and regulations, or other unsafe and unsound practices, may result in these
agencies  imposing fines or penalties,  cease and desist orders, or taking other
enforcement  actions.  Under certain  circumstances,  these agencies may enforce
these  remedies  directly  against  officers,  directors,  employees  and others
participating in the affairs of a bank or bank holding company.

         Fiscal And  Monetary  Policy - Banking is a business  which  depends on
interest rate  differentials.  In general,  the difference  between the interest
paid by a bank  on its  deposits  and its  other  borrowings,  and the  interest
received by a bank on its loans and securities  holdings,  constitutes the major
portion of a bank's  earnings.  Thus, the earnings and growth of the Company and
the Banks are subject to the influence of economic  conditions  generally,  both
domestic and foreign, and also to the monetary and fiscal policies of the United
States and its agencies,  particularly the Federal Reserve.  The Federal Reserve
regulates  the supply of money  through  various  means,  including  open market
dealings in United  States  government  securities,  the discount  rate at which
banks may borrow  from the Federal  Reserve,  and the  reserve  requirements  on
deposits. The nature and timing of any changes in such policies and their effect
on the Company and its subsidiaries cannot be predicted.

         FDIC  Insurance  Assessments - The Banks are  subject  to FDIC  deposit
insurance  assessments.   Lincoln  Bank's  and  Community  Bank's  deposits  are
primarily  insured by BIF.  Having  converted  from a thrift  charter,  Cabarrus
Bank's  deposits  are  insured  by SAIF.  The  FDIC  assesses  deposits  under a
risk-based  premium schedule.  Each financial  institution is assigned to one of
three capital groups: (i) "well capitalized";  (ii) "adequately capitalized"; or
(iii) "undercapitalized",  and further assigned to one of three subgroups within
a capital group,  on the basis of supervisory  evaluations by the  institution's
primary  federal and, if  applicable,  state  regulators  and other  information
relevant  to the  institution's  financial  condition  and the risk posed to the
applicable insurance fund. The actual assessment rate applicable to a particular
institution,  therefore, depends in part upon the risk assessment classification
so assigned to the institution by the FDIC.

         The  FDIC's  Board of  Directors  has  continued  the 1999 BIF and SAIF
assessment  schedule  of  zero to 27  basis  points  per  annum  for  the  first
semiannual  period of 2000. The Deposit  Insurance Funds Act of 1996 (the "Funds
Act")  authorized FICO to levy  assessments  through the earlier of December 31,
1999 or the merger of BIF and SAIF, on  BIF-assessable  deposits at a rate equal
to one-fifth of the FICO  assessment  rate  applied to SAIF  deposits.  The FICO
assessments are set quarterly and in 1999 ranged from 1.16 and 6.10 basis points
for BIF and SAIF,  respectively,  in the first  quarter of 1999, to 1.22 to 5.80
basis points in the last quarter of 1999.  These assessment rates are 2.10 basis
points  for both BIF and for SAIF,  for the first  quarter  of 2000.  During the
years ended  December 31, 1999,  and 1998,  the Banks paid no insurance  deposit
premiums,  but paid $130,321 and $132,297 of FICO  assessments in 1999 and 1998,
respectively.

          Legislative  And  Regulatory  Changes  -  Legislative  and  regulatory
proposals regarding changes in banking and the regulation of banks,  thrifts and
other financial  institutions and bank and bank holding company powers are being
considered  by the  executive  branch of the federal  government,  Congress  and
various state governments, including North Carolina. Certain of these proposals,
if adopted, could significantly change the regulation of banks and the financial
services industry. It cannot be predicted whether any of these proposals will be
adopted,  and if adopted,  how these  proposals  will affect the Company and the
Banks.

Personnel

         As of December 31, 1999, the Company and its subsidiaries  employed 311
full-time equivalent employees.

Item 2.  Properties

         The Company's  principal  executive  office is located at 236 East Main
Street,  Lincolnton,  North Carolina.  The Company leases four branch offices of
Cabarrus  Bank,  five branch  offices of Lincoln Bank and two branch  offices of
Community  Bank;  however,  the Company  owns all other  branch  locations,  the
Company's  operation  center  located at 207 South Popular Street in Lincolnton,
North  Carolina,  an  office  building  located  at 112 South  Laurel  Street in
Lincolnton,  North  Carolina  and an office  building  located  at 430 East Main
Street  in  Lincolnton,  North  Carolina.  Lincoln  Bank  currently  leases  the
principal  executive office building in Lincolnton,  North Carolina from D. Mark
Boyd, III, the Company's  former Chairman and Chief Executive  Officer,  and his
wife, Diane Boyd. The buildings of Lincoln Bank were purchased beginning in 1983
and have been renovated as necessary to  accommodate  the Company's  needs.  The
buildings  of  Cabarrus  Bank were  acquired as a result of the  acquisition  of
Cabarrus  Savings Bank in 1992 and Community  Bank's buildings were purchased in
1998 as a result of the  acquisition  of Community  Bank. For Cabarrus Bank, the
Kannapolis branch building is leased from Atlantic American Properties,  Inc. in
Kannapolis,  and the Super-K Kmart branch is leased from  International  Banking
Technologies,  Inc. For Lincoln Bank,  the SouthPark  branch  building is leased
from Colony Associates  Limited  Partnership,  and the Troutman branch is leased
from Vernon and Jackie  Overcash.  For Community Bank, the Black Mountain branch
building and the Brevard branch building are leased from Bank of America.  Other
properties  are leased with options to renew.  At December 31, 1999, the company
had net book  values  of  $3,029,395  for land,  $6,832,977  for  buildings  and
improvements and $2,810,066 for furniture, fixtures and equipment.

Item 3.  Legal Proceedings

          The Company  understands  that its former Chairman and Chief Executive
Officer,  D. Mark Boyd, III, entered a negotiated plea of guilty upon the advice
of counsel pursuant to the principles of North Carolina vs. Alford, 400 U.S. 25,
of two  Misdemeanor  Statements  of Charges  regarding his  solicitation  of the
Company and one of his sons to violate  the  antifraud  provisions  of the North
Carolina Securities Act, ending the pending criminal  indictments against him in
connection  with  certain  purchases  of  Community  Bank  shares  prior  to the
acquisition of that bank by the Company in 1998. See "Legal  Proceedings" in the
Company's  Annual  Report on Form 10-K for the fiscal  year ended  December  31,
1998.

         The  Company  incurred  costs of  approximately  $16,000  and  $215,000
through year-end 1999 and 1998, respectively,  in connection with issues related
to Mr. Boyd's purchases of Community Bank shares.

         The Federal  Reserve  has  advised the Company  that as a result of Mr.
Boyd's transactions, it should not expect to receive expedited processing of any
expansion  applications  submitted  under the BHC Act. The Company's  compliance
with the  conditions  and  commitments  related  to Mr.  Boyd that were given in
connection  with the  acquisition  of Community Bank will be reviewed as part of
the  Federal  Reserve's  examinations  of  the  Company.  The  Company  and  its
subsidiaries  also may be subject to closer  regulatory  scrutiny as a result of
Mr. Boyd's transactions in Community Bank shares.

         In  January  1999,  the  Company  was  advised  by  the  United  States
Securities and Exchange Commission ("SEC") that it had begun an informal inquiry
that the Company  believes  relates to Mr.  Boyd's  purchases of Community  Bank
shares.  The  Company has been  cooperating  with the SEC,  and  officers of the
Company and its  subsidiaries  have either provided  voluntary  testimony to, or
have been interviewed by the SEC. The SEC inquiry is continuing. The Company has
insufficient  information to evaluate the scope of the SEC's  informal  inquiry,
and the timing and outcome of this inquiry cannot be predicted.

Item 4.  Submission Of Matters To A Vote Of Shareholders

         No matter was submitted to a vote of the  shareholders  of the Company,
through the solicitation of proxies, or otherwise,  during the fourth quarter of
the fiscal year ended December 31, 1999.

Item 5.  Market  For  The   Registrant's  Common  Stock  And Related Shareholder
         Matters

         Carolina  First  common stock is quoted on the Nasdaq  National  Market
under  the  symbol  "CFBI."  Carolina  First  common  stock  was  traded  in the
over-the-counter  market  and was quoted in the "pink  sheets"  under the symbol
"CAFB" until April 22, 1999. The following  table sets forth,  for the indicated
periods and adjusted for the 10% stock dividend  declared in June 1999, the high
and low closing sale prices for  Carolina  First common stock as reported at the
regular close on the Nasdaq National Market, and the high and low bid quotations
as reported in The Charlotte  Observer,  as  applicable.  The  quotations in The
Charlotte  Observer  reflect  inter-dealer  prices without  markup,  markdown or
commission and may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
                                                                                        Cash Dividends
           Quarter Ended                       High                    Low                 Per Share
-------------------------------------    ------------------     ------------------     ------------------
<S>                                           <C>                    <C>                     <C>
March 31, 1999                                $25.45                 $22.73                  $.09
June 30, 1999                                 $24.55                 $20.45                  $.09
September 30, 1999                            $28.00                 $17.00                  $.10
December 31, 1999                             $35.00                 $19.75                  $.10

March 31, 1998                                $28.18                 $25.45                  $.07
June 30, 1998                                 $30.91                 $28.18                  $.07
September 30, 1998                            $30.91                 $30.91                  $.08
December 31, 1998                             $30.91                 $22.73                  $.09
</TABLE>

Item 6.  Selected Financial Data

         The following  selected  financial  data should be read in  conjunction
with the Company's  consolidated financial statements and the accompanying notes
presented elsewhere herein.  Prior year information has been restated to reflect
the 1998 merger with Community  Bank.  Cash dividends have not been restated for
the merger.

         All per share amounts reflect,  for all years  presented,  the 5% stock
dividend paid on December 22, 1995,  the 5-for-4 stock split  effected on August
23, 1996,  the 2-for-1 stock split effected on August 22, 1997 and the 10% stock
dividend effected on July 23, 1999.
<TABLE>
<CAPTION>
                                                       1999            1998            1997           1996           1995
                                                 -------------------------------------------------------------------------------
<S>                                                   <C>             <C>            <C>            <C>             <C>
Earnings
        Interest income                               $57,554,154     $52,051,833    $45,236,993    $39,128,283     $32,820,087
        Interest expense                               23,030,418      22,070,734     19,572,746     17,009,779      14,522,348
        Net interest income                            34,523,736      29,981,099     25,664,247     22,118,504      18,297,739
        Provision for possible loan losses              1,655,200       1,365,000        997,333      1,178,925         710,200
        Net income                                      8,775,805       6,708,929      6,720,785      5,220,774       4,393,563
Per Share
        Net income per share - basic                        $1.47           $1.14          $1.20          $0.94           $0.84
        Net income per share - diluted                       1.45            1.11           1.18           0.94            0.84
        Cash dividends per share                             0.38            0.31           0.25           0.19            0.16
        Shareholders' equity (book value)                   10.99           10.44           9.59           7.96            7.22
Balance Sheet Data at Year End
        Total assets                                  786,098,584     731,626,244    618,076,746    520,227,733     459,157,713
        Loans                                         541,539,925     476,109,833    404,025,180    361,888,469     299,223,658
        Allowance for possible loan losses              7,662,823       6,723,516      5,837,328      5,313,424       4,406,705
        Securities                                    187,162,010     187,690,188    159,387,578    110,250,169     113,264,241
        Deposits                                      666,979,656     652,602,570    545,050,400    463,971,919     413,611,684
        Shareholders' equity                           65,971,242      61,977,731     56,210,800     44,464,067      40,237,599
Ratios
        Return on average assets                            1.16%           1.00%          1.18%          1.07%           1.08%
        Return on average equity                           13.51%          11.55%         13.98%         12.56%          12.37%
        Average equity to average assets                    8.56%           8.67%          8.47%          8.49%           8.72%
        Allowance for loan losses to loans,
               net of unearned income                       1.42%           1.41%          1.44%          1.47%           1.47%
        Dividend payout                                    25.85%          27.20%         21.21%         20.39%          19.57%
</TABLE>

Quarterly Financial Data
<TABLE>
<CAPTION>

                                                                              Three Months Ended
                                          ------------------------------------------------------------------------------------------
1999                                             December 31,           September 30,              June 30,                March 31,
<S>                                              <C>                     <C>                      <C>                     <C>
         Interest income                           $15,079                 $14,693                  $14,125                 $13,657
         Interest expense                            5,953                   5,652                    5,710                   5,715
                                                 ----------              -----------              ----------              ----------
         Net interest income                         9,126                   9,041                    8,415                   7,942
         Provision for loan losses                     485                     440                      347                     383
         Noninterest income                          1,897                   2,120                    2,053                   1,954
         Noninterest expense                         7,912                   6,928                    6,728                   6,420
         Income taxes                                  890                   1,244                    1,003                     993
                                                 ----------              -----------              ----------              ----------
         Net income                                 $1,736                  $2,549                   $2,390                  $2,100
                                                 ==========              ===========              ==========              ==========

         Shares outstanding:
             Average - basic                     5,988,692               5,982,252                5,984,536               5,972,918
             Average - diluted                   6,081,239               6,066,323                6,067,227               6,066,867
             At quarter end                      6,000,127               5,984,144                5,438,225               5,438,567

         Per Common Share
             Net income - basic                      $0.29                   $0.43                    $0.40                   $0.35
             Net income - dilute                      0.29                    0.42                     0.39                    0.35

                                                                              Three Months Ended
                                         -------------------------------------------------------------------------------------------
    1998                                         December 31,           September 30,              June 30,                March 31,
For the Quarter
         Interest income                           $13,633                 $13,381                  $12,844                 $12,194
         Interest expense                            5,815                   5,568                    5,464                   5,224
                                                 ----------              -----------              ----------              ----------
         Net interest income                         7,818                   7,813                    7,380                   6,970
         Provision for loan losses                     485                     370                      301                     209
         Noninterest income                          2,163                   2,007                    2,072                   1,806
         Noninterest expense                         7,741                   6,287                    6,022                   5,805
         Income taxes                                1,010                   1,078                    1,086                     926
                                                 ----------              -----------              ----------              ----------

         Net income                                   $745                  $2,085                   $2,043                  $1,836
                                                 ==========              ===========              ==========              ==========

         Shares outstanding:
             Average - basic                     5,934,070               5,927,135                5,906,784               5,867,433
             Average - diluted                   6,072,055               6,074,249                6,073,826               6,019,023
             At quarter end                      5,396,736               5,390,858                5,382,131               5,356,000

         Per Common Share
             Net income - basic                      $0.13                   $0.35                    $0.35                   $0.31
             Net income - diluted                     0.12                    0.34                     0.34                    0.31

</TABLE>

Item 7.  Management's Discussion And Analysis of Financial Condition And Results
         of Operations

         The  following  discussion  should  be read  in  conjunction  with  the
consolidated  financial  statements  and  related  notes and  other  information
appearing elsewhere in this Annual Report. The Company's  operations are treated
as a single business segment.  The Company consummated one merger in 1998, which
has  been  accounted  for as a  pooling-of-interests.  In  accordance  with  the
accounting  for  pooling-of-interests,  the financial  statements of the Company
have been restated to reflect the respective  merger as if it had been effective
as of the earliest period presented.

General

         The Company owns all the outstanding  stock of three commercial  banks,
Lincoln  Bank,   Cabarrus  Bank  and  Community   Bank.   The  Banks  are  North
Carolina-chartered  commercial banks that are members of the FDIC. Cabarrus Bank
is also a member of the Federal Home Loan Bank of Atlanta ("FHLB").  The primary
business  of the Banks  includes  retail and  commercial  banking  and  mortgage
lending.  Jointly,  the Banks own a mortgage  company,  Carolina  First Mortgage
Corp. ("Mortgage"),  which originates mortgage loans for resale in the secondary
market,  and a financial  services  company,  Carolina First Financial  Services
Corporation,  ("Financial Services"),  which offers, as agent for its customers,
mutual funds and annuity products.  Financial Services began business in October
1994 and  Mortgage  began  business in February  1993.  During 1999 Lincoln Bank
established a Delaware  holding  company,  CFBI Corp.  which owns CFBI Mortgage,
which holds a significant portion of Lincoln Bank's real estate mortgage loans.

         Lincoln Bank, which commenced operations in 1983, currently operates in
18 offices located in 12 communities in areas primarily to the north and west of
Charlotte,  North  Carolina  with three  offices in southeast  Charlotte.  It is
anticipated  that as a result of the merger with First  Charter  Corporation,  3
branch offices of Lincoln Bank will be consolidated  into existing First Charter
Corporations  offices.  Lincoln  Bank had assets of $511 million at December 31,
1999.

         Cabarrus  Bank was  organized  in 1889 as  Cabarrus  Savings  Bank.  In
January  1992,  the Company  acquired  Cabarrus  Savings,  and in October  1992,
Cabarrus  Savings was converted from a state savings bank to a commercial  bank.
Cabarrus  Bank  operates six full  service  branches in Cabarrus  County.  It is
anticipated  that as a result of the merger with First  Charter  Corporation,  3
branch offices of Cabarrus Bank will be consolidated into existing First Charter
Corporations  offices.  Cabarrus Bank had assets of $172 million at December 31,
1999.

         Community  Bank was  organized  in 1987 and  acquired by the Company in
December 1998. Community Bank operates seven branches in Marion,  Rutherfordton,
Forest City,  Sylva,  Banner Elk,  Black Mountain and Brevard,  North  Carolina.
Community Bank had assets of $111 million at December 31, 1999.

         The Company  also owns  approximately  13% of the total common stock of
First Gaston Bank of North Carolina,  Gastonia, North Carolina ("First Gaston").
First  Gaston  opened  in July  1995 and  operates  three  branches  in  markets
contiguous  to  Lincoln  Bank's  markets.  (Certain  operational  functions  are
provided for First  Gaston by Carolina  First and it is  anticipated  that these
services to First Gaston will be terminated in the second  quarter of 2000.) The
Federal Reserve,  under the BHC Act, has required Carolina First to enter into a
commitment  to serve as a source of strength  for First  Gaston.  The  Company's
investment  in First  Gaston  is  accounted  for  under  the  equity  method  of
accounting  and thus its  portion  of income or losses is  reflected  in current
period earnings.  During 1999, the Company  recognized income, net of applicable
income taxes, of $77,567. See "Supervision and Regulation."

         In 1997 the Company purchased three branches and related  deposits.  In
1998 the  Company  purchased  one  branch and  related  deposits,  and  acquired
Community  Bank through a tax-free  exchange of stock  whereby each  outstanding
share of Community  Bank was  exchanged  for 0.72716 of a share of the Company's
common stock.  The transaction was accounted for under the  pooling-of-interests
method of accounting.

          On November 7, 1999, First Charter Corporation ("FCC") and the Company
entered into an Agreement and Plan of Merger,  pursuant to which  Carolina First
will be merged  into FCC and each  share of the  Company  common  stock  will be
converted into the right to receive 2.267 shares of FCC common stock. The merger
is  expected  to close in the  second  quarter  of 2000,  subject to a number of
conditions, including approval of regulatory authorities and by the stockholders
of Carolina First and FCC.

Results Of Operations

         In 1999,  earnings  were  $8.8  million  or $1.45  per share on a fully
diluted  basis, a 31% increase over 1998.  Earnings were $6.7 million,  or $1.11
per share on a fully  diluted basis in 1998,  an 0.18%  decrease from 1997.  The
decrease in earnings in 1998 as compared to 1997 resulted  from merger  expenses
in connection  with the  acquisition  of Community  Bank in December  1998.  The
Company's  strong  growth in  consumer  and small  commercial  customers  is the
primary  reason  for the  increase  in 1999 net  income.  The  growth in current
markets has been achieved by growth in existing  branches,  de novo branches and
acquisitions of deposits from competitors as they divest branch sites.

         The Company's primary source of income is net interest income, which is
the  difference  between  interest  earned and interest  paid.  The net interest
margin is calculated as net interest  income as a percentage of average  earning
assets.  The growth  within the counties  served by the Banks has  significantly
outpaced the overall growth within North  Carolina.  Such positive  demographics
translate into increased  opportunities for building banking relationships which
enhance deposit and loan growth.

         Net interest income as a percentage of average earning assets was 4.96%
in 1999,  compared  to 4.89% in 1998 and  5.00% in 1997.  Interest  income  as a
percentage  of average  earning  assets,  which is  substantially  comprised  of
interest  received from loans and to a lesser degree the interest  earned on the
Company's  securities  portfolios decreased from 8.46% in 1998 to 8.24% in 1999.
Interest expense,  which is primarily the amount of interest paid to depositors,
has  decreased  to 3.88% in 1999 from  4.22% in 1998.  Interest  rates  declined
generally in 1998 and increased in the second half of 1999.  Changes in interest
rates  affect  variable  rate loans almost  immediately  causing a change in net
interest margin. With the passage of time interest expense will follow the trend
and the net interest  margin should  return to  traditional  levels,  subject to
competitive  pressures.  The  rate  earned  on  assets  and  the  rate  paid  on
liabilities  is expected to continue to be influenced by  competition  for solid
customers as well as economic  conditions and  governmental  fiscal and monetary
policies.

         The  increase in the  Company's  monthly  provision  for loan losses is
based on the results of a monthly  analysis of the  allowance  for loan  losses.
This judgmental analysis is based upon a model that considers the current status
of the loan  portfolio,  historical  experience  and the key  market  indicators
within the counties served by the Company.  Additionally,  the Company  monitors
the overall  portfolio as well as current economic  conditions and other factors
which affect the  allowance.  The monthly  provision for loan losses  fluctuates
based on the results of this analysis.

