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SECURITIES AND EXCHANGE
COMMISSION Washington, D.C. 20549

# Form 10-KSB

(Mark One)

|[X] | Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|--- | ------------------------------------------------------------------------------

| | For the fiscal year ended December 31, 2003
| | -------------------------------------------

| | or
| | --

| | Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934
| | ----------------------------------------------------------------------------------
| | For the transition period from __________ to ________                             

Commission file no.
333-97035

Tidelands Bancshares, Inc.
(Name of Small Business Issuer in Its Charter)

|South Carolina                    | 6021                        | 02-0570232         
|--------------------------------- | --------------------------- | -------------------
|(State or Other Jurisdiction      | Primary Standard Industrial | (I.R.S. Employer   
|of Incorporation or Organization) | Classification Code Number) | Identification No.)

875 Lowcountry BoulevardMt. Pleasant, South Carolina 29464
(843) 388-8433(Address and Telephone Number of Principal Place of Business)

___________________________

Securities registered pursuant to Section 12(b) of the Act:   None.
Securities registered pursuant to Section 12(g) of the Act:   None.

Check
whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the past 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 past 90 days.    Yes X   No

Check
if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B
in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [X]

The issuer's revenues for the
year ended December 31, 2003 were $185,474.

As of March 1,  2004,  there were  1,033,398  shares of Common  Stock  issued and  outstanding.  The  aggregate
market  value of the Common  Stock  held by  non-affiliates  (shareholders  holding  less than 5% of the  Common  Stock,
excluding  directors and executive  officers) of the company on March 1, 2004 was $9,308,178.  This calculation is based
upon an estimate of the fair market  value of the Common  Stock of $11 per share,  which was the price of the last trade
of which  management is aware prior to this date.  There is not an active  trading market for the Common Stock and it is
not possible to identify precisely the market value of the Common Stock.

Transitional Small Business Disclosure Format.  (Check one):  
Yes      No X

DOCUMENTS INCORPORATED
BY REFERENCENone.

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# Item 1.  Description of
Business

# Forward Looking
Statements

This
Report contains statements which constitute forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and the Securities Exchange Act of 1934.
These statements are based on many assumptions and estimates and are not guarantees of
future performance. Our actual results may differ materially from those projected in any
forward-looking statements, as they will depend on many factors about which we are unsure,
including many factors which are beyond our control. The words may,
would, could, will, expect,
anticipate, believe, intend, plan, and
estimate, as well as similar expressions, are meant to identify such
forward-looking statements. Potential risks and uncertainties include, but are not limited
to:

| | o | significant increases in competitive pressure in the banking and financial services industries;
| | - | -----------------------------------------------------------------------------------------------

| | o | changes in the interest rate environment which could reduce anticipated or actual margins;
| | - | ------------------------------------------------------------------------------------------

| | o | changes in political conditions or the legislative or regulatory environment;
| | - | -----------------------------------------------------------------------------

| | o | general economic conditions, either nationally or regionally and especially in the primary
service area, becoming less favorable than expected resulting in, among other things, a
deterioration in credit quality;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | changes occurring in business conditions and inflation;
| | - | -------------------------------------------------------

| | o | changes in technology;
| | - | ----------------------

| | o | the level of the allowance for loan loss;
| | - | -----------------------------------------

| | o | the rate of delinquencies and amounts of charge-offs;
| | - | -----------------------------------------------------

| | o | the rates of loan growth;
| | - | -------------------------

| | o | adverse changes in asset quality and resulting credit risk-related losses and expenses;
| | - | ---------------------------------------------------------------------------------------

| | o | changes in monetary and tax policies;
| | - | -------------------------------------

| | o | loss of consumer confidence and economic disruptions resulting from terrorist activities;
| | - | -----------------------------------------------------------------------------------------

| | o | changes in the securities markets; and
| | - | --------------------------------------

| | o | other risks and uncertainties detailed from time to time in our filings with the
Securities and Exchange Commission.
| | - | --------------------------------------------------------------------------------------------------------------------

These statements are not guarantees
of future performance and are subject to risks, uncertainties and assumptions that are
difficult to predict, particularly in light of the fact that we are a new company with
little operating history. Therefore, actual results may differ materially from those
expressed or forecasted in such forward-looking statements. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties, and
assumptions, the forward-looking events discussed in this report might not occur.

2

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# General

Tidelands
Bancshares, Inc. was incorporated in South Carolina in March 2002 for the purpose of
operating as a bank holding company. Our wholly-owned subsidiary, Tidelands Bank,
commenced business on October 6, 2003, and is primarily engaged in the business of
accepting savings, demand and time deposits and providing mortgage, consumer and
commercial loans to the general public.

# Marketing Focus

Tidelands
Bank is a locally-owned and operated bank organized to serve consumers and small- to
mid-size businesses and professional concerns. We believe that we can be successful by
offering a higher level of customer service and a management team more focused on the
needs of the community than most of our competitors. We believe that this approach will be
enthusiastically supported by the community.

# Location and Service Area

The
bank engages in a general commercial and retail banking business, emphasizing the needs of
small- to medium-sized businesses, professional concerns, and individuals in the greater
Charleston metropolitan region, with a primary focus on an area within a five mile radius
of our main office in Mt. Pleasant, South Carolina. Our main office is located at 875
Lowcountry Boulevard, Mt. Pleasant, South Carolina 29464 on a major artery and provides
excellent visibility for the bank. The telephone number for our office is (843) 388-8433.
We plan to continue to take advantage of existing contacts and relationships with
individuals and companies in this area to more effectively market the services of the
bank.

Charleston
is a major tourist destination with historic significance and charm, as well as
recreational attractions such as beaches and golf. Additionally, the port of Charleston is
the top container cargo port on the Southeast and Gulf Coasts, and is second only to New
York and New Jersey on the East Coast. Continued growth of the ports business is
expected in light of recent expansions of facilities. In our market area, the South
Carolina State Ports Authority operates the Wando Terminal on the East Cooper River, which
is one of the most efficient and modern container terminals in the world. An additional
terminal is planned on the East Cooper River which would generate substantial jobs,
housing, and continued growth in the area.

# Lending Activities

General.
          The bank emphasizes a range of lending services, including real estate,
          commercial and consumer loans, to individuals and small- to medium-sized
          businesses and professional concerns that are located in or conduct a
          substantial portion of their business in the banks market area.

Real
Estate Loans. One of the primary components of the banks loan portfolio is loans
secured by first or second mortgages on real estate. These loans generally fall into one
of two categories: commercial real estate loans or construction and development loans. We
also make residential real estate loans secured by first or second mortgages on real
estate. Each of these categories is discussed in more detail below, including their
specific risks. Interest rates for all categories may be fixed or adjustable, and will
more likely be fixed for shorter-term loans. The bank will generally charge an origination
fee for each loan.

Real
estate loans are subject to the same general risks as other loans. Real estate loans are
also sensitive to fluctuations in the value of the real estate securing the loan. On first
and second mortgage loans we do not advance more than regulatory limits. We require a
valid mortgage lien on all real property loans along with a title lien policy which
insures the validity and priority of the lien. We also require borrowers to obtain hazard
insurance policies and flood insurance if applicable. Additionally, certain types of real
estate loans have specific risk characteristics that vary according to the collateral type
securing the loan and the terms and repayment sources for the loan.

3

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We
have the ability to originate some real estate loans for sale into the secondary market.
We can limit our interest rate and credit risk on these loans by locking the interest rate
for each loan with the secondary investor and receiving the investors underwriting
approval prior to originating the loan.

| | o | Commercial Real Estate Loans. Commercial real estate loans generally have terms of
five years or less, although payments may be structured on a longer amortization basis.
Inherent in commercial real estate loans credit risk is the risk that the primary
source of repayment, the operating commercial real estate company, will be insufficient to
service the debt. If a real estate loan is in default, we also run the risk that the value
of a commercial real estate loans secured real estate will decrease, and thereby be
insufficient to satisfy the loan. To mitigate these risks, we evaluate each borrower on an
individual basis and attempt to determine its business risks and credit profile. We
attempt to reduce credit risk in the commercial real estate portfolio by emphasizing loans
on owner-occupied office and retail buildings where the loan-to-value ratio is established
by independent appraisals. We typically review the personal financial statements of the
principal owners and require their personal guarantees. These reviews often reveal
secondary sources of payment and liquidity to support a loan request.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Construction and Development Real Estate Loans.We offer adjustable and fixed rate
residential and commercial construction loans to builders and developers and to consumers
who wish to build their own home. The term of construction and development loans are
generally limited to 18 months, although payments may be structured on a longer
amortization basis. Most loans will mature and require payment in full upon the sale of
the property. Construction and development loans generally carry a higher degree of risk
than long term financing of existing properties. Repayment usually depends on the ultimate
completion of the project within cost estimates and on the sale of the property. Specific
risks include:
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | cost overruns;
| | - | --------------

| | o | mismanaged construction;
| | - | ------------------------

| | o | inferior or improper construction techniques;
| | - | ---------------------------------------------

| | o | economic changes or downturns during construction;
| | - | --------------------------------------------------

| | o | a downturn in the real estate market;
| | - | -------------------------------------

| | o | rising interest rates which may prevent sale of the property; and
| | - | -----------------------------------------------------------------

| | o | failure to sell completed projects in a timely manner.
| | - | ------------------------------------------------------

| | We
attempt to reduce risk by obtaining personal guarantees where possible, and by keeping the
loan-to-value ratio of the completed project below specified percentages. We may also
reduce risk by selling participations in larger loans to other institutions when possible.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Residential Real Estate Loans. These loans generally have longer terms, up to 30
years. We offer fixed and adjustable rate mortgages, and we sell most or all of the
residential real estate loans that we generate in the secondary market soon after we
originate them. We do not intend to retain servicing rights for these loans. Inherent in
residential real estate loans credit risk is the risk that the primary source of
repayment, the residential borrower, will be insufficient to service the debt. If a real
estate loan is in default, we also run the risk that the value of a residential real
estate loans secured real estate will decrease, and thereby be insufficient to
satisfy the loan. To mitigate these risks, we evaluate each borrower on an individual
basis and attempt to determine its credit profile. By selling these loans in the secondary
market, we can significantly reduce our exposure to credit risk because the loans will be
underwritten through a third party agent without any recourse against the bank.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4

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Commercial
Loans. The bank makes loans for commercial purposes in various lines of businesses.
Equipment loans will typically be made for a term of five years or less at fixed or
variable rates, with the loan fully amortized over the term and secured by the financed
equipment. We focus our efforts on commercial loans of less than $1,000,000 and higher
amounts if we are able to bring in participating partners. Working capital loans typically
have terms not exceeding one year and usually are secured by accounts receivable,
inventory, or personal guarantees of the principals of the business. For loans secured by
accounts receivable or inventory, loan principal is typically repaid as the assets
securing the loan are converted into cash, and in other cases loan principal is typically
due at maturity. Trade letters of credit, standby letters of credit, and foreign exchange
are handled through a correspondent bank as agent for the bank. Commercial loans primarily
have risk that the primary source of repayment, the borrowing business, will be
insufficient to service the debt. Often this occurs as the result of changes in local
economic conditions or in the industry in which the borrower operates which impact cash
flow or collateral value.

We
expect to also offer small business loans utilizing government enhancements such as the
Small Business Administrations 7(a) program and SBAs 504 and
LowDoc programs. These loans will typically be partially guaranteed by the
government which may help to reduce the banks risk. Government guarantees of SBA
loans will not exceed 80% of the loan value, and will generally be less.

Consumer
Loans. The bank makes a variety of loans to individuals for personal and household
purposes, including secured and unsecured installment loans and revolving lines of credit
such as credit cards. Installment loans typically carry balances of less than $50,000 and
are amortized over periods up to 60 months. Consumer loans may be offered on a single
maturity basis where a specific source of repayment is available. Revolving loan products
will typically require monthly payments of interest and a portion of the principal.

Consumer
loans are generally considered to have greater risk than first or second mortgages on real
estate because the value of the secured property may depreciate rapidly, they are often
dependent on the borrowers employment status as the sole source of repayment, and
some of them are unsecured. To mitigate these risks, we analyze selective underwriting
criteria for each prospective borrower, which may include the borrowers employment
history, income history, credit bureau reports, or debt to income ratios. If the consumer
loan is secured by property, such as an automobile loan, we also attempt to offset the
risk of rapid depreciation of the collateral with a shorter loan amortization period.
Despite these efforts to mitigate our risks, consumer loans have a higher rate of default
than real estate loans. For this reason, we also attempt to reduce our loss exposure to
these types of loans by limiting their sizes relative to other types of loans.

We
also offer home equity loans. Our underwriting criteria for and the risks associated with
home equity loans and lines of credit generally is the same as those for first mortgage
loans. Home equity lines of credit typically have terms of 15 years or less, typically
carry balances less than $125,000, and may extend up to 100% of the available equity of
each property.

Relative
Risks of Loans. Each category of loan has a different level of credit risk. Real
estate loans are generally safer than a loan secured by other assets because the value of
the underlying security, real estate, is generally ascertainable and does not fluctuate as
much as some other assets. Certain real estate loans are less risky than others.
Residential real estate loans are generally the least risky type of real estate loan,
followed by commercial real estate loans and construction and development loans.
Commercial loans, which can be secured by real estate or other assets, or which can be
unsecured, are generally more risky than real estate loans, but less risky than consumer
loans. Finally, consumer loans, which can also be secured by real estate or other assets,
or which can also be unsecured, are generally considered to be the most risky of these
categories of loans. Any type of loan which is unsecured is generally more risky than
secured loans. These levels of risk are general in nature, and many factors including the
creditworthiness of the borrower or the particular nature of the secured asset may cause
any type of loan to be more or less risky than another. Additionally, these levels of risk
are limited to an analysis of credit risk, and they do not take into account other risk
factors associated with making loans such as the interest rate risk inherent in long-term,
fixed-rate loans.

Loan
Approval and Review. Our loan approval policies provide for various levels of officer
lending authority. When the amount of aggregate loans to a single borrower exceeds that
individual officers lending

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authority, the loan request will be
considered and approved by an officer with a higher lending limit or the board of
directors loan committee. We will not make any loans to any director of the bank
unless the loan is approved by the board of directors of the bank and is made on terms not
more favorable to the person than would be available to a person not affiliated with the
bank. We currently adhere to Federal National Mortgage Association and Federal Home Loan
Mortgage Corporation guidelines in our mortgage loan review process, but may choose to
alter this policy in the future.

Lending
Limits. Our lending activities are subject to a variety of lending limits imposed by
federal law. While differing limits apply in certain circumstances based on the type of
loan or the nature of the borrower (including the borrowers relationship to the
bank), in general we are subject to a loan-to-one-borrower limit. This limit will increase
or decrease as the banks capital increases or decreases. Unless we are able to sell
participations in our loans to other financial institutions, we will not be able to meet
all of the lending needs of loan customers requiring aggregate extensions of credit above
these limits.

# Banking Services

We
offer a full range of deposit services that are typically available in most banks and
savings and loan associations, including checking accounts, NOW accounts, commercial
accounts, savings accounts, and other time deposits of various types, ranging from daily
money market accounts to longer-term certificates of deposit. The transaction accounts and
time certificates are tailored to our principal market area at rates competitive to those
offered in the Mt. Pleasant area. In addition, we offer certain retirement account
services, including IRAs. All deposit accounts are insured by the FDIC up to the maximum
amount allowed by law (generally, $100,000 per depositor, subject to aggregation rules).
We solicit these accounts from individuals, businesses, and other organizations.

# Other Banking Services

We
offer safe deposit boxes, cashiers checks, banking by mail, direct deposit of
payroll and social security checks, U.S. Savings Bonds, and travelers checks. We are
associated with the Cirrus and Pulse, Intercept, and Maestro ATM networks that may be used
by our customers throughout the country. We believe that by being associated with a shared
network of ATMs, we are better able to serve our customers and will be able to attract
customers who are accustomed to the convenience of using ATMs. We also offer a debit card
and credit card services through a correspondent bank as an agent for the bank. We also
offer other bank services, including lines of credit, 24-hour telephone banking, and
PC/internet delivery. We do not expect the bank to exercise trust powers during its
initial years of operation.

# Market Share

As
of June 30, 2003 (the most recent date for which deposit data is available from the FDIC),
there were 23 banking offices, representing 13 financial institutions, operating in Mt.
Pleasant and holding over $795 million in deposits. Many of these competitors are well
established in the Mt. Pleasant area. Most of them have substantially greater resources
and lending limits than we have, and many of these competitors offer services, including
extensive and established branch networks and trust services that we do not provide. Our
competitors include large super regional and regional banks like Wachovia Bank, Bank of
America, and BB&T. Nevertheless, we believe that our management team, the opportunity
created by recent mergers, and the economic and demographic dynamics of our service area
combined with our business strategy will allow us to gain a meaningful share of the
areas deposits.

# Employees

As
of March 1, 2004, we had 16 full-time employees and one part-time employee.

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# SUPERVISION AND
REGULATION

Both
the company and the bank are subject to extensive state and federal banking laws and
regulations which impose specific requirements or restrictions on and provide for general
regulatory oversight of virtually all aspects of operations. These laws and regulations
are generally intended to protect depositors, not shareholders. The following summary is
qualified by reference to the statutory and regulatory provisions discussed. Changes in
applicable laws or regulations may have a material effect on our business and prospects.
Our operations may be affected by legislative changes and the policies of various
regulatory authorities. We cannot predict the effect that fiscal or monetary policies,
economic control, or new federal or state legislation may have on our business and
earnings in the future.

The
following discussion is not intended to be a complete list of all the activities regulated
by the banking laws or of the impact of such laws and regulations on our operations. It is
intended only to briefly summarize some material provisions.

# USA Patriot Act of 2001

In
October 2001, the USA Patriot Act of 2001 was enacted in response to the terrorist attacks
in New York, Pennsylvania and Washington D.C. which occurred on September 11, 2001. The
Patriot Act is intended to strengthen U.S. law enforcements and the intelligence
communities abilities to work cohesively to combat terrorism on a variety of fronts.
The potential impact of the Patriot Act on financial institutions of all kinds is
significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and
financial transparency laws and imposes various regulations, including standards for
verifying client identification at account opening, and rules to promote cooperation among
financial institutions, regulators and law enforcement entities in identifying parties
that may be involved in terrorism or money laundering.

