<PAGE>

                                                                      EXHIBIT 13

                            SouthBanc Shares, Inc.

                              1999 Annual Report
<PAGE>

                             SouthBanc Shares, Inc.
                               TABLE OF CONTENTS



       Selected Financial Information........................  3


       Key Operating Ratios..................................  5


       Letter to Shareholders................................  6


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


       Independent Auditor's Report.......................... 23

       Consolidated Balance Sheets........................... 24

       Consolidated Statements of Income..................... 25

       Consolidated Statements of Stockholders' Equity....... 26

       Consolidated Statements of Cash Flows................. 28

       Notes to Consolidated Financial Statements............ 30

       Corporate Information................................. 57

       Market for Common Stock and Dividend Policy........... 58

                                       1
<PAGE>

                             SouthBanc Shares, Inc.
                             907 North Main Street
                         Anderson, South Carolina 29621


SouthBanc Shares, Inc. ("Company"), a Delaware corporation, was organized on
November 6, 1997, for the purpose of becoming the holding company for Perpetual
Bank, A Federal Savings Bank ("Savings Bank") upon the Savings Bank's
reorganization as a wholly owned subsidiary of the Company resulting from the
conversion of SouthBanc Shares, M.H.C., Anderson, South Carolina ("MHC"), from a
federal mutual holding company to a stock holding company ("Conversion and
Reorganization"). The Conversion and Reorganization was completed on April 14,
1998. In connection with the Conversion and Reorganization, the Company issued
2,281,312 shares of its common stock at $20.00 per share. In addition, each
share of common stock of the Savings Bank issued and outstanding and held by
persons other than the MHC were exchanged in the Conversion and Reorganization
for 2.85164 shares of common stock of the Company (with cash issued in lieu of
fractional shares at the rate of $20.00 per share).

The Company's primary business is coordinating and directing the affairs and
operations of the Savings Bank.  The Savings Bank is primarily engaged in the
business of attracting deposits from the general public and originating and
purchasing mortgage loans, which are secured by one-to-four-family residential
properties, or investing in mortgage-backed securities.  To a lesser but growing
extent, the Savings Bank originates loans secured by commercial real estate as
well as commercial business and consumer loans.  The Savings Bank's savings
accounts are insured up to the applicable limits by the Federal Deposit
Insurance Corporation ("FDIC") through the Savings Association Insurance Fund
("SAIF").  The Savings Bank is a member of the Federal Home Loan Bank ("FHLB")
System.  The Savings Bank conducts its operations through its Main Office
located at 907 North Main Street, Anderson, South Carolina, four branch offices
located in Anderson, South Carolina, and one office located in Seneca, South
Carolina.  The telephone number of the Main Office is 864-225-0241.

                                       2
<PAGE>

                         SELECTED FINANCIAL INFORMATION
                         ------------------------------

The following tables set forth certain information concerning the consolidated
financial position and results of operations of the Company at the dates and for
the periods indicated.  This information is qualified in its entirety by
reference to the detailed information contained in the Consolidated Financial
Statements and noted thereto presented elsewhere in this report.

<TABLE>
<CAPTION>
                                                                   At September 30,
                                        -----------------------------------------------------------------------

                                             1999           1998          1997          1996          1995
                                            -----          ------        ------        ------        ------
                                                                     (In thousands)
<S>                                     <C>                <C>           <C>           <C>           <C>
FINANCIAL CONDITION DATA:

Total assets                               $372,151        $362,529      $256,993      $209,827      $178,304
Cash and interest-bearing deposits           15,546          21,197        13,499        13,585         6,630
Investment in limited partnership (1)         1,575             825         5,004             -             -
Investment securities available for          16,244          23,301        11,326         2,494           800
 sale
Mortgage-backed securities available
    for sale                                 58,385          73,933        35,863        43,125        46,344
Loans receivable, net                       255,488         219,896       178,772       140,758       116,539
Deposits                                    221,257         207,791       201,002       160,244       148,709
Borrowings                                   93,254          76,174        15,000        16,000         8,000
Stockholders equity                          52,751          74,407        30,602        29,091        18,232
</TABLE>