         Noninterest  income  decreased  slightly by .30% in 1999 as compared to
1998,  resulting from losses  incurred on the sale of securities.  This decrease
was prompted by  management's  decision to sell certain  securities  which would
incur  realized  losses  at the time of the  transaction.  In 1998,  noninterest
income increased 19.0% over 1997. Our growth in deposit accounts led the way for
this increase. Additionally,  Cabarrus Bank has been successful in changing from
a thrift with few deposit service charges to that of a commercial bank with fees
for services  rendered.  Insurance  commissions  relate to the fees generated by
Financial  Services from the sale of annuity  products and mutual  funds,  which
totaled  $634,546 in 1999 compared to $603,025 in 1998 and $725,474 in 1997. The
decrease from 1997 to 1998 was due to the  restructuring  of Financial  Services
and the  transition  to  outsourcing  the sales  department to a new third party
vendor. Other income increased 27%, or approximately $ 317,000, compared to 1998
due to an increase in customer base and debit card usage  volume.  Also included
in other income are fees of $137,814  generated from services  provided to First
Gaston. These services include account operations, item processing,  bookkeeping
and internal  auditing that are  terminable by either party.  It is  anticipated
that these services to First Gaston will be terminated during the second quarter
of 2000.

         Operating expenses decreased as a percentage of average assets in 1997,
1998 and 1999, but total operating  expenses increased because of the additional
outsourcing  of  various  data  processing  functions  in 1999  and  the  growth
experienced  from 1997 to 1998.  Specifically,  four new branch  locations  were
opened during 1997 and another four locations were opened in 1998. One method of
improving  operating  efficiencies  is through the use of  technology.  Expenses
associated  with  technology  are included in equipment  expense  and  represent
capital  outlays  of  $230,323  and  $740,923  in 1999  and  1998,  respectively
(excluding approximately $25,000 and $28,202, in 1999 and 1998, respectively, of
Year 2000 expenses).

         The  Company's  operating  efficiency  ratio,  which  is the  ratio  of
operating expenses to net interest income and noninterest  income, has continued
to improve, falling from 71% in 1993 to 66% in 1999, notwithstanding transaction
costs related to acquisitions and market expansion.

Year 2000 Issue

         The Year 2000 issue is the result of potential  problems  with computer
systems  or any  equipment  with  computer  chips  that use dates that have been
sorted as two digits  rather than four (e.g.,  "99" for  "1999").  On January 1,
2000, any clock or date recording the year may have recognized a date using "00"
as the year 1900 rather than the year 2000. This could result in system failures
or  miscalculations  causing  disruption of operations,  including,  among other
things, a temporary inability to process transactions,  send invoices or perform
similar tasks.

         The  Company  had  recognized  the scope and  potential  problems  that
required a comprehensive Year 2000 compliance program. The Company had adopted a
plan of action and over a period of 2 1/2 years  implemented  the plan to assure
minimal  disruptions  to its various  activities  and  operations  that could be
experienced as a result of the century date rollover.  Due to this high level of
preparedness, the Company experienced no disruptions at December 31, 1999.

         There  remains  six dates  which have been  identified  as  potentially
causing system  problems.  The Company tested the dates during the testing phase
of its Year 2000 plan and anticipates no problems related to the dates.

         The Company budgeted  expenses of  approximately  $25,000 to modify its
information  systems to  accurately  process  information  for the year 2000 and
beyond.  The Company  incurred costs of less than $75,000 in 1999 and $28,202 in
1998 related to systems  testing,  review and testing of contingency  plans. The
Company does not anticipate any further  material costs associated with the year
2000 issue.

Asset/Liability Management

         The regular  evaluation of the  sensitivity  of net interest  income to
changes in interest  rates is an integral  part of the  Company's  interest rate
risk management.

         The following  table  summarizes net interest income and average yields
and rates paid for the years  indicated.  For  purposes  of this  analysis,  the
interest  on   non-taxable   investment   securities  has  been  adjusted  to  a
taxable-equivalent  amount to facilitate comparison with other asset yields. The
adjustment  gives effect to the exemption from federal income taxes for earnings
on  obligations of state and political  subdivisions  and assumes a marginal tax
rate of 34%.  Non-accrual  loans are  excluded  from the  interest-earning  loan
balances shown.

<TABLE>
<CAPTION>
                                                    1999                           1998                            1997
                                     -------------------------------  ------------------------------   ----------------------------
                                                  Interest                       Interest                        Interest
                                      Average     Income/    Average   Average   Income/     Average   Average   Income/   Average
                                      Balance     Expense     Rate     Balance   Expense     Rate      Balance   Expense    Rate
                                     -----------  ---------  --------  --------- ---------  --------  ---------- --------- --------
<S>                                    <C>          <C>        <C>     <C>        <C>         <C>      <C>        <C>       <C>
Assets
Interest bearing deposits
   in other banks                          $625        $45     7.20%       $714       $43     6.02%        $574       $56    9.76%
Taxable securities                      190,318     11,075     5.82%    162,674     9,555     5.87%     121,499     7,335    6.04%
Non-taxable securities                    8,204        623     7.59%      5,569       500     8.98%       6,972       722   10.36%
Federal funds sold                        7,081        367     5.18%     24,772     1,276     5.15%      15,117       818    5.41%
Loans                                   494,732     45,656     9.23%    423,246    40,848     9.65%     373,910    36,552    9.78%
                                     -----------  ---------            --------- ---------  --------  ---------- --------- --------
 Interest earning assets                700,960     57,766     8.24%    616,975    52,222     8.46%     518,072    45,483    8.78%
                                                  ---------   --------           ---------  --------             --------- --------
Other assets                             57,780                          53,004                          49,461
                                     -----------                       ---------                      ----------
                                       $758,740                        $669,979                        $567,533
                                     ===========                       =========                      ==========


Liabilities and Shareholders' Equity
Interest bearing deposits
  Demand                               $173,084     $3,554     2.05%   $145,141    $3,341     2.30%    $125,583     3,028    2.41%
  Savings                                67,326      1,389     2.06%     61,516     1,426     2.32%      55,459     1,425    2.57%
  Time                                  327,765     16,786     5.12%    306,807    16,805     5.48%     266,301    14,769    5.55%
Notes payable and other
     interest bearing liabilities        24,989      1,301     5.21%      9,084       499     5.49%       7,221       351    4.86%
                                     -----------  ---------  --------  --------- ---------  --------  ---------- --------- --------
 Interest bearing liabilities           593,164     23,030     3.88%    522,548    22,071     4.22%     454,564    19,573    4.31%
                                                  ---------  --------            ---------  --------             --------- --------
Other liabilities                       100,617                          89,362                          64,900
Shareholders' equity                     64,959                          58,069                          48,069
                                     -----------                       ---------                      ----------
Total liabilities and
      shareholders' equity             $758,740                        $669,979                        $567,533
                                     ===========                       =========                      ==========

Interest rate spread                                           4.36%                          4.24%                          4.47%
                                                             ========                       ========                       ========
Net interest earned and
   net yield on earning
   assets (Margin)                                 $34,736     4.96%              $30,151     4.89%               $25,910    5.00%
                                                  =========  ========            =========  ========             ========= ========
</TABLE>


         The following  table  presents the dollar amount of changes in interest
income  and  interest   expense  on  a   taxable-equivalent   basis.  The  table
distinguishes  between the changes  related to average  outstanding  (volume) of
earning assets and interest-bearing  liabilities, as well as the changes related
to  average  interest  rates  (rate) on such  assets  and  liabilities.  Changes
attributable to both volume and rate have been allocated to change in volume.
<TABLE>
<CAPTION>
                                                 1999                                 1998                                  1997
                                                Income/                              Income/                               Income/
                                                Expense      Volume       Rate       Expense      Volume       Rate        Expense
                                              -----------  ----------  ---------  -----------  -----------  ---------   -----------
<S>                                             <C>          <C>       <C>            <C>           <C>         <C>          <C>
Interest earning assets:
Interest bearing deposits in other banks           $45         ($6)        $8           $43           $8       ($21)          $56
Taxable investment securities                   11,075       1,609        (89)        9,555        2,419       (199)        7,335
Non-taxable investment securities                  623         200        (77)          500         (126)       (96)          722
Federal funds sold and securities purchased
   with agreements to resell                       367        (917)         8         1,276          497        (39)          818
Loans                                           45,656       6,597     (1,789)       40,848        4,761       (465)       36,552
                                            -----------  ----------  ---------   ------------  -----------  ---------   -----------

    Total interest income                       57,766       7,483     (1,939)       52,222        7,559       (820)       45,483
                                            ===========  ==========  =========   ============  ===========  =========   ===========

Interest bearing liabilities:
Interest bearing demand deposits                 3,554         574       (361)        3,341          450       (137)         3,028
Savings deposits                                 1,389         120       (157)        1,426          140       (139)         1,425
Time deposits                                   16,786       1,073     (1,092)       16,805        2,219       (183)        14,769
Notes payable and other interest bearing
   liabilities                                   1,301         828        (26)          499          102         46            351
                                            -----------  ----------  ---------   ------------  -----------  ---------   -----------
    Total interest expense                      23,030       2,595     (1,636)       22,071        2,911       (413)        19,573
                                            -----------  ----------  ---------   ------------  -----------  ---------   -----------
    Net interest income                        $34,736      $4,888      ($303)      $30,151       $4,648      ($407)       $25,910
                                            ===========  ==========  =========   ============  ===========  =========   ===========
</TABLE>


         Financial  institutions are subject to interest rate risk to the degree
that their  interest  bearing  liabilities  (consisting  principally of customer
deposits)  mature or reprice more or less  frequently,  or on a different basis,
than their interest  earning assets  (generally  consisting of  intermediate  or
long-term  loans and  investment  securities).  The match  between the scheduled
repricing and maturities of the Company's earning assets and liabilities  within
defined time periods is referred to as "gap" analysis. At December 31, 1999, the
cumulative  one-year  gap for the  consolidated  Company  was a  negative  $88.0
million,  or 11.20% of total  assets.  At  December  31,  1999,  the  cumulative
five-year  gap was a  negative  $89.3  million,  or  11.36% of total  assets.  A
negative gap means that liabilities would reprice faster than assets if interest
rates  changed.  Accordingly,  an increase in rates would  adversely  affect the
Company's  earnings.  The Company's one-year and five-year  cumulative gap would
result in a change  of  $1,120,000  and  $1,136,000,  respectively,  with a one-
percent  change in interest  rates.  As interest  rates  declined  during  1998,
depositors were unwilling to extend the maturity of time deposits,  as the yield
curve was somewhat flat and did not reward  depositors  sufficiently  for longer
maturities.  As interest rates increased  during 1999,  depositors  continued to
favor  shorter-term  deposits  and thus margins did not suffer as a negative gap
would  anticipate.  Intense  competition in the Company's  markets  continues to
pressure quality loan rates downward while conversely  pressuring  deposit rates
upward.

         The following  table reflects the Company's  rate sensitive  assets and
liabilities  by maturity as of December 31, 1999.  Variable rate loans are shown
in the  category of due "within one year"  because  they reprice with changes in
the  prime-lending  rate.  These  variable rate loans have actual  maturities of
$30.6  million  maturing  within  one year,  with an  additional  $30.5  million
maturing within five years, and $52.0 million  maturing after five years.  Fixed
rate loans are presented assuming the entire loan matures on the final due date.
Actually,  payments are made at regular  intervals and are not reflected in this
schedule.  Additionally,  demand  deposits and savings  accounts  have no stated
maturity,  however, it has been the Company's experience that these accounts are
not totally rate  sensitive,  and thus,  are  presented in the  categories  that
management  believes  best  identifies  their actual  repricing  patterns.  This
analysis assumes 20% of these deposits reprice within one year and the remaining
80% within one to five years.
<TABLE>
<CAPTION>
                                                                     Within         1 - 5        Over       Non-
Assets:                                             Prime Loans     One Year        Years      5 Years     Market        Total
                                                   -------------------------------------------------------------------------------
<S>                                                  <C>            <C>          <C>         <C>         <C>          <C>
Securities held to maturity:
    U.S. Treasury                                      $--          $1,001          $995        $--        $--          $1,996
    U.S. government agencies                            --             --            --         7,831       --           7,831
    States and political subdivisions                   --             220         1,271        7,097       --           8,588
    Mortgage-backed securities                          --             --          2,326       15,342       --          17,668
                                                   -------------  -----------   ----------- ----------- -----------  -----------
          Total securities held to maturity             --            1,221         4,592      30,270       --          36,083
Securities available for sale:
    U.S. Treasury                                       --           14,509         1,007         --        --          15,516
    U.S. government agencies                            --           18,460        85,208      12,654       --         116,322
    Mortgage-backed securities                          --             --            --        18,152       --          18,152
    Other (1)                                           --             --            --           --       1,089         1,089
                                                  -------------  -----------   ----------- ----------- -----------  -----------
          Total securities available for sale           --           32,969        86,215      30,806      1,089       151,079
Loans:
    Commercial and financial                           28,813         6,227        27,335       7,310       --          69,685
    Real estate:
          Construction                                 36,388         8,478         7,387      11,269       --          63,522
          Mortgage (2)                                111,416        10,490       106,874     114,794       --         343,574
    Consumer (3)                                        4,930        11,530        45,327       2,864        108        64,759
                                                  -------------  -----------   ----------- ----------- -----------  -----------
          Total loans                                 181,547        36,725       186,923     136,237        108       541,540
Other (4)                                               --             --            --           --         439           439
                                                  -------------  -----------   ----------- ----------- -----------  -----------
          Total earning assets                        181,547        70,915       277,730     197,313      1,636       729,141
Noninterest-earning assets                              --             --            --          --       56,958        56,958
                                                  -------------  -----------   ----------- ----------- -----------  -----------
          Total assets                               $181,547       $70,915      $277,730    $197,313    $58,594      $786,099
                                                  =============  ===========   =========== =========== ===========  ===========

Liabilities and Shareholders' Equity:
Deposits:
    Interest-bearing checking                          $--          $10,752       $43,006     $--          $--         $53,758
    Savings                                             --           13,272        53,086      --           --          66,358
    Market deposit accounts                             --           26,125       104,502      --           --         130,627
    Time, $100,000 and over                             --           70,040        15,813      --           --          85,853
    Other time (5)                                      --          170,308        62,632          27       --         232,967
                                                  -------------  -----------   ----------- ----------- -----------  -----------
          Total interest-bearing deposits               --          290,497       279,039          27       --         569,563
Borrowed funds                                          --           49,440          --           --        --          49,440
Other liabilities                                       --              535          --            69       --             604
                                                  -------------  -----------   ----------- ----------- -----------  -----------
          Total interest-bearing liabilities            --          340,472       279,039          96       --         619,607
Noninterest-bearing liabilities                         --             --            --           --     100,521       100,521
Shareholders' equity                                    --             --            --           --      65,971        65,971
                                                  -------------  -----------   ----------- ----------- -----------  -----------
          Total liabilities and shareholders'
                equity                                  --          340,472       279,039          96    166,492       786,099
                                                  =============  ===========   =========== =========== ===========  ===========
               Gap                                   $181,547     ($269,557)      ($1,309)   $197,217  ($107,898)        --
                                                  =============  ===========   =========== =========== ===========  ===========
               Cumulative Gap                        $181,547      ($88,010)     ($89,319)   $107,898      --            --
                                                  =============  ===========   =========== =========== ===========  ===========
  Exclude noninterest-earning assets,
    noninterest-bearing liabilities and
    shareholders' equity                                --             --            --           --      95,002         --
                                                  -----------------------------------------------------------------------------
    Adjusted cumulative gap                          $181,547      ($88,010)     ($89,319)   $107,898    $95,002         --
                                                  =============  ===========   =========== =========== ===========  ===========
</TABLE>


(1)      The nonmarket  column consists of Federal Home Loan Bank stock,  mutual
         funds, and Peoples Bank stock.
(2)      Mortgage  loans consist primarily of residential loans, and home equity
         lines of credit.
(3)      The nonmarket column consists of overdrafts.
(4)      The  nonmarket  column  consists  of interest-bearing deposits due from
         other banks.
(5)      Other time  deposits  within one year  consists  of  $37,164,  maturing
         within three months and $40,843  maturing after three months but within
         six months.
Liquidity

         Liquidity  refers to the  Company's  ability to meet the needs of daily
operations.  The Company relies  primarily on dividends and management fees from
the Banks for liquidity.  These sources have provided adequate liquidity for the
Company. The Banks' liquidity refers to the ability or financial  flexibility to
adjust its future cash flows to meet the withdrawal needs of depositors,  and to
fund loans to borrowers and operations on a timely and cost effective basis. The
Banks' primary  sources of funds are cash generated by repayments of outstanding
loans,  interest  payments on loans and new  deposits.  Additional  liquidity is
available  from the maturity and earnings on securities  and liquid  assets,  as
well as the ability to liquidate  securities  available for sale. The Banks also
had federal fund lines of credit of $36.1  million at year-end  under which they
can borrow funds to meet short-term liquidity needs. Lines available for Lincoln
Bank are:  through  Wachovia  Bank,  $2 million,  The  Banker's  Bank,  Atlanta,
Georgia,  $5  million  and  Bank of  America,  $10  million.  Cabarrus  Bank has
unsecured lines available  through the FHLB of $18.9 million and Bank of America
of $5 million.  Community Bank has unsecured lines available through Wachovia of
$1.5  million,  Bank of America  of $4 million  and  Compass  Bank,  Birmingham,
Alabama,   of  $0.5   million.   Borrowed   funds  also  consist  of  repurchase
transactions.   A  repurchase   transaction  is  a  secured  source  of  funding
characterized  by the  sale  of  securities  with a  simultaneous  agreement  to
repurchase  such securities on an agreed upon future date. At December 31, 1999,
Lincoln  Bank and  Cabarrus  Bank had  repurchase  transactions  totaling  $27.3
million at a rate of 6.00%. These sources have been and are presently considered
adequate to provide appropriate liquidity for the Banks.

         Net cash provided from  operations  results  primarily from net income,
adjusted for the following noncash accounting items: the provisions for possible
loan  losses,  depreciation  and  amortization,  and  deferred  income  taxes or
benefits.  These items  amounted to $3.7 million in 1999 and $3.0 million  1998.
This cash was  available  during  1999 to  increase  earning  assets  and to pay
dividends.  As of December 31, 1999, the Banks had combined retained earnings of
approximately  $42,129,000  all of which are  available  to be paid as dividends
without prior regulatory approval, provided the Banks maintain adequate capital.

Financial Condition

         The Company's  consolidated  assets  increased  7.45%,  18.3% and 18.8%
during 1999, 1998 and 1997,  respectively.  Asset growth is directly  related to
deposit  growth,  both  internally  and  through  acquisitions,  and  the  funds
available  to the Company for  investment.  The Company has been  successful  in
expanding  existing market share as well as adding new branch locations in prior
years. During 1998 and 1997, the Company purchased  approximately $9.0 and $30.0
million,  respectively,  of deposits accounts  pursuant to branch  acquisitions.
This acquired  growth,  as well as the strong  growth  expected of the Company's
markets has resulted in continued  growth for the Company.  Deposit  growth will
allow the Company to continue to take advantage of the vibrant local economy and
quality loan demand experienced over the past several years.

         The Company's commercial loan portfolio has grown over the past several
years as the Company has employed seasoned  commercial  lenders to develop these
opportunities and the booming Charlotte metropolitan market has facilitated this
growth.  Management believes the Company is not dependent on any single customer
or group of customers  concentrated in a particular industry,  the loss of whose
deposits or whose insolvency would have a material adverse effect on operations.

         As interest  rates reflect an increasing  yield curve,  customers  have
still  continued to select  shorter  terms for their  deposits and in many cases
chose transaction deposit accounts,  including interest-bearing and money market
deposit ("MMDA") accounts without a stated maturity. This shift from longer-term
deposits allows the depositor to react more quickly to rising rates. Fluctuating
interest rates and  competitive  pressure  enforce the need for effective  asset
liability management.

         Securities have been segregated into two categories, "held to maturity"
and "securities available for sale". While the Company has no plans to liquidate
a significant amount of any securities, the securities available for sale may be
used for liquidity purposes should management deem it to be in the best interest
of the Company.  Due to increases in interest rates,  the majority of securities
purchased have been relatively  short term and categorized as available for sale
in  anticipation  that these would be available to the Company if interest rates
begin to rise or if quality loan demand  accelerates.  United States  government
and  government  agency  securities  continue to represent  the majority of both
securities held to maturity and securities  available for sale. During 1999, the
securities available for sale decreased slightly as a percentage of total assets
compared  to 1998 as a result of the use in 1999 of cash  received  from  branch
acquisitions in 1998.

Asset Quality

          The allowance for loan losses  represents  management's  assessment of
the risk associated  with extending  credit and its evaluation of the quality of
the loan  portfolio.  Management  analyzes the loan  portfolio to determine  the
adequacy of the allowance for loan losses and the appropriate provision required
to maintain a level considered  adequate to absorb estimated  probable losses in
the loan  portfolio.  In  assessing  the adequacy of the  allowance,  management
reviews the size,  quality and risk of loans in the portfolio.  Management  also
considers  such factors as the bank's loan loss  experience,  the amount of past
due and  nonperforming  loans,  specific  known  risk,  the status and amount of
nonperforming  assets,  underlying  collateral  values securing  loans,  current
economic  conditions  and other factors which affect the allowance for potential
credit  losses.  An analysis of the credit quality of the loan portfolio and the
adequacy of the  allowance  for loan  losses is  prepared  by the Banks'  Credit
Administration  area and presented to the Loan  Committee on a quarterly  basis.
The allowance is comprised of both allocated and general reserves.

         The allocation of the allowance is based on management's grading of the
loan  portfolio  and the  assignment  of risk factors to compute the  respective
reserves.  All  commercial  loans or  $25,000  and  greater  are  risk  rated at
inception,  at renewal,  and at any point at which  management  becomes aware of
information  that may affect the risk rating  (e.g.  deterioration  in financial
condition,  payment delinquency,  loss of collateral value). To accomplish this,
an eleven-grade  risk rating system,  ranging from superior to loss is utilized.
The risk grades  assigned are determined  based on several  elements,  including
current  and  historical  financial  strength  and  cash  flow of the  borrower,
collateral  value,  terms  of  financing,   and  compliance  with  loan  policy.
Additionally, on a semi-annual basis, a historical loss analysis is preformed on
the loan portfolio, utilizing three running years of historical loss experience.
This historical  loss  information is then utilized to assign reserve factors to
each major segment of the loan portfolio.