# Check 21

On
October 28, 2003, President Bush signed into law the Check Clearing for the 21st Century
Act, also known as Check 21. The new law, which is not effective until October 28, 2004,
gives substitute checks, such as a digital image of a check and copies made
from that image, the same legal standing as the original paper check. Some of the major
provisions include:

| | o | Allows check truncation without making it mandatory;
| | - | ----------------------------------------------------

| | o | Demands that every financial institution communicate to accountholders in writing a
description of its substitute check processing program and their rights under the law;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Legalizes substitutions for and replacements of paper checks without agreement from consumers;
| | - | ----------------------------------------------------------------------------------------------

| | o | Keeps in place the previously mandated electronic collection and return of checks between
financial institutions only when individual agreements are in place;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Cautions that when accountholders request verification, financial institutions must
produce the original check (or a copy that accurately represents the original) and
demonstrate that the account debit was accurate and valid; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Requires recrediting of funds to an individuals account on the next business day
after a consumer proves the financial institution has erred.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------

This
new legislation will likely have a dramatic impact on bank capital spending as many
financial institutions assess whether technological or operational changes are necessary
to stay competitive and take advantage of the new opportunities presented by Check 21.

7

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# Tidelands Bancshares,
Inc.

Because
it owns the outstanding capital stock of the bank, the company is a bank holding company
under the federal Bank Holding Company Act of 1956 and the South Carolina Banking and
Branching Efficiency Act.

The
Bank Holding Company Act. Under the Bank Holding Company Act, the company is subject
to periodic examination by the Federal Reserve and is required to file periodic reports of
its operations and any additional information that the Federal Reserve may require. Our
activities at the bank and holding company level are limited to:

| | o | banking and managing or controlling banks;
| | - | ------------------------------------------

| | o | furnishing services to or performing services for its subsidiaries; and
| | - | -----------------------------------------------------------------------

| | o | engaging in other activities that the Federal Reserve determines to be so closely related
to banking and managing or controlling banks as to be a proper incident thereto.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Investments,
Control, and Activities. With certain limited exceptions, the Bank Holding Company Act
requires every bank holding company to obtain the prior approval of the Federal Reserve
before:

| | o | acquiring substantially all the assets of any bank;
| | - | ---------------------------------------------------

| | o | acquiring
direct or indirect ownership or control of any voting shares of any bank if after the
acquisition it would own or control more than 5% of the voting shares of such bank (unless
it already owns or controls the majority of such shares); or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | merging or consolidating with another bank holding company.
| | - | -----------------------------------------------------------

In
addition, and subject to certain exceptions, the Bank Holding Company Act and the Change
in Bank Control Act, together with regulations thereunder, require Federal Reserve
approval prior to any person or company acquiring control of a bank holding
company. Control is conclusively presumed to exist if an individual or company acquires
25% or more of any class of voting securities of a bank holding company. Control is
rebuttably presumed to exist if a person acquires 10% or more, but less than 25%, of any
class of voting securities and either the company has registered securities under Section
12 of the Securities Exchange Act of 1934 or no other person owns a greater percentage of
that class of voting securities immediately after the transaction. We intend to register
the companys common stock under the Securities Exchange Act of 1934 prior to April
30, 2004. The regulations provide a procedure for challenge of the rebuttable control
presumption.

Under
the Bank Holding Company Act, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of more than 5% of the voting shares of any
company engaged in nonbanking activities unless the Federal Reserve Board, by order or
regulation, has found those activities to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Some of the activities that the
Federal Reserve Board has determined by regulation to be proper incidents to the business
of a bank holding company include:

| | o | making or servicing loans and certain types of leases;
| | - | ------------------------------------------------------

| | o | engaging in certain insurance and discount brokerage activities;
| | - | ----------------------------------------------------------------

| | o | performing certain data processing services;
| | - | --------------------------------------------

| | o | acting in certain circumstances as a fiduciary or investment or financial adviser;
| | - | ----------------------------------------------------------------------------------

| | o | owning savings associations; and
| | - | --------------------------------

| | o | making investments in certain corporations or projects designed
primarily to promote community welfare.
| | - | -------------------------------------------------------------------------------------------------------

The
Federal Reserve Board imposes certain capital requirements on the company under the Bank
Holding Company Act, including a minimum leverage ratio and a minimum ratio of
qualifying capital to risk-weighted assets. These requirements are described
below under Capital Regulations. Subject to its capital requirements and
certain other restrictions, the company is able to borrow money to make a capital
contribution to the bank,

8

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and these loans may be repaid from
dividends paid from the bank to the company. Our ability to pay dividends is subject to
regulatory restrictions as described below in Tidelands Bank  Dividends.
The company is also able to raise capital for contribution to the bank by issuing
securities without having to receive regulatory approval, subject to compliance with
federal and state securities laws.

Source
of Strength; Cross-Guarantee. In accordance with Federal Reserve Board policy, the
company is expected to act as a source of financial strength to the bank and to commit
resources to support the bank in circumstances in which the company might not otherwise do
so. Under the Bank Holding Company Act, the Federal Reserve Board may require a bank
holding company to terminate any activity or relinquish control of a nonbank subsidiary,
other than a nonbank subsidiary of a bank, upon the Federal Reserve Boards
determination that such activity or control constitutes a serious risk to the financial
soundness or stability of any subsidiary depository institution of the banks holding
company. Further, federal bank regulatory authorities have additional discretion to
require a bank holding company to divest itself of any bank or nonbank subsidiary if the
agency determines that divestiture may aid the depository institutions financial
condition.

The
Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act, previously known as the Financial
Services Modernization Act of 1999, was signed into law on November 12, 1999. Among other
things, the Act repeals the restrictions on banks affiliating with securities firms
contained in sections 20 and 32 of the Glass-Steagall Act. The Act also permits bank
holding companies that become financial holding companies to engage in a statutorily
provided list of financial activities, including insurance and securities underwriting and
agency activities, merchant banking, and insurance company portfolio investment
activities. The Act also authorizes activities that are complementary to
financial activities.

The
Act is intended, in part, to grant to community banks certain powers as a matter of right
that larger institutions have accumulated on an ad hoc basis. Nevertheless, the Act may
have the result of increasing the amount of competition that we face from larger
institutions and other types of companies. In fact, it is not possible to predict the full
effect that the Act will have on us.

South
Carolina State Regulation. As a bank holding company registered under the South
Carolina Banking and Branching Efficiency Act, we are subject to limitations on sale or
merger and to regulation by the South Carolina Board of Financial Institutions. We must
receive the Boards approval prior to engaging in the acquisition of banking or
nonbanking institutions or assets, and we must file periodic reports with respect to our
financial condition and operations, management, and intercompany relationships between the
company and its subsidiaries.

# Tidelands Bank

The
bank operates as a South Carolina state chartered bank and is subject to examination by
the South Carolina Board of Financial Institutions. Deposits in the bank are insured by
the FDIC up to a maximum amount, which is generally $100,000 per depositor subject to
aggregation rules.

The
South Carolina Board of Financial Institutions and the FDIC regulate or monitor virtually
all areas of the banks operations, including:

9

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| | o | security devices and procedures;
| | - | --------------------------------

| | o | adequacy of capitalization and loss reserves;
| | - | ---------------------------------------------

| | o | loans;
| | - | ------

| | o | investments;
| | - | ------------

| | o | borrowings;
| | - | -----------

| | o | deposits;
| | - | ---------

| | o | mergers;
| | - | --------

| | o | issuances of securities;
| | - | ------------------------

| | o | payment of dividends;
| | - | ---------------------

| | o | interest rates payable on deposits;
| | - | -----------------------------------

| | o | interest rates or fees chargeable on loans;
| | - | -------------------------------------------

| | o | establishment of branches;
| | - | --------------------------

| | o | corporate reorganizations;
| | - | --------------------------

| | o | maintenance of books and records; and
| | - | -------------------------------------

| | o | adequacy of staff training to carry on safe lending and deposit gathering practices.
| | - | ------------------------------------------------------------------------------------

The
South Carolina Board of Financial Institutions requires the bank to maintain specified
capital ratios and imposes limitations on the banks aggregate investment in real
estate, bank premises, and furniture and fixtures. The FDIC requires the bank to prepare
quarterly reports on the banks financial condition and to conduct an annual audit of
its financial affairs in compliance with its minimum standards and procedures.

Under
the FDIC Improvement Act, all insured institutions must undergo regular on site
examinations by their appropriate banking agency. The cost of examinations of insured
depository institutions and any affiliates may be assessed by the appropriate agency
against each institution or affiliate as it deems necessary or appropriate. Insured
institutions are required to submit annual reports to the FDIC, their federal regulatory
agency, and their state supervisor when applicable. The FDIC Improvement Act directs the
FDIC to develop a method for insured depository institutions to provide supplemental
disclosure of the estimated fair market value of assets and liabilities, to the extent
feasible and practicable, in any balance sheet, financial statement, report of condition
or any other report of any insured depository institution. The FDIC Improvement Act also
requires the federal banking regulatory agencies to prescribe, by regulation, standards
for all insured depository institutions and depository institution holding companies
relating, among other things, to the following:

| | o | internal controls;
| | - | ------------------

| | o | information systems and audit systems;
| | - | --------------------------------------

| | o | loan documentation;
| | - | -------------------

| | o | credit underwriting;
| | - | --------------------

| | o | interest rate risk exposure; and
| | - | --------------------------------

| | o | asset quality.
| | - | --------------

Deposit
Insurance. The FDIC has adopted a risk-based assessment system for determining an
insured depository institutions insurance assessment rate. The system takes
into account the risks attributable to different categories and concentrations of assets
and liabilities. An institution is placed into one of three capital categories: (1) well
capitalized; (2) adequately capitalized; or (3) undercapitalized. The FDIC also assigns an
institution to one of three supervisory subgroups, based on the FDICs determination
of the institutions financial condition and the risk posed to the deposit insurance
funds. Assessments range from 0 to 27 cents per $100 of deposits, depending on the
institutions capital group and supervisory subgroup. In addition, the FDIC imposes
assessments to help pay off the $780 million in annual interest payments on the $8 billion
Financing Corporation (FICO) bonds issued in the late 1980s as part of the government
rescue of the thrift industry. New changes have been proposed recently regarding these
assessments, including an increase in the amount of the FDIC insurance, but at this time
it is not possible to predict whether the changes will be implemented or what their effect
would be. Generally, we expect that increases in deposit insurance premiums or changes in
risk classification will increase the banks cost of funds, and we may not be able to
pass these costs on to our customers. Although we pay a quarterly FICO assessment, the
FDIC assessment rate on our bank deposits currently is zero, but may change in

10

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the future. The FDIC may increase or
decrease the assessment rate schedule on a semiannual basis. An increase in the BIF
assessment rate could have a material adverse effect on our earnings, depending on the
amount of the increase.

The
FDIC may terminate its insurance of deposits if it finds that the institution has engaged
in unsafe and unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule, order, or condition
imposed by the FDIC.

Transactions
With Affiliates and Insiders.The bank is subject to the provisions of Section 23A of
the Federal Reserve Act, which places limits on the amount of loans or extensions of
credit to, or investments in, or certain other transactions with, affiliates and on the
amount of advances to third parties collateralized by the securities or obligations of
affiliates. The aggregate of all covered transactions is limited in amount, as to any one
affiliate, to 10% of the banks capital and surplus and, as to all affiliates
combined, to 20% of the banks capital and surplus. Furthermore, within the foregoing
limitations as to amount, each covered transaction must meet specified collateral
requirements. Compliance is also required with certain provisions designed to avoid the
taking of low quality assets.

The
bank is also subject to the provisions of Section 23B of the Federal Reserve Act which,
among other things, prohibits an institution from engaging in certain transactions with
certain affiliates unless the transactions are on terms substantially the same, or at
least as favorable to such institution or its subsidiaries, as those prevailing at the
time for comparable transactions with nonaffiliated companies. The bank is subject to
certain restrictions on extensions of credit to executive officers, directors, certain
principal shareholders, and their related interests. Such extensions of credit (i) must be
made on substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with third parties and (ii) must not
involve more than the normal risk of repayment or present other unfavorable features.

The
Federal Reserve Board has recently issued Regulation W, which codifies prior regulations
under Sections 23A and 23B of the Federal Reserve Act and interpretative guidance with
respect to affiliate transactions. Regulation W incorporates the exemption from the
affiliate transaction rules but expands the exemption to cover the purchase of any type of
loan or extension of credit from an affiliate. In addition, under Regulation W:

| | o | a bank and its subsidiaries may not purchase a low-quality asset from an affiliate;
| | - | -----------------------------------------------------------------------------------

| | o | covered transactions and other specified transactions between a bank or its subsidiaries
and an affiliate must be on terms and conditions that are consistent with safe and sound
banking practices; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | with some exceptions, each loan or extension of credit by a bank to an affiliate must be
secured by collateral with a market value ranging from 100% to 130%, depending on the type
of collateral, of the amount of the loan or extension of credit.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Regulation
W generally excludes all non-bank and non-savings association subsidiaries of banks from
treatment as affiliates, except to the extent that the Federal Reserve Board decides to
treat these subsidiaries as affiliates. Concurrently with the adoption of Regulation W,
the Federal Reserve Board has proposed a regulation which would further limit the amount
of loans that could be purchased by a bank from an affiliate to not more than 100% of the
banks capital and surplus. This regulation has not yet been adopted.

Dividends.
          The bank is subject to regulatory restrictions on the payment of dividends,
          including a prohibition of payment of dividends from its capital. All dividends
          must be paid out of the undivided profits then on hand, after deducting
          expenses, including losses and bad debts. The bank is authorized to pay cash
          dividends up to 100% of net income in any calendar year without obtaining the
          prior approval of the South Carolina Board of Financial Institutions provided
          that the bank received a composite rating of one or two at the last federal or
          state regulatory examination. The bank must obtain approval from the South
          Carolina Board of Financial Institutions prior to the payment of any other cash
          dividends. In addition, under the FDIC Improvement Act, the bank may not pay a
          dividend if, after paying the dividend, the bank would be undercapitalized. See
          Capital Regulations below.

11

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Branching.
          Under current South Carolina law, we may open bank branch offices throughout
          South Carolina with the prior approval of the South Carolina Board of Financial
          Institutions. In addition, with prior regulatory approval, the bank may acquire
          existing banking operations in South Carolina. Furthermore, federal legislation
          has recently been passed which permits interstate branching. The new law permits
          out-of-state acquisitions by bank holding companies, interstate branching by
          banks if allowed by state law, interstate merging by banks, and de novo
          branching by banks if allowed by state law.

Community
Reinvestment Act. The Community Reinvestment Act requires that, in connection with
examinations of financial institutions within their respective jurisdictions, a financial
institutions primary federal regulator (this is the FDIC for our bank) shall
evaluate the record of each financial institution in meeting the credit needs of its local
community, including low and moderate income neighborhoods. These factors are also
considered in evaluating mergers, acquisitions, and applications to open a branch or
facility. Failure to adequately meet these criteria could impose additional requirements
and limitations on the bank. Under the Gramm-Leach-Bliley Act, banks with aggregate assets
of not more than $250 million will be subject to a Community Reinvestment Act examination
only once every 60 months if the bank receives an outstanding rating, once every 48 months
if it receives a satisfactory rating, and as needed if the rating is less than
satisfactory. Additionally, under the Gramm-Leach-Bliley Act, banks are required to
publicly disclose the terms of various Community Reinvestment Act-related agreements.

The
Gramm-Leach-Bliley Act. Under the Gramm-Leach-Bliley Act, subject to certain
conditions imposed by their respective banking regulators, national and state-chartered
banks are permitted to form financial subsidiaries that may conduct financial
or incidental activities, thereby permitting bank subsidiaries to engage in certain
activities that previously were impermissible. The Gramm-Leach-Bliley Act imposes several
safeguards and restrictions on financial subsidiaries, including that the parent
banks equity investment in the financial subsidiary be deducted from the banks
assets and tangible equity for purposes of calculating the banks capital adequacy.
In addition, the Gramm-Leach-Bliley Act imposes new restrictions on transactions between a
bank and its financial subsidiaries similar to restrictions applicable to transactions
between banks and nonbank affiliates.

The
Gramm-Leach-Bliley Act also contains provisions regarding consumer privacy. These
provisions require financial institutions to disclose their policy for collecting and
protecting confidential information. Customers generally may prevent financial
institutions from sharing personal financial information with nonaffiliated third parties
except for third parties that market an institutions own products and services.
Additionally, financial institutions generally may not disclose consumer account numbers
to any nonaffiliated third party for use in telemarketing, direct mail marketing, or other
marketing to the consumer.

Other
Regulations. Interest and other charges collected or contracted for by the bank are
subject to state usury laws and federal laws concerning interest rates. The banks
loan operations are also subject to federal laws applicable to credit transactions, such
as:

| | o | the federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
| | - | ----------------------------------------------------------------------------------------------

| | o | the Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide
information to enable the public and public officials to determine whether a financial
institution is fulfilling its obligation to help meet the housing needs of the community
it serves;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed
or other prohibited factors in extending credit;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

| | o | the Fair Credit  Reporting  Act of 1978,  governing the use and provision of  information  to credit  reporting
         agencies;
| | - | ----------------------------------------------------------------------------------------------------------------------------------

| | o | the Fair Debt  Collection  Act,  governing  the manner in which  consumer  debts may be collected by collection
agencies; and
| | - | -----------------------------------------------------------------------------------------------------------------------------

| | o | the rules and regulations of the various federal agencies charged with the responsibility
of implementing such federal laws.
| | - | ----------------------------------------------------------------------------------------------------------------------------

12

---

The deposit operations of the bank
also are subject to:

| | o | the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of
consumer financial records and prescribes procedures for complying with administrative
subpoenas of financial records; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to
implement that act, which governs automatic deposits to and withdrawals from deposit
accounts and customers rights and liabilities arising from the use of automated
teller machines and other electronic banking services.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Capital
Regulations. The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make regulatory
capital requirements more sensitive to differences in risk profiles among banks and bank
holding companies and account for off-balance sheet items. The guidelines are minimums,
and the federal regulators have noted that banks and bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their capital ratios
and should maintain ratios in excess of the minimums. We have not received any notice
indicating that either the company or the bank is subject to higher capital requirements.
The current guidelines require all bank holding companies and federally-regulated banks to
maintain a minimum risk-based total capital ratio equal to 8%, of which at least 4% must
be Tier 1 capital. Tier 1 capital includes common shareholders equity, qualifying
perpetual preferred stock, and minority interests in equity accounts of consolidated
subsidiaries, but excludes goodwill and most other intangibles and excludes the allowance
for loan and lease losses. Tier 2 capital includes the excess of any preferred stock not
included in Tier 1 capital, mandatory convertible securities, hybrid capital instruments,
subordinated debt and intermediate term-preferred stock, and general reserves for loan and
lease losses up to 1.25% of risk-weighted assets.