<TABLE>
<CAPTION>
                                                           For The Years Ended September 30,
                                       -----------------------------------------------------------------------
                                            1999           1998          1997          1996          1995
                                           ------         ------        ------        ------        ------
                                                                     (In thousands)
<S>                                    <C>                <C>           <C>           <C>           <C>
OPERATING DATA:

Interest income                             26,228        $ 23,937      $ 18,396      $ 14,921      $ 13,543
Interest expense                            13,438          12,256         9,496         7,425         8,761
                                          --------        --------      --------      --------      --------

Net interest income                         12,790          11,681         8,900         7,496         4,782
Provision for loan losses                      481             606           655           349           362
                                          --------        --------      --------      --------      --------
Net interest income after provision
    for loan losses                         12,309          11,075         8,245         7,147         4,420
Other income                                 5,148           3,761         1,855         1,927         3,231
Loss reserve (recapture) on limited           (750)          4,500             0             0             0
 partnership
General and administrative expenses          9,318           8,525         7,446         6,894         5,540
                                          --------        --------      --------      --------      --------

Income before income taxes                   8,889           1,811         2,654         2,180         2,111
Income taxes                                 2,916             549           926           756           194
                                          --------        --------      --------      --------      --------
Net income                                $  5,973        $  1,262      $  1,728      $  1,424      $  1,917
                                          ========        ========      ========      ========      ========
</TABLE>

                      Footnotes on second following page

                                       3
<PAGE>

Selected Financial Information (Continued)
------------------------------------------

<TABLE>
<CAPTION>
                                                                    For The Years Ended September 30,
                                       ------------------------------------------------------------------------------------------
                                               1999              1998              1997              1996              1995
                                              ------            ------            ------            ------            ------
<S>                                    <C>                      <C>               <C>               <C>               <C>
PER SHARE DATA (2):

Basic earnings per share                       $     1.76        $     0.30        $     0.41        $     0.33        $     0.45
Diluted earnings per share                     $     1.67        $     0.29        $     0.40              0.33              0.45
Weighted average shares outstanding
          Basic                                 3,386,851         4,199,237         4,174,528         4,290,580         4,289,035
          Diluted                               3,570,156         4,406,381         4,322,815         4,315,880         4,296,081
Dividends per share (3)                        $     0.54        $     0.48        $     0.47        $     0.42        $     0.37

<CAPTION>
                                                                             At September 30,
                                       ------------------------------------------------------------------------------------------
                                               1999              1998              1997              1996              1995
                                              ------            ------            ------            ------            ------
<S>                                    <C>                      <C>               <C>               <C>               <C>
OTHER DATA:

Number of:
    Real estate loans outstanding                   4,848             3,121             2,645             2,653             2,846
    Deposit accounts                               35,388            32,361            31,504            26,135            21,490
    Full-service offices                                6                 6                 6                 5                 5
</TABLE>



                          Footnotes on following page

                                       4
<PAGE>

                              KEY OPERATING RATIOS

<TABLE>
<CAPTION>
                                                                At or For The Years Ended September 30,
                                      -----------------------------------------------------------------------------------------
                                              1999              1998              1997              1996              1995
                                             ------            ------            ------            ------           --------
<S>                                   <C>                      <C>               <C>               <C>              <C>
Performance Ratios

Return on average assets (net income
    divided by average assets)                     1.61%             0.39%             0.72%             0.75%             0.92%
Return on average equity (net income
    divided by average equity)                    10.18              2.41              5.78              7.40             11.88
Average equity to average assets                  15.78             16.04             12.54             10.16              7.77
Interest rate spread (difference
    between yield on interest-earning
    assets and average cost of
     interest-
    bearing liabilities for the                    3.26              3.35              3.57              3.85              3.61
    period (4)
Net interest margin (net interest
 income as a percentage of average
 interest-earning assets for the
 period (4)                                        3.72              3.85              3.96              4.16              2.90



Dividend Payout Ratio (3)                         29.72            165.58            117.39            126.32             82.68
Non-interest expense to average
    assets                                         2.51              2.61              3.20              3.72              2.74
Average interest-earning assets to
    average interest-bearing                     111.62            112.57            109.36            107.69             86.56
     liabilities

Asset Quality Ratios:

Allowance for loan losses to total
    loans at end of period                         1.01              1.07              1.04              1.08              1.08
Net charge-offs to average outstanding
    loans during the period                        0.12              0.05              0.18              0.07              0.04
Ratio of non-performing assets to
    total assets                                   0.70              0.34              0.20              0.38              0.33

Capital Ratios:

Average equity to average assets                  15.78             16.04             12.54             10.16              7.77
</TABLE>
________________________________________________________________________________
(1)  Represents a 20.625% equity investment in a limited partnership that
     invests in mortgage servicing rights. See Note 3 of Notes to Consolidated
     Financial Statements.
(2)  Per share data has been restated for 1998, 1997, 1996, and 1995 to reflect
     the stock exchange ratio of 2.85164 shares of common stock of the Company
     for one share of Savings Bank common stock established in connection with
     the Conversion and Reorganization.
(3)  Takes into account dividends waived by the MHC for the fiscal years ended
     September 30, 1997, 1996, and 1995, which owned 800,000 shares of Savings
     Bank stock. See Note 20 of Notes to Consolidated Financial Statements. The
     dividend payout ratio is based only on dividends paid to public
     stockholders of the Savings Bank, excluding the shares owned by the MHC.
     The dividend payout ratio was 143.4%, 55.19%, 22.40%, 6.53%, and 3.71% for
     the fiscal years ended September 30, 1998, 1997, 1996, and 1995,
     respectively.
(4)  Excludes income on mutual funds totaling approximately $1.7 million in
     fiscal 1995, which was reported as gains on sale and included in other
     income.

                                       5
<PAGE>

                               December 17, 1999

Dear Shareholders:

I am very pleased with our results for the year. Our net income was $5.5 million
in 1999 versus $4.4 million in 1998, before the effect of the reserve for our
investment in a limited partnership, an increase of 25%. Net income per share in
1999 was $1.61 versus $1.05 in 1998 before establishing a reserve for our
investment in a limited partnership.

Return on equity in 1999 was 9.32% versus 8.4% in 1998 before the reserve was
established. Return on assets was 1.47% in 1999 versus 1.36% in 1998.

In the third quarter of this year, we increased our quarterly dividend from
$0.12 per share to $0.15 per share. The increase in net income in 1999 and the
Company's average equity to average asset ratio of 15.78% lead to this increase
in dividends.

In 1999, we repurchased 1.2 million shares of our stock at an average cost of
$20.15 per share at a total cost of $24.3 million. The repurchase of our stock
reduces our capital to a level more consistent with the investment opportunities
in our marketplace.

We are excited about our future and are proud of our accomplishments in 1999. We
anxiously look forward to the new millennium and the opportunity to serve our
community and returning to our shareholders better than average returns.

                                                      Sincerely,

                                                      /s/ Robert W. Orr
                                                      Robert W. "Lujack" Orr
                                                      President/CEO

                                       6
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

General
-------

This discussion and analysis contains certain "forward-looking statements"
within the meaning of the federal securities laws. These forward-looking
statements include, but are not limited to, estimates and expectation of future
performance with respect to the financial condition and results of operations of
the Company and other factors. These forward-looking statements are not
guarantees of future performance and are subject to various factors that would
cause actual results to differ materially from these forward-looking statements.
These factors include, but are not limited to, changes in general economic and
market conditions and the legal and regulatory environment in which the Company
and the Savings Bank operate and the development of an interest rate environment
that adversely affects the Company's interest rate spread or other income
anticipated from the Company's operations.

Market Area
-----------

The Company considers Anderson and Oconee Counties, South Carolina, as its
primary market area. Additional loan origination demand is generated from
customers living in contiguous counties. The Company also purchases loans
secured by properties in South Carolina located outside its primary market area.

Anderson County is included in the Greenville/Spartanburg metropolitan
statistical area. The Cities of Greenville and Spartanburg are located 30 and 60
miles northeast of Anderson, respectively, and Atlanta, the closest major city,
is 120 miles to the southwest. Much of Anderson County is rural and roughly half
of the land area is used for agricultural purposes. Anderson County has
benefited from the growth of the Greenville metropolitan area and is
experiencing significant residential and commercial development along Interstate
85, a major transportation route that crosses through Anderson County. Major
area employers include Anderson Area Medical Center, Robert Bosch Corporation,
BASF Corporation, Owens-Corning Fiberglas, and Michelin Tire. Oconee is a
smaller but rapidly growing county located west of Anderson County.