          For the general reserve,  management  determines the appropriate level
of general  reserve to absorb  estimated  probable losses in the loan portfolio.
Management   considers  the  Banks'   historical  loan  losses,   past  due  and
non-performing loans, current economic conditions,  underlying collateral values
securing loans and other factors which affect the allowance.  This evaluation is
heavily dependent upon estimates and appraisals,  which are susceptible to rapid
changes because of economic conditions and the economic prospects of borrowers.

          The general  reserve has  increased  over the past year.  The trend of
loans made over the past several years has been toward larger  commercial  loans
and as a result,  the loan portfolio has had limited  historical loss experience
for  which  to base a  specific  reserve.  Thus  the  general  reserve  has been
increased to compensate  for loan growth and the lack of  historical  experience
with the volume of such loans. In addition, nonaccural loans have increased over
the prior year. This also supports the increased level of general reserve.

         The Banks'  allowances  for loan losses are also subject to  regulatory
examinations and determinations as to adequacy, which may take into account such
factors as the  methodology  used to calculate the allowance for loan losses and
the size of the allowance for loan losses in comparison to a group of peer banks
identified by the regulators.  During their routine  examinations of banks,  the
Federal  Reserve  and the  Commissioner  may  require a bank to make  additional
provisions  to its  allowance  for  loan  losses  when,  in the  opinion  of the
regulators,  credit  evaluations and allowance for loan loss methodology  differ
materially from those of management. See "Supervision and Regulation."

         While it is the Banks' policy to charge off in the current period loans
for which a loss is considered  probable,  there are additional  risks of future
losses which cannot be quantified precisely or attributed to particular loans or
classes  of  loans.  Because  these  risks  include  the  state of the  economy,
management's  judgment  as to the  adequacy  of  the  allowance  is  necessarily
approximate and imprecise.

         The following  table  depicts the  allocation of the allowance for loan
losses at December 31, 1999, 1998, 1997, 1996, and 1995.
<TABLE>
<CAPTION>
                                            ------------------ ---------------- --------------- -------------- ----------------
                                                    1999             1998           1997           1996            1995
                                            ------------------ ---------------- --------------- -------------- ----------------

                                                       Loan               Loan             Loan             Loan              Loan
                                                      Percent            Percent          Percent          Percent           Percent
                                                       Total              Total            Total            Total             Total
                                             Amount    Loans    Amount    Loans   Amount   Loans   Amount   Loans    Amount   Loans
                                            --------  -------  --------  ------- -------- ------- -------- -------  -------- -------
<S>                                          <C>       <C>     <C>         <C>    <C>      <C>       <C>     <C>       <C>     <C>
Commercial and financial                       $829     13%      $617      14%      $182    12%      $269     12%      $347     10%
Real estate:
   Residential construction                     126     12        205       11        12     8        157      8         44       5
   Commercial construction                       -       -         -         -        -      -         -      -          -        -
   Residential mortgage                         336     30        413       35       482    33        511     46        428      40
   Commercial mortgage                          377     33        347       29       501    34        237     21        338      31
Consumer                                      1,149     12        986       11       949    13        353     13        356      14
General                                       4,846     -       4,156       -      3,711    -       3,786     -       2,894      -

                                            --------  -------  --------  ------- ------- ------- -------- -------- --------- -------
Total allowance for possible loan losses     $7,663    100%    $6,724     100%    $5,837   100%    $5,313    100%    $4,407    100%
                                            ========  =======  ========  ======= ======= ======= ======== ======== ========= =======
</TABLE>

         In addition,  various regulatory agencies, as an integral part of their
examination  process,  periodically  review  the  Company's  allowance  for loan
losses.  Such  agencies  may  require the  Company to  recognize  changes to the
allowance based on their judgement  about  information  available at the time of
examination.

         Non-performing   assets  include  non-accrual  loans,   accruing  loans
contractually past due 90 days or more,  restructured  loans, other real estate,
and other real estate under  contract for sale.  Loans are placed on non-accrual
status when management has concerns  relating to the ability to collect the loan
principal and interest,  and generally  when such loans are 90 days or more past
due.  Interest of $23,000 was reported on these loans  during 1999.  Non-accrual
loans at  December  31, 1999  consists  of 55 loans,  the largest of which had a
balance of  $677,600.  Non-accrual  loans at December  31,  1998  consists of 61
loans,  the largest of which had a balance of  $496,000.  At December  31, 1999,
impaired loans totaled  $2,069,000,  of which all were on nonaccrual status, and
their related  reserve for loan losses totaled  $625,000.  The average  carrying
value of impaired  loans was  $1,370,000.  At December 31, 1998,  impaired loans
totaled  $920,000,  of which all were on  nonaccrual  status,  and their related
reserve for loan losses totaled $399,000. The average carrying value of impaired
loans was $820,000.  The amount of interest income  recognized on impaired loans
was not  considered  material  during 1999 or 1998. No amount of loans that have
been  classified  by  regulatory  examiners  as loss,  substandard,  doubtful or
special  mention has been  excluded  from amounts  disclosed  as  non-performing
loans.  Management  believes the current allowance for loan losses is sufficient
to absorb probable  losses inherent in the portfolio.  No assurance can be given
that adverse economic  conditions will not adversely affect borrowers and result
in increased losses.
<TABLE>
<CAPTION>
                                                                      December 31,
                                               -------------------------------------------------------------------------------
                                                   1999            1998             1997             1996             1995
                                               -----------     -----------       -----------      -----------      -----------
<S>                                              <C>             <C>              <C>                <C>             <C>
Nonaccrual loans                                 $2,615          $1,432             $720             $690              $812
Loans 90 days or more past due
  and still accruing interest                       178             111              152               51               106
                                               -----------     -----------       -----------      -----------      -----------
Total non-performing loans                        2,793           1,543              872              741               918
Other real estate                                   221             326              514              144               686
                                               -----------     -----------       -----------      -----------      -----------
Total non-performing assets                      $3,014          $1,869           $1,386             $885            $1,604
</TABLE>

          The increase in nonaccrual loans is due to 5 commercial loans totaling
approximately  $1,637,000.   The  Company  believes  there  will  be  no  losses
associated  with these  loans based on the  collateral  values,  the  borrowers'
ability to repay and the allowance for loan losses that has been  provided.  Net
charge-offs as a percentage of average loans outstanding increased slightly from
 .11% in 1998 to .14% in  1999.  This  ratio,  although  it  increased  slightly,
continues to reflect the moderate level of losses experienced by the Company.

<TABLE>
<CAPTION>

                                                        1999             1998             1997              1996              1995
                                                      --------         --------         --------          --------          --------
<S>                                                  <C>              <C>              <C>               <C>               <C>
Balance at beginning of year                           $6,724           $5,837           $5,313            $4,407            $3,662
  Charge-offs:
    Commercial, financial and agricultural               (390)            (119)             (29)              (46)             (101)
  Real estate:
      Construction                                        --               --               --                --                --
      Mortgage                                            (69)             (72)             (93)              (24)              (77)
    Consumer                                             (399)            (489)            (516)             (350)             (229)
                                                      --------         --------         --------          --------          --------
      Total charge-offs                                  (858)            (680)            (638)             (420)             (407)
  Recoveries:
    Commercial, financial and agricultural                 35               20               41                28                14
    Real estate:
      Construction                                       --               --                --                 --                --
      Mortgage                                             36               51               27                48                87
    Consumer                                               71              131               97                71                95
                                                      --------         --------         --------          --------          --------
      Total recoveries                                    142              202              165               147               196
                                                      --------         --------         --------          --------          --------
Net charge-offs                                          (716)            (478)            (473)             (273)             (211)

Provision for loan losses                               1,655            1,365              997             1,179               956
                                                      --------         --------         --------          --------          --------
Balance at end of year                                 $7,663           $6,724           $5,837            $5,313            $4,407
                                                      ========         ========         ========          ========          ========
Loans, net of unearned income at end
     of year                                         $541,540         $476,110         $404,025          $361,888          $299,224
Ratio of allowance for loan losses to
    loans, net of unearned income
    at end of year                                      1.42%            1.41%            1.44%             1.47%             1.47%

Average loans, net of unearned interest              $494,732         $423,246         $373,910          $328,517          $262,685

Ratio of net charge-offs to average loans
    outstanding during the year                         0.14%            0.11%            0.13%             0.08%             0.08%

</TABLE>

Capital Resources

         Banks and bank holding companies, as regulated institutions,  must meet
required  levels of  capital.  The FDIC and the  Federal  Reserve,  the  primary
Federal  regulators  for the Banks and the Company,  respectively,  have adopted
minimum capital  regulations or guidelines  that  categorize  components and the
level of risk  associated with various types of assets.  Financial  institutions
are  expected  to  maintain a level of capital  commensurate  with risk  profile
assigned to its assets in accordance with the guidelines.  The Company,  Lincoln
Bank, Cabarrus Bank and Community Bank all maintain capital levels exceeding the
minimum levels for well-capitalized bank holding companies and banks.
<TABLE>
<CAPTION>
                                               Well               The            Lincoln          Cabarrus       Community
                                            Capitalized         Company            Bank             Bank            Bank
                                          ---------------    ------------      -----------       ----------     ------------
<S>                                           <C>                <C>               <C>              <C>             <C>
Tier I capital to risk adjusted assets         6.0%              11.9%             11.0%            10.2%           12.6%
Total capital to risk adjusted assets         10.0%              13.1%             12.3%            11.5%           14.0%
Leverage ratio                                 5.0%               8.3%              8.4%             7.7%            6.6%
</TABLE>

Accounting And Regulatory Matters

        In June 1998, the Financial  Accounting  Standards Board ("FASB") issued
Statement of Financial  Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging  Activities".  SFAS No. 133  establishes  accounting and
reporting standards for derivative  instruments and for hedging activities.  The
Statement is effective for  all fiscal quarters  beginning  after June 15, 2000.
This  effective  date  reflects the deferral  provided by Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective  Date of FASB  Statement No. 133",  which
defers the earlier effective date specified in SFAS No. 133. The Company has not
yet determined the financial impact of the adoption of SFAS No. 133.

Item 7a.  Quantitative And Qualitative Disclosures About Market Risk

         Market risk is inherent to all industries  and financial  institutions'
assets and liabilities all are affected by market risks.  The Company  considers
credit  to be the  most  significant;  however,  interest  rate  risk is a close
second.  There are eight risks that must be  considered in managing the Company.
These risks are listed in order of the perceived  level of risk imposed upon the
Company.  The Company does not believe  foreign  exchange risk to be significant
and thus,  does not address it in this  assessment.  The Company has  identified
certain critical risks to the Banks.

         Credit  Risks.  Credit  risk is the risk to the  Company's  earnings or
capital  from the  potential  of an  obligator  or related  group of  obligators
failing to fulfill its or their contractual commitments to the bank. Credit risk
is most closely  associated with a bank's lending.  It encompasses the potential
of loss on a particular  loan as well as the  potential for loss from a group of
related loans,  i.e., a credit  concentration.  Credit risk extends also to less
traditional bank activities. It includes the credit behind the bank's investment
portfolio,  the credit of  counterparties  to interest rate  contracts,  and the
credit of securities  brokers holding the bank's investment  portfolio in street
name.

          Interest  Rate Risk.  Interest  rate risk is the risk to  earnings  or
capital from the potential of movement in interest  rates. It is the sensitivity
of the bank's future  earnings to interest  rate changes.  Interest rate risk is
generally  measured on the basis of duration analysis or gap analysis.  Duration
analysis measures the degree of risk in a particular instrument or portfolio and
gap analysis  defines the timing when loss may occur.  The Company's  policy has
been  generally  to attempt to achieve a modified  duration of 5% and a one-year
cumulative gap of +/- 5% and a one- to five-year cumulative gap of +/- 8%. As of
December  31,  1999,  as a result of Board  action,  the Company  determined  to
operate  with a  modified  duration  of 3.19% and a one-year  cumulative  gap of
11.20% and a one to  five-year  cumulative  gap of  11.52%.  This means that the
Company's  assets  will  reprice  faster  than it's  liabilities,  which  should
favorably  affect  earnings in the rising  interest  rate  environmnet  that has
existed since mid 1999. The major components of interest rate risk are described
as repricing risk, basis risk, yield curve risk, and options risk. While current
levels are outside of traditional  approved  levels,  the Company is comfortable
with these levels at this particular time and is monitoring levels quarterly.

         Price Risk.  Price risk is the risk to earnings or capital from changes
in the value of portfolios of financial instruments. Frequently this is referred
to as market risk. Price risk is generally reflected as the risk of a decline in
market value of its securities  portfolio and the Company is willing to accept a
7.5% change in value  after  experiencing  a 300 basis point rate shock,  either
positive or negative.  At December 31, 1999, the price change was less than 8.9%
with such a rate shock.  While this price  change is outside of the  traditional
approved  levels the Company is comfortable  with this change at this particular
time and is monitoring levels quarterly.

         Liquidity Risk.  Liquidity risk is the risk to earnings or capital from
the  Company's  inability  to meet its  obligations  when they come due  without
incurring  unacceptable  losses or costs such as when depositors  withdraw their
deposits  and the bank does not have the liquid  assets to fund the  withdrawals
and to meet its loan funding  obligations.  The risk is particularly  great with
brokered deposits of which the Company currently has none.

         Transaction  Risk.  Transaction risk is the risk to earnings or capital
arising from problems with service or product delivery.  Transaction risk is the
risk of a failure in a bank's operating processes.  It is a risk of failure in a
bank's automation, its employee integrity, or its internal controls.

         Compliance Risk.  Compliance risk is the risk to earnings or capital
from noncompliance with laws, rules, and regulations.

         Strategic  Risk.  Strategic  risk  is  the  risk to earnings or capital
arising  from  adverse  business  decisions  or improper implementation of those
decisions.

         Reputation Risk.  Reputation  risk  is  the risk to earnings or capital
from negative public opinion.

         Most of these risks are interrelated and thus all must be considered by
management  regardless  of the  implied  risk.  Management  reviews  performance
against these ranges on a quarterly  basis. See the "GAP" table in "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  for
the Company's quantitative sensitivity analyses.

         The fair value of loans is  estimated  by  discounting  the future cash
flows using the current  rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. The estimated
fair  market  value of loans  outstanding  was  approximately  $538,251,000  and
$480,244,000  at  December  31, 1999 and 1998,  respectively.  The fair value of
noninterest-bearing  demand deposits and interest-bearing  deposits, savings and
money market deposits is the amount payable on demand at the reporting date. The
fair value of the time deposits is estimated using the rates  currently  offered
for deposits of similar remaining maturities. The estimated fair market value of
deposits was  approximately  $666,499,000  and $652,617,000 at December 31, 1999
and 1998, respectively.

<PAGE>

                          Independent Auditors' Report


The Shareholders and the Board of Directors of
Carolina First BancShares, Inc.

         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Carolina First  BancShares,  Inc., and  subsidiaries as of December 31, 1999 and
1998 and the related consolidated statements of income, changes in shareholders'
equity  and  comprehensive  income  and cash  flows for each of the years in the
three-year  period  ended  December  31,  1999.  These  consolidated   financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly,  in all material  respects,  the financial  position of Carolina
First  BancShares,  Inc. and subsidiaries at December 31, 1999 and 1998, and the
results  of their  operations  and their cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally  accepted
accounting principles.




                                                                /s/ KPMG, LLP
                                                                -------------
                                                                       KPMG, LLP

January 18, 2000
Charlotte, North Carolina

<PAGE>

Item 8.  Financial Statements And Supplementary Data

Carolina First BancShares, Inc.
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
                                                                                         1999                 1998
                                                                                  ------------------   ------------------
<S>                                                                                   <C>                 <C>
Cash and due from banks                                                                $33,658,815         $28,611,146
Federal funds sold                                                                       ---                13,220,957
                                                                                      -------------       -------------
     Total cash and cash equivalents                                                    33,658,815          41,832,103
Interest bearing deposits in other banks                                                   439,352             777,346
Securities held to maturity (market value $34,686,254  in 1999 and
     $33,609,910 in 1998)                                                               36,082,589          33,306,113
Securities available for sale (cost of $154,587,610 in 1999 and
    $153,255,268 in 1998)                                                              151,079,421         154,384,075
Loans, net of unearned income ($770,821 in 1999; $565,714 in 1998)                     541,539,925         476,109,833
     Allowance for loan losses                                                          (7,662,823)         (6,723,516)
                                                                                      -------------       -------------
     Loans, net                                                                        533,877,102         469,386,317
Premises and equipment, net                                                             12,672,438          13,662,738
Other real estate owned                                                                    220,801             326,206
Other assets                                                                            18,068,066          17,951,346
                                                                                      -------------       -------------
Total Assets                                                                          $786,098,584        $731,626,244
                                                                                      =============       =============

                 LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
     Demand                                                                            $97,416,776         $89,666,447
     Interest bearing transaction accounts                                             184,385,651         167,131,413
     Savings                                                                            66,357,623          63,833,667
     Time, $100,000 and over                                                            85,853,152          87,947,784
     Other time                                                                        232,966,454         244,023,259
                                                                                      -------------       -------------
     Total deposits                                                                    666,979,656         652,602,570
Repurchase agreements                                                                   11,350,893          10,399,634
Other borrowed funds                                                                    38,694,034             674,862
Other liabilities                                                                        3,102,759           5,971,447
                                                                                      -------------       -------------
Total Liabilities                                                                      720,127,342         669,648,513
Shareholders' Equity:
     Preferred  stock,  $1.00 par value;  authorized  - 5,000,000  shares;  none
        issued and  outstanding;  Common  stock,  $2.50 par value;  authorized -
        20,000,000 shares; issued and outstanding - 6,000,127 in 1999, and
        5,396,736 shares in 1998                                                        15,000,318          13,491,840
     Additional paid in capital                                                         33,923,354          22,758,001
     Retained earnings                                                                  19,189,335          25,031,771
     Accumulated other comprehensive income (loss)                                      (2,141,765)            696,119
                                                                                      -------------       -------------
     Total Shareholders' Equity                                                         65,971,242          61,977,731
                                                                                      -------------       -------------
Commitments and Contingent Liabilities                                                     ---                 ---
Total Liabilities and Shareholders' Equity                                            $786,098,584        $731,626,244
                                                                                      =============       =============
</TABLE>

<PAGE>


Carolina First BancShares, Inc.
Consolidated Statements of Income
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
                                                        1999            1998            1997
                                                     -----------     -----------    -----------
<S>                                                  <C>            <C>             <C>
Interest Income:
Interest and fees on loans                           $45,655,726    $40,848,120     $36,552,020
Interest and dividends on securities:
     Taxable income                                   11,075,384      9,554,933       7,334,682
     Non-taxable income                                  410,945        329,685         476,200
Other interest income                                    412,099      1,319,095         874,091
                                                      ----------     ----------      ----------
   Total interest income                              57,554,154     52,051,833      45,236,993

Interest Expense:
Interest on deposits                                  21,729,784     21,571,800      19,221,687
Interest on borrowed funds                             1,300,634        498,934         351,059
                                                      ----------     ----------      ----------
   Total interest expense                             23,030,418     22,070,734      19,572,746
                                                      ----------     ----------      ----------
Net Interest Income                                   34,523,736     29,981,099      25,664,247
Provision for Loan Losses                              1,655,200      1,365,000         997,333
                                                      ----------     ----------      ----------
Net Interest Income after Provision for Loan Losses   32,868,536     28,616,099      24,666,914
Noninterest Income:
Charges on deposit accounts                            4,113,201      3,864,796       3,357,917
Insurance commissions                                    634,546        603,025         725,474
Other service fees and commissions                     1,398,198      1,445,217       1,203,393
Mortgage banking commission  income                      603,636        671,448         483,047
Securities gains (losses), net                          (238,976)       267,304          82,508
Other income                                           1,513,688      1,196,584         910,447
                                                      ----------     ----------      ----------
   Total noninterest income                            8,024,293      8,048,374       6,762,786

Noninterest Expense:
Salaries and benefits                                 13,774,830     12,037,794      11,251,266
Occupancy and equipment                                3,710,067      3,252,949       2,810,863
Federal and other insurance premiums                     195,685        208,822         185,798
Office supplies                                          870,786        938,063         857,966
Data processing                                        1,248,533        680,130         546,395
Restructuring and merger related expenses                      -      2,069,570               -
Other expenses                                         8,187,037      6,667,773       5,566,486
                                                      ----------     ----------      ----------
   Total noninterest expense                          27,986,938     25,855,101      21,218,774
                                                      ----------     ----------      ----------
Income Before Income Taxes                            12,905,891     10,809,372      10,210,926
Income Taxes                                           4,130,086      4,100,443       3,490,141
                                                      ----------     ----------      ----------
Net Income                                            $8,775,805     $6,708,929      $6,720,785
                                                      ==========     ==========      ==========
Earnings per share
Net Income Per Common Share - Basic                        $1.47          $1.14           $1.20
Net Income Per Common Share - Diluted                      $1.45          $1.11           $1.18
</TABLE>



<PAGE>


Carolina First BancShares, Inc.
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive
Income
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>