Under
these guidelines, banks and bank holding companies assets are given
risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance sheet items are
given credit conversion factors to convert them to asset equivalent amounts to which an
appropriate risk-weight applies. These computations result in the total risk-weighted
assets. Most loans are assigned to the 100% risk category, except for first mortgage loans
fully secured by residential property and, under certain circumstances, residential
construction loans, both of which carry a 50% rating. Most investment securities are
assigned to the 20% category, except for municipal or state revenue bonds, which have a
50% rating, and direct obligations of or obligations guaranteed by the United States
Treasury or United States Government agencies, which have a 0% rating.

The
federal bank regulatory authorities have also implemented a leverage ratio, which is equal
to Tier 1 capital as a percentage of average total assets less intangibles, to be used as
a supplement to the risk-based guidelines. The principal objective of the leverage ratio
is to place a constraint on the maximum degree to which a bank holding company may
leverage its equity capital base. The minimum required leverage ratio for top-rated
institutions is 3%, but most institutions are required to maintain an additional cushion
of at least 100 to 200 basis points.

The
FDIC Improvement Act established a new capital-based regulatory scheme designed to promote
early intervention for troubled banks which requires the FDIC to choose the least
expensive resolution of bank failures. The new capital-based regulatory framework contains
five categories of compliance with regulatory capital requirements, including well
capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
To qualify as a well capitalized institution, a bank must have a leverage
ratio of no less than 5%, a Tier 1 risk-based ratio of no less than 6%, and a total
risk-based capital ratio of no less than 10%, and the bank must not be under any order or
directive from the appropriate regulatory agency to meet and maintain a specific capital
level. Currently, we qualify as well capitalized.

Under
the FDIC Improvement Act regulations, the applicable agency can treat an institution as if
it were in the next lower category if the agency determines (after notice and an
opportunity for hearing) that the institution is in an unsafe or unsound condition or is
engaging in an unsafe or unsound practice. The degree of regulatory scrutiny of a
financial institution increases, and the permissible activities of the institution
decreases, as

13

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it moves downward through the capital
categories. Institutions that fall into one of the three undercapitalized categories may
be required to do some or all of the following:

| | o | submit a capital restoration plan;
| | - | ----------------------------------

| | o | raise additional capital;
| | - | -------------------------

| | o | restrict their growth, deposit interest rates, and other activities;
| | - | --------------------------------------------------------------------

| | o | improve their management;
| | - | -------------------------

| | o | eliminate management fees; or
| | - | -----------------------------

| | o | divest themselves of all or a part of their operations.
| | - | -------------------------------------------------------

A bank that is not well
capitalized is also subject to certain limitations relating to so-called
brokered deposits. Bank holding companies controlling financial institutions
can be called upon to boost the institutions capital and to partially guarantee the
institutions performance under their capital restoration plans.

These
capital guidelines can affect us in several ways. If we grow at a rapid pace, our capital
may be depleted too quickly, and a capital infusion from the holding company may be
necessary which could impact our ability to pay dividends. We are currently well
capitalized; however, rapid growth, poor loan portfolio performance, poor earnings
performance, or a combination of these factors could change our capital position in a
relatively short period of time.

Failure
to meet these capital requirements would mean that a bank would be required to develop and
file a plan with its primary federal banking regulator describing the means and a schedule
for achieving the minimum capital requirements. In addition, such a bank would generally
not receive regulatory approval of any application that requires the consideration of
capital adequacy, such as a branch or merger application, unless the bank could
demonstrate a reasonable plan to meet the capital requirement within a reasonable period
of time.

Enforcement
Powers. The Financial Institution Report Recovery and Enforcement Act expanded and
increased civil and criminal penalties available for use by the federal regulatory
agencies against depository institutions and certain institution-affiliated
parties. Institution-affiliated parties primarily include management, employees, and
agents of a financial institution, as well as independent contractors and consultants such
as attorneys and accountants and others who participate in the conduct of the financial
institutions affairs. These practices can include the failure of an institution to
timely file required reports or the filing of false or misleading information or the
submission of inaccurate reports. Civil penalties may be as high as $1,000,000 a day for
such violations. Criminal penalties for some financial institution crimes have been
increased to 20 years. In addition, regulators are provided with greater flexibility to
commence enforcement actions against institutions and institution-affiliated parties.
Possible enforcement actions include the termination of deposit insurance. Furthermore,
banking agencies power to issue cease-and-desist orders were expanded. Such orders
may, among other things, require affirmative action to correct any harm resulting from a
violation or practice, including restitution, reimbursement, indemnification or guarantees
against loss. A financial institution may also be ordered to restrict its growth, dispose
of certain assets, rescind agreements or contracts, or take other actions as determined by
the ordering agency to be appropriate.

Effect
of Governmental Monetary Policies. Our earnings are affected by domestic economic
conditions and the monetary and fiscal policies of the United States government and its
agencies. The Federal Reserve Banks monetary policies have had, and are likely to
continue to have, an important impact on the operating results of commercial banks through
its power to implement national monetary policy in order, among other things, to curb
inflation or combat a recession. The monetary policies of the Federal Reserve Board have
major effects upon the levels of bank loans, investments and deposits through its open
market operations in United States government securities and through its regulation of the
discount rate on borrowings of member banks and the reserve requirements against member
bank deposits. It is not possible to predict the nature or impact of future changes in
monetary and fiscal policies.

14

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# Item 2.  Description of
Property

Our
main office is located at 875 Lowcountry Boulevard, Mt. Pleasant, South Carolina, 29464.
The building is approximately 10,000 square feet. We sub-lease this building from another
financial institution. Under the terms of the lease, the monthly rental payment is
$8,333.33 per month. This lease expires April 6, 2004. We are in discussions with the
lessor to become the primary lessee. When the lease is restructured, future minimum
non-cancelable lease payments may increase.

# Item 3.  Legal
Proceedings.

We
are not a party to, nor are any of our properties subject to, any material legal
proceedings, other than routine litigation incidental to our business.

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

No
matter was submitted to a vote of security holders during the fourth quarter of the fiscal
year covered by this report.

# Item 5.  Market for
Common Equity and Related Stockholder Matters.

There
is currently no public trading market for our common stock. The common stock of Tidelands
Bancshares, Inc. is not listed on any exchange. Trading and quotations of the common stock
have been limited and sporadic. The only trades of which we are aware were $11 per share.
Management may not be aware of the prices at which all shares of stock have been traded.
As of March 1, 2004, we had approximately 629 shareholders of record.

The
ability of Tidelands Bancshares to pay cash dividends is dependent upon receiving cash in
the form of dividends from Tidelands Bank. However, certain restrictions exist regarding
the ability of the bank to transfer funds to the company in the form of cash dividends.
All of the banks dividends are subject to prior approval by the South Carolina State
Board of Financial Institutions and are payable only from the undivided profits of the
bank. All outstanding shares of common stock of the company are entitled to share equally
in dividends from funds legally available when, and if, declared by the board of
directors. To date, we have not paid cash dividends on our common stock. We currently
intend to retain earnings to support operations and finance expansion and therefore do not
anticipate paying cash dividends in the foreseeable future.

15

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# Item 6.  
Managements Discussion and Analysis or Plan of Operation

# Selected Financial Data

The following selected financial data
for the period ended December 31, 2003 is derived from the financial statements and other
data of Tidelands Bancshares, Inc. The selected financial data should be read in
conjunction with the financial statements of the company, including the accompanying
notes, included elsewhere herein.

|(Dollars in thousands)                                     | 2003
|---------------------------------------------------------- | ----
|Income Statement Data:                                     |     
|                                                           |     
|Interest income                                            |     
|Interest expense                                           |     
|                                                           |     
|Net interest income                                        |     
|                                                           |     
|Provision for loan losses                                  |     
|                                                           |     
|Net interest income (loss) after provision for loan losses |     
|                                                           |     
|Noninterest income                                         |     
|Noninterest expense                                        |     
|                                                           |     
|Loss before income taxes                                   |     
|                                                           |     
|Income tax benefit                                         |     
|                                                           |     
|Net loss                                                   |     
|                                                           |     
|Balance Sheet Data:                                        |     
|                                                           |     
|Assets                                                     |     
|                                                           |     
|Earning assets                                             |     
|                                                           |     
|Securities (1)                                             |     
|                                                           |     
|Loans (2)                                                  |     
|                                                           |     
|Allowance for loan losses                                  |     
|                                                           |     
|Deposits                                                   |     
|                                                           |     
|Shareholders' equity                                       |     
|                                                           |     
|Per-Share Data:                                            |     
|                                                           |     
|Earnings (losses) per-share                                |     
|                                                           |     
|Book value (period end)                                    |     

---

|(1) | All securities are available for sale and are stated at fair value.
|--- | -------------------------------------------------------------------

|(2) | Loans are stated at gross amounts before allowance for loan losses.
|--- | -------------------------------------------------------------------

16

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# General

Tidelands Bancshares, Inc. is a bank
holding company headquartered in Mount Pleasant, South Carolina. Our subsidiary, Tidelands
Bank, opened for business on October 6, 2003. The principal business activity of the bank
is to provide banking services to domestic markets, principally in the Mount Pleasant,
South Carolina metropolitan area. Our deposits are insured by the Federal Deposit
Insurance Corporation.

We recently completed an initial
public offering of our common stock in which we sold a total of 1,033,398 shares of common
stock at $10.00 per share. Proceeds of the offering were used to pay organizational costs
and provide the initial capital for the bank.

The following discussion describes
our results of operations for 2003 as compared to 2002 and also analyzes our financial
condition as of December 31, 2003 as compared to December 31, 2002. Since we did not
commence banking operations until October 2003, we have omitted some of the tables that we
will include in future filings, and most of the following discussion is focused on the
period following the opening of the bank. Like most community banks, we expect that we
will derive most of our income from interest we receive on our loans and investments. Our
primary source of funds for making these loans and investments is our deposits, on which
we pay interest. Consequently, one of the key measures of our success is our amount of net
interest income, or the difference between the income on our interest-earning assets, such
as loans and investments, and the expense on our interest-bearing liabilities, such as
deposits. Another key measure is the spread between the yield we earn on these
interest-earning assets and the rate we pay on our interest-bearing liabilities.

We have included a number of tables
to assist in our description of these measures. For example, the Average
Balances table shows the average balance (during the period the bank was open) in
2003 of each category of our assets and liabilities, as well as the yield we earned or the
rate we paid with respect to each category. A review of this table shows that our loans
typically provide higher interest yields than do other types of interest earning assets,
which is why we intend to channel a substantial percentage of our earning assets into our
loan portfolio. We also track the sensitivity of our various categories of assets and
liabilities to changes in interest rates, and we have included a Interest
Sensitivity Analysis Table to help explain this. Finally, we have included a number
of tables that provide detail about our investment securities, our loans, and our deposits
and other borrowings.

Naturally, there are risks inherent
in all loans, so we maintain an allowance for loan losses to absorb probable losses on
existing loans that may become uncollectible. We establish and maintain this allowance by
charging a provision for loan losses against our operating earnings. In the
Provision and Allowance for Loan Loss section, we have included a discussion
of this process.

In addition to earning interest on
our loans and investments, we earn income through fees and other expenses we charge to our
customers. We describe the various components of this noninterest income, as well as our
noninterest expense, in the Noninterest Income and Expense section.

The following discussion and analysis
also identifies significant factors that have affected our financial position and
operating results during the periods included in the accompanying financial statements. We
encourage you to read this discussion and analysis in conjunction with the financial
statements and the related notes and the other statistical information also included in
this report. The financial information provided below has been rounded in order to
simplify its presentation. However, the ratios and percentages provided below are
calculated using the detailed financial information contained in the Financial Statements,
the Notes thereto and the other financial data included elsewhere in this Annual Report.

# Results of Operations

# For the year ended
December 31, 2003

Net interest income for the year
ended December 31, 2003 was $96,720. Total interest income for the period was $169,266 and
was partially offset by interest expense of $72,546. The components of interest income
were from loans, including fees, of $74,127, federal funds sold of $32,799, and investment
income of $62,340.

17

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The companys net interest
spread and net interest margin were 2.23% and 2.87%, respectively, in 2003. The net
interest spread and net interest margin calculations exclude interest income earned on
escrow accounts and interest expense incurred on borrowings during the pre-opening period
from January 1, 2003 to October 5, 2003. The largest component of average earning assets
was federal funds.

The provision for loan losses was
$135,000 in 2003. The charges to the provision were primarily to maintain the allowance
for loan losses at a level sufficient to cover possible future losses in the loan
portfolio.

Noninterest income for the year ended
December 31, 2003 totaled $16,208. The largest component of noninterest income was from
miscellaneous sources of other income, including credit card income and rent from a
portion of our building. Fees from the origination of mortgage loans totaled $3,648 for
the period. Service charges on deposit accounts totaled $283 for the year ended December
31, 2003.

Noninterest expense for the year
ended December 31, 2003 totaled $1,042,717. Noninterest expenses included $530,506 in
pre-opening expenses. Salaries and employee benefits totaled $523,542 for the period.
Salaries included the cost of key personnel employed during the organizational period.
Other operating expenses totaled $364,729 for the period. These expenses included costs
associated with the first year of operations of the bank.

Our net loss for the year ended
December 31, 2003 was $519,217. The net loss for the period is after the recognition of an
income tax benefit of $545,572. The income tax benefit was based on an effective tax rate
of 34%. The benefit was based on all expenses since the companys inception. As
stated earlier, the net loss includes pre-opening expenses of $530,506.

# For the year ended
December 31, 2002

Our net loss of $569,834 for the year
ended December 31, 2002 consisted solely of expenses to organize the bank. These expenses
consisted of other expenses of $219,262, salaries and employee benefits of $260,369, and
occupancy of $80,193.

# Net Interest Income

General.    
          For an established financial institution, the largest component of net income is
          its net interest income, which is the difference between the income earned on
          assets and interest paid on deposits and borrowings used to support such assets.
          Net interest income is determined by the yields earned on our interest-earning
          assets and the rates paid on its interest-bearing liabilities, the relative
          amounts of interest-earning assets and interest-bearing liabilities, and the
          degree of mismatch and the maturity and repricing characteristics of its
          interest-earning assets and interest-bearing liabilities. This net interest
          income divided by average interest-earning assets represents our net interest
          margin.

18

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Results of Operations
 continued

Average Balances, Income and
Expenses and Rates. The following tables set forth, for the period
indicated, certain information related to our average balance sheet and our average yields
on assets and average costs of liabilities. Such yields are derived by dividing income or
expense by the average balance of the corresponding assets or liabilities and are then
annualized. Average balances have been derived from the daily balances throughout the
period indicated. These amounts exclude pre-opening activities for the period January 1,
2003 to October 5, 2003.

|                                           | October 6, 2003 to December 31, 2003
|------------------------------------------ | ------------------------------------
|
|
|Assets:                                    |                                     
|Earning Assets:                            |                                     
|Loans (1)                                  |                                     
|Securities, taxable                        |                                     
|Federal funds sold                         |                                     
|                                           |                                     
|Total earning assets                       |                                     
|                                           |                                     
|Cash and due from banks                    |                                     
|Premises and equipment                     |                                     
|Other assets                               |                                     
|Allowance for loan losses                  |                                     
|                                           |                                     
|Total assets                               |                                     
|                                           |                                     
|Liabilities:                               |                                     
|Interest-Bearing Liabilities:              |                                     
|Interest-bearing transaction accounts      |                                     
|Savings and money market deposits          |                                     
|Time deposits                              |                                     
|Other borrowings                           |                                     
|                                           |                                     
|Total interest-bearing liabilities         |                                     
|                                           |                                     
|Demand deposits                            |                                     
|Accrued interest and other liabilities     |                                     
|Shareholders' equity                       |                                     
|                                           |                                     
|Total liabilities and shareholders' equity |                                     
|                                           |                                     
|Net interest spread                        |                                     
|                                           |                                     
|Net interest income                        |                                     
|                                           |                                     
|Net interest margin (2)                    |                                     
|                                           |                                     

|(1) | There were no loans in nonaccrual status. The effect of fees collected on loans
          totaling $8,351 increased the annualized yield on loans by .58% from 4.54%. The
          effect on the annualized yield on earning assets was an increase of .19% from
          3.60%. The effect on net interest spread and net interest margin was an increase
          of .19% and .18% from 2.04% and 2.69%, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Interest income divided by average earning assets.
|--- | --------------------------------------------------

Analysis of Changes in Net
Interest Income. Due to 2003 being the year of commencement, all interest
income and expense is attributable to the volume of earning assets and interest-bearing
liabilities, respectively.

Interest
Sensitivity. We monitor and manage the pricing and maturity of our assets
and liabilities in order to diminish the potential adverse impact that changes in interest
rates could have on its net interest income. The principal monitoring technique employed
by us is the measurement of our interest sensitivity gap, which is the
positive or negative dollar difference between assets and liabilities that are subject to
interest rate repricing within a given period of time. Interest rate sensitivity can be
managed by repricing assets or liabilities, selling securities

19

---

available for sale, replacing an
asset or liability at maturity, or adjusting the interest rate during the life of an asset
or liability. Managing the amount of assets and liabilities repricing in this same time
interval helps to hedge the risk and minimize the impact on net interest income of rising
or falling interest rates.

Net Interest Income
 continued

The following table sets forth our
interest rate sensitivity at December 31, 2003.