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

General
-------

Total assets increased $9.7 million to $372.2 million at September 30, 1999,
from $362.5 million at September 30, 1998, as a result of an increase in loans
receivable. Loans receivable increased 16.2% or $35.6 million to $255.5 million
at September 30, 1999, from $219.9 million at September 30, 1998. The increase
in loans receivable resulted from growth in first mortgage residential,
construction, commercial real estate, and commercial and consumer loans. During
fiscal 1999, the Company purchased $21.8 million of first mortgage residential
loans located primarily in Greenville County, South Carolina, which is
contiguous to Anderson County, South Carolina. The Company also purchased $4.6
million of commercial real estate loans located in Greenville, South Carolina.

Mortgage-backed securities available-for-sale decreased 21.0% or $15.5 million
to $58.4 million from $73.9 million. The Company purchased $2.0 million of fixed
rate collateralized mortgage

                                       7
<PAGE>

Comparison of Financial Condition at September 30, 1999 and 1998, Continued
---------------------------------------------------------------------------

General, Continued
------------------

obligations (CMO's) during the year. The CMO's principal reduction from payments
was $22.2 million during the year. At September 30, 1999, the Company owned
$21.6 million of CMO's with an average yield of 7.05% with maturity ranges from
2000 to 2029. At September 30, 1999, the Company owned $36.8 million of fixed
and adjustable rate mortgage-backed securities with an average yield of 6.83%.

Investment securities available for sale decreased 30.5% or $7.1 million to
$16.2 million from $23.3 million. The Company sold $3.2 million of a state
municipal bond issue, $3.2 million of a bank preferred stock, and $1.0 million
of a trust preferred bond.

The Company's net investment in a limited partnership increased $750,000 to $1.6
million at September 30, 1999, from $825,000 at September 30, 1998. In 1998, the
Company established a $4.5 million loss reserve in a limited partnership that
invests in mortgage servicing rights tied to a national portfolio of residential
mortgage loans. Recent increases in market interest rates have enhanced the
appraised value of the limited partnership. In 1999, the Company reversed
$750,000 of the reserve established in 1998 due to the increase in the appraised
value. No assurances can be given that the establishment of future loss reserves
will not be needed.

Cash and cash equivalents decreased 26.9% or $5.7 million to $15.5 million at
September 30, 1999, from $21.2 million at September 30, 1998. At September 30,
1999, $8.5 million was invested in the FHLB Daily Interest Account yielding
5.50%.

Real estate held for development increased $200,000 to $2.1 million at September
30, 1999 from $1.9 million at September 30, 1998. The Company is presently
developing two single family residential subdivisions and two commercial real
estate development projects.

Cash surrender value of life insurance was $7.9 million at September 30, 1999,
an increase of $200,000 from $7.5 million at September 30, 1998. During 1998,
the Company purchased life insurance policies as part of the Supplemental
Executive Retirement Agreements maintained on certain key officers of the
Company.

Deposits increased 6.5% or $13.5 million to $221.3 million at September 30,
1999, from $207.8 million at September 30, 1998. Non-interest bearing checking
accounts increased 3.3% or $500,000 to $15.7 million at September 30, 1999, from
$15.2 million at September 30, 1998. Interest bearing checking accounts
increased 20.9% or $7.5 million to $43.3 million at September 30, 1999, from
$35.8 million at September 30, 1998, as the Company continues to offer checking
products that are more aggressively priced than those offered by competitors.
Statement savings accounts increased 4.8% or $1.2 million to $26.4 million at
September 30, 1999 from $25.2 million at September 30, 1998. Certificates of
deposit increased 3.3% or $4.3 million to $135.9 million at September 30, 1999
from $131.6 million at September 30, 1998.

Borrowings through reverse repurchase agreements were $20.3 million at September
30, 1999 and $20.2 million at September 30, 1998. The Company pledged $22.4
million of mortgage-backed

                                       8
<PAGE>

Comparison of Financial Condition at September 30, 1999 and 1998, Continued
---------------------------------------------------------------------------

General, Continued
------------------

securities as collateral for these borrowings.  The Company has borrowed $10.0
million at a rate of 5.49% with a call date of November 5, 1999, with a maturity
of November 6, 2000, and $10.0 million at a rate of 5.59% with a call date of
November 13, 1999, with a maturity of November 13, 2002.