                                                Common Stock
                                        ------------------------------    Additional                      Other
                                                                            Paid-in       Retained     Comprehensive  Shareholders'
                                            Shares          Amount          Capital       Earnings     Income (loss)     Equity
                                        --------------   -------------   -------------   -----------  --------------  -------------
<S>                                         <C>           <C>            <C>            <C>           <C>               <C>
Balance, December 31, 1996                  3,020,983     $7,552,458     $22,285,732    $14,590,974       $34,903       $44,464,067
Issuance of stock in public
offering                                      225,000        562,500       4,988,907        ---             ---           5,551,407
Exercise of stock options                      18,311         45,778          32,432        ---             ---              78,210
Cash dividend ($.28 per share)               ---              ---             ---        (1,331,194)        ---          (1,331,194)
2-for-1 stock split                         2,054,569      5,136,422      (5,136,422)       ---             ---            -
Retirement of stock                            (1,412)        (3,530)        (38,174)       ---             ---             (41,704)
Dividend reinvestment plan                      8,318         20,795         202,991        ---             ---             223,786
Net income                                   ---              ---             ---         6,720,785         ---           6,720,785
Other comprehensive income -
   Unrealized gain on securities
   available for sale, net of taxes
   of $341,498                               ---              ---             ---           ---           545,443           545,443
                                                                                                                        ------------
Total comprehensive income                   ---              ---             ---           ---             ---           7,266,228
                                        --------------   -------------   ------------   ------------  ------------      ------------
Balance, December 31, 1997                  5,325,769     13,314,423      22,335,466     19,980,565      $580,346       $56,210,800
Exercise of stock options                      70,229        175,572         210,055        ---             ---             385,627
Cash dividend ($.34 per share)               ---             ---             ---         (1,657,723)        ---          (1,657,723)
Retirement of stock                            (3,694)        (9,235)       (112,707)       ---             ---            (121,942)
Dividend reinvestment plan                      4,432         11,080         110,049        ---             ---             121,129
Settlement of merger-related claims          ---             ---             215,138        ---             ---             215,138
Net income                                   ---             ---             ---          6,708,929         ---           6,708,929
Other comprehensive income -
   Unrealized gain on securities
   available for sale, net of taxes
   of $50,921                                ---             ---             ---            ---           115,773           115,773
                                                                                                                        ------------
Total comprehensive income                   ---             ---             ---            ---             ---           6,824,702
                                        --------------   -------------   ------------   ------------  ------------      ------------
Balance, December 31, 1998                  5,396,736     13,491,840      22,758,001     25,031,771      $696,119       $61,977,731
Exercise of stock options                      65,196        162,991         247,589        ---             ---             410,580
10% stock dividend                            541,173      1,352,932      10,991,429    (12,385,243)        ---             (40,882)
Minority interest in CFBI                    ---             ---             ---             52,900         ---              52,900
Cash dividend ($.40 per share)               ---             ---             ---         (2,285,898)        ---          (2,285,898)
Retirement of stock                            (3,819)        (9,548)        (95,952)       ---             ---            (105,500)
Dividend reinvestment plan                        841          2,103          22,287        ---             ---              24,390
Net income                                   ---             ---             ---          8,775,805         ---           8,775,805
Other comprehensive income -
   Unrealized loss on securities
   available for sale, net of taxes
   of ($1,799,112)                           ---             ---             ---            ---        (2,837,884)       (2,837,884)
                                                                                                                        ------------
Total comprehensive income                   ---             ---             ---            ---             ---           5,937,921
                                        --------------   -------------   ------------   ------------  ------------      ------------
Balance, December 31, 1999                  6,000,127    $15,000,318     $33,923,354    $19,189,335   ($2,141,765)      $65,971,242
                                        ==============   =============   ============   ============  ============      ============
</TABLE>

<PAGE>


Carolina First BancShares, Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>

                                                                                 1999             1998            1997
                                                                             --------------   -------------   -------------
<S>                                                                           <C>              <C>             <C>
Operating Activities:
Net Income                                                                     $ 8,775,805     $ 6,708,929     $ 6,720,785
Adjustments to reconcile net income to net cash provided by operating
   activities:
     Depreciation and amortization                                               2,576,340       2,297,164       2,125,307
     Accretion and amortization of securities discounts and premiums, net          284,066        (326,143)        701,698
     Provision for loan losses                                                   1,655,200       1,365,000         997,333
     Deferred tax benefit                                                         (509,247)       (699,363)       (771,281)
     Gains on sales of securities available for sale                               (53,080)       (287,166)        (99,938)
     Losses on sales of securities available for sale                              293,871          19,862          19,106
     Gains on calls and maturities of securities held to maturity                   (1,816)           --            (1,812)
     Losses on calls and maturities of securities held to maturity                    --              --               136
     Losses (gains) on sales of equipment, net                                      (4,193)            309          (4,810)
     Losses (gains) on sales of real estate, net                                   (42,803)         71,501         (65,702)
     Increase in other assets                                                     (200,253)       (634,361)     (1,588,494)
     Increase (decrease) in other liabilities                                   (1,069,576)        829,437       1,089,214
     Settlement of merger related claims                                              --           215,138           --

                                                                             --------------   -------------   -------------
          Net cash provided by operating activities.                            11,704,314       9,560,307       9,121,542
                                                                             --------------   -------------   -------------
Investing Activities:
Proceeds from maturities of securities available for sale                       70,025,000      70,451,327      35,612,012
Proceeds from sales of securities available for sale                            47,201,172         599,964       5,809,688
Paydowns of securities available for sale                                        3,561,993           --             --
Purchases of securities available for sale                                    (119,253,858)   (101,960,784)   (101,121,315)
Proceeds from calls and maturities of securities held to maturity                7,613,353      16,662,401      18,320,504
Paydowns of securities held to maturity                                            206,223           --             --
Purchases of securities held to maturity                                       (13,985,742)    (13,295,379)     (7,490,547)
Purchases and maturities of certificates of deposit, net                           337,994        (103,486)       (247,094)
Originations of loans, net                                                     (66,258,150)    (72,922,802)    (43,072,427)
Proceeds from sale of real estate                                                  255,778         509,903         211,609
Proceeds from sale of premises and equipment                                        23,910           2,115         611,477
Cash acquired, net of cash paid, in purchase of branches                              --         7,674,161      26,556,399
Capital expenditures                                                              (955,482)     (1,899,152)     (2,147,923)

                                                                             --------------   -------------   -------------
          Net cash used in investing activities                                (71,227,809)    (94,281,732)    (66,957,617)
                                                                             --------------   -------------   -------------
Financing Activities:
Increase (decrease) in time deposits                                           (13,151,437)     44,876,631      20,560,322
Net increase in other deposits                                                  27,528,523      53,602,469      30,945,214
Net increase (decrease) in repurchase agreements                                   951,259        (523,864)      3,754,186
Net increase in other borrowed funds                                            38,089,412           --            200,000
Repayment of notes payable                                                         (70,240)        (75,176)        (19,601)
Retirement of stock                                                               (105,500)       (121,942)        (41,704)
Payment of cash dividends and fractional shares                                 (2,285,898)     (1,657,723)     (1,331,194)
Issuance of stock                                                                  394,088         506,756       5,853,403

                                                                             --------------   -------------   -------------
          Net cash  provided by financing activities                            51,350,207      96,607,151      59,920,626
                                                                             --------------   -------------   -------------

Net Increase (Decrease) in Cash and Cash Equivalents                            (8,173,288)     11,885,726       2,084,551
Cash and Cash Equivalents, Beginning of Year                                    41,832,103      29,946,377      27,861,826

                                                                             --------------   -------------   -------------
Cash and Cash Equivalents, End of Year                                        $ 33,658,815     $41,832,103     $29,946,377
                                                                             ==============   =============   =============

Supplemental disclosures of cash flow information:
     Interest paid                                                            $ 22,673,950     $21,540,710     $19,177,341
     Income taxes paid                                                           5,145,300       4,791,163       4,340,169
                                                                             ==============   =============   =============

Supplemental disclosure of noncash investing and financing activities:
     Increase (decrease) in net unrealized loss                               $ (2,837,884)      $ 115,773       $ 545,443
     Assets transferred to other real estate                                       112,165         359,337         533,687
</TABLE>

<PAGE>


Notes To Consolidated Financial Statements
December 31, 1999

Carolina First BancShares, Inc. and Subsidiaries

         1.  Summary Of Significant Accounting Policies

                  Principles  of  Consolidation  -- The  consolidated  financial
         statements  include the accounts of the Company,  the Banks,  and their
         subsidiaries  (referred to herein  collectively as the "Company").  All
         significant intercompany items and transactions have been eliminated in
         consolidation.  Certain 1997 amounts have been  reclassified to conform
         to 1999 and 1998 classifications.  The reclassifications have no effect
         on  shareholder's  equity or net  income as  previously  reported.  The
         Company's  chief  operating   decision-makers  review  the  results  of
         operations of the Company and its subsidiaries as a single enterprise.

                  The preparation of the  consolidated  financial  statements in
         conformity  with  generally  accepted  accounting  principles  requires
         management  to make  estimates  and  assumptions  that affect  reported
         amounts  of  assets  and  liabilities  at the  date  of  the  financial
         statements and the amounts of income and expenses  during the reporting
         period. Actual results could differ from these estimates.

                  Cash and Cash equivalents -- Cash and cash equivalents include
         cash on hand, due from banks and overnight federal funds sold.

                  Securities --  Securities  are  classified in accordance  with
         Financial  Accounting  Standards Board ("FASB")  Statement of Financial
         Accounting   Standards  ("SFAS")  No.  115,   "Accounting  for  Certain
         Investments  in Debit  and  Equity  Securities"  which  prescribes  the
         accounting and reporting for investments in equity securities that have
         readily  determinable  fair  values  and  for all  investments  in debt
         securities.  Securities  that the Company has the  positive  intent and
         ability to hold to maturity  are  classified  as held to  maturity  and
         reported at cost.  Securities held for current resale are classified as
         trading  securities and reported at fair value,  with unrealized  gains
         and  losses  included  in income.  The  Company  currently  has no such
         securities.  Securities  not  classified as held to maturity or trading
         securities  are  classified  as available for sale and reported at fair
         value,  with unrealized  gains and losses net of the related tax effect
         excluded   from  income  and  reported  as  a  separate   component  of
         shareholders'   equity.   The  effect  of  the  foregoing   will  cause
         fluctuations in shareholders' equity based on changes in values of debt
         and equity  securities.  The  classification  of  securities as held to
         maturity,  trading or available  for sale is  determined at the date of
         purchase.

                  Realized  gains  or  losses  on the  sale  of  securities  are
         recognized  on  the  specific   identification  method.   Premiums  and
         discounts  are  amortized  to  interest  income  over  the  life of the
         security using a method  approximating a level yield method. The market
         value of  securities  is  generally  based on quoted  market  prices or
         dealer quotes.

                  As a member of the  Federal  Home Loan  Bank of  Atlanta  (the
         "FHLB"), the Company is required to maintain an investment in the stock
         of the  FHLB.  This  stock,  which is  classified  in the  other  asset
         category  at  December  31,  1999,  is  carried at cost since it has no
         quoted market value.

                  Allowance  for Loan  Losses -- The  provision  for loan losses
         charged  to  operations  is  an  amount  that  management  believes  is
         sufficient  to  bring  the  allowance  for  loan  losses  to an  amount
         considered   adequate  to  absorb  estimated  probable  losses  in  the
         portfolio.  Management's determination of the adequacy of the allowance
         is  based  on  an  evaluation  of  the  portfolios,   current  economic
         conditions,  historical  loan loss  experience  and other risk factors.
         This evaluation is heavily dependent upon estimates and appraisals that
         are susceptible to rapid changes because of economic conditions and the
         economic prospects of borrowers.

                  In addition,  various regulatory agencies, as an integral part
         of  their  examination  process,   periodically  review  the  Company's
         allowance  for loan  losses.  Such  agencies may require the Company to
         recognize  changes  to the  allowance  based on their  judgement  about
         information available at the time of examination.

                  Nonaccrual  Loans  --  Generally,  a  loan  is  classified  as
         nonaccrual and the accrual of interest on such loan (including impaired
         loans) is  discontinued  when the  contractual  payment of principal or
         interest  has become 90 days past due or  management  has doubts  about
         further  collectibility  of principal or interest  even though the loan
         currently is  performing.  A loan may remain on accrual status if it is
         in the process of collection and is either  guaranteed or well secured.
         When a loan is placed on nonaccrual status, unpaid interest credited to
         income in the current year is reversed and unpaid  interest  accrued in
         prior  years is  charged  against  the  allowance  for  credit  losses.
         Interest  received  on  nonaccrual  loans  (including  impaired  loans)
         generally is either applied  against  principal or reported as interest
         income according to management's  judgement as to the collectibility of
         principal.  Generally,  loans are  restored to accrual  status when the
         obligation is brought  current,  has  performed in accordance  with the
         contractual  terms for a  reasonable  period  of time and the  ultimate
         collectibility  of the total  contractual  principal and interest is no
         longer in doubt.

                  Premises and Equipment -- Premises and equipment are stated at
         cost less accumulated depreciation.  Additions and major replacement or
         betterments,  which extend the useful lives of premises and  equipment,
         are  capitalized.  Maintenance,  repairs  and  minor  improvements  are
         expensed as incurred.  Depreciation  of buildings and  improvements  is
         computed on the  straight-line  method over 15 years.  Depreciation  of
         furniture,  fixtures  and  equipment  is computed on the  straight-line
         method over periods that  approximate the estimated  useful live of the
         assets.  Accelerated  depreciation  methods are used for tax  purposes.
         Gains  and  losses  on  dispositions  of  premises  and  equipment  are
         reflected in income.

                  Other Real Estate  Owned -- Other real estate owned is carried
         at the  lower of cost  (principal  balance  of the loan  plus  costs of
         obtaining  title and  possession)  or fair  value less  selling  costs.
         Losses arising at the time of acquisition of such properties is charged
         against the allowance for loan losses.  Subsequent write-downs that may
         be required to the carrying  value of these  properties  are charged to
         noninterest expense.

                  Intangible  Assets --  Deposit  based  premiums  and  goodwill
         arising from branch acquisitions result from the Company paying amounts
         in excess of fair value for the  branches and core  deposits  acquired.
         Such amounts are included in other  assets and deposit  based  premiums
         are  amortized  on an  accelerated  basis over 10 years and goodwill is
         amortized on a straight-line basis over 25 years.

                  Earnings  Per  Share -- SFAS No.  128,  "Earnings  per  Share"
         establishes  standards for computing and presenting  earnings per share
         ("EPS").  SFAS No. 128  simplifies  the  standards  for  computing  EPS
         previously found in APB opinion No. 15, "Earnings Per Share", and makes
         them  comparable  to  international  EPS  standards.  It  replaces  the
         presentation  of primary  EPS with a basic EPS. It also  requires  dual
         presentation  of  basic  and  diluted  EPS on the  face  of the  income
         statement for all entities with complex capital structures and requires
         a  reconciliation  of the  numerator and  denominator  of the basic EPS
         computation  to  the  numerator  and  denominator  of the  diluted  EPS
         computation.  The  weighted  average  number  of  shares  for each year
         presented has been retroactively adjusted for the 10% stock dividend in
         1999 and the two-for-one stock split in 1997.

                  Financial  Instruments -- Financial  instruments are valued in
         accordance with SFAS No. 107, "Disclosure about Fair Value of Financial
         Instruments", which requires disclosure of the estimated fair values of
         the  Company's   financial   instruments.   Such  instruments   include
         investment  securities  (see note 3),  loans (see note 4), and  deposit
         accounts (see note 7). Fair value estimates,  methods,  and assumptions
         for  each of  these  instruments  are set  forth  in  their  respective
         footnotes.

                  The carrying  amounts for cash,  overnight  federal funds sold
         and interest  bearing  deposits in other banks  approximate  fair value
         because   they  mature  in  less  than  90  days  and  do  not  present
         unanticipated credit concerns.  The carrying amounts for borrowed funds
         also  approximate  fair value because of the daily  maturity of most of
         these items.

                  Fair value  estimates  are made at a  specific  point in time,
         based  on  relevant  market   information  and  information  about  the
         financial  instrument.  These  estimates  do not reflect any premium or
         discount  that  could  result  from  offering  for sale at one time the
         Company's entire holdings of a particular financial instrument. Because
         no  active  market  readily  exists  for a  portion  of  the  Company's
         financial  instruments,  fair value  estimates  are based on judgements
         regarding future expected loss experience, current economic conditions,
         risk  characteristics  of  various  financial  instruments,   an  other
         factors.   These   estimates  are  subjective  in  nature  and  involve
         uncertainties and matters of significant judgement and therefore cannot
         be   determined   with   precision.   Changes  in   assumptions   could
         significantly affect the estimates.

                  Fair  value   estimates   are  based  on  existing   financial
         instruments  without  attempting  to estimate the value of  anticipated
         future  business and the value of assets and  liabilities  that are not
         considered   financial   instruments.   Other  significant  assets  and
         liabilities  that are not  considered  financial  assets or liabilities
         include the mortgage banking operation, property, plant, equipment, and
         goodwill. In addition, the tax ramifications related to the realization
         of the  unrealized  gains and losses can have a  significant  effect on
         fair value estimates and have not been considered in the estimates.

                  SFAS No. 107  specifies  that fair values should be calculated
         based  on the  value of one  unit  without  regard  to any  premium  or
         discount that may result from concentration of ownership of a financial
         instrument, possible tax ramifications, or estimated transaction costs.

                  Stock  Options -- SFAS No. 123,  "Accounting  for  Stock-Based
         Compensation,"   requires   either  the  (i)  fair  value  of  employee
         stock-based   compensation   plans  be  recorded  as  a  component   of
         compensation expense in the statement of income as of the date of grant
         of awards  related to such  plans,  or,  (ii),  the impact of such fair
         value on net income and  earnings per share be disclosed on a pro forma
         basis in a footnote to financial  statements  for awards  granted after
         December 15, 1994, if the accounting for such awards continues to be in
         accordance with Accounting Principles Board Opinion No. 25, "Accounting
         for Stock Issued to  Employees"  ("APB  Opinion  25").  The Company has
         elected  to  continue  to apply the  provisions  of APB  Opinion 25 and
         provide the pro forma disclosure provisions of SFAS No. 123.

                  Income and Expense -- The Company  utilizes the accrual method
         of accounting  except for  immaterial  amounts of loan income and other
         minor fees, which are recorded as income when collected.  Substantially
         all loans earn  interest on the level yield  method  based on the daily
         outstanding  balance.  The accrual of interest is discontinued when, in
         management's judgement, the interest may not be collected.

                  The Banks  defer the  recognition  of the net  amounts of loan
         origination fees and certain loan origination  costs and amortize these
         deferred amounts over the life of each related loan as an adjustment to
         the loan yield.

                  Income Taxes -- Income taxes are  accounted for under SFAS No.
         109, "Accounting for Income Taxes". According to SFAS No. 109, deferred
         tax  assets  and   liabilities   are  recognized  for  the  future  tax
         consequences   attributable   to  differences   between  the  financial
         statement carrying amounts of existing assets and liabilities and their
         respective tax bases.  Deferred tax assets and liabilities are measured
         using the statutory tax rates  expected to apply to a taxable income in
         the years in which  those  temporary  differences  are  expected  to be
         recovered in income in the period that includes the enactment date. The
         Company  files  consolidated   Federal  income  tax  returns  with  its
         subsidiaries.

                  Comprehensive  Income  -- On  January  1,  1998,  the  Company
         adopted SFAS No. 130 "Reporting  Comprehensive  Income". As required by
         the SFAS No. 130, prior year  information  has been modified to conform
         to the new presentation.  Comprehensive  income includes net income and
         all non-owner  changes to the  Company's  equity.  The  Company's  only
         component  of other  comprehensive  income is the change in  unrealized
         gains and losses on available-for-sale securities.

                  The Company's total  comprehensive  income for the three years
         ended December 31, 1999, 1998, and 1997 was $5,937,921,  $6,824,702 and
         $7,266,228 respectively. Information concerning the Corporation's other
         comprehensive  income for the three years ended December 31, 1999, 1998
         and 1997 is as follows:
<TABLE>
                                                                                          1999             1998             1997
                                                                                    --------------  ---------------  ---------------
<S>                                                                                   <C>                 <C>              <C>
Unrealized holdings gains (losses) arising during the period                          (2,986,049)         281,501          596,598

Less: reclassification adjustment for realized gains (losses), net of tax               (148,165)         165,728           51,155
                                                                                      ------------     ------------     ------------
Unrealized gains (losses) on securities available for sale,
         net of applicable income taxes                                               (2,837,884)         115,773          545,443
                                                                                      ============     ============     ============
</TABLE>



                  Disclosures Regarding Segments -- The Company adopted SFAS No.
         131,   "Disclosures   about  Segments  of  an  Enterprise  and  Related
         Information" in 1998.  SFAS No. 131  establishes  standards for the way
         that public businesses report  information about operating  segments in
         annual financial  statements and requires that those enterprises report
         selected  information  about  operating  segments in interim  financial
         reports  issued to  shareholders.  It also  establishes  standards  for
         related disclosures about products and services,  geographic areas, and
         major customers. The Company adopted SFAS No. 131 without any impact on
         its consolidated  financial statements as the operating  decision-maker
         reviews the results of operations  of the Company and its  subsidiaries
         as a single enterprise.

         2.  Mergers Accounted For As A Pooling-of-Interests

                  On December 23, 1998, the Company merged with Community  Bank,
         a $110 million  community bank  headquartered in  Rutherfordton,  North
         Carolina.  The merger was effected through a tax-free exchange of stock
         whereby each  outstanding  share of Community  Bank was  exchanged  for
         .72716 of a share of the  Company's  common  stock.  Consequently,  the
         Company issued and reserved for issue approximately 1,021,202 shares of
         common  stock and cash  in-lieu  of  fractional  shares  for all of the
         outstanding  shares of Community Bank.  Community Bank is continuing to
         operate as a  wholly-owned  subsidiary of the Company.  The merger with
         Community Bank has been accounted for as a pooling-of-interests.

                  Certain  charges were  brought  against the Company and one of
         the Company's  officers  related to the merger.  In connection with the
         litigation  the  Company  formed a  settlement  trust  and  irrevocably
         transferred  all of the shares of Community  Bank which it owned to the
         trustee to be  available  for  settlement  of the  claims.  The Company
         incurred costs of approximately  $16,000 and $215,000 in 1999 and 1998,
         respectively, for the settlement of the claims.