# Interest Sensitivity
Analysis

|                                  |  | After Three |   | Greater |  
|--------------------------------- |  | ----------- | - | ------- | -
|
|
|
|Assets                            |  |             |   |         |  
|Earning Assets:                   |  |            
|Loans                             |  |             | $ | 9,025   |  
|Investment securities             |  |             |   | -       |  
|Federal funds sold                |  |             |   | 9,057   |  
|                                  |  |             |   |         |  
|Total earning assets              |  |             | $ | 18,082  |  
|                                  |  |             |   |         |  
|Liabilities                       |  |            
|Interest-bearing liabilities:     |  |            
|Interest-bearing deposits:        |  |            
|Demand deposits                   |  |             | $ | 518     |  
|Savings and money market deposits |  |             |   | 5,695   |  
|Time deposits                     |  |             |   | 218     |  
|Other borrowings                  |  |             |   | 6,500   |  
|                                  |  |             |   |         |  
|Total interest-bearing deposits   |  |             | $ | 12,931  |  
|                                  |  |             |   |         |  
|Period gap                        |  |             | $ | 5,151   |  
|                                  |  |             |   |         |  
|Cumulative gap                    |  |             | $ | 5,151   |  
|                                  |  |             |   |         |  
|Ratio of cumulative gap           |  |            
|to total earning assets           |  |             |   | 19.1    | %

The above table reflects the balances of
interest-earning assets and interest-bearing liabilities at the earlier of their repricing
or maturity dates. Overnight federal funds are reflected at the earliest pricing interval
due to the immediately available nature of the instruments. Debt securities are reflected
at each instruments ultimate maturity date. Scheduled payment amounts of fixed rate
amortizing loans are reflected at each scheduled payment date. Scheduled payment amounts
of variable rate amortizing loans are reflected at each scheduled payment date until the
loan may be repriced contractually; the unamortized balance is reflected at that point.
Interest-bearing liabilities with no contractual maturity, such as savings deposits and
interest-bearing transaction accounts, are reflected in the earliest repricing period due
to contractual arrangements which give us the opportunity to vary the rates paid on those
deposits within a thirty-day or shorter period. Fixed rate time deposits, principally
certificates of deposit, are reflected at their contractual maturity date. Other
borrowings, which consist of securities sold under agreements to repurchase, are reflected
at their contractual maturity date.

We generally would benefit from
increasing market rates of interest when we have an asset-sensitive gap position and
generally would benefit from decreasing market rates of interest when we are
liability-sensitive. We are cumulatively asset sensitive over all periods. However, our
gap analysis is not a precise indicator of our interest sensitivity position. The analysis
presents only a static view of the timing of maturities and repricing opportunities,
without taking into consideration that changes in interest rates do not affect all assets
and liabilities equally. Net interest income may be impacted by other significant factors
in a given interest rate environment, including changes in the volume and mix of earning
assets and interest-bearing liabilities.

20

---

# Provision and
Allowance for Loan Losses

General.    
          We have developed policies and procedures for evaluating the overall quality of
          its credit portfolio and the timely identification of potential problem credits.
          On a quarterly basis, our Board of Directors reviews and approves the
          appropriate level for our allowance for loan losses based upon managements
          recommendations, the results of the internal monitoring and reporting system,
          and an analysis of economic conditions in our market. The objective of
          management has been to fund the allowance for loan losses at approximately 1.25%
          of total loans outstanding until a history is established.

Additions to the allowance for loan
losses, which are expensed as the provision for loan losses on our income statement, are
made periodically to maintain the allowance at an appropriate level based on
managements analysis of the risk inherent in the loan portfolio. Loan losses and
recoveries are charged or credited directly to the allowance. The amount of the provision
is a function of the level of loans outstanding, the level of nonperforming loans, the
amount of loan losses actually charged against the reserve during a given period, and
current and anticipated economic conditions.

Our allowance for loan losses is
based upon judgments and assumptions about risk elements in the portfolio, future economic
conditions, and other factors affecting borrowers. The process includes identification and
analysis of loss potential in various portfolio segments utilizing a credit risk grading
process and specific reviews and evaluations of significant problem credits. We do not
allocate the allowance for loan losses to specific categories of loans but evaluate the
adequacy on an overall portfolio basis utilizing a risk grading system. In addition,
management monitors the overall portfolio quality through observable trends in
delinquencies, charge-offs, and general and economic conditions in the service area. The
adequacy of the allowance for loan losses and the effectiveness of our monitoring and
analysis system are also reviewed periodically by the banking regulators.

Based on present information and
ongoing evaluation, we consider the allowance for loan losses to be adequate to meet
presently known and inherent risks in the loan portfolio. Our judgment as to the adequacy
of the allowance is based upon a number of assumptions about future events that we believe
to be reasonable, but which may or may not prove to be accurate. Our losses will
undoubtedly vary from our estimates, and there is a possibility that charge-offs in future
periods will exceed the allowance for loan losses as estimated at any point in time. Thus,
there can be no assurance that charge-offs in future periods will not exceed the allowance
for loan losses or that additional increases in the allowance for loan losses will not be
required.

The following table sets forth
certain information with respect to our allowance for loan losses and the composition of
charge-offs and recoveries for the period ended December 31, 2003.

# Allowance for Loan Losses

|(Dollars in thousands)                                      | 2003
|----------------------------------------------------------- | ----
|Total loans outstanding at end of period                    |     
|                                                            |     
|Average loans outstanding                                   |     
|                                                            |     
|Balance of allowance for loan losses at beginning of period |     
|Net loan losses                                             |     
|Provision for loan losses                                   |     
|                                                            |     
|Balance of allowance for loan losses at end of year         |     
|                                                            |     
|Allowance for loan losses to period end loans               |     

21

---

# Nonperforming Assets

Nonperforming
Assets. There were no nonperforming assets at December 31, 2003.

Our policy with respect to
nonperforming assets is as follows. Accrual of interest will be discontinued on a loan
when we believe, after considering economic and business conditions and collection efforts
that the borrowers financial condition is such that the collection of interest is
doubtful. A delinquent loan will generally be placed in nonaccrual status when it becomes
90 days or more past due. When a loan is placed in nonaccrual status, all interest which
has been accrued on the loan but remains unpaid will be reversed and deducted from current
earnings as a reduction of reported interest income. No additional interest will be
accrued on the loan balance until the collection of both principal and interest becomes
reasonably certain. When a problem loan is finally resolved, there may ultimately be an
actual writedown or charge-off of the principal balance of the loan which would
necessitate additional charges to earnings.

Potential Problem
Loans. At December 31, 2003, we had not identified any criticized or
classified loans through our internal review mechanisms. The results of this internal
review process are considered in determining our assessment of the adequacy of the
allowance for loan losses. However, based on the prior experience of management and other
new banks, we have has established the overall objective to maintain the allowance for
loan losses at approximately 1.25% of total loans to provide for the risk of loss inherent
in the loan portfolio.

# Noninterest Income and
Expense

Noninterest
Income. The largest component of noninterest income was miscellaneous
sources of other income including credit card income and rent from a portion of our
building. Mortgage origination fees totaled $3,648 for the year ended December 31, 2003.

The following table sets forth the
principal components of noninterest income for the years ended December 31, 2003.

|                                    | 2003
|----------------------------------- | ----
|Mortgage origination fees           |     
|Service charges on deposit accounts |     
|Other income                        |     
|                                    |     
|Total noninterest income            |     
|                                    |     

Noninterest Expense.Salaries and employee benefits comprised the largest component of noninterest expense
which totaled $523,542 for the year ended December 31, 2003. Of this total, $265,865
related to salaries prior to the banks opening on October 6, 2003. Other operating
expenses totaled $519,175 for the year ended December 31, 2003. Pre-opening expenses
associated with forming the company accounted for $264,641 of these expenses.

The following table sets forth the
primary components of noninterest expense for the year ended December 31, 2003, and for
the period January 31, 2002 (inception) to December 31, 2002.

|                                         | 2003 | 2002
|---------------------------------------- | ---- | ----
|Salaries and employee benefits           |      |     
|Net occupancy expense                    |      |     
|Insurance                                |      |     
|Application and license fees             |      |     
|Advertising and marketing expense        |      |     
|Office supplies, stationery and printing |      |     
|Data processing                          |      |     
|Professional fees                        |      |     
|Furniture and equipment expense          |      |     
|Telephone                                |      |     
|Postage                                  |      |     
|Other                                    |      |     
|                                         |      |     
|Total noninterest expense                |      |     
|                                         |      |     

22

---

# Earning Assets

Loans.Loans are the largest category of earning assets and typically provide
          higher yields than the other types of earning assets. Associated with the higher
          loan yields are the inherent credit and liquidity risks which we attempt to
          control and counterbalance. Loans averaged $6,144,880 in 2003. At December 31,
          2003, total loans were $10,884,623.

The following table sets forth the
composition of the loan portfolio by category at December 31, 2003 and highlights our
general emphasis on real-estate lending.

# Composition of Loan
Portfolio

|                          | December 31, 2003
|------------------------- | -----------------
|
|
|
|Commercial and industrial |                  
|Real estate:              |                  
|Mortgage                  |                  
|Construction              |                  
|Consumer                  |                  
|                          |                  
|Total loans               |                  
|                          |                  
|Allowance for loan losses |                  
|                          |                  
|Net loans                 |                  
|                          |                  

The largest component of loans in our
loan portfolio is real estate mortgage loans. At December 31, 2003 real estate mortgage
loans totaled $5,015,000 and represented 46.1% of the total loan portfolio.

In the context of this discussion, a
real estate mortgage loan is defined as any loan, other than a loan for
construction purposes, secured by real estate, regardless of the purpose of the loan. It
is common practice for financial institutions in our market area to obtain a security
interest in real estate whenever possible, in addition to any other available collateral.
This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan
and tends to increase the magnitude of the real estate loan portfolio component.

Residential mortgage loans totaled
$2,659,000 at December 31, 2003. Residential real estate loans consist of first and
second mortgages on single or multi-family residential dwellings. Nonresidential mortgage
loans, which include commercial loans and other loans secured by multi-family properties
and farmland, totaled $4,420,000 at December 31, 2003. The demand for residential and
commercial real estate loans in the market has increased due to the low interest rate
environment.

Commercial and industrial loans
totaled $1,863,000 at December 31, 2003 and comprised 17.1% of the total portfolio.

Our loan portfolio also includes
consumer loans. At December 31, 2003, consumer loans totaled $837,000 and represented 7.7%
of the total loan portfolio.

Our loan portfolio will change as we
grow, and we expect that it will reflect the diversity of our market. Our home office is
located in Mount Pleasant, South Carolina. We expect the area to remain stable with
continued growth in the near future. The diversity of the economy creates opportunities
for all types of lending. We do not engage in foreign lending.

23

---

Earning Assets
continued

The repayment of loans in the loan
portfolio as they mature is also a source of liquidity for us. The following table sets
forth our loans maturing within specified intervals at December 31, 2003.

# Loan Maturity Schedule
and Sensitivity to Changes in Interest Rates

|                                    |  | Over One |   |      
|----------------------------------- |  | -------- | - | -----
|
|
|
|
|Commercial and industrial           |  |          | $ | 1,432
|Real estate                         |  |          |   | 2,402
|Consumer and other                  |  |          |   | 735  
|                                    |  |          |   |      
|                                    |  |          | $ | 4,569
|                                    |  |          |   |      
|Loans maturing after one year with: |  |         
|Fixed interest rates                |  |          |   |      
|Floating interest rates             |  |          |   |      
|                                    |  |          |   |      
|                                    |  |          |   |      
|                                    |  |          |   |      

The information presented in the
above table is based on the contractual maturities of the individual loans, including
loans which may be subject to renewal at their contractual maturity. Renewal of such loans
is subject to review and credit approval as well as modification of terms upon their
maturity. Consequently, we believe this treatment presents fairly the maturity and
repricing structure of the loan portfolio shown in the above table.

Investment
Securities. The investment securities portfolio is also a component of our
total earning assets. Total securities averaged $5,797,465 in 2003. At December 31, 2003,
the total securities portfolio was $6,974,212. All securities were designated as available
for sale and were recorded at market value.

The following table sets forth the
scheduled maturities and average yields of securities held to maturity at December 31,
2003.

# Investment Securities
Maturity Distribution and Yields

|December 31, 2003          | Over Five Years
|-------------------------- | ---------------
|
|
|Mortgage backed securities |                
|                           |                

Other attributes of the securities
portfolio, including yields and maturities, are discussed above in   Net
Interest Income  Interest Sensitivity.

Short-Term
Investments. Short-term investments, which consist primarily of federal
funds sold, averaged $7,022,880 in 2003. At December 31, 2003, short-term investments
totaled $9,057,000. These funds are an important source of our liquidity. Federal funds
are generally invested in an earning capacity on an overnight basis. The significant
balance in short-term investments was partially attributable to the investment in federal
funds sold as a result of excess funds from our recently completed stock offering.

24

---

# Deposits and Other
Interest-Bearing Liabilities

Deposits.    
          Average total deposits totaled $6,834,447 during 2003. At December 31, 2003,
          total deposits were $13,215,289. Average interest-bearing liabilities totaled
          $11,113,306 in 2003.

The following table sets forth our
deposits by category as of December 31, 2003.

# Deposits

|                                  | December 31, 2003
|--------------------------------- | -----------------
|
|
|
|Demand deposit accounts           |                  
|NOW accounts                      |                  
|Savings and money market accounts |                  
|Time deposits less than $100      |                  
|Time deposits of $100 or over     |                  
|                                  |                  
|Total deposits                    |                  
|                                  |                  

Core deposits, which exclude
certificates of deposit of $100,000 or more, provide a relatively stable funding source
for our loan portfolio and other earning assets. Our core deposits were $10,701,539 at
December 31, 2003.

Deposits, and particularly core
deposits, have been a primary source of funding and have enabled us to meet successfully
both our short-term and long-term liquidity needs. We anticipate that such deposits will
continue to be our primary source of funding in the future. Our loan-to-deposit ratio was
82.4% at December 31, 2003. The maturity distribution of our time deposits over $100,000
at December 31, 2003, is set forth in the following table:

# Maturities of
Certificates of Deposit of $100,000 or More

|                                        |  |  | After Six |   | 
|--------------------------------------- |  |  | --------- | - | 
|
|
|
|
|Certificates of deposit of $100 or more |  |  | $         | - | 
|                                        |  |  |           |   | 

None of our time deposits over $100,000
had scheduled maturities within three months, and approximately 87.5% had maturities
within twelve months. Large certificate of deposit customers tend to be extremely
sensitive to interest rate levels, making these deposits less reliable sources of funding
for liquidity planning purposes than core deposits.

Other
Borrowings. Other borrowings, which consist of securities sold under
agreement to repurchase and notes payable, averaged $5,416,764 in 2003 and totaled
$6,550,667 at December 31, 2003. The maximum amount at any month end was also $6,551,102
and had a weighted average interest rate during the year of 1.44%. The securities sold
under agreement to repurchase are collateralized by U.S. Government agency securities.

25

---

# Capital

We are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional discretionary
actions by regulators that, if undertaken, could have a material effect on our financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the bank (and, once we have more than $150 million in total assets, the
company) must meet specific capital guidelines that involve quantitative measures of
assets, liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. Our capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings, and other
factors.

Quantitative measures established by
regulation to ensure capital adequacy require the bank to maintain minimum ratios of Tier
1 and total capital as a percentage of assets and off-balance-sheet exposures, adjusted
for risk weights ranging from 0% to 100%. Tier 1 capital of the bank consists of common
shareholders equity, excluding the unrealized gain or loss on securities
available-for-sale, minus certain intangible assets. The banks Tier 2 capital
consists of the allowance for loan losses subject to certain limitations. Total capital
for purposes of computing the capital ratios consists of the sum of Tier 1 and Tier 2
capital. The regulatory minimum requirements are 4% for Tier 1 capital and 8% for total
risk-based capital.

The bank is also required to maintain
capital at a minimum level based on quarterly average assets, which is known as the
leverage ratio. Only the strongest banks are allowed to maintain capital at the minimum
requirement of 3%. All others are subject to maintaining ratios 1% to 2% above the
minimum.

The bank exceeded the regulatory
capital requirements at December 31, 2003 as set forth in the following table.

# Analysis of Capital and
Capital Ratios

|December 31,                                                       | 2003
|------------------------------------------------------------------ | ----
|
|Tier 1 capital                                                     |     
|Tier 2 capital                                                     |     
|                                                                   |     
|Total qualifying capital                                           |     
|                                                                   |     
|Risk-adjusted total assets (including off-balance-sheet exposures) |     
|                                                                   |     
|Tier 1 risk-based capital ratio                                    |     
|Total risk-based capital ratio                                     |     
|Tier 1 leverage ratio                                              |     

# Off-Balance Sheet Risk

Through our operations, we have made
contractual commitments to extend credit in the ordinary course of our business
activities. These commitments are legally binding agreements to lend money to our
customers at predetermined interest rates for a specified period of time. At December 31,
2003, we had issued commitments to extend credit of $1,911,889 through various types of
commercial lending arrangements. All of these commitments to extend credit had variable
rates.

26

---

The following table sets forth the
length of time until maturity for unused commitments to extend credit and standby letters
of credit at December 31, 2003.

|                                    |  | After One | After Three |   |  |  
|----------------------------------- |  | --------- | ----------- | - |  | -
|
|
|
|
|Unused commitments to extend credit |  |           | $           | - |  | $
|                                    |  |           |             |   |  |  

We evaluate each customers
credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by us upon extension of credit, is based on our credit evaluation of the
borrower. Collateral varies but may include accounts receivable, inventory, property,
plant and equipment, commercial and residential real estate.

# Critical Accounting
Policies

We have adopted various accounting
policies which govern the application of accounting principles generally accepted in the
United States in the preparation of our financial statements. Its significant accounting
policies are described in the footnotes to the consolidated financial statements at
December 31, 2003 as filed with our annual report on Form 10-KSB. Certain accounting
policies involve significant judgments and assumptions which have a material impact on the
carrying value of certain assets and liabilities. These accounting policies are considered
to be critical accounting policies. The judgments and assumptions used are based on
historical experience and other factors, which are believed to be reasonable under the
circumstances. Because of the nature of the judgments and assumptions, actual results
could differ from these judgments and estimates which could have a material impact on the
carrying values of assets and liabilities and results of operations.

We believe the allowance for loan
losses is a critical accounting policy that requires the most significant judgments and
estimates used in preparation of the consolidated financial statements. Refer to the
portion of this discussion that addresses the allowance for loan losses for a description
of our processes and methodology for determining our allowance for loan losses.

# Liquidity Management and
Capital Resources

Liquidity management involves
monitoring our sources and uses of funds in order to meet our day-to-day cash flow
requirements while maximizing profits. Liquidity represents the ability to convert assets
into cash or cash equivalents without significant loss and to raise additional funds by
increasing liabilities. Without proper liquidity management, we would not be able to
perform the primary function of a financial intermediary and would, therefore, not be able
to meet the needs of the communities we serve.