                  The financial  statements of the Company have been restated to
         reflect the Community Bank merger as if it had been effective as of the
         earliest period presented.  The respective  contributions of the pooled
         entities to  consolidated  total  income,  net  interest  income  after
         provision  for loan  losses  and net  income  for the two  years  ended
         December 31, 1998 were as follows:
<TABLE>


                                                                   1998              1997
Total income:                                              -----------------------------------
-------------
<S>                                                              <C>              <C>
Carolina First BancShares, Inc.                                  $51,575,670      $44,037,368
Community Bank & Trust                                             8,524,537        7,962,411
                                                                --------------    ------------
Combined                                                         $60,100,207      $51,999,779

Net interest income after provision for loan losses:
----------------------------------------------------
Carolina First BancShares, Inc.                                  $24,482,693      $20,508,156
Community Bank & Trust                                             4,133,406        4,158,758
                                                                --------------    ------------
Combined                                                         $28,616,099      $24,666,914

Net income:
-----------
Carolina First BancShares, Inc.                                   $7,349,951       $6,159,839
Community Bank & Trust                                              (641,022)         560,946
                                                                --------------    ------------
Combined                                                          $6,708,929       $6,720,785

Earnings per share - basic:
---------------------------
Carolina First BancShares, Inc.                                        $1.52            $1.35
Community Bank & Trust                                                 (0.38)           (0.15)
                                                                --------------    ------------
Combined                                                               $1.14            $1.20


Earnings per share - diluted:
-----------------------------
Carolina First BancShares, Inc.                                        $1.50            $1.34
Community Bank & Trust                                                 (0.39)           (0.16)
                                                                --------------    ------------
Combined                                                               $1.11            $1.18
</TABLE>



                  In  connection  with the  Community  Bank merger,  the Company
         incurred  restructuring  and merger  related  expenses of $2,070,000 in
         1998.  The after  tax-effect of the  restructuring  and  merger-related
         expense  was  $1,786,000  in 1998.  Such  expenses  were  comprised  of
         severance  payments  and other  payments  under  employment  contracts,
         professional  fees, costs for the settlement of merger-related  claims,
         systems  conversion  costs and other  restructuring  and merger related
         expenses as follows:
<TABLE>
         <S>                                                                  <C>
         Severance payments.................................................    $171,000
         Employment contracts...............................................     489,000
         System conversion costs and write-off of old equipment.............     190,000
         Settlement of merger related claims................................     215,000
         Professional fees..................................................     897,000
         Other..............................................................     108,000
                                                                               ---------
         Total..............................................................  $2,070,000
                                                                               ==========
</TABLE>


                  In 1998, the Company  incurred  merger  expenses of $1,410,000
         all of which were paid in 1998.  There were no such merger  expenses in
         1999. In 1998, the Company incurred  restructuring expenses of $660,000
         of which  approximately  $563,000 were accrued at December 31, 1998 and
         included  in  other  liabilities.   Such  restructuring   expenses  and
         liabilities   consisted  of  severance   payments  and  payments  under
         employment  contracts.  There were no restructuring  expenses  incurred
         during 1999.  The  liabilities  related to the  restructuring  expenses
         accrued in 1998 were paid in full during 1999.

         3.  Securities

                  Amortized cost,  market values and unrealized gains and losses
         of  securities  as of  December  31,  1999 and 1998 are  summarized  as
         follows:
<TABLE>
<CAPTION>

                                                       Amortized           Unrealized          Unrealized              Market
December 31, 1999                                        Cost                 Gains              Losses                Value
                                                   ------------------    ----------------  -------------------   -------------------
<S>                                                     <C>                   <C>                 <C>                  <C>
     U. S. Treasury securities                            $1,996,187                $936              ($1,185)           $1,995,938
     U.S. government agencies                              7,830,966           ---                   (329,791)            7,501,175
     Mortgage-backed securities                           17,667,548               7,494             (604,843)           17,070,199
     State and political subdivisions                      8,587,888              48,681             (517,627)            8,118,942
                                                   ------------------    ----------------  -------------------   -------------------
Total                                                    $36,082,589             $57,111          ($1,453,446)          $34,686,254
                                                   ==================    ================  ===================   ===================

Available For Sale
     U. S. Treasury securities                           $15,519,974             $12,827             ($17,013)          $15,515,788
     U.S. government agencies                            119,919,559               3,595           (3,601,244)          116,321,910
     Mortgage-backed securities                           18,264,295               4,552             (115,758)           18,153,089
     Mutual funds and marketable equity securities           883,782             249,452              (44,600)            1,088,634
                                                   ------------------    ----------------  -------------------   -------------------
Total                                                   $154,587,610            $270,426          ($3,778,615)         $151,079,421
                                                   ==================    ================  ===================   ===================


December 31, 1998

Held to Maturity
     U. S. Treasury securities                            $6,010,186             $68,878          ---                    $6,079,064
     U.S. government agencies                              3,034,710              14,266          ---                     3,048,976
     Mortgage-backed securities                           16,105,620             112,974             ($17,244)           16,201,350
     State and political subdivisions                      8,155,597             163,271              (38,348)            8,280,520
                                                   ------------------    ----------------  -------------------   -------------------

Total                                                    $33,306,113            $359,389             ($55,592)          $33,609,910
                                                   ==================    ================  ===================   ===================

Available For Sale
     U. S. Treasury securities                           $42,663,530            $550,230          ---                   $43,213,760
     U.S. government agencies                            108,964,028             424,080            ($275,303)          109,112,805
     Mortgage-backed securities                              743,928              23,695          ---                       767,623
     Mutual funds and marketable equity securities           883,782             416,155              (10,050)            1,289,887
                                                   ------------------    ----------------  -------------------   -------------------

Total                                                   $153,255,268          $1,414,160            ($285,353)         $154,384,075
                                                   ==================    ================  ===================   ===================
</TABLE>



         Amortized cost and market values of securities at December 31, 1999, by
maturity, are shown below.
<TABLE>
<CAPTION>
                                                                Held to Maturity                       Available for Sale
                                                   --------------------------------------  -----------------------------------------
                                                       Amortized                               Amortized
                                                         Cost             Market Value            Cost              Market Value
                                                   ------------------    ----------------  -------------------   -------------------
<S>                                                     <C>                 <C>                 <C>                   <C>

Due within one yea                                       $1,220,808          $1,222,702          $33,032,272           $32,969,106
Due after one year but within 5 years                     4,592,076           4,597,284           88,929,535            86,214,991
Due after 5 years but within 10 years                    10,557,013          10,184,117           11,521,125            10,854,703
Due after 10 years                                       19,712,692          18,682,151           20,220,896            19,951,987
Mutual funds and marketable equity securities            ---                  ---                    883,782             1,088,634
                                                  ------------------    ----------------  -------------------   -------------------

Total                                                   $36,082,589         $34,686,254         $154,587,610          $151,079,421
                                                   ==================    ================  ===================   ===================
</TABLE>



                  Investment securities with an amortized cost of $44,043,000 at
         December 31, 1999 were pledged to secure public  deposits and for other
         purposes required or permitted by law.

                  Included in other assets is an  investment in the common stock
         of First  Gaston  Bank of North  Carolina  with a  carrying  amount  of
         approximately $1,276,000 at December 31, 1999. The Company accounts for
         the investment  under the equity method as the Company has committed to
         serve as a source of strength,  as defined by the Federal Reserve,  for
         First Gaston Bank; has representation on the bank's board of directors;
         and provides certain operational  functions to First Gaston Bank. Under
         the equity  method,  the  Company  adjusts  the  carrying  value of the
         investment  for its  portion of the First  Gaston  Bank's  earnings  or
         losses.  During 1999, the Company  recognized income, net of applicable
         income  taxes,  of  $77,567.  Also  included  in  other  assets  is  an
         investment  in the  stock of the  Federal  Home  Loan  Bank of  Atlanta
         ("FHLB")  of  $516,900  and  $915,000  at  December  31, 1999 and 1998,
         respectively,  and which is pledged as collateral for advances from the
         FHLB.  No ready market  exists for the FHLB stock,  which is carried at
         cost.

         4.  Loans

                  Major  classifications  of loans as of  December  31, 1999 and
         1998 are as follows:
<TABLE>
<CAPTION>

                                                                      1999                    1998
                                                             -----------------     ---------------------
<S>                                                              <C>                       <C>
Commercial                                                        $69,581,382               $68,033,080
Real estate:
   Construction                                                    63,521,937                54,441,169
   Mortgage                                                       343,574,095               299,396,025
Consumer                                                           58,812,187                48,630,111
Other                                                               6,050,324                 5,609,448
                                                             -----------------     ---------------------
                  Total loans                                     541,539,925               476,109,833
Allowance for loan losses                                          (7,662,823)               (6,723,516)
                                                             -----------------     ---------------------
                  Total loans, net                               $533,877,102              $469,386,317
                                                             =================     =====================
</TABLE>


                  Included in real estate  mortgage  loans at December  31, 1999
         and 1998 are approximately $161,529,000 and $144,138,000, respectively,
         in 1 - 4 family residential loans.

                  Certain  officers and  directors,  and companies in which they
         have 10% or more  beneficial  ownership,  were indebted to the Banks in
         the aggregate  amount of $7,721,066 and $5,827,210 at December 31, 1999
         and 1998,  respectively.  During  1999,  additions  to such  loans were
         $5,440,188 and repayments totaled  $3,546,332.  These loans represented
         11.7% and 9.4% of the Company's total shareholders'  equity at December
         31, 1999 and 1998,  respectively.  In the opinion of management,  these
         loans do not involve  more than the normal risk of  collection,  nor do
         they present other unfavorable features.

                  Loans  past due 90 days or more and  still  accruing  interest
         totaled  $177,739 as of December  31, 1999 and  $111,272 as of December
         31, 1998,  while nonaccrual loans as of December 31, 1999 and 1998 were
         $2,615,553 and $1,432,086,  respectively.  Nonaccural loans at December
         31, 1999  consists  of 55 loans,  the largest of which had a balance of
         $677,600.  Nonaccrual  loans at December 31, 1998 consists of 61 loans,
         the largest of which had a balance of  $496,000.  Management  considers
         collateral on nonaccrual  loans to be adequate to avoid any significant
         losses on the loans, exclusive of allowance for loan losses. Additional
         interest of  approximately  $249,000 and $51,000 would have been earned
         in 1999 and  1998,  respectively,  if the  nonaccrual  loans as of each
         year-end had been earning  throughout each year.  Income of $23,000 and
         $77,817  was   recognized   on  these  loans   during  1999  and  1998,
         respectively.

                  The fair value of loans is estimated by discounting the future
         cash flows using the current rates at which similar loans would be made
         to borrowers  with similar  credit  ratings and for the same  remaining
         maturities.  The estimated  fair market value of loans  outstanding  is
         approximately  $538,251,000  and  $480,244,000 at December 31, 1999 and
         1998, respectively.

         5.  Allowance For Loan Losses

                  Changes in the  allowance  for loan losses for the years ended
         December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>

                                                                     1999                     1998                     1997
                                                            -------------------      -------------------      -------------------
<S>                                                                 <C>                      <C>                      <C>
Balance at beginning of year                                        $6,723,516               $5,837,328               $5,313,424
Charge-offs                                                           (857,859)                (680,309)                (638,266)
Recoveries                                                             141,966                  201,497                  164,837
                                                            -------------------      -------------------      -------------------
Net charge-offs                                                       (715,893)                (478,812)                (473,429)
                                                            -------------------      -------------------      -------------------
Provision for loan losses                                            1,655,200                1,365,000                  997,333
                                                            -------------------      -------------------      -------------------
Balance at end of  year                                             $7,662,823               $6,723,516               $5,837,328
                                                            ===================      ===================      ===================
</TABLE>



                  At December 31, 1999,  impaired loans totaled  $2,069,000,  of
         which all were on nonaccrual status, and their related reserve for loan
         losses totaled  $625,000.  The average carrying value of impaired loans
         was $1,370,000.  At December 31, 1998, impaired loans totaled $920,000,
         of which all were on nonaccrual  status,  and their related reserve for
         loan losses totaled  $399,000.  The average  carrying value of impaired
         loans  was  $820,000.  The  amount of  interest  income  recognized  on
         impaired loans was not considered material in 1999 or 1998.

         6.  Premises And Equipment

                  Major  classifications of these assets as of December 31, 1999
         and 1998 are as follows:
<TABLE>
<CAPTION>
                                                                     1999                 1998
                                                             -----------------     ----------------
<S>                                                                <C>                 <C>
     Land                                                          $3,029,395           $2,896,148
     Buildings and improvements                                     9,908,647            9,409,296
     Furniture, fixtures and equipment                             10,499,652           10,315,467
                                                             -----------------     ----------------
Total cost                                                         23,437,694          $22,620,911
Accumulated depreciation                                           10,765,256            8,958,173
                                                             -----------------     ----------------
Carrying value                                                     12,672,438          $13,662,738
                                                             =================     ================
</TABLE>


         7.  Liabilities

                  The fair  value of  noninterest-bearing  and  interest-bearing
         demand  deposits and,  savings and money market  deposits is the amount
         payable  on  demand  at the  reporting  date.  The  fair  value of time
         deposits is estimated using the rates currently offered for deposits of
         similar  remaining  maturities.  The  estimated  fair  market  value of
         deposits is approximately $666,499,000 and $652,617,000 at December 31,
         1999 and 1998, respectively.

                  Time deposits maturing in each of the five years subsequent to
         December   31,  1999  are  as  follows:   2000,   $240,348,000;   2001,
         $59,241,000; 2002, $11,875,000; 2003, $6,225,000; 2004, $1,104,000, and
         subsequent years, $27,000.

                  Short-term   borrowings  and  their  related  weighed  average
         interest rates at December 31 were:
<TABLE>
<CAPTION>
                                                            1999                                   1998
                                            ------------------------------------   ------------------------------------
                                                   Amount           Rate                   Amount            Rate
                                              ----------------  ------------           ----------------  ------------
                                                                         ($ in thousands)
<S>                                               <C>               <C>                    <C>              <C>
Repurchase agreements                             $ 11,351          4.70  %                $ 10,400         4.21  %
Repurchase transactions                             27,304          6.00                       -             -
Federal funds purchased                             10,785          5.13                       -             -
Other short-term borrowings                            605          4.92                        675         4.41
                                              ----------------   ------------          ----------------   -----------
                                                  $ 50,045          5.50  %                 $ 11,075        4.22  %
                                              ================   ============          ================   ===========
</TABLE>



                  Repurchase agreements generally are customer funds that mature
         daily. These funds, while backed by U.S. Government  securities,  which
         are held by  third-party  safekeepers,  are not  secured  by the  FDIC.
         Repurchase  transactions are a secured source of funding from primarily
         commercial  banks  characterized  by  the  sale  of  securities  with a
         simultaneous  agreement to repurchase such securities on an agreed upon
         future date. Other short-term  borrowings  represent Treasury,  tax and
         loan funds on deposit  and are  payable on demand to the U.S.  Treasury
         and are collateralized by U.S. Treasury securities.

                  The maximum short-term borrowings outstanding at any month end
         were:
<TABLE>
<CAPTION>
                                                                       1999                   1998
                                                               --------------------    ------------------
                                                                           ($ in thousands)
<S>                                                                    <C>                   <C>
Repurchase agreements                                                  $ 16,095              $ 13,620
Repurchase transactions                                                  30,000                     -
Federal funds purchased                                                  33,585                 6,600
Other short-term borrowings                                                 637                   753
Aggregate short-term borrowings                                          50,045                11,075
</TABLE>



                  Average short-term  borrowings during 1999, 1998 and 1997 were
         $24,989, $9,084 and $7,221, respectively. The average interest rates on
         short-term borrowings during 1999, 1998, and 1997 were 5.21%, 5.49% and
         4.86%, respectively.

                  Interest expense on short-term  borrowings for the years ended
         December 31, were:
<TABLE>
<CAPTION>
                                                             1999              1998              1997
                                                      -----------------  -----------------  ---------------
                                                                          ($ in thousands)
<S>                                                         <C>              <C>               <C>
Repurchase agreements                                       $ 584            $ 437             $ 275
Repurchase transactions                                       200                -                 -
Federal funds purchased                                       498               32                39
FHLB advances                                                   -                6                21
Other short-term borrowings                                    19               24                16
                                                       -------------     -------------     -------------
                                                          $ 1,301            $ 499             $ 351
                                                       =============     =============     =============
</TABLE>



                  Of the Banks $46.9  million  federal  funded  lines of credit,
         $36.1  million was  available  at December  31,  1999.  These lines are
         maintained at various financial institutions. Such lines are subject to
         annual renewal and bear varying interest rates.

         8.  Branch Acquisitions

                  In  1998,   the  Company   acquired  one  branch  office  with
         approximately $9.0 million in deposits.  This acquisition was accounted
         for as a purchase  and the excess of the  purchase  price over the fair
         value  of the  assets  and the  core  deposits  produced  approximately
         $670,000  in goodwill  and  $195,000 in deposit  based  premiums.  Such
         amounts are  included in other  assets and deposit  based  premiums are
         amortized  on an  accelerated  basis  over 10  years  and  goodwill  is
         amortized on a  straight-line  basis over 25 years.  Total goodwill was
         $4,549,154  and  $4,839,733 at the end of 1999 and 1998,  respectively.
         Total deposit based premiums were  $1,015,798 and $1,313,622 at the end
         of 1999 and 1998, respectively.

9.       Income Taxes

                  Income tax expense consists of:
<TABLE>
<CAPTION>

                                                  Current                Deferred               Total
                                              -----------------      -----------------     ----------------
<S>                                                 <C>                     <C>                 <C>
     Year ended December 31, 1999
          Federal                                   $4,541,363              ($448,212)          $4,093,151
          State                                         97,970                (61,035)              36,935
                                              -----------------      -----------------     ----------------
               Total                                $4,639,333              ($509,247)          $4,130,086
                                              =================      =================     ================

     Year ended December 31, 1998
          Federal                                   $4,386,184              ($584,781)          $3,801,403
          State                                        413,622               (114,582)             299,040
                                              -----------------      -----------------     ----------------
               Total                                $4,799,806              ($699,363)          $4,100,443
                                              =================      =================     ================

     Year ended December 31, 1997
          Federal                                   $3,796,329              ($565,699)          $3,230,630
          State                                        465,093               (205,582)             259,511
                                              -----------------      -----------------     ----------------
               Total                                $4,261,422              ($771,281)          $3,490,141
                                              =================      =================     ================
</TABLE>


                  A  reconciliation  of total  income tax  expense for the years
         ended December 31, to the amount of tax expense computed by multiplying
         income before income taxes by the statutory  federal income tax rate of
         34 percent for 1997 and 35 percent for 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
                                                                              1999                 1998                1997
                                                                     ------------------    ----------------    ----------------
<S>                                                                         <C>                 <C>                 <C>
Tax provision at statutory rate                                             $4,517,062          $3,783,280          $3,471,715
Increase (reduction) in income taxes resulting from:
     Tax-exempt interest income                                               (148,134)           (126,217)           (160,883)
     Merger expenses                                                        ---                    432,007           ---
     Change in the beginning-of-the-year balance of the
        valuation allowance for deferred tax assets allocated
        to income tax expense                                               ---                  ---                   (71,355)
     State income taxes, net of federal tax benefit                             24,008             194,376             171,278
     Other                                                                    (262,850)           (183,003)             79,386
                                                                     ------------------    ----------------    ----------------
            Total Income taxes                                              $4,130,086          $4,100,443          $3,490,141
                                                                     ==================    ================    ================
</TABLE>

                  The tax  effects of  temporary  differences  that give rise to
         significant  portions of the deferred tax assets and  (liabilities)  at
         December 31, 1999 and 1998, respectively are presented below:
<TABLE>
<CAPTION>

                                                                                  1999              1998
                                                                            ---------------   ----------------
<S>                                                                             <C>                <C>
Deferred tax assets:
     Loan loss reserves.                                                        $3,030,648         $2,607,716
     Accrued expenses, deductible when paid                                      ---                  153,601
     Deferred compensation                                                         826,085            684,202
     Intangible assets                                                             186,461            158,795
     Unrealized losses on securities available for sale                          1,368,236          ---
     Other                                                                         175,640            105,184
                                                                            ---------------   ----------------
       Total gross deferred tax assets.                                          5,587,070          3,709,498
       Less valuation allowance                                                  ---                ---
                                                                            ---------------   ----------------
       Net deferred tax assets                                                   5,587,070          3,709,498
                                                                            ---------------   ----------------
Deferred tax (liabilities):
     Bad debt reserve recapture, tax accounting adjustment                        (230,155)          (290,189)
     Financial reporting stock basis in excess of tax basis                       (180,981)          (177,480)
     Depreciable basis of fixed assets                                            (101,709)          (232,622)
     Unrealized  gain on securities available for sale                           ---                 (430,876)
     Other                                                                        (266,300)           (78,765)
                                                                            ---------------   ----------------
       Total gross deferred tax liability                                         (779,145)        (1,209,932)
                                                                            ---------------   ---------------
Net deferred tax asset included in other assets                                 $4,807,925         $2,499,566
                                                                            ===============   ================
</TABLE>




                  A portion of the change in the net deferred tax asset  relates
         to unrealized  gains and losses on securities  available for sale.  The
         related  current  period  deferred tax benefit of  $1,799,112  has been
         recorded directly to shareholders' equity. The balance of the change in
         the net deferred tax asset results from the current period deferred tax
         benefit of $509,247. It is management's  contention that realization of
         the net  deferred  tax asset is more  likely  than not,  based upon the
         Company's  history of taxable  income and  estimates of future  taxable
         income.

         10.  Shareholders' Equity

                  Earnings per share - Basic net income per share is computed by
         dividing net income by the  weighted  average  number of common  shares
         outstanding  for the period.  Diluted net income per share reflects the
         potential  dilution  that could occur if the Company's  dilutive  stock
         options were exercised. The numerator of the basic net income per share
         computation  is the same as the numerator of the diluted net income per
         share  computation for all periods  presented.  A reconciliation of the
         denominator of the basic net income EPS computation is as follows:
<TABLE>
<CAPTION>
                                                                                    1999              1998               1997
                                                                                -------------    -------------    -------------
<S>                                                                               <C>               <C>              <C>
Basic  EPS  denominator:   weighted  average  number  of shares outstanding       5,982,099         5,908,855        5,613,139
Dilutive  effect arising from assumed  exercise of stock options                     88,315           150,933           68,680
                                                                                -------------    -------------    -------------
Diluted EPS denominator                                                           6,070,414         6,059,788        5,681,819
                                                                                =============    =============    =============
</TABLE>


                  Stock Based Compensation -- In 1990, the Board of Directors of
         the Company  adopted the Carolina  First  BancShares,  Inc.  1990 Stock
         Option  and Stock  Appreciation  Rights  Plan (the  "1990  Plan"),  and
         certain  amendments to the 1990 Plan were approved in 1991 and again in
         1999 (as amended,  "the Plan").  In January  1991,  stock  appreciation
         rights were granted in accordance with the 1990 Plan. These rights were
         granted at market  value on the date of the grant and 20% of each grant
         becomes  exercisable  on each  anniversary of the date of the grant and
         expires five years after they become  exercisable.  Stock  appreciation
         rights  totaling 36,769 are currently  outstanding,  with a measurement
         price of $4.28.  The  expense  related to these  rights is  included in
         compensation  expense and for the years ended  December 31, 1999,  1998
         and 1997 was $182,970, $92,181 and $826,606, respectively.

                  Since  inception  of the Plan,  options to purchase  shares of
         Company  common stock have been granted to key employees of the Company
         and 545,500 such options are still available.  The Plan  provides  that
         options are granted at market value on the date of the grant and 20% of
         each grant becomes  exercisable on each  anniversary of the date of the
         grant.  All  currently  outstanding  options  have been  granted  for a
         ten-year  term,  unless the recipient  leaves the Company's  employment
         earlier. A summary of all stock option activity for 1999 and the status
         at December  31, 1999  follows.  All share and per share  amounts  give
         retroactive  effect  to stock  dividends  and  splits  declared  by the
         Company.

         Employee Stock Option Plan:
<TABLE>
<CAPTION>

                                                    Outstanding Options              Exercisable Options
                                         -------------------------------------------------------------------
                                                               Average                           Average
                                             Shares        Option Price        Shares        Option Price
                                         ---------------  ----------------  --------------  ----------------
<S>                                          <C>                <C>            <C>                <C>
Balance, December 31, 1996                   289,145             $6.39         178,330             $5.17
Additional Options Granted                    10,120             16.75           ---                ---
Became Exercisable                             ---               ---            40,022              6.06
Less:
   Exercised.                                (20,141)             3.88         (20,141)             3.88
   Forfeited                                  (1,794)             8.09            (960)            11.46
                                      ---------------  ----------------  --------------  ----------------
Balance, December 31, 1997                   277,330            $11.96         197,251             $5.62
Additional Options Granted                    21,395             27.32          ---                 ---
Became Exercisable                             ---               ---            18,372              8.61
Less:
   Exercised.                                (77,253)             5.01         (77,253)             5.01
   Forfeited                                  (6,537)             9.03          ---                 ---
                                      ---------------  ----------------  --------------  ----------------
Balance, December 31, 1998                   214,935             $9.50         138,370             $6.18
Additional Options Granted                    22,155             23.05          22,949             12.44
Less:
   Exercised.                                (68,579)             6.06         (68,579)             6.06
   Forfeited                                  (5,651)             9.76          (1,883)             9.76
                                      ---------------  ----------------  --------------  ----------------
Balance, December 31, 1999                   162,860            $13.36          90,857            $10.47
                                      ===============  ================  ==============  ================
</TABLE>




                  The following table summarizes  information  about fixed stock
         options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
                                                              Options Outstanding
                                   ------------------------------------------------------------------------
                                             Number              Weighted-Average
                    Range of              Outstanding               Remaining          Weighted-Average
                 Exercise Prices          At 12/31/99           Contractual Life        Exercise Price
              ----------------------    ----------------      --------------------    -----------------
                       <S>                      <C>                   <C>                <C>
                       Less than $5              44,376               3.00 yrs.           $4.18
                             5 to 9              25,461               2.76                 7.87
                           10 to 13              38,252               6.29                11.34
                           14 to 19               8,800               7.23                15.45
                           20 to 24              18,250               9.21                21.88
                           25 to 31              27,721               8.87                27.03
              ----------------------    ----------------      --------------------    ---------------
                           $1 to 31             162,860               5.66 yrs.          $13.36
              ======================    ================      ====================    ===============
</TABLE>

                  The company  applies APB Opinion 25 in accounting for its Plan
         and,  accordingly,  no  compensation  cost has been  recognized for its
         stock options in the financial  statements.  Had the Company determined
         compensation  cost  based on the fair  value at the grant  date for its
         stock  options  under SFAS No. 123, the Company's net income would have
         been reduced to the proforma amounts indicated below.

                  The  weighted-average  fair value per share of options granted
         in 1999 and 1998  amounted  to $14.27 and  $10.96,  respectively.  Fair
         values  were  estimated  on the date of grant  using the  Black-Scholes
         Option-Pricing Model with the following weighted average assumptions:
<TABLE>
<CAPTION>
                                              1999             1998
                                         ---------------  ----------------
<S>                                      <C>               <C>
Risk-free intesest rate                       5.17%             4.56%
Dividend yield                                 1.38                 1
Volatility                                    73.99                20
Expected life                               6 years           7 years

Net Income
   As reported                           $8,775,805        $6,708,929
   Pro forma                              8,656,780         6,632,906

Net Income per share
   As reported - diluted                      $1.45             $1.11
   Pro forma - diluted                         1.43              1.09
</TABLE>

                  Pro forma net  income  reflects  only  options  granted  since
         December 31, 1994. Therefore,  the effects of applying SFAS No. 123 pro
         forma  disclosures  during  the  initial  phase-in  period  may  not be
         representative of the effects on reported net income in future years.

         11.  Benefit Plans

                  The Company sponsors a contributory profit-sharing plan, which
         provides for participation by substantially all employees. Participants
         may make  voluntary  contributions  resulting  in salary  deferrals  in
         accordance  with Section 401(k) of the Internal  Revenue Code. The plan
         provides  for  employee  contributions  up to 15% of the  participant's
         annual  salary and an  employer  contribution  of 50%  matching  of the
         employee   contribution   up  to  6%  of  the   participant's   salary.
         Contributions  to the plan for the years ended December 31, 1999, 1998,
         and 1997 were $912,525, $793,500 and $703,000, respectively.

                  A  deferred  compensation  plan  allows the  directors  of the
         Company  and  the  Banks  to  defer  the  compensation  they  earn  for
         attendance  at  meetings  of the  Board  or  various  committees.  Each
         director  elects  annually to either  receive that year's  compensation
         currently or to defer receipt until his death, disability or retirement
         as a  director.  The amount  deferred  is  credited  to the  director's
         account and invested in various options  available  through the Lincoln
         Bank Trust Department.  The obligation of the Company under the plan is
         fully funded.

                  The Company does not provide  benefits  contemplated  by  SFAS
         No. 106,  "Employers'  Accounting  for  Post-retirement Benefits  Other
         Than Pensions".

         12.  Regulation And Regulatory Restrictions

                  As a bank holding company, Carolina First BancShares,  Inc. is
         regulated by the Federal  Reserve.  The Company also must file periodic
         reports with, and comply with securities regulations of, the Securities
         and Exchange  Commission.  The Banks are subject to the  regulations of
         the FDIC, the North  Carolina State Banking  Commission and the Federal
         Reserve.

                  The primary  source of funds for payment of  dividends  by the
         Company is excess cash or dividends  received for the Banks. The Banks,
         as North Carolina banking  corporations,  may pay dividends only out of
         retained earnings as determined  pursuant to the North Carolina General
         Statutes.  As of December  31, 1999,  the Banks had  combined  retained
         earnings of approximately $42,129,000,  all of which is available to be
         paid as dividends without prior regulatory approval, provided the Banks
         maintain adequate capital.

                  The  Company is required  by federal  regulations  to maintain
         various  ratios of  capital  to  assets.  Failure  to meet the  minimum
         capital  requirements  can  initiate  certain  mandatory - and possible
         additional  discretionary - actions by regulators  that, if undertaken,
         could  have  a  direct  material  effect  on  the  Company's  financial
         statements.  Under  capital  adequacy  guidelines  and  the  regulatory
         framework for prompt corrective  action, the Company must meet specific
         capital guidelines that involve quantitative  measures of the Company's
         assets, liabilities,  and certain off-balance-sheet items as calculated
         under regulatory  accounting  practices.  The Company's capital amounts
         and  classification  are also subject to qualitative  judgements by the
         regulators about components, risk weightings, and other factors.

                  Quantitative  measures  established  by  regulation  to ensure
         capital  adequacy  require the Company to maintain  minimum amounts and
         ratios  (set forth in the table  below) of total and Tier I capital (as
         defined in the regulations) to risk-weighted  assets (as defined),  and
         of Tier I capital to average assets (as defined).  Management  believes
         that, as of December 31, 1999,  the Company meets all capital  adequacy
         requirements to which it is subject.

                  As of December  31,  1999,  the  Company was well  capitalized
         under the  regulatory  framework for prompt  corrective  action.  To be
         categorized as well  capitalized,  a bank holding company must maintain
         at least the minimum total  risk-based,  Tier I risk-based,  and Tier I
         leverage  ratios  as set  forth  in  the  table.  There  have  been  no
         conditions or events since that notification  that management  believes
         have changed the institution's category.

                  The table below also presents the actual  capital  amounts and
         ratios for the Company, Lincoln Bank, Cabarrus Bank, and Community Bank
         as computed for regulatory purposes.
<TABLE>
<CAPTION>
                                                                                                                 To Be Well
                                                                                                              Capitalized Under
                                                                                 For Capital                  Prompt Corrective
                                              Actual                       Adequacy Purposes:                Action Provisions:
                                     --------------------------   ----------------------------------    ----------------------------
                                        Amount         Ratio             Amount           Ratio              Amount         Ratio
                                     --------------  ----------   ------------------  --------------    ----------------  ----------
<S>                                    <C>               <C>      <C>   <C>          <C>       <C>      <C> <C>           <C> <C>
As of December 31, 1999:

Total Capital (to Risk Weighted Assets)

           Consolidated                $69,386,000       13.1%    >     $42,305,104   >        8.0%
                                                                  ---                 --
               Lincoln Bank             45,326,000       12.3%    >      29,536,774   >        8.0%     >   $36,920,968   >   10.0%
                                                                  ---                 --                --                ---
               Cabarrus Bank            14,483,000       11.5%    >      10,109,664   >        8.0%     >    12,637,080   >   10.0%
                                                                  ---                 --                --                ---
               Community Bank            8,124,000       14.0%    >       4,652,450   >        8.0%     >     5,815,563   >   10.0%
                                                                  ---                 --                --                ---
Tier I Capital (to Risk Weighted Assets)

           Consolidated                $62,787,000       11.9%    >     $21,152,552   >        4.0%
                                                                  ---                 --
               Lincoln Bank             40,706,000       11.0%    >      14,768,387   >        4.0%     >   $22,152,581   >    6.0%
                                                                  ---                 --                --                ---
               Cabarrus Bank            12,900,000       10.2%    >       5,054,832   >        4.0%     >     7,582,248   >    6.0%
                                                                  ---                 --                --                ---
               Community Bank            7,397,000       12.7%    >       2,326,225   >        4.0%     >     3,489,338   >    6.0%
                                                                  ---                 --                --                ---
Tier I Capital (to Average Assets)

           Consolidated                $62,787,000        8.3%    >     $30,136,600   >        4.0%
                                                                  ---                 --
               Lincoln Bank             40,706,000        8.4%    >      19,308,360   >        4.0%     >   $24,135,450   >    5.0%
                                                                  ---                 --                --                ---
               Cabarrus Bank            12,900,000        7.7%    >       6,666,680   >        4.0%     >     8,333,350   >    5.0%
                                                                  ---                 --                --                ---
               Community Bank            7,397,000        6.6%    >       4,470,080   >        4.0%     >     5,587,600   >    5.0%
                                                                  ---                 --                --                ---

As of December 31, 1998:

Total Capital (to Risk Weighted Assets)

           Consolidated                $61,098,000       12.8%    >     $38,145,000   >        8.0%
                                                                  ---                 --
               Lincoln Bank             37,175,000       11.8%    >      25,195,000   >        8.0%     >   $31,493,000   >   10.0%
                                                                  ---                 --                --                ---
               Cabarrus Bank            12,614,000       10.7%    >       9,429,000   >        8.0%     >    11,786,000   >   10.0%
                                                                  ---                 --                --                ---
               Community Bank            7,326,000       13.0%    >       4,493,000   >        8.0%     >     5,616,000   >   10.0%
                                                                  ---                 --                --                ---
Tier I Capital (to Risk Weighted Assets)
           Consolidated                $55,128,000       11.6%    >     $19,072,000   >        4.0%
                                                                  ---                 --
               Lincoln Bank             33,235,000       10.6%    >      12,597,000   >        4.0%     >   $18,896,000   >    6.0%
                                                                  ---                 --                --                ---
               Cabarrus Bank            11,138,000        9.5%    >       4,714,000   >        4.0%     >     7,072,000   >    6.0%
                                                                  ---                 --                --                ---
               Community Bank            6,623,000       11.8%    >       2,247,000   >        4.0%     >     3,370,000   >    6.0%
                                                                  ---                 --                --                ---
Tier I Capital (to Average Assets)
           Consolidated                $55,128,000        8.3%    >     $26,553,000   >        4.0%
                                                                  ---                 --
               Lincoln Bank             33,235,000        7.6%    >      17,606,000   >        4.0%     >   $22,007,000   >    5.0%
                                                                  ---                 --                --                ---
               Cabarrus Bank            11,138,000        7.0%    >       6,345,000   >        4.0%     >     7,932,000   >    5.0%
                                                                  ---                 --                --                ---
               Community Bank            6,623,000        6.5%    >       4,058,000   >        4.0%     >     5,072,000   >    5.0%
                                                                  ---                 --                --                ---

</TABLE>


         13.  Commitments And Contingent Liabilities

                  In the normal course of business there are various commitments
         and contingent  liabilities  outstanding which are not reflected in the
         accompanying consolidated financial statements.  The Company's exposure
         to credit loss in the event of nonperformance by the other party to the
         financial  instrument  for  commitments  to extend  credit and  standby
         letters  of  credit  is  represented  by the  contract  amount of these
         transactions.  Management does not expect any material loss as a result
         of these  transactions.  The following is a summary of commitments  and
         contingent liabilities:
<TABLE>
<CAPTION>

                                                                                       December 31,
                                                                             1999                     1998
                                                                      --------------------------------------------
<S>                                                                     <C>                       <C>
Commitments for additional loans                                        $143,337,000              $127,931,000
Standby letters of credit                                                  1,996,000                 1,445,000
                                                                      ===================     ====================
</TABLE>

                  The Banks make contractual commitments to extend credit, which
         are  legally   binding   agreements  to  lend  money  to  customers  at
         predetermined  interest rates for a specified  period of time. The same
         credit  standards used in the lending  process are applied when issuing
         these  commitments.  Additional risks arise when these  commitments are
         drawn  upon,  such  as  the  demands  on  the  Banks'  liquidity  if  a
         significant  portion  were  drawn  down at  once.  This  is  considered
         unlikely as many commitments expire without being used.

                  The fair value of  commitments  to extend credit is considered
         to approximate  carrying value, since the large majority of these would
         result in loans that have variable rates and/or  relatively short terms
         to maturity.  For other  commitments,  generally of a short-term nature
         the carrying  value is considered  to be a reasonable  estimate of fair
         value.

                  Minimum operating lease payments due in each of the five years
         subsequent to December 31, 1999 are as follows:  2000, $717,000;  2001,
         $698,000; 2002, $654,000; 2003, $427,000; 2004, $379,000 and subsequent
         years,  $1,830,000.  Rental  expense for all  operating  leases for the
         three  years  ended  December  31,  1999,  1998 and 1997 was  $746,000,
         $665,000 and $426,000, respectively.

<PAGE>
         14.  Condensed Balance Sheet
                Parent Company Only
<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                           --------------------------------
Condensed Balance Sheet                                                        1999              1998
Assets:                                                                    --------------    --------------
<S>                                                                          <C>               <C>
      Cash on deposit with subsidiary banks                                     $527,507          $639,052
      Investment in subsidiary banks                                          64,299,935        57,597,401
      Other investments                                                        1,088,635         1,289,887
      Other assets                                                             2,385,870         5,149,521
                                                                           --------------    --------------
         Total                                                               $68,301,947       $64,675,861
                                                                           ==============    ==============
Liabilities                                                                   $2,330,705        $2,698,130
Shareholders' equity                                                          65,971,242        61,977,731
                                                                           --------------    --------------
                                                                             $68,301,947       $64,675,861
                                                                           ==============    ==============
</TABLE>

<TABLE>
<CAPTION>
                                                                      Years ended December 31,
                                                            --------------------------------------------------
                                                                1999              1998              1997
                                                            --------------    --------------    --------------
<S>                                                            <C>               <C>              <C>
Condensed Results of Operations
Equity in earnings of subsidiary Banks:
      Dividends                                                $1,500,000          ---             $3,807,871
      Undistributed                                             9,364,634        $8,005,656         3,877,921
Other expense, net                                             (2,088,829)       (1,296,727)         (965,007)
                                                            --------------    --------------    --------------
Net income                                                     $8,775,805        $6,708,929        $6,720,785
                                                            ==============    ==============    ==============

Condensed Cash Flow Cash flows from operating activities:
      Net income                                               $8,775,805        $6,708,929        $6,720,785
Adjustments to reconcile net income to net cash provided by
      (used in) operating activities:
      Equity in undistributed earnings of subsidiary banks     (9,364,634)       (8,005,656)       (3,877,921)
      Decrease (Increase) in other assets                       2,842,019          (268,185)       (3,952,290)
      Settlement of merger-related claims                        ---                215,138          ---
      Increase (decrease) in liabilities                         (367,425)           87,962         1,277,295
                                                           --------------    --------------    --------------

Net cash provided by (used in) operating activities             1,885,765        (1,261,812)          167,869
                                                           --------------    --------------    --------------

Cash flows from investing activities:
      Purchase of investments                                    ---               (349,500)         (150,000)
      Proceeds from sales of investments                         ---                349,657           539,085
      Originations of loans, net                                 ---             (2,018,419)         (347,588)
                                                            --------------    --------------    --------------

Net cash provided by (used in) investing activities              ---             (2,018,262)           41,497
                                                            --------------    --------------    --------------

Cash flows from financing activities:
      Proceeds from issuance of common stock.                     394,088           506,756         5,853,403
      Dividends and fractional shares paid                     (2,285,898)       (1,657,723)       (1,331,194)
      Other,net                                                  (105,500)         (121,942)          (41,704)
                                                            --------------    --------------    --------------

Net cash provided by (used in) financing activities           (1,997,310)       (1,272,909)        4,480,505
                                                            --------------    --------------    --------------

Net increase (decrease) in cash...............                  (111,545)       (4,552,983)        4,689,871
Cash at beginning of year                                        639,052         5,192,035           502,164
                                                            --------------    --------------    --------------

Cash at end of year                                             $527,507          $639,052        $5,192,035
                                                            ==============    ==============    ==============
</TABLE>


         15.  Merger

                  On November 7, 1999, First Charter Corporation ("FCC") and the
         Company entered into an Agreement and Plan of Merger, pursuant to which
         Carolina  First will be merged  into FCC and each share of the  Company
         common stock will be converted  into the right to receive  2.267 shares
         of FCC  common  stock.  The merger is  expected  to close in the second
         quarter of 2000, subject to a number of conditions,  including approval
         of regulatory  authorities  and the  stockholders of Carolina First and
         FCC.

         Item 9.    Changes In and Disagreement with Accountants on Accounting
                    and Financial Disclosure

                  Not applicable

         Item 10.  Directors And Executive Officers

<TABLE>
<CAPTION>

         DIRECTORS
         Name, Age and Year First
         Elected or Appointed as a    Positions and Offices Held With the Company and
         Director                     Business Experience During the Past Five Years
         ---------------------------- ----------------------------------------------------------------------------------
         <S>                          <C>
         Harold D. Alexander (64)     Mr. Alexander is the President and owner of Young & Alexander,  Inc.  (electrical
         1999                         contractor).  He is the Chairman of Community  Bank & Trust Co. and has served as
                                      a director of Community Bank & Trust Co. since 1987.

         James E. Burt, III (62)      Mr.  Burt has been  President  of the  Company  since  1990 and  Chief  Executive
         1990                         Officer of the Company  since  1998.   Mr. Burt  has  been  a director of Lincoln
                                      Bank since 1990.  Mr. Burt served as  President  and Chief  Executive  Officer of
                                      Lincoln  Bank from 1990 to 1998.  Mr. Burt has also been a director  of  Cabarrus
                                      Bank since 1992,  First  Gaston Bank of North  Carolina  since 1995 and Community
                                      Bank & Trust Co. since 1999.

         Charles A. James (53)        Mr. James  served as a director of CK Federal from 1983 to 1993 and  subsequently
         1998                         to 1998 when it was  acquired by South Trust Bank of North  Carolina.  Mr.  James
                                      is the President of Mt. Pleasant  Insurance Agency; the President of Mt. Pleasant
                                      Enterprises,  Inc., a land development  company;  director of Albemarle  Knitting
                                      Corp.; Co-owner of Mt. Pleasant Bonded Warehouse;  Partner of All Secure Storage;
                                      Partner of North  Branch  Properties,  a real estate  investment,  and Partner of
                                      Earnhardt Interchange Properties,  a real estate/land  investment.  He has served
                                      as a director of Cabarrus Bank since 1998.

         Walter H. Jones, Jr. (58)    Mr. Jones is a partner in the law firm of  Homesley,  Jones,  Gaines,  Homesley &
         1999                         Dudley;  Chairman  of the  Mooresville  Board of  Elections;  and has  served  as
                                      President of the  Mooresville  Jaycees,  and the Iredell County Bar  Association.
                                      Mr.  Jones is an  elder  of First  Presbyterian  Church  of  Mooresville.  He has
                                      served as a director Lincoln Bank since 1995.