Liquidity management is made more
complex because different balance sheet components are subject to varying degrees of
management control. For example, the timing of maturities of the investment portfolio is
very predictable and subject to a high degree of control at the time investment decisions
are made. However, net deposit inflows and outflows are far less predictable and are not
subject to nearly the same degree of control. We also have the ability to obtain funds
from various financial institutions should the need arise.

# Impact of Inflation

Unlike most industrial companies, the
assets and liabilities of financial institutions such as the bank are primarily monetary
in nature. Therefore, interest rates have a more significant effect on the banks
performance than do the effects of changes in the general rate of inflation and change in
prices. In addition, interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services. As discussed previously,
management seeks to manage the relationships between interest sensitive assets and
liabilities in order to protect against wide interest rate fluctuations, including those
resulting from inflation.

27

---

# Item 7.  Financial
Statements

# INDEPENDENT
AUDITORS REPORT

The Board of DirectorsTidelands
Bancshares, Inc.Mount Pleasant, South Carolina

We have audited the accompanying
consolidated balance sheets of Tidelands Bancshares, Inc. as of December 31, 2003 and
2002, and the related consolidated statements of operations, changes in shareholders
equity and comprehensive income, and cash flows for the year ended December 31, 2003 and
for the period January 31, 2002 (inception) to December 31, 2002. These financial
statements are the responsibility of the Companys management. Our responsibility is
to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance
with auditing standards generally accepted in the United States of America. 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 financial
statements referred to above present fairly, in all material respects, the financial
position of Tidelands Bancshares, Inc., as of December 31, 2003 and 2002, and the results
of their operations and cash flows for the year ended December 31, 2003 and for the period
January 31, 2002 (inception) to December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America.

/s/ Elliott Davis, LLCElliott
Davis, LLCColumbia, South CarolinaFebruary 4, 2004

28

---

# TIDELANDS BANCSHARES,
INC.

# Consolidated Balance
Sheets

|                                                               | December 31,
|-------------------------------------------------------------- | ------------
|
|
|Assets:                                                        |             
|Cash and cash equivalents:                                     |             
|Cash and due from banks                                        |             
|Federal funds sold                                             |             
|                                                               |             
|Total cash and cash equivalents                                |             
|                                                               |             
|Securities available for sale                                  |             
|                                                               |             
|Loans receivable                                               |             
|Less allowance for loan losses                                 |             
|                                                               |             
|Loans, net                                                     |             
|                                                               |             
|Premises, furniture and equipment, net                         |             
|Accrued interest receivable                                    |             
|Deferred tax asset                                             |             
|Other assets                                                   |             
|                                                               |             
|Total assets                                                   |             
|                                                               |             
|Liabilities:                                                   |             
|Deposits:                                                      |             
|Noninterest-bearing transaction accounts                       |             
|Interest-bearing transaction accounts                          |             
|Savings and money market                                       |             
|Time deposits $100,000 and over                                |             
|Other time deposits                                            |             
|                                                               |             
|Total deposits                                                 |             
|                                                               |             
|Securities sold under agreements to repurchase                 |             
|Other borrowings                                               |             
|Accrued interest payable                                       |             
|Other liabilities                                              |             
|                                                               |             
|Total liabilities                                              |             
|                                                               |             
|Commitments and contingencies (Notes 12 and 17)                |             
|                                                               |             
|Shareholders' equity:                                          |             
|Preferred stock, $.01 par value, 10,000,000 shares authorized, |             
|none issued                                                    |             
|Common stock, $.01 par value, 10,000,000 shares                |             
|authorized; and 1,033,398 and 10 shares issued and             |             
|outstanding at December 31, 2003 and 2002, respectively        |             
|Capital surplus                                                |             
|Retained deficit                                               |             
|Accumulated other comprehensive income                         |             
|                                                               |             
|Total shareholders' equity                                     |             
|                                                               |             
|Total liabilities and shareholders' equity                     |             
|                                                               |             

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

29

---

# TIDELANDS BANCSHARES, INC.

# Consolidated
Statements of Operations For the year ended December 31, 2003 and for the 
period January 31, 2002 (inception) to December 31, 2002

|                                                  | 2003 | 2002
|------------------------------------------------- | ---- | ----
|Interest income:                                  |      |     
|Loans, including fees                             |      |     
|Securities available for sale, taxable            |      |     
|Federal funds sold                                |      |     
|                                                  |      |     
|Total                                             |      |     
|                                                  |      |     
|Interest expense:                                 |      |     
|Time deposits $100,000 and over                   |      |     
|Other deposits                                    |      |     
|Other borrowings                                  |      |     
|                                                  |      |     
|Total                                             |      |     
|                                                  |      |     
|Net interest income (loss)                        |      |     
|                                                  |      |     
|Provision for loan losses                         |      |     
|                                                  |      |     
|Net interest loss after provision for loan losses |      |     
|                                                  |      |     
|Noninterest income:                               |      |     
|Service charges on deposit accounts               |      |     
|Residential mortgage origination fees             |      |     
|Other service fees and commissions                |      |     
|Other                                             |      |     
|                                                  |      |     
|Total noninterest income                          |      |     
|                                                  |      |     
|Noninterest expenses:                             |      |     
|Salaries and employee benefits                    |      |     
|Net occupancy                                     |      |     
|Furniture and equipment                           |      |     
|Other operating                                   |      |     
|                                                  |      |     
|Total noninterest expense                         |      |     
|                                                  |      |     
|Loss before income taxes                          |      |     
|                                                  |      |     
|Income tax benefit                                |      |     
|                                                  |      |     
|Net loss                                          |      |     
|                                                  |      |     
|Earnings (losses) per share                       |      |     
|Basic loss per share                              |      |     
|                                                  |      |     
|Average shares outstanding                        |      |     
|                                                  |      |     

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

30

---

# TIDELANDS BANCSHARES, INC.

# Consolidated
Statements of Changes in Shareholders Equity For the year ended
December 31, 2003 and for the period January 31,
2002 (inception) to December 31, 2002

|                                |  |  |  |           | Accumulated |  
|------------------------------- |  |  |  | --------- | ----------- | -
|
|
|
|
|Proceeds from the sale of stock |  |  |  | 10        |             | $
|                                |  | 
|Net loss                        |  |  |  | -         |             |  
|                                |  |  |  |           |             |  
|Balance, December 31, 2002      |  |  |  | 10        |             |  
|                                |  |  |  |           |             |  
|Retirement of stock             |  |  |  | (10       | )           |  
|                                |  | 
|Proceeds from sale of stock     |  |  |  | 1,033,398 |             |  
|                                |  | 
|Stock issuance costs            |  |  |  | -         |             |  
|                                |  | 
|Net loss                        |  |  |  | -         |             |  
|                                |  | 
|Other comprehensive income,     |  | 
|net of taxes of $15,818         |  |  |  | -         |             |  
|                                |  |  |  |           |             |  
|Comprehensive loss              |  |  |  | -         |             |  
|                                |  |  |  |           |             |  
|Balance,                        |  | 
|December 31, 2003               |  |  |  | 1,033,398 |             | $
|                                |  |  |  |           |             |  

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

31

---

# TIDELANDS BANCSHARES, INC.

# Consolidated
Statements of Cash Flows For the year ended
December 31, 2003 and for the period January 31,
2002 (inception) to December 31, 2002

|                                                      | 2003 | 2002
|----------------------------------------------------- | ---- | ----
|Cash flows from operating activities:                 |      |     
|Net loss                                              |      |     
|Adjustments to reconcile net loss to net cash used by |      |     
|operating activities:                                 |      |     
|Provision for loan losses                             |      |     
|Depreciation and amortization expense                 |      |     
|Discount accretion and premium amortization           |      |     
|Deferred income tax benefit                           |      |     
|Increase in accrued interest receivable               |      |     
|Increase in accrued interest payable                  |      |     
|Decrease (increase) in other assets                   |      |     
|Increase (decrease) in other liabilities              |      |     
|                                                      |      |     
|Net cash used by operating activities                 |      |     
|                                                      |      |     
|Cash flows from investing activities:                 |      |     
|Purchases of securities available-for-sale            |      |     
|Calls and maturities of securities available-for-sale |      |     
|Net increase in loans receivable                      |      |     
|Purchase of premises, furniture and equipment         |      |     
|                                                      |      |     
|Net cash used by investing activities                 |      |     
|                                                      |      |     
|Cash flows from financing activities:                 |      |     
|Net increase in demand deposits, interest-bearing     |      |     
|transaction accounts and savings accounts             |      |     
|Net increase in certificates of deposit and           |      |     
|other time deposits                                   |      |     
|Net increase in securities sold under agreements      |      |     
|to repurchase                                         |      |     
|Issuance of common stock                              |      |     
|Stock issuance costs                                  |      |     
|Retirement of stock                                   |      |     
|Proceeds from borrowings                              |      |     
|                                                      |      |     
|Net cash provided by financing activities             |      |     
|                                                      |      |     
|Net increase in cash and cash equivalents             |      |     
|                                                      |      |     
|Cash and cash equivalents, beginning of period        |      |     
|                                                      |      |     
|Cash and cash equivalents, end of period              |      |     
|                                                      |      |     

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

32

---

# TIDELANDS BANCSHARES, INC.
Notes to Consolidated Financial Statements

# NOTE 1  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

Organization
 Tidelands Bancshares, Inc. (the Company) was incorporated to serve as a bank
holding company for its subsidiary, Tidelands Bank (the Bank). Tidelands Bank commenced
business on October 6, 2003. The principal business activity of the Bank is to provide
banking services to domestic markets, principally in Charleston County, South Carolina.
The Bank is a state-chartered commercial bank, and its deposits are insured by the Federal
Deposit Insurance Corporation. The consolidated financial statements include the accounts
of the parent company and its wholly-owned subsidiary after elimination of all significant
intercompany balances and transactions.

Managements
Estimates  The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.

Material estimates that are
particularly susceptible to significant change relate to the determination of the
allowance for losses on loans, including valuation allowances for impaired loans, and the
valuation of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowances for losses on loans and
foreclosed real estate, management obtains independent appraisals for significant
properties. Management must also make estimates in determining the estimated useful lives
and methods for depreciating premises and equipment.

While management uses available
information to recognize losses on loans and foreclosed real estate, future additions to
the allowances may be necessary based on changes in local economic conditions. In
addition, regulatory agencies, as an integral part of their examination process,
periodically review the Companys allowances for losses on loans and foreclosed real
estate. Such agencies may require the Company to recognize additions to the allowances
based on their judgments about information available to them at the time of their
examination. Because of these factors, it is reasonably possible that the allowances for
losses on loans and foreclosed real estate may change materially in the near term.

Significant Group
Concentrations of Credit Risk  Most of the Companys activities
are with customers located within the Charleston, South Carolina metropolitan area. The
types of securities in which the Company invests are discussed in Note 3. The types of
lending in which the Company engages are discussed in Note 4. The Company does not have
any significant concentrations to any one industry or customer.

Securities
Available-for-Sale  Securities available-for-sale are carried at amortized
cost and adjusted to estimated market value by recognizing the aggregate unrealized gains
or losses in a valuation account. Aggregate market valuation adjustments are recorded in
shareholders equity net of deferred income taxes. Reductions in market value
considered by management to be other than temporary are reported as a realized loss and a
reduction in the cost basis of the security. The adjusted cost basis of investments
available-for-sale is determined by specific identification and is used in computing the
gain or loss upon sale.

Loans Receivable
 Loans are stated at their unpaid principal balance. Interest income is computed
using the simple interest method and is recorded in the period earned.

When serious doubt exists as to the
collectibility of a loan or when a loan becomes contractually 90 days past due as to
principal or interest, interest income is generally discontinued unless the estimated net
realizable value of collateral exceeds the principal balance and accrued interest. When
interest accruals are discontinued, income earned but not collected is reversed.

The Company identifies impaired loans
through its normal internal loan review process. Loans on the Companys problem loan
watch list are considered potentially impaired loans. These loans are evaluated in
determining whether all outstanding principal and interest are expected to be collected.
Loans are not considered impaired if a minimal payment delay occurs and all amounts due,
including accrued interest at the contractual interest rate for the period of delay, are
expected to be collected. At December 31, 2003, management has determined that no
impairment of loans existed.

33

---

# TIDELANDS BANCSHARES, INC.
Notes to Consolidated Financial Statements

NOTE 1  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES continued

Allowance for Loan
Losses  An allowance for loan losses is maintained at a level deemed
appropriate by management to provide adequately for known and inherent losses in the loan
portfolio. Since there is prior loan loss history, management has elected to maintain the
allowance for loan losses at approximately 1.25% of gross loans. Loans which are deemed to
be uncollectible are charged off and deducted from the allowance. The provision for loan
losses and recoveries of loans previously charged off are added to the allowance.

Residential Mortgage Loan
Held-for-Sale  The Companys residential mortgage lending
activities for sale in the secondary market are comprised of accepting residential
mortgage loan applications, qualifying borrowers to standards established by investors,
funding residential mortgage loans and selling mortgage loans to investors under
pre-existing commitments. Funded residential mortgages held temporarily for sale to
investors are recorded at the lower of cost or market value. Application and origination
fees collected by the Company are recognized as income upon sale to the investor.

Premises, Furniture and
Equipment  Premises, furniture and equipment are stated at cost, less
accumulated depreciation. The provision for depreciation is computed by the straight-line
method, based on the estimated useful lives for furniture and equipment of 5 to 10 years.
Leasehold improvements are amortized over the life of the lease. The cost of assets sold
or otherwise disposed of and the related allowance for depreciation are eliminated from
the accounts and the resulting gains or losses are reflected in the income statement when
incurred. Maintenance and repairs are charged to current expense. The costs of major
renewals and improvements are capitalized.

Income Taxes
 Income taxes are the sum of amounts currently payable to taxing authorities and the
net changes in income taxes payable or refundable in future years. Income taxes deferred
to future years are determined utilizing a liability approach. This method gives
consideration to the future tax consequences associated with differences between financial
accounting and tax bases of certain assets and liabilities which are principally the
allowance for loan losses, depreciable premises and equipment, and the net operating loss
carryforward.

Advertising
Expense  Advertising and public relations costs are generally
expensed as incurred. External costs incurred in producing media advertising are expensed
the first time the advertising takes place. External costs relating to direct mailing
costs are expended in the period in which the direct mailings are sent.

Pre-opening expenses 
The activities associated with organizing the Bank were conducted in the name of the
Company during the developmental stage period (January 31, 2002 to October 5, 2003).

On October 5, 2003, the close of the
development stage period, the Companys financial position was as follows:

|                                     | 
|------------------------------------ | 
|Cash and cash equivalents            | 
|Premises and equipment               | 
|Other assets                         | 
|Notes payable                        | 
|Other liabilities                    | 
|Common stock subscription proceeds,  | 
|net of $444,529 expenses of offering | 
|                                     | 
|Net pre-opening expenses             | 
|                                     | 

Loss Per Share
 Basic loss per share represents income available to shareholders divided by the
weighted-average number of common shares outstanding during the period. Dilutive loss per
share reflects additional common shares that would have been outstanding if dilutive
potential common shares had been issued. At December 31, 2003, the Company had no
instruments considered common stock equivalents.

34

---

# TIDELANDS BANCSHARES, INC.
Notes to Consolidated Financial Statements

NOTE 1  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES continued

Comprehensive
Income  Accounting principles generally require that recognized
income, expenses, gains, and losses be included in net income. Although certain changes in
assets and liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section of the balance
sheet, such items, along with net income, are components of comprehensive income.

The components of other comprehensive
income and related tax effects are as follows for the year ended December 31, 2003:

| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 

Statement of Cash
Flows  For purposes of reporting cash flows in the financial
statements, the Company considers certain highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. Cash equivalents include amounts
due from banks and federal funds sold. Generally, federal funds are sold for one-day
periods.

Interest paid on deposits and other
borrowings totaled $59,620 and $11,316 for the year ended December 31, 2003 and for the
period January 31, 2002 (inception) to December 31, 2002, respectively.

There were no income tax payments
during the year ended December 31, 2003 or for the period January 31, 2002 (inception) to
December 31, 2002.

Off-Balance-Sheet Financial
Instruments  In the ordinary course of business, the Company enters
into off-balance-sheet financial instruments consisting of commitments to extend credit
and letters of credit. These financial instruments are recorded in the financial
statements when they become payable by the customer.

Recent Accounting
Pronouncements  In December 2002, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 148, Accounting for Stock-based Compensation 
Transition and Disclosure, an amendment of FASB Statement No. 123, Accounting
for Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based employee
compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123
and Accounting Pronouncement Board (APB) Opinion No. 28, Interim
Financial Reporting, to require disclosure in the summary of significant accounting
policies of the effects of an entitys accounting policy with respect to stock-based
employee compensation on reported net income and earnings per share in annual and interim
financial statements. While SFAS No. 148 does not amend SFAS No. 123 to require
companies to account for employee stock options using the fair value method, the
disclosure provisions of SFAS No. 148 are applicable to all companies with
stock-based employee compensation, regardless of whether they account for that
compensation using the fair value method of SFAS No. 123 or the intrinsic value
method of APB Opinion No. 25. The provisions of SFAS No. 148 are effective for
annual financial statements for fiscal years ending after December 15, 2002, and for
financial reports containing condensed financial statements for interim periods beginning
after December 15, 2002. The Company has no stock options; therefore, the adoption of
this Statement had no impact on the Company.

In April 2003, the FASB issued SFAS
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. SFAS No. 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other contracts and loan
commitments that relate to the origination of mortgage loans held for sale, and for
hedging activities under SFAS No. 133. SFAS No. 149 is generally effective for
contracts entered into or modified after June 30, 2003. The adoption of SFAS
No. 149 did not have a material impact on the financial condition or operating
results of the Company.

35

---

# TIDELANDS BANCSHARES, INC.
Notes to Consolidated Financial Statements

NOTE 1  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES continued

In May 2003, the FASB issued SFAS
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity. SFAS No. 150 establishes standards for how an
issuer classifies and measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. SFAS No. 150 is generally effective
for financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of SFAS No. 150 did not have a material impact on the financial
condition or operating results of the Company.