         Samuel C. King, Jr. (52)     Mr. King has been  President  of King's  Office  Supply,  Inc.  since  1977;  and
         1989                         President of King Cain,  Inc.,  d/b/a Mail Boxes Etc.  since 1998.  He has served
                                      as a director  of Lincoln  Bank since 1983 and as Vice Chairman  of  Lincoln Bank
                                      since 1992.

         Jack L. Lutz (62)            Mr. Lutz is President of Lutz  Corporation,  d/b/a Lutz Petroleum,  Spindale,  NC
         1999                         d/b/a Lutz Leasing,  Shelby,  NC;  Co-owner of L&L Partnership  (commercial  real
                                      estate);  Owner of J.L. Rentals  (apartment  rentals);  and President of the Lutz
                                      Foundation.  Mr.  Lutz  also  serves  as a  director  of  several  petroleum  and
                                      environmental  companies.  He has been a director of  Community  Bank & Trust Co.
                                      since 1987.

         John H. Morrison, Jr. (56)   Mr. Morrison is 50%  owner of  E.L. Morrison Lumber Company.    He  has served as
         1999                         director of Cabarrus Bank since 1985.

         Harry D. Ritchie (66)        Mr.  Ritchie is  retired.  He has been the owner of Ritchie  Brothers  Dairy Farm
         1989                         since 1955.  He has served as a director of Lincoln Bank since 1983.

         Thomas M. Robbins (65)       Mr.  Robbins is the former  Secretary & Treasurer of Tri-City  Concrete Co., Inc.
         1999                         (ready mix concrete  sales);  former Co-owner of  Rutherfordton  Properties (real
                                      estate  rentals)  and Robbins  Leasing  (equipment  rentals).  He is  currently a
                                      member of the  Economic  Development  Commission  of  Rutherford  County.  He has
                                      served as a director of Community Bank & Trust Co. since 1987.

         L.D. Warlick, Jr. (60)       Mr.  Warlick was elected  Chairman of the Company on March 18, 1999.  Mr. Warlick
         1992                         is the  President  of Warlick  Funeral  Home,  Lincolnton,  North  Carolina.  Mr.
                                      Warlick  is a past President of the Lincolnton  Rotary  Club   and   the  Lincoln
                                      County  Chapter of the American Red Cross; a past  President  of  Lincoln Medical
                                      Center Board of Directors; and is a past Chairman of the  Lincoln  County  United
                                      Way. He has served as a director of Lincoln Bank since 1983.

         Estus B. White (69)          Mr.  White is  retired.  He is the  former  owner of  White's  Office  Supply and
         1992                         Printing Co. of  Kannapolis  and Concord.  He is a former  member of the Cabarrus
                                      County Board of Education and a former  Cabarrus County  Commissioner.  He is the
                                      retired  Clerk  of  Superior  Court  for  Cabarrus  County.  He has  served  as a
                                      director of Cabarrus Bank since 1980.
</TABLE>
<TABLE>
<CAPTION>
         EXECUTIVE
         OFFICERS
         --------                       Positions and Offices Held With the Company and
         Names and Ages                 Business Experience During the Past Five Years
         ------------------------------ -----------------------------------------------------------------------------
         <S>                            <C>


         James R. Beam (59)             Mr. Beam has served as an  executive  officer of Lincoln Bank since 1984 and
                                        as President and Chief Executive Officer since 1998.

         Stephen S. Robinson (51)       Mr.  Robinson has served as Executive  Vice  President of Lincoln Bank since
                                        1992 and as a Senior Vice President from 1986 to 1992.

         Ronald D. Smith (52)           Mr.  Smith has served as an  executive  officer of Cabarrus  Bank since 1992
                                        and as President and Chief Executive Officer since 1994.

         Jan H. Hollar (44)             Ms. Hollar has served as a Senior Vice President,  Chief Financial  Officer,
                                        Treasurer  and  Secretary  of the  Company  since  1999 and  served  as Vice
                                        President,  Treasurer  and  Secretary of the Company from 1990 to 1999.  Ms.
                                        Hollar also serves as a Senior Vice  President and Chief  Financial  Officer
                                        of Lincoln Bank, Cabarrus Bank and Community Bank & Trust Co.

         Joy G. Keever (63)             Ms.  Keever  has served as Vice  President-Human  Resources  of the  Company
                                        since 1996 and has served as Vice  President of  Administration  for Lincoln
                                        Bank since 1986.

         James H. Mauney (52)           Mr.  Mauney  has  served  as  Vice  President-Credit  Administration  of the
                                        Company  since  February   1996.  Mr.  Mauney  served  as  Vice   President,
                                        Construction Lending Manager,  Credit Policy Officer and Loan Review Manager
                                        of Hibernia  National  Bank,  in New Orleans,  Louisiana  from February 1988
                                        until February 1996.
</TABLE>


         Section 16(a) Compliance

                  The Company is required to identify  each  director or officer
         who failed to file timely with the Securities and Exchange Commission a
         required  report  relating to ownership and changes in ownership of the
         Company's  securities.  Based on material provided to the Company,  the
         Company believes that all such filing  requirements with respect to the
         Company's fiscal year ended December 31, 1999 were complied with.

         Item 11.  Executive Compensation

                  The  following  table sets  forth,  for each of the last three
         years,  certain  elements of compensation for each person who served as
         the Chief  Executive  Officer  during  fiscal year 1999 and each of the
         four most  highly-compensated  executive  officers  whose total  annual
         salary and bonus exceeded  $100,000 in fiscal year 1999  (collectively,
         the "Named Executive Officers"):

<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE
                                                                                                  SECURITIES
                                                                            OTHER ANNUAL          UNDERLYING
                NAME AND                        SALARY     BONUS (1)      COMPENSATION (2)     OPTIONS/SARs (3)
           PRINCIPAL POSITION         YEAR         $           $                 $                    #
                  ( a )              ( b )       ( c )       ( d )             ( e )                ( f )
        <S>                           <C>       <C>            <C>            <C>                  <C>
        James E. Burt, III
        President and                 1999      $157,638       $32,824        $26,153               ---
        Chief Executive Officer,      1998       153,885        32,066         23,190               ---
        President of Lincoln Bank     1997       147,966        38,100         27,419               ---

        James R. Beam
        Chief  Executive  Officer     1999      $112,000       $11,761        $17,446               ---
        of                            1998       102,664        10,552         16,141              5,000
        Lincoln Bank (since           1997        95,163        12,960         15,597               ---
        November 1998)

        Stephen S. Robinson           1999      $106,241       $12,876        $16,317               ---
        Executive Vice President      1998       100,536        10,933         15,232               ---
        Of Lincoln Bank               1997        95,683        12,960         14,886               ---

        Ronald D. Smith
        President and Chief           1999      $107,091        $9,695        $14,699               ---
        Executive Officer of          1998       101,702        10,621         14,244               ---
        Cabarrus Bank                 1997        96,526        13,442         14,089               ---

        Jan H. Hollar                 1999       $90,000       $10,466        $12,147               3,300
        Senior   Vice   President     1998        76,352         9,211         11,103               ---
        and    Chief    Financial     1997        72,235        11,115         10,848               ---
        Officer
</TABLE>


(1)      Bonus  amounts  are  comprised  of cash  payments  in  accordance  with
         guidelines   approved  by  the  Company's   Compensation  and  Benefits
         Committee.
(2)      Amounts shown consist of the  Company's  contribution  to the Company's
         Profit  Sharing  Plan  and th e  Company's  contribution  matching  the
         participant's  contributions  to such plan, and amounts  contributed by
         the Company  pursuant to the  Deferred  Compensation  Plan for Carolina
         First BancShares, Inc. and Subsidiaries on behalf of Messrs. Beam, Burt
         and Robinson,  with respect to fees paid for  attendance at meetings of
         the Board of Directors of Lincoln Bank.
(3)      Stock options were granted  pursuant to the Company's 1990 Stock Option
         and Stock Appreciation Rights Plan.

<TABLE>
<CAPTION>
                            Option/SAR Grants in 1999

                                Individual Grants
                                            Percent of
                                 Number of Total
                             Securities      Options/
                             Underlying        SARs      Exercise                     Potential Realizable Value
                              Options/      Granted to    Or Base                     At Assumed Annual Rates of
                                SARs        Employees      Price       Expir-        Stock Price Appreciation for
        Name                 Granted (#)     In 1999      ($/Sh)     ation date               Option Term
                                                                                        5%                  10%
                                                                                                 ($)
               (a)               (b)           (c)          (d)          (e)           (f)                  (g)
        <S>                     <C>            <C>       <C>         <C>             <C>                 <C>

        Jan H. Hollar           3,300          15%       $25.45       01/06/09       $64,477             $141,671
</TABLE>

                     Aggregated Option/SAR Exercises in 1999
                       And 1999 Year-End Option/SAR Values

                  The following table shows stock option  exercises by the named
         executive officers during 1999,  including the aggregate value of gains
         on the date of exercise. In addition, this table includes the number of
         shares covered by both  exercisable and  non-exercisable  options as of
         December 31,  1999.  Also  reported  are the values for  "in-the-money"
         options, which represent the positive spread between the exercise price
         of any such  existing  options and the year-end  price of the Company's
         Shares.
<TABLE>
<CAPTION>

                                                                             Number of         Value of Unexercised
                                                                             Underlying            In-the-Money
                                                                             Securities           Options/SARs at
                                                                            Unexercised         Fiscal Year End ($)
                                                                          Options/SARs at
                                                                          Fiscal Year End
                                                                                (#)
                                     Shares
                                 Acquired on       Value Realized           Exercisable/           Exercisable/
        Name                     Exercise (#)            ($)              Unexercisable(4)         Unexercisable
                 (a)                 (b)                 (c)                    (d)                     (e)
        <S>                       <C>               <C>                    <C>                   <C>

        James E. Burt, III        43,211(1)         $1,079,760(2)          36,769(3)/-0-         $987,064(3)/$-0-
        James R. Beam               3,000              $60,645               10,750/-0-            $127,331/$-0-
        Stephen S. Robinson          ---                 ---                 8,250/-0-             $256,781/$-0-
        Ronald D. Smith             4,325             $118,397               3,283/-0-             $89,872/$-0-
        Jan H. Hollar               2,250              $61,031               9,056/-0-             $155,857/$-0-
</TABLE>

         --------------
(1)      Includes 24,827 options and 18,384 SARs.  The exercise of the SARs does
         not result in the issuance of any Shares.
(2)      Includes $418,493 relating to the exercise of the SARs.

         Meetings of the Boards of Directors and Committees and Compensation of
         Directors

                  During 1999, the Company's  Board met ten times.  Each Company
         director  attended at least 75% of the aggregate  number of meetings of
         the Company's Board and its committees on which he served.  Each member
         of the  Company's  Board who was not an  employee of the Company or its
         subsidiaries received $400 for each Board meeting attended.

                  The Board of Directors  currently has an Executive  Committee,
         CRA  Committee,  a  Compensation  and  Benefits  Committee,   an  Audit
         Committee and a Nominating Committee. The Executive Committee, which is
         comprised of Messrs. Warlick, Alexander, Burt, James, King and Ritchie,
         acts on behalf of the Board  between  meetings of the full  Board.  The
         Executive  Committee met eight times in 1999, and each member  received
         $200 for each committee meeting attended.

                  The CRA Committee and its representatives  meet with community
         leaders  and  advocacy  organizations  in areas  within our  delineated
         communities.   The  CRA  Committee  solicits  opinions  from  community
         leaders, community-based organizations,  government agencies, political
         leaders,  religious organizations,  and concerned individuals to assist
         in   ascertaining   local  credit  needs  and  to  help   evaluate  the
         effectiveness  of our products,  services,  and marketing  efforts.  In
         addition to Mr.  Warlick and Mr.  Lutz,  the  Committee is comprised of
         officers and directors from each bank subsidiary. The CRA Committee met
         six  times in 1999,  and each  member  received  $150 for each  meeting
         attended.

                  The  Compensation  and  Benefits   Committee   reviews  salary
         administration  guidelines  and incentive  compensation  plans and also
         reviews the Company's  administration  of such plans.  The Compensation
         and  Benefits  Committee,  which is  comprised  of  Messrs.  Alexander,
         Mynatt,  King,  Ritchie and Warlick and Wilson, met nine times in 1999.
         Each member of the  Compensation and Benefits  Committee  received $150
         for  each  meeting  attended.  Mr.  Wilson  did not  attend  75% of the
         meetings.

                  The Audit  Committee  reviews  all  control  functions  and is
         comprised  of Messrs.  King,  Warlick,  Robbins  and  White.  The Audit
         Committee also  recommends on an annual basis to the Board of Directors
         a public accounting firm to be engaged as independent  auditors for the
         Company  for the next  fiscal  year,  reviews  the  plan for the  audit
         engagement, and reviews financial statements,  internal audit plans and
         reports,  financial  reporting  procedures,  and reports of  regulatory
         authorities.  The Audit Committee  periodically reports to the Board of
         Directors.  The Audit  Committee met four times in 1999. Each member of
         the Audit Committee received $150 for each meeting attended.

                  The Nominating  Committee  nominates  directors of the Company
         and the members of committees of the Board. While nominees  recommended
         by  shareholders  may be considered  provided that the  nominations are
         made in accordance with the Company's  Amended and Restated Articles of
         Incorporation,  the  Nominating  Committee  has not  solicited any such
         recommendations.  The  Nominating  Committee,  which  is  comprised  of
         Messrs. Alexander, Boger, Burt, King and Ritchie, met once in 1999, and
         each member received $175 for attending the meeting.

                  The Company's Second Amended and Restated  Directors' Deferred
         Compensation  Plan  allows the  directors  of the  Company to defer the
         compensation  they earn for  attendance at meetings of the Board or its
         various  committees.  Each director  elects  annually to either receive
         that year's compensation currently or to defer receipt until his death,
         disability or retirement as a director. The amount deferred is credited
         to the  director's  account held by Lincoln  Bank's  Trust  Department.
         Several investment alternatives are available, including Shares.

         Item 12.  Security    Ownership   Of   Certain  Beneficial  Owners  And
                   Management Principal Shareholders

                  As of  February  2, 2000,  there were no persons  known to the
         Company  who were  beneficial  owners of more than 5% of the  Company's
         outstanding  Shares other than D. Mark Boyd,  III. Based on the limited
         information  available to it, the Company  believes  that Mr. Boyd owns
         approximately  the number of Shares set forth in the table  below.  Mr.
         Boyd has agreed  with the FDIC to cause all his Shares to be voted by a
         person  designated by the Company's Board of Directors in proportion to
         the votes of all other Shares cast upon such matters.
<TABLE>
<CAPTION>

          Name and Address                        Amount and Nature
          of Beneficial Owner                     of Beneficial Ownership      Percent of Class
          <S>                                             <C>                         <C>

          D. Mark Boyd, III                               579,905(1)                  9.65%
          P.O. Box 399
          Lincolnton, North Carolina 28093
         ----------------------------
</TABLE>

                  (1) In addition to the Shares that Mr. Boyd owns beneficially,
         the Company  believes  certain of his family members own  approximately
         109,303  additional  Shares which,  together  with Mr.  Boyd's  Shares,
         represent approximately 11.59% of the total Shares outstanding.

         Directors and Officers

                  The following  table sets forth  information as of February 2,
         2000  regarding  the  beneficial  ownership  of Company  Shares by each
         director,  by the Named  Executive  Officers,  and by all directors and
         executive  officers  as a group.  The  amounts  shown  are  based  upon
         information furnished by the individuals named.
<TABLE>
<CAPTION>
                                                         Amount and Nature of Beneficial
         Name of Director and Named                                Ownership of
         Executive Officer                                 Shares (1)/Percent of Class
         <S>                                                       <C>
         Harold D. Alexander                                       53,913 (2) *

         James E. Burt, III                                        60,208 (3)
                                                                      1.05%

         Charles A. James                                           7,921*

         Walter H. Jones, Jr.                                      16,807 (4) *

         Samuel C. King, Jr.                                       29,777 (5) *

         Jack L. Lutz                                              20,755 (6) *

         Harry D. Ritchie                                          21,843 (7) *

         Thomas M. Robbins                                         20,053 (8) *

         L.D. Warlick, Jr.                                         66,001 (9)
                                                                      1.10%

         Estus B. White                                            20,713 (10) *

         James R. Beam                                             28,902 (11) *

         Stephen S. Robinson                                       37,724 (12) *

         Ronald D. Smith                                           21,590 (13) *

         Jan H. Hollar                                             17,710 (14) *

         John H. Morrison, Jr.                                     10,543 (15)*


         DIRECTORS AND EXECUTIVE                                   429,917
         OFFICERS AS A GROUP                                       7.07%
         (14 PERSONS)
</TABLE>

         *Less than one percent of outstanding Shares.

(1)               Information  relating  to  beneficial  ownership  of Shares is
                  based upon "beneficial  ownership" concepts set forth in rules
                  of  the  Securities  and  Exchange  Commission  ("SEC")  under
                  Section  13(d) of the  Securities  and  Exchange  Act of 1934.
                  Under such rules a person is deemed to be a "beneficial owner"
                  of a security  if that  person has or shares  "voting  power",
                  which  includes the power to vote or direct the voting of such
                  security,  or "investment  power," which includes the power to
                  dispose  or to direct  the  disposition  of such  security.  A
                  person is also deemed to be a beneficial owner of any security
                  of which  that  person  has the  right to  acquire  beneficial
                  ownership  within 60 days.  Under these  rules,  more than one
                  person  may be  deemed  to be a  beneficial  owner of the same
                  securities,  and a person  may be  deemed  to be a  beneficial
                  owner of  securities  as to which he may  disclaim  beneficial
                  interest.
(2)               Includes   5,758  Shares  held by a  corporation  of which Mr.
                  Alexander is President  and owner,  and 10,462 Shares  held by
                  his  wife,  as  to which Shares Mr. Alexander may be deemed to
                  share voting and investment power.
(3)               Includes  4,386 Shares  owned by Mr. Burt's wife,  as to which
                  Shares Mr. Burt  may be deemed to share voting and  investment
                  power.
(4)               Includes 56 shares owned  jointly  with  his wife,  and 11,976
                  Shares held by Mr.Jones wife in her own name,  as to which Mr.
                  Jones may be deemed to share voting and investment power.
(5)               Includes 939 Shares held by a corporation of which Mr. King is
                  President  and  principal  shareholder,   2,632  Shares  owned
                  jointly  with his wife and 10,698  Shares  held by Mr.  King's
                  wife and family  members,  as to which  Shares Mr. King may be
                  deemed to share voting and investment power.
(6)               Includes  3,839  Shares held by Mr.  Lutz's wife,  as to which
                  Shares Mr. Lutz may be deemed to share  voting and  investment
                  power.
(7)               Includes 8,522 Shares owned jointly with Mr.  Ritchie's  wife,
                  and 240 shares held by Mr.  Ritchie's wife, as to which Shares
                  Mr.  Ritchie  may be deemed  to share  voting  and  investment
                  power.
(8)               Includes 6,671 Shares owned jointly with Mr. Robbins' wife and
                  1,933 Shares held by Mr. Robbins' wife and family members,  as
                  to which Shares Mr.  Robbins may be deemed to share voting and
                  investment power.
(9)               Includes  4,519  Shares  held by a  corporation  of which  Mr.
                  Warlick is a director and President, and 15,007 Shares held by
                  Mr. Warlick's wife and family members,  as to which Shares Mr.
                  Warlick may be deemed to share voting and investment power.
(10)              Includes  10,149  Shares owned  jointly with Mr. White's wife,
                  as to which Shares Mr. White may be deemed to share voting and
                  investment power.
(11)              Includes 4,500 Shares which could  be purchased within 60 days
                  pursuant to the exercise of stock options.
(12)              Includes 2,568 Shares held by Mr.  Robinson's  wife and family
                  members,  as to which  Shares  Mr.  Robinson  may be deemed to
                  share voting and investment power.
(13)              Includes 127 Shares  held by  Mr.  Smith's  wife,  as to which
                  Shares Mr. Smith may be deemed to share voting and  investment
                  power.
(14)              Includes  1,457 Shares held by Ms.  Hollar's  family  members,
                  as to which Shares Ms. Hollar may be  deemed  to  share voting
                  and investment power.
(15)              Includes 1,540 Shares held by a company of which Mr.  Morrison
                  is Co-owner, as to which  Shares Mr. Morrison may be deemed to
                  share voting and investment power.

         Changes in Control

                  On November 7, 1999, First Charter Corporation ("FCC") and the
         Company entered into an Agreement and Plan of Merger, pursuant to which
         Carolina  First will be merged  into FCC and each share of the  Company
         common stock will be converted  into the right to receive  2.267 shares
         of FCC  common  stock.  The merger is  expected  to close in the second
         quarter of 2000, subject to a number of conditions,  including approval
         of regulatory authorities and by the stockholders of Carolina First and
         FCC.

         Employment Agreements

                  As of  September  23,  1999,  the Company  entered  into a new
         employment contract with James E. Burt, III. The contract provides that
         Mr. Burt shall remain employed by the Company through January 31, 2001,
         unless sooner terminated under the terms thereof.

                   The employment  contract may be terminated by the Company for
         cause, or by reason of Mr. Burt's  permanent  disability.  In the event
         his  employment  is  terminated  without  cause by the Company prior to
         January 31, 2001,  the Company shall  continue to pay Mr. Burt's annual
         salary and provide certain benefits (except for the annual bonus) until
         January 31, 2001 or pay him 12 months pay, whichever is the greater, as
         severance pay.