In November 2002, the FASB issued
Interpretation (FIN) No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN No. 45 requires a company, at the time it issues a guarantee, to
recognize an initial liability for the fair value of obligations assumed under the
guarantee and elaborates on existing disclosure requirements related to guarantees and
warranties. The initial recognition requirements of FIN No. 45 are effective for
guarantees issued or modified after December 31, 2002. The disclosure requirements are
effective for financial statements of periods ending after December 15, 2002. The adoption
of FIN No. 45 did not have a material effect on the Companys financial position or
results of operations.

In January 2003, the FASB issued
FIN No. 46, Consolidation of Variable Interest Entities. FIN No. 46
requires a variable interest entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest entitys
activities or entitled to receive a majority of the entitys residual returns, or
both. FIN No. 46 also requires disclosures about variable interest entities that a company
is not required to consolidate, but in which it has a significant variable interest. FIN
No. 46 provides guidance for determining whether an entity qualifies as a variable
interest entity by considering, among other considerations, whether the entity lacks
sufficient equity or its equity holders lack adequate decision-making ability. The
consolidation requirements of FIN No. 46 apply immediately to variable interest entities
created after January 31, 2003. The consolidation requirements apply to existing
entities in the first fiscal year or interim period beginning after June 15, 2003.
Certain of the disclosure requirements apply in all financial statements issued after
January 31, 2003, regardless of when the variable interest entity was established.
The adoption of FIN No. 46 did not have a material effect on the Companys financial
position or results of operations.

Risks and
Uncertainties  In the normal course of its business, the Company
encounters two significant types of risks: economic and regulatory. There are three main
components of economic risk: interest rate risk, credit risk and market risk. The Company
is subject to interest rate risk to the degree that its interest-bearing liabilities
mature or reprice at different speeds, or on different basis, than its interest-earning
assets. Credit risk is the risk of default on the Companys loan portfolio that
results from borrowers inability or unwillingness to make contractually required
payments. Market risk reflects changes in the value of collateral underlying loans
receivable and the valuation of real estate held by the Company.

The Company is subject to the
regulations of various governmental agencies. These regulations can and do change
significantly from period to period. The Company also undergoes periodic examinations by
the regulatory agencies, which may subject it to further changes with respect to asset
valuations, amounts of required loss allowances and operating restrictions from the
regulators judgments based on information available to them at the time of their
examination.

Reclassifications
 Certain captions and amounts in the 2002 financial statements were reclassified to
conform with the 2003 presentation.

# NOTE 2  CASH AND
DUE FROM BANKS

The Company is required to maintain
cash balances with its correspondent banks to cover all cash letter transactions. At
December 31, 2003, the requirement was met by the cash balance in the vault.

36

---

# TIDELANDS BANCSHARES, INC.
Notes to Consolidated Financial Statements

# NOTE 3  INVESTMENT
SECURITIES

The amortized cost and estimated fair
values of securities available for sale were:

|                           | Amortized | Gross Unrealized | Estimated
|-------------------------- | --------- | ---------------- | ---------
|
|December 31, 2003          |           |                  |          
|Mortgage-backed securities |           |                  | $        
|                           |           |                  |          

There were no sales of securities in
2003.

The amortized cost and estimated fair
values are based on the contractual maturity dates. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or prepay obligations
with or without penalty. At December 31, 2003, all of the Companys securities were
mortgaged-backed securities and no maturity schedule is presented since paydowns are
expected before contractual maturity dates.

# NOTE 4  LOANS
RECEIVABLE

Major classifications of loans
receivable at December 31 are summarized as follows:

|                           | 2003
|-------------------------- | ----
|
|Real estate - construction |     
|Real estate - mortgage     |     
|Commercial and industrial  |     
|Consumer and other         |     
|                           |     
|Total gross loans          |     
|                           |     

Transactions in the allowance for loan losses during 2003 are summarized below:

|                                | 2003
|------------------------------- | ----
|
|Balance, beginning of year      |     
|Provision charged to operations |     
|                                |     
|Balance, end of year            |     
|                                |     

At December 31, 2003, the Bank had no
loans in nonaccrual status. There were no loans past due ninety days or more and still
accruing interest at December 31, 2003.

Management is not aware of any
significant concentrations of loans to classes of borrowers or industries that would be
affected similarly by economic conditions. Although the Companys loan portfolio is
diversified, a substantial portion of its borrowers ability to honor the terms of
their loans is dependent on the economic conditions in the Charleston, South Carolina
metropolitan area.

37

---

# TIDELANDS BANCSHARES, INC.
Notes to Consolidated Financial Statements

# NOTE 5  PREMISES,
FURNITURE AND EQUIPMENT

Premises, furniture and equipment
consisted of the following:

|                                       | December 31,
|-------------------------------------- | ------------
|
|
|Leasehold and land improvements        |             
|Furniture and equipment                |             
|Software                               |             
|                                       |             
|Total                                  |             
|Less, accumulated depreciation         |             
|                                       |             
|Premises, furniture and equipment, net |             
|                                       |             

# NOTE 6  DEPOSITS

At December 31, 2003, the scheduled
maturities of certificates of deposit were as follows:

| | Maturing In: | Amount
| | ------------ | ------
| |              |       
| |              |       
| |              |       
| |              |       
| |              |       
| |              |       

# NOTE 7  SECURITIES
SOLD UNDER REPURCHASE AGREEMENTS

Securities sold under repurchase
agreements are summarized as follows for the year ended December 31, 2003:

|                                           | 
|------------------------------------------ | 
|Amount outstanding at year end             | 
|Average amount outstanding during year     | 
|Maximum outstanding at any month-end       | 
|Weighted average rate paid at year-end     | 
|Weighted average rate paid during the year | 

The Bank has entered into sales of
securities under agreements to repurchase. These obligations to repurchase securities sold
are reflected as liabilities in the consolidated balance sheets. The dollar amount of
securities underlying the agreements are book entry securities. U.S. Government agency
securities with a book value of $6,928,000 and fair value of $6,974,000 at December 31,
2003 are used as collateral for the agreements.

38

---

# TIDELANDS BANCSHARES, INC.
Notes to Consolidated Financial Statements

# NOTE 8  OTHER
OPERATING EXPENSES

Other operating expenses for the year
ended December 31, 2003 and for the period January 31, 2002 (inception) to December 31,
2002 are summarized below:

| |  | 2003 | 2002                                     
| |  | ---- | -----------------------------------------
|
| |  |      | Professional fees                        
| |  |      | Telephone expenses                       
| |  |      | Office supplies, stationery, and printing
| |  |      | Application and license fees             
| |  |      | Insurance                                
| |  |      | Postage                                  
| |  |      | Data processing                          
| |  |      | Other                                    
| |  |      |                                          
| |  |      | Total                                    
| |  |      |                                          

# NOTE 9  INCOME
TAXES

Income tax expense for 2003 is
summarized as follows:

| |  | 2003
| |  | ----
|
| |  |     
| |  |     
| |  |     
| |  |     
| |  |     
| |  |     
| |  |     
| |  |     
| |  |     
| |  |     

The gross amounts of deferred tax
assets and deferred tax liabilities are as follows:

| |  | December 31,
| |  | ------------
|
| |  |             
| |  |             
| |  |             
| |  |             
| |  |             
| |  |             
| |  |             
| |  |             
| |  |             
| |  |             
| |  |             
| |  |             
| |  |             
| |  |             
| |  |             

39

---

# TIDELANDS BANCSHARES, INC.
Notes to Consolidated Financial Statements

NOTE 9  INCOME TAXES 
continued

Deferred tax assets represent the
future tax benefit of deductible differences and, if it is more likely than not that a tax
asset will not be realized, a valuation allowance is required to reduce the recorded
deferred tax assets to net realizable value. As of December 31, 2003, management believes
it will fully realize 100% of the Companys deferred tax asset.

The Company has a net operating loss
for income tax purposes of $739,790 as of December 31, 2003. This net operating loss
expires in the year 2023.

A reconciliation between the income
tax expense and the amount computed by applying the Federal statutory rate of 34% for 2003
to income before income taxes follows:

|                                                   | 2003
|-------------------------------------------------- | ----
|
|Tax expense (benefit) at statutory rate            |     
|State income tax, net of federal income tax effect |     
|                                                   |     
|Income tax benefit                                 |     
|                                                   |     

# NOTE 10  LEASES

The Company subleases its main branch
location from another financial institution. The operating lease has an initial two-year
term, which expires April 6, 2004. Under the terms of the lease, the monthly rental
payment is $8,333.33, or $100,000 per year. The Company is in discussions with the lessor
to become the primary lessee. If the lease is restructured, future minimum non-cancelable
lease payments may increase.

Rental expense under the operating
lease agreement was $91,666 and $66,667 for the years ended December 31, 2003 and 2002,
respectively.

# NOTE 11  RELATED
PARTY TRANSACTIONS

Certain parties (principally certain
directors and executive officers of the Company, their immediate families and business
interests) were loan customers of and had other transactions in the normal course of
business with the Company. Related party loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than the normal risk of
collectibility. As of December 31, 2003, the Company had related party loans totaling
$2,158,048. During 2003, advances on related party loans totaled $2,165,265 and repayments
were $7,217.

40

---

# TIDELANDS BANCSHARES, INC.
Notes to Consolidated Financial Statements

# NOTE 12 
COMMITMENTS AND CONTINGENCIES

The Company is subject to claims and
lawsuits which arise primarily in the ordinary course of business. Management is not aware
of any legal proceedings which would have a material adverse effect on the financial
position or operating results of the Company.

# NOTE 13  LOSS PER
SHARE

Basic loss per share is computed by
dividing net income (loss) by the weighted-average number of common shares outstanding.
Diluted loss per share is computed by dividing net income (loss) by the weighted-average
number of common shares outstanding and dilutive common share equivalents using the
treasury stock method. There were no dilutive common share equivalents outstanding during
2003; therefore, basic loss per share and diluted earnings per share were the same.

|                                          | 2003
|----------------------------------------- | ----
|
|Net loss per share - basic computation:   |     
|                                          |     
|Net loss to common shareholders           |     
|                                          |     
|Average common shares outstanding - basic |     
|                                          |     
|Basic loss per share                      |     
|                                          |     

# NOTE 14 
REGULATORY MATTERS

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

Quantitative measures established by
regulation to ensure capital adequacy require the Bank to maintain minimum ratios of Tier
1 and total capital as a percentage of assets and off-balance-sheet exposures, adjusted
for risk weights ranging from 0% to 100%. Tier 1 capital consists of common
shareholders equity, excluding the unrealized gain or loss on securities
available-for-sale, minus certain intangible assets. Tier 2 capital consists of the
allowance for loan losses subject to certain limitations. Total capital for purposes of
computing the capital ratios consists of the sum of Tier 1 and Tier 2 capital. The
regulatory minimum requirements are 4% for Tier 1 and 8% for total risk-based capital.

The Bank is also required to maintain
capital at a minimum level based on total assets, which is known as the leverage ratio.
Only the strongest banks are allowed to maintain capital at the minimum requirement of 3%.
All others are subject to maintaining ratios 1% to 2% above the minimum.

As of December 31, 2003, management
believes it is categorized as well-capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events that management believes have changed
the Banks category.

41

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# TIDELANDS BANCSHARES, INC.
Notes to Consolidated Financial Statements

NOTE 14  REGULATORY
MATTERS continued

The following table summarizes the
capital amounts and ratios of the Bank and the regulatory minimum requirements at December
31, 2003.

|                                         |  |  |   |           | To Be Well-
|---------------------------------------- |  |  | - | --------- | -----------
|
|
|
|
|
|December 31, 2003                        |  |  |   |           |            
|Total capital (to risk-weighted assets)  |  |  | $ | 8,173,000 |            
|Tier 1 capital (to risk-weighted assets) |  |  | $ | 8,038,000 |            
|Tier 1 capital (to average assets)       |  |  | $ | 8,038,000 |            

The Federal Reserve has similar
requirements for bank holding companies. The Company is not currently subject to these
requirements because the Federal Reserve applies its guidelines on a bank-only basis for
bank holding companies with less than $150,000,000 in consolidated assets.

# NOTE 15  UNUSED
LINES OF CREDIT

As of December 31, 2003, the Company
had unused lines of credit to purchase federal funds from unrelated banks totaling
$4,225,000. These lines of credit are available on a one to fourteen day basis for general
corporate purposes.

# NOTE 16 
RESTRICTIONS ON DIVIDENDS, LOANS, OR ADVANCES

The ability of the Company to pay
cash dividends to stockholders is dependent upon receiving cash in the form of dividends
from its banking subsidiary. However, certain restrictions exist regarding the ability of
the subsidiary to transfer funds in the form of cash dividends to the Company. State
chartered banks are authorized to pay cash dividends up to 100% of net income in any
calendar year without obtaining the prior approval of the State Board of Financial
Institutions or the Commissioner of Banking provided that the Bank received a composite
rating of one or two at the last examination conducted by the State or Federal regulatory
authority. Otherwise, the Bank must file an income and expense report and obtain the
specific approval of the State Board.

Under Federal Reserve Board
regulations, the amount of loans or advances from the banking subsidiary to the parent
company are also restricted.

# NOTE 17  FINANCIAL
INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Company is a party to financial
instruments with off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments consist of commitments to
extend credit and standby letters of credit. Commitments to extend credit are agreements
to lend to a customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. A commitment involves, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the balance sheet. The
Companys exposure to credit loss in the event of nonperformance by the other party
to the instrument is represented by the contractual notional amount of the instrument.
Since certain commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The Company uses
the same credit policies in making commitments to extend credit as it does for
on-balance-sheet instruments. Letters of credit are conditional commitments issued to
guarantee a customers performance to a third party and have essentially the same
credit risk as other lending facilities.

Collateral held for commitments to
extend credit and letters of credit varies but may include accounts receivable, inventory,
property, plant, equipment and income-producing commercial properties.

42

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# TIDELANDS BANCSHARES, INC.
Notes to Consolidated Financial Statements

NOTE 17  FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK continued

The following table summarizes the
Banks off-balance-sheet financial instruments whose contract amounts represent
credit risk:

|                             | December 31,
|---------------------------- | ------------
|
|
|Commitments to extend credit |             
|                             |             

There were no outstanding letters of
credit at December 31, 2003.

# NOTE 18  FAIR VALUE
OF FINANCIAL INSTRUMENTS

The fair value of a financial
instrument is the amount at which the asset or obligation could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale. Fair
value estimates are made at a specific point in time based on relevant market information
and information about the financial instruments. Because no market value exists for a
significant portion of the financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors.

The following methods and assumptions
were used to estimate the fair value of significant financial instruments:

Cash and Due from
Banks  The carrying amount is a reasonable estimate of fair value.

Federal Funds
Sold  Federal funds sold are for a term of one day, and the carrying
amount approximates the fair value.

Securities
Available-for-Sale  The fair values of securities available-for-sale
equal the carrying amounts, which are the quoted market prices. If quoted market prices
are not available, fair values are based on quoted market prices of comparable securities.
The carrying value of nonmarketable equity securities approximates the fair value since no
ready market exists for the stocks.

Loans receivable
 For certain categories of loans, such as variable rate loans which are
repriced frequently and have no significant change in credit risk, fair values are based
on the carrying amounts. The fair value of other types 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. As of
December 31, 2003, the Bank had been open for 86 days. Management determined that only
minor fluctuations occurred in fixed rate loans; therefore, the carrying amount of loans
approximates fair values.

Deposits
The fair value of demand deposits, savings, and money market accounts is the amount
payable on demand at the reporting date. The fair values of certificates of deposit are
estimated using a discounted cash flow calculation that applies current interest rates to
a schedule of aggregated expected maturities. As of December 31, 2003, the Bank had been
open for 86 days. Management determined that only minor fluctuations occurred in fixed
rate certificates of deposits; therefore, the carrying amount of deposits approximates
fair values.

Securities Sold Under
Agreements to Repurchase  These repurchase agreements have variable
rates that reprice every thirty days. Due to the minor change in interest rates,
management estimates the carrying value to be a reasonable estimate of fair value.

Accrued Interest Receivable and
Payable  The carrying value of these instruments is a reasonable
estimate of fair value.

Off-Balance-Sheet Financial
Instruments  Fair values for off-balance sheet, credit-related
financial instruments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties credit standing.

43

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# TIDELANDS BANCSHARES, INC.
Notes to Consolidated Financial Statements

NOTE 18  FAIR
VALUE OF FINANCIAL INSTRUMENTS  continued

The carrying values and estimated
fair values of the Companys financial instruments are as follows:

|                                  | December 31,
|--------------------------------- | ------------
|
|
|
|Financial Assets:                 |             
|Cash and due from banks           |             
|Federal funds sold                |             
|Securities available-for-sale     |             
|Loans receivable                  |             
|Accrued interest receivable       |             
|                                  |             
|Financial Liabilities:            |             
|Demand deposit, interest-bearing  |             
|transaction, and savings accounts |             
|Certificates of deposit and other |             
|time deposits                     |             
|Securities sold under agreements  |             
|to repurchase                     |             
|Accrued interest payable          |             

|                                         | Notional | Estimated | Notional | Estimated
|---------------------------------------- | -------- | --------- | -------- | ---------
|
|Off-Balance Sheet Financial Instruments: |          |           |          |          
|Commitments to extend credit             |          |           | $        | 1,911,889

# NOTE 19  TIDELANDS
BANCSHARES, INC. (PARENT COMPANY ONLY)

Presented below are the condensed
financial statements for Tidelands Bancshares, Inc. (Parent Company Only).

# Condensed Balance
Sheets

|                                                     | December 31,
|---------------------------------------------------- | ------------
|
|Assets                                               |             
|Cash                                                 |             
|Due from banking subsidiary                          |             
|Investment in banking subsidiary                     |             
|Other assets                                         |             
|                                                     |             
|Total assets                                         |             
|                                                     |             
|Liabilities and shareholders' equity                 |             
|Other liabilities                                    |             
|Shareholders' equity (deficit)                       |             
|                                                     |             
|Total liabilities and shareholders' equity (deficit) |             
|                                                     |             

44

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# TIDELANDS BANCSHARES, INC.
Notes to Consolidated Financial Statements

NOTE 19  TIDELANDS BANCSHARES, INC.
 (PARENT COMPANY ONLY) continued

# Condensed Statements
of Operations For the year ended December 31, 2003 and for the period January 31,
2002 (inception) to December 31, 2002

|                                                     | 2003 | 2002
|---------------------------------------------------- | ---- | ----
|
|Income                                               |      |     
|                                                     |      |     
|Expenses                                             |      |     
|Other expenses                                       |      |     
|                                                     |      |     
|Income (loss) before income taxes and equity in      |      |     
|undistributed earnings of banking subsidiary         |      |     
|                                                     |      |     
|Income tax benefit                                   |      |     
|                                                     |      |     
|Equity in undistributed losses of banking subsidiary |      |     
|                                                     |      |     
|Net loss                                             |      |     
|                                                     |      |     

# Condensed Statements
of Cash Flows For the year ended
December 31, 2003 and for the period January 31,
2002 (inception) to December 31, 2002

|                                                     | 2003 | 2002
|---------------------------------------------------- | ---- | ----
|
|Cash flows from operating activities:                |      |     
|Net loss                                             |      |     
|Adjustments to reconcile net loss to net cash        |      |     
|used by operating activities:                        |      |     
|(Increase) decrease in other assets                  |      |     
|Equity in undistributed losses of banking subsidiary |      |     
|Pre-opening expenses transferred to the Bank         |      |     
|(Decrease) increase in other liabilities             |      |     
|                                                     |      |     
|Net cash used by operating activities                |      |     
|                                                     |      |     
|Cash flows from investing activities:                |      |     
|Purchase of Bank stock                               |      |     
|Purchase of premises and equipment                   |      |     
|                                                     |      |     
|Net cash used by operating activities                |      |     
|                                                     |      |     
|Cash flows from financing activities:                |      |     
|Net proceeds from borrowings                         |      |     
|Issuance of common stock                             |      |     
|Stock issuance costs                                 |      |     
|Retirement of stock                                  |      |     
|                                                     |      |     
|Net cash provided by financing activities            |      |     
|                                                     |      |     
|Net increase in cash and cash equivalents            |      |     
|                                                     |      |     
|Cash and cash equivalents, beginning of period       |      |     
|                                                     |      |     
|Cash and cash equivalents, end of period             |      |     
|                                                     |      |     

45

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# Item 8.  Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure

Tourville,
Simpson and Caskey, L.L.P. (TSC), which served as our principal independent accountant
since May 2002, resigned from such position effective January 2, 2003. TSCs report
on the financial statements of the company for the period ended June 30, 2002, did not
contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles.

There
were no disagreements between the company and TSC on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of TSC, would have caused it to make
reference to the subject matter of the disagreements in connection with its report.

The
disclosures required by Item 304(a)(1)(iv)(B) of Regulation S-B are not applicable.

We
engaged Elliott Davis, LLC, certified public accountants, on January 2, 2003 to audit the
financial statements for the year ending December 31, 2002. We did not consult Elliott
Davis regarding any of the matters set forth in Item 304 (a) (2) (i) or (ii) of Regulation
S-B.

# Item 8A.  Controls and
Procedures

As
of the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as defined in Exchange Act Rule 13a-15(e). Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that our current
disclosure controls and procedures are effective as of December 31, 2003.

The
design of any system of controls and procedures is based in part upon certain assumptions
about the likelihood of future events. There can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions, regardless of
how remote.

# Item 9.  Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act

|                             |  | 
|---------------------------- |  | 
|Class I                      |  | 
|                             |  | 
|Alan D. Clemmons             |  | 
|Robert E. "Chip" Coffee, Jr. |  | 
|Barry I. Kalinsky            |  | 
|Fred H. Renken               |  | 

Michael
W. Burrell, 53, has been a resident of the Charleston area since 1977. Mr. Burrell
graduated from Georgia State University in 1973 and completed his graduate work and earned
his Masters Degree in Education in 1978 and his Educational Specialist degree in 1983 from
The Citadel Military College in Charleston, South Carolina. He has served as an elementary
school principal in Summerville since 1980 and before his retirement in 2002 served as the
coordinator for federal and state programs on the district level. He currently teaches
handicap and non-handicap students in a homebound capacity. Mr. Burrell and his wife
started a local pre-school and childcare center, Gazebo School, Inc. which has been in
operation since 1977. They sold the business in 2003 in order to pursue other interests.

His
community service in the area began with the formation of the first Boy Scout Troop for the
disabled in 1977. Mr. Burrell is an active member in the Summerville Sertoma Club where he
has served as president, treasurer, and on-going board member since 1978. He is a member
of Bethany United Methodist Church where he has taught Sunday school for both children and
adults.

John
N. Cagle, III, DMD, 45, has been a resident of Mount Pleasant since 1979. Dr. Cagle
graduated from Clemson University with Honors in 1979, with a B.S. in Zoology. In 1983,
Dr. Cagle received his Doctorate of Dental Medicine from the Medical University of South
Carolina, College of Dental Medicine in Charleston, South Carolina. He is a member of the
American Dental Association as well as various local and state dental groups. He has had
an established dental practice in the Charleston area since 1983. Dr. Cagle is active in
offshore sportfishing having

46

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obtained his U.S. Coast Guard master license in 1985. He is a
member of the Mt. Pleasant Presbyterian Church and a proud sponsor of local athletics East of the Cooper.

Alan
D. Clemmons, 45, is a native of Myrtle Beach, South Carolina. He graduated in 1982
from Coastal Carolina Universitys School of Business Administration. He received his
juris doctorate in 1989 from Hamline University of Saint Paul, Minnesota. Mr. Clemmons is
engaged in the practice of law with an emphasis on real estate and development with the
firm of McCrackin, Barnett, Richardson and Clemmons, L.L.P., where he has practiced since
1990. Mr. Clemmons is currently president of the Pee Dee Area Council of the Boy Scouts of
America. He has served as a volunteer to the Boy Scouts of America for over 20 years and
has served as vice president of administrations and president elect of the Pee Dee Area
Council. He served as a volunteer to the Maya Indians from 1978 to 1980 as a lay Christian
Services Missionary in Southern Mexico. Mr. Clemmons is a past member of the Horry County
Planning Commission and as a liaison member of the Myrtle Beach Planning Commission. Mr.
Clemmons has been an officer of the Horry County Republican Party since 1995, and chairman
from 1997 through 2000. He was elected from the First Congressional District as a Delegate
to the 2000 Republican National Convention. He was also elected from the First
Congressional District as an Alternate Delegate to the 2004 Republican National
Convention. Mr. Clemmons was elected as a member of the South Carolina House of
Representatives in 2001. He is chairman of the House Freshman Caucus and second vice
chairman of the House Judiciary Committee. Mr. Clemmons also serves as chairman of the
South Carolina Interstate 73 Association.

Robert
E. (Chip) Coffee, Jr. 56, has served as a director, the president and chief executive
officer of our company and our bank since February of 2003. Mr. Coffee is a native of
Camden, South Carolina. Mr. Coffee graduated from The Citadel in 1970 with a B.S. in
Business Administration. He began his banking career in the Management Training program
with South Carolina National Bank in 1970. Mr. Coffee furthered his banking education and
graduated from The Stonier Graduate School of Banking at Rutgers University in 1978 and
The National Commercial Lending Graduate School at the University of Oklahoma, With
Distinction, in 1982. In 1980 he joined the Bank of Beaufort and began the community
banking phase of his career. Between 1982 and 1985, Mr. Coffee worked with the Bank of
Hartsville and managed the commercial loan portfolio of that bank. In 1986, he was part of
a group of investors who founded 1STAtlantic Bank in Little River, S.C. Mr.
Coffee served as president, chief executive officer, and was a director until
1ST Atlantic merged with Anchor Bank in December of 1993. He became executive
vice president and chief administrative officer and was a director of Anchor Bank,
operating in that capacity until Anchor Bank merged with Carolina First Bank in April of
2000. He has been retired from banking since that time. Including his stint in Beaufort,
Mr. Coffee has been involved in banking along South Carolinas coast for over 17
years.

Mr.
          Coffee has served on numerous boards and professional organizations including
          The South Carolina Bankers Association, Chairman of the South Carolina
          Bankers School, The Citizens Advisory Council of the Hollings Cancer
          Center, The South Carolina Coastal Conservation League, DeBordieu Club, and The
          South Carolina State Board of Financial Institutions from 1992 until 2000. Mr.
          Coffee has been married to the former Betty Krell for 31 years, and they have 2
          sons.

Richard
L. Granger, 52, is a native of Columbia, South Carolina. Mr. Granger graduated from
Gardner-Webb University in 1973 with a B.S. degree in Liberal Arts Pre-law. He is
president of R. Granger Development, Inc. which develops land for commercial and
residential use. He is also a licensed real estate broker in South Carolina with an
emphasis in commercial real estate and land sales. Mr. Granger formed R. Granger
Development, Inc. in 2001 after a successful 26 year career as a mortgage banker. He
founded Granger-OHarra Mortgage in 1984 in Florence, South Carolina with partner,
Robert S. OHarra. In 1995, Mr. Granger and his partner sold the mortgage business to
a local community bank holding company, and Mr. Granger continued to work in the mortgage
business as president and chief executive officer under its new name, Coastal Financial
Mortgage, Inc. until he began R. Granger Development, Inc. He currently serves on the
Board of Trustees of the McLeod Foundation in affiliation with McLeod Health, a regional
hospital serving the Pee Dee region of South Carolina. He has served as chairman of the
McLeod Childrens Hospital Board of Advisors. Mr. Granger serves on the Executive
Committee of the Foundation Board as Assistant Treasurer. He also serves on the Board of
Trustees and Executive Committee for the Methodist Manor of the Pee Dee.

Dwayne
M. Green, 34, is a Charleston County native. He is the co-founding partner of Hampton
Green, LLC, a law firm he started with his wife in May 2001. Mr. Greens practice
focuses on insurance litigation and business law. Prior to starting his law firm, Mr.
Green practiced with Buist, Moore, Smythe & McGee, P.A. He is

47

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Assistant Corporate  Counsel for the city of  Charleston  and Chief Legal  Counsel for the town of Awendaw.  Mr.  Green  graduated
from  Princeton  University in 1991 with a Bachelor's  degree in politics.  He later  graduated  from the  University of
Iowa with a Juris  Doctorate  degree in 1995.  Mr.  Green has  served as  chairman  of the City of  Charleston  Board of
Architectural  Review and the Cannon  Street  YMCA.  He is past  president  of the  Charleston  Lawyers Club and the 100
Black Men of  Charleston,  Inc.  Mr.  Green is an active  member of the  Charleston  County  Bar,  having  served on the
Executive  Committee  for  three  years.  Mr.  Green is on the  Board of  Trustees  for  both  the  Historic  Charleston
Foundation and Porter-Gaud School.

Alan
W. Jackson, 42, has served as the chief financial officer of our company and our bank
since May 1, 2003. Mr. Jackson graduated from West Virginia Wesleyan College in 1983 with
a B.A. degree in Accounting and received a Master of Accountancy from Virginia Polytechnic
Institute in 1985. Mr. Jackson furthered his banking education and graduated from the
Graduate School of Banking at Colorado at the University of Colorado in 1997. Mr. Jackson
began his involvement in community banking in 1984 as an auditor with KPMG. From 1988 to
1991 Mr. Jackson was employed by Security Bank and Trust Co., Salisbury, N.C. Mr. Jackson
joined Community Bank and Trust Co. in Marion, N.C. in 1991 and served as the chief
financial officer until it merged with Carolina First Bancshares in 1998. At the time of
the merger Mr. Jackson joined a group of investors who founded High Country Bank in Boone,
N.C. Mr. Jackson served as the chief financial officer and chief operations officer to
High Country Bank from 1998 to 2002. From 2002 until joining us in 2003, Mr. Jackson had a
consulting practice serving community banks in the areas of asset liability management,
operations, technology, financial reporting and budgeting.

Barry
I. Kalinsky, 43, is a Charleston native and the vice president of Bob Ellis Shoes, a
specialty shoe store which started in 1949 and now has locations in Charleston, Charlotte,
and Atlanta. Mr. Kalinsky is also a partner in Jacomo, LLC, the operating company for Bob
Ellis Shoes in Charlotte. Mr. Kalinsky graduated from George Washington University in 1982
with a B.A. degree in Political Science. He received his Juris Doctorate degree from The
University of South Carolina in 1985 and was admitted to the South Carolina Bar that same
year. From 1985 until 1990, he was engaged in the practice of law. Since 1991, Mr.
Kalinsky has worked with his family in Bob Ellis Shoes and handles the operation of the
Charleston and Charlotte stores. He is a member of the South Carolina Bar. Mr. Kalinsky
has served on the boards of the Charleston Symphony Orchestra, Synagogue Emanuel, and the
Charleston Jewish Federation. He has also served on the city of Charlestons Downtown
Business Revitalization Commission. Mr. Kalinsky is serving on the board of the Spoleto
Festival. Barry Kalinsky is the son of Morris Kalinsky.

Morris
Kalinsky, 79, has been a resident of Charleston since 1949. Mr. Kalinsky graduated
from the University of Georgia in 1945 with a B.S. degree in Chemistry. Since 1950, Mr.
Kalinsky has been the owner of Bob Ellis Shoes, a specialty shoe store with locations in
Charleston, Charlotte, and Atlanta. In 1992, he received Retailer of the Year from the
Italian Footwear Association. He was also given The Man of the Year award by the National
Association of Footwear in 1992 and was inducted into the Fashion Hall of Fame in 2000.
Mr. Kalinsky has served on the Charleston Symphony Orchestra board of directors since
1994. He is chairman of the Jewish Federation Board and was named Man of the Year by the
local Federation Board. He is currently on the Cardiology Board at the Medical University
of South Carolina. He also serves on the board of directors of Emanuel Synagogue. Morris
Kalinsky is the father of Barry Kalinsky.

Paul
J. Kerwin, DVM, 41, has been a resident of Charleston County since 1988. He graduated
Magna Cum Laude from Duke University in 1984 with a B.S. degree in Mechanical Engineering
and received his Doctorate of Veterinary Medicine degree from Tufts University in 1988.
Dr. Kerwin has owned and operated a companion animal veterinary hospital in Goose Creek
since 1991. In 1999, Dr. Kerwin also started consulting with Trident Technical College
assisting in developing a Veterinary Technology Program, and now he is also a full-time
faculty member and program coordinator with the college. He is active in local, state, and
national veterinary and educational associations.

Robert
H. (Bobby) Mathewes, Jr., 37, has served as our senior vice president and senior
credit officer of our bank. Mr. Mathewes is also a native of Mt. Pleasant. Mr. Mathewes
graduated from the University of South Carolina in 1988 with a B.S. degree in Finance. He
is also a graduate of the South Carolina Bankers School. Mr. Mathewes graduated from
Leadership Charleston in 1999. He has 14 years of banking experience, 11 of which have
been spent in Charleston, most recently at BB&T in Charleston as a business services
officer from August 2000 to April 2002, where he was responsible for loan growth,
portfolio management, and client service. He has also held positions with Southtrust Bank
in Charleston from March 1997 to July 2000 as a commercial lender. Mr. Mathewes started
his banking career with C&S Bank in Charleston in 1990. He worked outside of the
Charleston area from 1992 until his return in 1997. Mr. Mathewes has been involved in
Junior Achievement, Jaycees, and the Chamber of Commerce new

48

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membership campaign.  He coaches  little league soccer and baseball  through the  recreational  department in Mt.  Pleasant.  He is
an active member of Mt. Pleasant Presbyterian Church.

John
T. Parker, Jr., 40, has been a resident of Mt. Pleasant since 1986. Mr. Parker
graduated from Emory at Oxford in 1984 with an Associate of Arts degree, and subsequently
graduated from Emory University in 1986 with a B.A. degree in Psychology. He worked at
Georgia Mental Health in Atlanta before returning to Charleston to join Parker Marine
Contracting Corporation, a family owned business that manufactures, builds, and installs
concrete foundation pile, bridges, deep foundations, marine utilities, and other
construction services. He has been the vice president of Parker Marine for 10 years. Mr.
Parker was the 2000-2002 president of the American Subcontractors Association (ASA),
Charleston Chapter and he is vice president of the board of directors for ASA of North and
South Carolina. Since 1998, he has served as secretary and vice president of ASA. Mr.
Parker currently serves on the Scholarship Golf Tournament and Membership Committees for
ASA. Also, Mr. Parker serves on the Board of Directors for the Pile Driving Contractors
Association of South Carolina. He is also a volunteer parent at Whitesides Elementary
School and for Camp Happy Days (a charity for children with cancer).

Fred
H. Renken, 35, is a native of Charleston. He has been engaged in boat manufacturing
for 15 years. Mr. Renken graduated from the College of Charleston in 1992 with a B.S.
degree in Business Administration. Mr. Renken has been the president of SeaFox Boat Co.,
Inc., which produces 3,000 boats per year with 150 employees and annual sales of $44
million, since 1995. He is an active member of St. Matthews Lutheran Church and serves on
the church council. Mr. Renken is also chairman of the Stewardship and Cemetary
committees. He coaches girls basketball through a recreational league in Charleston. Mr.
Renken is a member of the Charleston Country Club and the Downtown Athletic Club where he
enjoys playing golf and racquetball.

Tanya
D. Robinson, 50, is a native of Summerville. Ms. Robinson graduated from Brigham Young
University with a B.A. degree in Communications. She works part-time for Dorchester
District Two Schools as a Public Information Specialist, and is also the lead teacher for
K-4 at Bethany Child Development Center since 1988. Ms. Robinson was elected to serve as
District PTA President for Dorchester and Colleton counties for the 2000-2002 term. This
position took her into 21 schools to train and help local PTA units. She also has served
on the state PTA Board. Ms. Robinson was elected to serve as the Community Service
Chairman, overseeing community services for 25 local agencies. She is a member of the
Junior League of Summerville. Ms. Robinson serves as the President of the Summerville
Womens Organization of the Church of Jesus Christ of Latter Day Saints.

We
do not have a class of securities registered under Section 12 of the Securities Exchange
Act of 1934. Therefore, our directors, executive officers, promoters and control persons
are not required to comply with Section 16(a) of the Exchange Act.

# Audit Committee
Financial Expert

Our
audit committee has five members, Michael W. Burrell, Alan D. Clemmons, Dwayne M. Green,
John T. Parker, and Tanya D. Robinson. None of the current members of the audit committee
nor any other member of our board qualifies as an audit committee financial
expert as defined under the rules of the Securities and Exchange Commission. As a
relatively small public company, it is difficult to identify potential qualified
candidates that are willing to serve on our board and otherwise meet our requirements for
service. At the present, we do not know if or when we will appoint a new board member that
qualifies as an audit committee financial expert. Although none of audit committee members
qualify as financial experts as defined in the SEC rules, each of our members
has made valuable contributions to the company and its shareholders as members of the
audit committee. The board has determined that each member is fully qualified to monitor
the performance of management, the public disclosures by the company of its financial
condition and performance, our internal accounting operations, and our independent
auditors.