                  In the event the Company experiences a "change in control," as
         defined in the employment  contract,  Mr. Burt shall receive a lump-sum
         payment equal to his annual salary and maximum bonus  potential for the
         year in which the change in control  occurs (in addition to his regular
         compensation if he remains in the Company's  employ after the change in
         control).  If Mr. Burt's  employment  is  terminated  after a change in
         control,   he  will  be  entitled  to  receive  various   benefits  and
         compensation for the remainder of the term of the employment agreement.
         All of  Mr. Burt's deferred compensation will become immediately vested
         upon a change in control

                  As of December  31,  1996,  the Company  also  entered  into a
         Deferred  Compensation  Agreement with Mr. Burt that replaced a similar
         agreement dated July 2, 1992. This agreement  provides that if Mr. Burt
         retires from the Company at age 62, or if his  employment is terminated
         without  cause  upon,  or  within 12  months  of, a change  in  control
         involving the Company,  Mr. Burt shall receive certain  payments for up
         to 120 months.

                  As  of  November  10,  1998,  Lincoln  Bank  entered  into  an
         employment contract with Stephen S. Robinson,  Executive Vice President
         of Lincoln Bank. The contract  provides that Mr.  Robinson shall remain
         employed  by  Lincoln  Bank  as an  Executive  Vice  President  through
         December 31, 2003,  unless sooner  terminated  under the terms thereof.
         Either party may  terminate the  employment  contract for cause or with
         proper  notification.  In the event Mr. Robinson is terminated  without
         cause by Lincoln Bank prior to the expiration date of the contract,  he
         is entitled to continue to receive his salary for a period of 24 months
         following the date of termination,  as severance pay. In the event that
         Lincoln  Bank  experiences  a "change  in  control,"  as defined in the
         contract,  Mr.  Robinson is entitled to receive  various  benefits  and
         compensation.

                  As  of  October  21,  1996,  Cabarrus  Bank  entered  into  an
         employment  contract  with Ronald D.  Smith,  the  President  and Chief
         Executive  Officer of Cabarrus  Bank.  The contract  provides  that Mr.
         Smith shall remain  employed by Cabarrus Bank through October 21, 2002,
         unless  sooner  terminated  under the terms  thereof.  Either party may
         terminate   the   employment   contract   for  cause  or  with   proper
         notification.  In the event Mr. Smith is  terminated  without  cause by
         Cabarrus  Bank  prior to the  expiration  date of the  contract;  he is
         entitled  to  continue  to receive his salary for a period of 12 months
         following the date of termination,  as severance pay. In the event that
         Cabarrus  Bank  experiences  a "change in  control,"  as defined in the
         contract,  and Mr. Smith is terminated, without cause, within 36 months
         of the change in control, he will be entitled  to  entitled  to receive
         various benefits and  compensation.  As of February 18, 1993,  Cabarrus
         Bank also  entered  into a  Deferred  Compensation  Agreement  with Mr.
         Smith.  This  agreement  provides  that if Mr.  Smith  retires from the
         Company at age 65, Mr. Smith shall receive  certain  payments for up to
         120 months.

                  In connection with the Company's acquisition of Community Bank
         & Trust Co., that bank entered into an employment agreement dated as of
         June 4,  1998,  with  Ronnie D.  Blanton,  which  became  effective  on
         December  23, 1998 when the  acquisition  was  completed.  The contract
         provides  that Mr.  Blanton shall remain  employed by Community  Bank &
         Trust Co. through December 23, 2001, unless sooner terminated under the
         terms  thereof.  The  contract  provides  for the  payment  of  certain
         transition bonuses in connection with the acquisition of Community Bank
         & Trust Co., in addition to Mr.  Blanton's  salary and other  benefits.
         Either party may  terminate the  employment  contract for cause or with
         proper  notification.  In the event Mr.  Blanton is terminated  without
         cause by Community  Bank & Trust Co.  prior to January 31, 2002,  he is
         entitled to receive  his salary and other  benefits  until  January 31,
         2002, or 12 months' pay, whichever is the greater, as severance pay. In
         the event  that  Community  Bank & Trust Co.  experiences  a "change in
         control," as defined in the  contract,  and Mr.  Blanton is terminated,
         without  cause, within 36 months  of a change  in  control,  he will be
         entitled to receive various benefits and compensation.

                  As  of  February  18,  1999,  the  Company   entered  into  an
         employment  contract with Janet H. Hollar,  the Senior Vice  President,
         Chief Financial  Officer,  Treasurer and Secretary of the Company.  The
         contract  provides that Ms. Hollar shall remain employed by the Company
         through  December 31, 2003,  unless sooner  terminated  under the terms
         thereof.  The employment  contract may be terminated by the Company for
         cause, or by reason of Ms. Hollar's permanent disability.  Either party
         may terminate the employment contract with proper notification.  In the
         event Ms.  Hollar is  terminated  without cause by the Company prior to
         the expiration  date of the contract,  or if Ms. Hollar  terminates the
         contract  for cause,  she is entitled to continue to receive her salary
         for a  period  of 12  months  following  the  date of  termination,  as
         severance  pay. In the event that the Company  experiences a "change in
         control,"  as defined in the  contract,  and Ms.  Hollar is  terminated
         without  cause  within 36 months  of  change  in  control,  she will be
         entitled to receive various benefits and compensation.

         Board and Executive Committee Report on Executive Compensation

                  The  Compensation  and  Benefits   Committee  is  composed  of
         non-employee,  independent members of the Board of Directors. It is the
         Committee's  responsibility to review, recommend and approve changes to
         the  Company's  compensation  policies  and  programs.  It is also  the
         Committee's  responsibility  to review  and  approve  all  compensation
         actions  with  respect  to the Chief  Executive  Officer  and all other
         officers of the Company.

                  The  Company's  primary  objective is to maximize  shareholder
         value over time. To accomplish  this  objective,  the Company  utilizes
         four primary components of executive compensation:  base salary, annual
         incentives,  long-term  incentives  and  benefits.  Each  component  is
         offered to key executives in various  combinations,  structured in each
         case to meet varying business objectives, and to cumulatively provide a
         level of total compensation  equivalent to companies of comparable size
         and with similar geographical location and performance results.

                  Base   salary   is  the   largest   component   of   executive
         compensation.  Salaries are determined by assigning job grades based on
         an assessment of the level of responsibilities.  For each of the 33 job
         grades used by the  Company,  a salary  range is assigned  utilizing an
         entry level,  midpoint  and maximum  level.  Officers are  evaluated at
         least  annually,  and  performance  rating  is  determined  by  valuing
         performance  against certain  pre-determined job  responsibilities  and
         standard  performance  criteria.  This evaluation  produces a numerical
         rating, which is factored into a salary matrix to suggest the amount of
         compensation  increase  that the  officer  should  receive.  The salary
         matrix  is  reviewed   periodically   by  an  outside   consultant  who
         specializes  in  compensation  plans for  financial  institutions.  The
         Compensation  and Benefits  Committee  approves  the salary  matrix and
         salary adjustments of all officers annually.

                  Base salary for Mr. Burt was  increased  in 2000 by 2% for his
         performance in 1999. This increase was less than that commensurate with
         a  performance evaluation signifying that he exceeded the expectations
         of the Committee.   The  base salary for executive   officers generally
         falls within the midpoint of the salary  range and Mr.  Burt's base pay
         falls in the third quartile of his salary range.

                  Annual incentives are based upon a cash incentive compensation
         plan  for  all  officers.  This  plan  is  based  in  part  on  Company
         performance and in part on individual performance. The Compensation and
         Benefits Committee makes the final determination of incentive potential
         awards.  Mr.  Burt  achieved  44% of his 1999  maximum  potential  cash
         incentive.  Cash incentive  awards for other executive  officers ranged
         from 33%-75% of the maximum potential cash incentives.

                  Long-term  incentives are comprised of incentive stock options
         and stock  appreciation  rights  under the 1990 Stock  Option and Stock
         Appreciation  Rights Plan and the 1999 Long Term  Incentive  Plan.  Mr.
         Burt was not granted  any stock  options or stock  appreciation  rights
         during 1999.  Executive  officers were granted  options on the basis of
         additional duties assumed.

                  Benefits offered to executive  officers are generally the same
         as those offered to other officers and employees.  Generally,  they are
         designed to provide  assistance to the employee and/or their dependants
         in  times  of  illness,   disability  or  death.  Also,  the  Company's
         retirement plan provides a portion of retirement income based on profit
         sharing and matching funds for a 401(k) plan.

                                                      Compensation Committee

                                                      Harold D. Alexander
                                                      Cynthia L. Mynatt
                                                      Samuel C. King, Jr.
                                                      Harry D. Ritchie
                                                      L.D. Warlick, Jr.
                                                      David A. Wilson
                  Performance Graph

                  The following graph compares the yearly  percentage  change in
         the cumulative total stockholder  return on the Company's Shares,  with
         the  cumulative return on Standard & Poor's 500 Stock Index ("S&P 500")
         and The Carson Medlin  Company's  Southeastern  Independent  Bank Index
         ("Independent Bank Index").

                  The  Independent  Bank Index is the  compilation  of the total
         return  to  shareholders  over  the  past  five  years of a group of 23
         independent  community  banks  located  in the  southeastern  states of
         Florida,  Georgia,  North  Carolina,  South  Carolina,  Tennessee,  and
         Virginia. The banks included are:
<TABLE>
<CAPTION>

                 Name                                               City                    State
                 <S>                                                <C>                       <C>
                 United Security Bancshares, Inc.                   Thomasville               AL
                 TIB Financial Corp.                                Key Largo                 FL
                 Seacoast Banking Corp.                             Stuart                    FL
                 Capital City Bank Group, Inc.                      Tallahassee               FL
                 Fidelity National Corp.                            Atlanta                   GA
                 Southwest Georgia Financial Corp.                  Moultrie                  GA
                 PAB Bankshares, Inc.                               Valdosta                  GA
                 Four Oaks Fincorp, Inc.                            Four Oaks                 NC
                 Bank of Granite Corp.                              Granite Falls             NC
                 FNB Financial Services Corp.                       Reidsville                NC
                 First Bancorp                                      Troy                      NC
                 CNB Corporation                                    Conway                    SC
                 Palmetto Bancshares, Inc.                          Laurens                   SC
                 Carolina Southern Bank                             Spartanburg               SC
                 First Pulaski National Corporation                 Pulaski                   TN
                 National Bankshares, Inc.                          Blacksburg                VA
                 FNB Corporation                                    Christiansburg            VA
                 Virginia Commonwealth Financial Corp.              Culpeper                  VA
                 American National Bankshares, Inc.                 Danville                  VA
                 Central Virginia Bankshares, Inc.                  Powharan                  VA
                 Virginia Financial Corp.                           Staunton                  VA
                 C&F Financial Corporation                          West Point                VA
                 First Century Bankshares, Inc.                     Bluefield                 WV
</TABLE>

<TABLE>
<CAPTION>
                                            1994       1995      1996       1997      1998       1999
                                            ----       ----      ----       ----      ----       ----
<S>                                          <C>       <C>        <C>       <C>        <C>       <C>
Carolina First BancShares, Inc.              100       144        233       385        403       484
Independent Bank Index-Weighted              100       122        155       235        246       222
S&P 500 Index                                100       138        169       225        290       351
</TABLE>


         Item 13.  Certain Relationships And Related Transactions

                  Certain   Company   directors,    officers,    and   principal
         shareholders,  and their associates,  were customers of, or had banking
         and financial transactions with, the Company of its subsidiaries in the
         ordinary  course of business  during 1999. Some of the directors of the
         Company  or its  subsidiaries  are  directors,  officers,  trustees  or
         principal  securities  holders of corporations  or other  organizations
         which also were customers of, or had banking and financial transactions
         with,  the  Company  or its  subsidiaries  in the  ordinary  course  of
         business during 1999.

                  All  outstanding   loans  and  other   transactions  with  the
         directors,  officers and principal  shareholders of the Company and its
         subsidiaries   were  made  in  the  ordinary   course  of  business  on
         substantially the same terms,  including interest rates and collateral,
         as those prevailing at the time for comparable  transactions with other
         persons  and,  when made,  did not involve more than the normal risk of
         collectibility  or present other  unfavorable  features.  The aggregate
         amount  of  credit  extended  to  directors,   executive  officers  and
         principal  shareholders as of December 31, 1999 was $7,721,066 or 11.7%
         of the  Company's  shareholders'  equity.  In  addition  to banking and
         financial  transactions,  the Company or its  subsidiaries may have had
         additional  transactions with, or used products or services of, various
         organizations  of which  directors of the Company and its  subsidiaries
         are associated. The Company provided data processing and other services
         to First Gaston Bank of North Carolina ("First  Gaston"),  during 1999,
         for which  First  Gaston  paid  $82,571.  The  Company  is the  largest
         shareholder  of First  Gaston,  and James E. Burt,  III, the  Company's
         President  and Chief  Executive  Officer is a director of First Gaston.
         Except for the transactions with First Gaston,  the amounts involved in
         such noncredit  transactions  have in no case been material in relation
         to  the  business  of the  Company,  its  subsidiaries  or  such  other
         organizations.  It is expected  that the  Company and its  subsidiaries
         will continue to have similar  transactions  in the ordinary  course of
         its business with such individuals and their associates in the future.

                  Mr. Jones, a directory of the Company, is a partner in the law
         firm of Homesley,  Jones,  Gaines,  Homesley & Dudley,  which performed
         certain legal services on the Company's behalf during 1999.

                  Lincoln   Bank   currently   leases  an  office   building  in
         Lincolnton, North Carolina from D. Mark Boyd, III, the Company's former
         Charmin and Chief Executive Officer,  and the holder of more than 5% of
         the Company's Shares,  and his wife Diane Boyd. This property is leased
         under a five-year  lease which commenced in September 1997 at a current
         monthly rental of $3,285.33,  subject to annual adjustments as provided
         in the lease agreement.  The Bank has the option to renew the lease for
         one additional  five-year term. The Company  believes that the terms of
         this lease,  including the rent, are comparable to the terms  available
         from unrelated third parties.

                                     PART IV

         Item 14.  Exhibits And Reports On Form 8-K

(a)      Financial Statements

       See the following financial statements included herein at Item 8.

o        Independent Auditors' Report
o        Consolidated Balance Sheets at December 31, 1999 and 1998
o        Consolidated  Statements  of Income for each of the years in the three-
         year period ended December 31, 1999
o        Consolidated   Statements  of  Changes  in  Shareholders'   Equity  and
         Comprehensive  Income  for each of the years in the  three-year  period
         ended December 31, 1999
o        Consolidated  Statements  of  Cash  Flows  for each of the years in the
         three-year period ended December 31, 1999
o        Notes to Consolidated Financial Statements

(b)      Reports on Form 8-K

                           The  following  reports on Form 8-K were filed by the
                           Company  during the last quarter of fiscal year ended
                           December 31, 1999.

o        On November 9, 1999, the  Registrantfiled  a Form 8-K  announcing  that
         First  Charter  Corporation  and Carolina  First  BancShares,  Inc. had
         entered  into an  Agreement  and  Plan of  Merger,  pursuant  to  which
         Carolina First will be merged into First Charter Corporation.

o On November 15, 1999, the Registrant filed a Form 8-K/A amending the 8-K filed
on November 9, 1999.

(c)      Exhibits

                           The  following   Exhibits  are  attached   hereto  or
                           incorporated   by  reference   herein   (numbered  to
                           correspond to Item 601 of Regulation S-K).

                                    Exhibit No.      Description of Exhibit

                                  2.0        Agreement  and Plan of Merger dated
                                             as of  November 7, 1999 by and bet-
                                             ween  the   Registrant   and  First
                                             Charter Corporation.

                                  3.0        Amended and Restated  Articles   of
                                             Incorporation of  the   Registrant,
                                             (incorporated   by   reference   to
                                             Exhibit 3.1  to  the   Registrant's
                                             Registration Statement on  Form S-4
                                             (File  No.  333-59729),  dated July
                                             23, 1998).

                                  3.1        Amended and Restated  Bylaws of the
                                             Registrant     (incorporated     by
                                             reference  to  Exhibit  3.2  to the
                                             Registrant's  Quarterly  Report  on
                                             Form  10-Q  for  the  period  ended
                                             September 30, 1999).

                                  4.0        Specimen     of    Common     Stock
                                             Certificate   of   the   Registrant
                                             (incorporated  by  reference to the
                                             Registrant's Registration Statement
                                             (File No 33-26861).

                                  10.0       Registrant's   Second  Amended  and
                                             Restated     Directors     Deferred
                                             Compensation Plan  (incorporated by
                                             reference to Registrant's Quarterly
                                             Report on Form 10-Q for the  period
                                             ended September 30, 1999).

                                  10.1       Registrant's  Profit  Sharing  Plan
                                             ( incorporated    by  reference  to
                                             Registrant's Registration Statement
                                             (File No. 33-26861).

                                  10.2       Registrant's  1990 Stock Option and
                                             Stock Appreciation  Rights Plan, as
                                             amended  (incorporated by reference
                                             to  the  Registrant's  Registration
                                             Statement (File No.33- 43037) dated
                                             October 1, 1991).

                                  10.3       Amendment No. 1 to the Registrant's
                                             1990  Stock   Option   Plan (incor-
                                             porated   by   reference    to  the
                                             Registrant's  Quarterly   Report on
                                             Form  10-Q  for  the   period ended
                                             September 30, 1999).

                                  10.4       Registrant's     1999     Long-Term
                                             Incentive  Plan   (incorporated  by
                                             reference   to   the   Registrant's
                                             Annual  Report on Form 10-K for the
                                             year ended December 31, 1998.)

                                  10.5       Employment  Agreement  dated  as of
                                             September  23,  1999,  and Deferred
                                             Compensation  Agreement dated as of
                                             December  31,  1996 by and  between
                                             Carolina First BancShares, Inc. and
                                             James E. Burt, III (incorporated by
                                             reference to Registrant's Quarterly
                                             Report on Form 10-Q for the  period
                                             ended September 30, 1999).

                                  10.6       Employment Agreement dated November
                                             10,  1998  by and  between  Lincoln
                                             Bank of North  Carolina and Stephen
                                             S.   Robinson    (incorporated   by
                                             reference   to   the   Registrant's
                                             Annual  Report on Form 10-K for the
                                             period ended December 31, 1998).

                                  10.7       Employment  Agreement dated October
                                             21,  1996 by and  between  Cabarrus
                                             Bank of North  Carolina  and Ronald
                                             D. Smith (incorporated by reference
                                             to the  Registrant's  Annual Report
                                             on Form 10-K for the  period  ended
                                             December 31, 1998).

                                  10.8       Deferred   Compensation   Agreement
                                             dated as of  February  18,  1993 by
                                             and between  Cabarrus Bank of North
                                             Carolina   and   Ronald  D.   Smith
                                             (incorporated  by  reference to the
                                             Registrant's  Annual Report on Form
                                             10-K for the period ended  December
                                             31, 1998).

                                  10.9       Employment  Agreement  dated  as of
                                             February  18,  1999 by and  between
                                             the Registrant and Janet H. Hollar,
                                             as   amended    (incorporated    by
                                             reference to Registrant's Quarterly
                                             Report on Form 10-Q for the  period
                                             ended September 30, 1999).

                                  10.10      Lease  Agreement dated September 1,
                                             1997 by and between Lincoln Bank of
                                             North  Carolina  and D. Mark  Boyd,
                                             III and Diane H. Boyd (incorporated
                                             by  reference  to the  Registrant's
                                             Annual  Report on Form 10-K for the
                                             period ended December 31, 1998).

                                  10.11      Addendum to Lease  Agreement  dated
                                             October  30,  1998  by and  between
                                             Lincoln Bank of North  Carolina and
                                             D. Mark Boyd, III and Diane H. Boyd
                                             (incorporated  by  reference to the
                                             Registrant's  Annual Report on Form
                                             10-K for the period ended  December
                                             31, 1998).

                                  10.12      Employment  Agreement dated June 4,
                                             1998 by and between  Community Bank
                                             & Trust Co. and Ronnie  D.  Blanton
                                             ( incorporated   by  reference   to
                                             Exhibit  10.10 to the  Registrant's
                                             Registration  Statement on Form S-4
                                             (File No.  333-59729)dated July 23,
                                             1998).

                                  11         Statement regarding computation  of
                                             earnings per share.

                                  21         List   of    subsidiaries  of  the
                                             Registrant.

                                  23         Consent of KPMG LLP.

                                  27         Financial Data Schedule.



<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities  and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its  behalf  by  the  undersigned,   thereunto  duly  authorized,  the  City  of
Lincolnton, State if North Carolina, on the 26th day of March, 2000

                                             CAROLINA FIRST BANCSHARES, INC.

                                             By:      \s\ L.D. Warlick, Jr.
                                             ------------------------------
                                                      L.D. Warlick, Jr.
                                                      Chairman of the Board

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated:

Signatures                             Date                         Title
Principal Executive Officers:
\s\ L.D. Warlick, Jr.                  March 23, 2000       Chairman of the
----------------------------                                Board
L.D. Warlick, Jr.

\s\ James E. Burt, III                 March 23, 2000       President, CEO,
----------------------------                                Director
James E. Burt, III

Principal Financial Officer and
Principal Accounting Officer:
\s\ Jan H. Hollar                      March 23, 2000       Sr. Vice President,
----------------------------                                CFO
Jan. H. Hollar

Directors:
\s\ Harold D. Alexander                March 23, 2000       Director
----------------------------
Harold D. Alexander

\s\ Charles A. James                   March 23, 2000       Director
----------------------------
Charles A. James

\s\ Walter Jones                       March 23, 2000       Director
----------------------------
Walter Jones

\s\ Samuel C. King, Jr.                March 23, 2000       Director
----------------------------
Samuel C. King, Jr.

\s\ Jack L. Lutz                       March 23, 2000       Director
----------------------------
Jack L. Lutz

\s\ John Morrison                      March 23, 2000       Director
----------------------------
John Morrison

\s\ Harry D. Ritchie                   March 23, 2000       Director
----------------------------
Harry D. Ritchie

\s\ Thomas M. Robbins                  March 23, 2000       Director
----------------------------
Thomas M. Robbins

\s\ Estus B. White                     March 23, 2000       Director
----------------------------
Estus B. White