# Code of Ethics

We
expect all of our employees to conduct themselves honestly and ethically, particularly in
handling actual and apparent conflicts of interest and providing full, accurate, and
timely disclosure to the public. Although we have not adopted a formal code of ethics that
applies to our senior executive officers, we are developing a code that we expect will be
approved by our board of directors in the near future.

49

---

# Item 10.  Executive
Compensation

# Summary of Cash and
Certain Other Compensation

The
following table shows the cash compensation we paid to our Chief Executive Officer and
President for the year ended December 2003, including total annual compensation, including
salary and bonus. None of our other executives earned total annual compensation, including
salary and bonus, in excess of $100,000 in 2003.

# Summary Compensation Table

|                         |  |  |      |  | Long-Term |  
|------------------------ |  |  | ---- |  | --------- | -
|
|
|
|
|
|
|
|Robert E. Coffee, Jr.    |  |  | 2003 |  |           | $
|President and Chief      |  | 
|Executive Officer of the |  | 
|Company and the Bank     |  | 

|(1) | Our executive officers of the Company also received indirect compensation in the
          form of certain perquisites and other personal benefits. Except as described
          below, the amount of such benefits received in the fiscal years shown did not
          exceed the lesser of either $50,000 or 10% of their annual salary and bonus.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | This amount includes insurance policies which the company pays for the employee.
|--- | --------------------------------------------------------------------------------

# Employment Agreements

In
2003, we entered into an employment agreement with Mr. Coffee as the president and chief
executive officer of the company and the bank. The agreement has a term of three years,
which is extended automatically at the end of each day for an additional day so that the
remaining term continues to be three years. The agreement provides for a base salary of
$95,000 per year, which will increase to $150,000 annually one year after the opening of
the bank. Compensation is reviewed annually by the board of directors and may be increased
from time to time based on the boards recommendation. Mr. Coffee is also eligible to
receive cash bonuses based upon achievement criteria established by the board of
directors. If we terminate Mr. Coffees employment without cause, he will be entitled
to severance equal to 36 months of his then base salary. Following a change in control, if
Mr. Coffee terminates his employment for good reason or within six months following a
change in control, he will be entitled to severance equal to 36 months of his then base
salary. During his employment and for a period of 24 months thereafter, Mr. Coffee may
not, subject to limited exceptions, (a) compete with us by forming, serving as an
organizer, director, or officer of, or acquiring or maintaining greater than a 1% passive
ownership interest in, a depository financial institution or holding company of a
depository financial institution, if the depository institution or holding company has one
or more offices or branches within our territory, (b) solicit our customers for a
competing business, or (c) solicit our employees for a competing business.

# Compensation of
Directors and Executive Officers

# Director Compensation

Our
bylaws permit our directors to receive reasonable compensation as determined by a
resolution of the Board of Directors. We did not pay any directors fees during the
last fiscal year. However, we may, pursuant to our bylaws, begin to compensate our
directors at some time in the future.

50

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# Item 11.  Security
Ownership of Certain Beneficial Owners and Management

# SECURITY OWNERSHIP OF
CERTAINBENEFICIAL OWNERS AND MANAGEMENT

# General

The
following table shows how much common stock in our company is owned by the directors,
certain executive officers, and owners of more than 5% of the outstanding common stock, as
of March 15, 2004. Unless otherwise indicated, the address of each beneficial owner is c/o
Tidelands Bancshares, Inc., 875 Lowcountry Boulevard, Mt. Pleasant, South Carolina 29464.

|                                      | Number of Shares |  | % of Beneficial
|------------------------------------- | ---------------- |  | ---------------
|
|Mike Burrell                          |                  |  |                
|John Cagle                            |                  |  |                
|Alan Clemmons                         |                  |  |                
|Robert Coffee                         |                  |  |                
|Richard Granger                       |                  |  |                
|Dwayne Green                          |                  |  |                
|Alan Jackson                          |                  |  |                
|Barry Kalinsky                        |                  |  |                
|Morris Kalinsky                       |                  |  |                
|Paul Kerwin                           |                  |  |                
|Bobby Mathewes                        |                  |  |                
|John Parker                           |                  |  |                
|Fred Renken                           |                  |  |                
|Tanya Robinson                        |                  |  |                
|                                      |                  | 
|Executive officers, directors, and 5% |                  |  |                
|owners as a group (14 persons)        |                  |  |                
|                                      |                  | 
|*Indicates less than 1% ownership     |                  | 

---

|(1) | Includes shares for which the named person:
|--- | -------------------------------------------

| | o | has sole voting and investment power,
| | - | -------------------------------------

| | o | has shared voting and investment power with a spouse, or
| | - | --------------------------------------------------------

| | o | holds in an IRA or other retirement plan program, unless otherwise indicated in these footnotes.
| | - | ------------------------------------------------------------------------------------------------

Currently,
there are no outstanding stock options.

|(2) | Includes shares that may be acquired within the next 60 days by exercising stock
          options which vest by that date but does not include any other stock options.
          Currently, there are no outstanding stock options.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Determined by assuming the named person exercises all options which he or she
          has the right to acquire within 60 days, but that no other persons exercise any
          options.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Item 12.  Certain
Relationships and Related Transactions

# Interests of Management
and Others in Certain Transactions

We
enter into banking and other transactions in the ordinary course of business with our
directors and officers and their affiliates. It is our policy that these transactions be
on substantially the same terms (including price, or interest rates and collateral) as
those prevailing at the time for comparable transactions with unrelated parties. We do not
expect these transactions to involve more than the normal risk of collectibility nor
present other unfavorable features to us. Loans to individual directors and officers must
also comply with our banks lending policies and statutory lending limits, and
directors with a personal interest in any loan application are excluded from the
consideration of the loan application. We intend for all of our transactions with our
affiliates to be on terms no less favorable to us than could be obtained from an
unaffiliated third party and to be approved by a majority of disinterested directors.

51

---

# Item 13.  Exhibits, List
and Reports on Form 8-K.

|(a) | The following documents are filed as part of this report:
|--- | ---------------------------------------------------------

|3.1. | Restated Articles of Incorporation (incorporated by reference as Exhibit 3.1 to
          the Companys Form SB-2 filed with the SEC, File No. 333-97035).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2. | Bylaws (incorporated by reference as Exhibit 3.2 to the Companys Form SB-2
          filed with the SEC, File No. 333-97035).
|---- | ------------------------------------------------------------------------------------------------------------------------------

|4.1. | See Exhibits 3.1 and 3.2 for provisions in Tidelands Bancshares, Inc.s
          Articles of Incorporation and Bylaws defining the rights of holders of the
          common stock (incorporated by reference as Exhibit 4.1 to the Companys
          Form SB-2 filed with the SEC, File No. 333-97035).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2. | Form of certificate of common stock (incorporated by reference as Exhibit 4.2 to
          the Companys Form SB-2 filed with the SEC, File No. 333-97035).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|10.1 | Employment Agreement between Tidelands Bancshares, Inc. and Jerry A. Vereen dated March 7, 2002 (incorporated
         by reference as Exhibit 10.1 to the Company's Form SB-2 filed with the SEC, File No. 333-97035).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 | Employment Agreement between Tidelands Bancshares, Inc. and Bobby Mathewes dated April 8, 2002 (incorporated
         by reference as Exhibit 10.2 to the Company's Form SB-2 filed with the SEC, File No. 333-97035).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 | Promissory Note dated July 22, 2002 between Lowcountry National Bank and Tidelands
National Bank (incorporated by reference as Exhibit 10.4 to the Companys Form SB-2
filed with the SEC, File No. 333-97035).
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 | Sub-Lease Agreement dated April 25, 2002 by and between Carolina First Bank and Tidelands
Bancshares, Inc. (incorporated by reference as Exhibit 10.5 to the Companys Form
SB-2 filed with the SEC, File No. 333-97035).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 | Severance Agreement dated January 23, 2003 by and between Jerry A. Vereen and Tidelands Bancshares, Inc.
         (incorporated by reference as Exhibit 10.8 to the Company's Form SB-2 filed with the SEC, File No. 333-97035).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 | Form of Amended and Restated Employment Agreement between Tidelands Bancshares, Inc. and Robert H. Mathewes.
         (incorporated by reference as Exhibit 10.9 to the Company's Form SB-2 filed with the SEC, File No. 333-97035).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 | Form of Employment Agreement between Tidelands Bancshares, Inc. and Robert E. Coffee, Jr. (incorporated by
         reference as Exhibit 10.10 to the Company's Form SB-2 filed with the SEC, File No. 333-97035).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8 | Promissory Note for Line of Credit between Tidelands Bancshares, Inc. and The Bankers Bank dated
January 27, 2003. (incorporated by reference as Exhibit 10.12 to the Company's Form SB-2 filed with the   SEC,     File
No. 333-97035).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 | Commitment Letter between
Tidelands Bancshares, Inc. and The Bankers Bank dated February 25, 2003 (incorporated by
reference as Exhibit 10.13 to the Companys Form SB-2 filed with the SEC, File No.
333- 97035).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10 | Form of Employment Agreement
between Tidelands Bancshares, Inc. and Alan W. Jackson (incorporated by reference as
Exhibit 10.2 to the Companys Form 10-QSB for the period ended September 30, 2003,
filed with the SEC, File No. 333-97035).
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 | Tidelands Bancshares, Inc. 2004 Stock Incentive Plan.
|----- | -----------------------------------------------------

|21.1 | Subsidiaries of the Company.
|---- | ----------------------------

52

---

|24.1 | Power of Attorney (filed as part of the signature page herewith).
|---- | -----------------------------------------------------------------

|31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------

|31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------

|32 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. This exhibit is not filed for purposes
of Section 18 of the Securities Exchange Act of 1934 but is instead furnished as provided
by applicable rules of the Securities and Exchange Commission.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Reports on Form 8-K
|--- | -------------------

| | Reports filed on Form 8-K during the fourth quarter ended December 31, 2003.None.
| | ---------------------------------------------------------------------------------

# Item 14.  Principal
Accountant Fees and Services

# Independent Certified
Public Accountants

Elliott
Davis, LLC was our auditor during the fiscal year ended December 31, 2003. The board of
directors has recommended Elliott Davis, LLC to continue as our independent certified
public accountants for the fiscal year ending December 31, 2004. A representative of
Elliott Davis, LLC will be present at the annual meeting and will be available to respond
to appropriate questions and will have the opportunity to make a statement if he or she
desires to do so. The following table shows the fees that we paid for services performed
in fiscal years ended December 31, 2003 and 2002:

|                   | Year Ended | *Year Ended
|------------------ | ---------- | -----------
|
|
|Audit Fees         |            |            
|Audit-Related Fees |            |            
|Tax Fees           |            |            
|All Other Fees     |            |            
|                   |            |            
|Total              |            |            
|                   |            |            

*2002
only includes audit fees by Elliott Davis, LLC. Audit related fees in 2002 were paid to
Tourville Simpson Caskey, LLP.

Audit Fees. This category
includes the aggregate fees billed for professional services rendered by the independent
auditors during the companys 2003 and 2002 fiscal years for the audit of the
companys consolidated annual financial statements and the review of financial
statements included in the companys quarterly reports.

Audit-Related Fees. This
category includes the aggregate fees billed for non-audit services, exclusive of the fees
disclosed relating to audit fees, during the fiscal years ended December 31, 2003 and
2002. These services principally include the assistance and issuance of consents for
various filings with the SEC.

Tax Fees. This category
includes the aggregate fees billed for tax services rendered in the preparation of federal
and state income tax returns for the company and its subsidiaries.

All Other Fees. This category
includes the aggregate fees billed for all other services, exclusive of the fees disclosed
above, rendered during the fiscal years 2003 and 2002. The audit committee concluded that
the provision of the non-audit services provided by Elliott Davis, LLC was compatible with
maintaining the principal accountants independence.

Oversight of Accountants; Approval
of Accounting Fees.The board of directors approves an annual budget for professional
audit fees that includes all fees paid to the independent auditors.

53

---

# SIGNATURES

In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
Exchange Act), the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

|                      |  | TIDELANDS BANCSHARES, INC.           
|--------------------- |  | -------------------------------------
|                      |  |                                      
|Date:  March 26, 2004 |  | By:   /s/  Robert E. Coffee, Jr.     
|                      |  | Robert E. Coffee, Jr.                
|                      |  | President and Chief Executive Officer

KNOW
ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Robert E. Coffee, Jr., his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that attorney-in-fact and agent,
or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

|Signature | Title | Date
|--------- | ----- | ----

|/s/ Mike  Burrell
Mike  Burrell | Director | March 26, 2004
|------------------------------- | -------- | --------------

|/s/ John N. Cagle, III, DMD
John N. Cagle, III, DMD | Director | March 26, 2004
|--------------------------------------------------- | -------- | --------------

|/s/ Alan D. Clemmons
Alan D. Clemmons | Director | March 26, 2004
|------------------------------------- | -------- | --------------

|/s/ Robert E. Coffee, Jr.
Robert E. Coffee, Jr. | Director, President, and Chief Executive Officer | March 26, 2004
|----------------------------------------------- | ------------------------------------------------ | --------------

|/s/ Richard L. Granger
Richard L. Granger | Director | March 26, 2004
|----------------------------------------- | -------- | --------------

|/s/Dwayne Green
Dwayne Green | Director | March 26, 2004
|---------------------------- | -------- | --------------

|/s/ Barry I. Kalinsky
Barry I. Kalinsky | Director, Chairman | March 26, 2004
|--------------------------------------- | ------------------ | --------------

|/s/ Morris Kalinsky
Morris Kalinsky | Director | March 26, 2004
|----------------------------------- | -------- | --------------

54

---

|/s/ Paul J. Kerwin, DVM
Paul J. Kerwin, DVM | Director | March 26, 2004
|------------------------------------------- | -------- | --------------

|/s/ Alan W. Jackson
Alan W. Jackson | Principal Accounting andChief Financial Officer | March 26, 2004
|----------------------------------- | ----------------------------------------------- | --------------

|/s/ John T. Parker, Jr.
John T. Parker, Jr. | Director | March 26, 2004
|------------------------------------------- | -------- | --------------

|/s/ Fred H. Renken
Fred H. Renken | Director, Vice-Chairman | March 26, 2004
|--------------------------------- | ----------------------- | --------------

|/s/ Tanya Robinson
Tanya Robinson | Director | March 26, 2004
|--------------------------------- | -------- | --------------

55

---

# EXHIBIT INDEX

Exhibit Number            
        Description

|3.1. | Restated Articles of Incorporation (incorporated by reference as Exhibit 3.1 to
          the Companys Form SB-2 filed with the SEC, File No. 333-97035).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2. | Bylaws (incorporated by reference as Exhibit 3.2 to the Companys Form SB-2
          filed with the SEC, File No. 333-97035).
|---- | ------------------------------------------------------------------------------------------------------------------------------

|4.1. | See Exhibits 3.1 and 3.2 for provisions in Tidelands Bancshares, Inc.s
          Articles of Incorporation and Bylaws defining the rights of holders of the
          common stock (incorporated by reference as Exhibit 4.1 to the Companys
          Form SB-2 filed with the SEC, File No. 333-97035).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2. | Form of certificate of common stock (incorporated by reference as Exhibit 4.2 to
          the Companys Form SB-2 filed with the SEC, File No. 333-97035).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|10.1 | Employment Agreement between Tidelands Bancshares, Inc. and Jerry A. Vereen dated March 7, 2002 (incorporated
         by reference as Exhibit 10.1 to the Company's Form SB-2 filed with the SEC, File No. 333-97035).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 | Employment Agreement between Tidelands Bancshares, Inc. and Bobby Mathewes dated April 8, 2002 (incorporated
         by reference as Exhibit 10.2 to the Company's Form SB-2 filed with the SEC, File No. 333-97035).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 | Promissory Note dated July 22, 2002 between Lowcountry National Bank and Tidelands
National Bank (incorporated by reference as Exhibit 10.4 to the Companys Form SB-2
filed with the SEC, File No. 333-97035).
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 | Sub-Lease Agreement dated April 25, 2002 by and between Carolina First Bank and Tidelands
Bancshares, Inc. (incorporated by reference as Exhibit 10.5 to the Companys Form
SB-2 filed with the SEC, File No. 333-97035).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 | Severance Agreement dated January 23, 2003 by and between Jerry A. Vereen and Tidelands Bancshares, Inc.
         (incorporated by reference as Exhibit 10.8 to the Company's Form SB-2 filed with the SEC, File No. 333-97035).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 | Form of Amended and Restated Employment Agreement between Tidelands Bancshares, Inc. and Robert H. Mathewes.
         (incorporated by reference as Exhibit 10.9 to the Company's Form SB-2 filed with the SEC, File No. 333-97035).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 | Form of Employment Agreement between Tidelands Bancshares, Inc. and Robert E. Coffee, Jr. (incorporated by
         reference as Exhibit 10.10 to the Company's Form SB-2 filed with the SEC, File No. 333-97035).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8 | Promissory Note for Line of Credit between Tidelands Bancshares, Inc. and The Bankers Bank dated
January 27, 2003. (incorporated by reference as Exhibit 10.12 to the Company's Form SB-2 filed with the   SEC,     File
No. 333-97035).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 | Commitment Letter between
Tidelands Bancshares, Inc. and The Bankers Bank dated February 25, 2003 (incorporated by
reference as Exhibit 10.13 to the Companys Form SB-2 filed with the SEC, File No.
333- 97035).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10 | Form of Employment Agreement
between Tidelands Bancshares, Inc. and Alan W. Jackson (incorporated by reference as
Exhibit 10.2 to the Companys Form 10-QSB for the period ended September 30, 2003,
filed with the SEC, File No. 333-97035).
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 | Tidelands Bancshares, Inc. 2004 Stock Incentive Plan.
|----- | -----------------------------------------------------

|21.1 | Subsidiaries of the Company.
|---- | ----------------------------

|24.1 | Power of Attorney (filed as part of the signature page herewith).
|---- | -----------------------------------------------------------------

|31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------

|31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------

|32 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. This exhibit is not filed for purposes
of Section 18 of the Securities Exchange Act of 1934 but is instead furnished as provided
by applicable rules of the Securities and Exchange Commission.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

56