Advances from the Federal Home Loan Bank increased $17.0 million to $73.0
million at September 30, 1999, from $56.0 million at September 30, 1998.  The
advances were used to fund loans originated and loans purchased from Mortgage
First Service Corporation, a subsidiary of the Savings Bank.

Stockholders equity decreased $21.6 million to $52.8 million at September 30,
1999 from $74.4 million at September 30, 1998. Retained earnings was increased
by net income of $6.0 million which was offset by dividends paid in the amount
of $1.8 million. Common stock repurchased through the common stock repurchase
programs is recorded on the Company's balance sheet as Treasury Stock, a contra-
equity account. During 1999, the Company repurchased 1,208,494 shares at an
average cost of $20.15 per share and a total cost of $24.3 million. Accumulated
other comprehensive income net decreased $2.2 million to ($2.0) million at
September 30, 1999, from $180,000 at September 30, 1998, due to a decrease in
the market value of the investment securities available for sale and mortgage-
backed securities available for sale resulting from an increase in interest
rates in the securities markets. The Company currently has no plans to sell
investment securities in the current market conditions and does not anticipate
future earnings will be impacted by the unrealized losses in the investment
portfolio.

Deferred compensation for Management Recognition Plan (MRP) increased $1.5
million to ($2.2) million at September 30, 1999 from $700,000 at September 30,
1998, due to the transfer of 91,252 shares of common stock valued at $1.8
million from Treasury Stock.  The MRP was approved at the January 27, 1999
stockholders' meeting.

Comparison of Operating Results for the Years Ended September 30, 1999 and 1998
-------------------------------------------------------------------------------

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

Net income increased $4.7 million to $6.0 million or $1.76 basic earnings per
share and $1.67 diluted earnings per share in 1999, compared to $1.3 million or
$0.30 basic earnings per share and $0.29 diluted earnings per share in 1998. In
1999, the stock repurchase increased basic earnings per share by $0.37 and
diluted earnings per share by $0.34. Net income in 1998 was adversely affected
by the establishment of $4.5 million pre-tax loss reserve on the limited
partnership and net income in 1999 was positively affected by the $750,000
recapture of the reserve established in 1998 due to the increase in the
appraised value of the limited partnership.

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

Net interest income increased 9.4% or $1.1 million to $12.8 million in 1998 from
$11.7 million.  Interest income on loans increased 11.0% or $1.9 million to
$19.2 million from $17.3 million as the average loans receivable increased to
$235.3 million in 1999 from $198.4 in 1998, an increase of 18.6%.  Interest
income on mortgage-backed securities increased 14.3% or $600,000 to $4.8

                                       9
<PAGE>

Comparison of Operating Results for the Years Ended September 30, 1999 and 1998,
--------------------------------------------------------------------------------
Continued
---------

Net Interest Income, Continued
------------------------------

million in 1999 from $4.2 million in 1998 as the average balance of mortgage-
backed securities increased 12.3% or $8.1 million to $74.0 million in 1999 from
$65.9 million in 1998. Interest income on other investments decreased $300,000
to $2.2 million in 1999 from $2.5 million in 1998 as the average balance of
investment securities, interest-bearing deposits, and other earning assets
decreased $4.1 million to $34.8 million in 1999 from $38.9 million in 1998.

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

Interest expense on deposits was $8.9 million in 1999 and in 1998, as the
average deposits increased 8.2% or $16.8 million to $221.4 million in 1999 from
$204.6 million in 1998 and the weighted average cost of deposits decreased to
4.03% in 1999 from 4.35% in 1998.  Interest expense on borrowings increased
32.4% or $1.1 million to $4.5 million in 1999 from $3.4 million in 1998 as the
average borrowings increased to $87.0 million in 1999 from $64.7 million in
1998.

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

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

The provision for loan losses decreased 21% to $481,000 for the year ended
September 30, 1999 from $606,500 for the year ended September 30, 1998.  Loan
charge-offs for 1999 were $275,600 compared to $174,000 in 1998 and recoveries
were $38,200 in 1999 compared to $55,000 in 1998.

The allowance for loan losses to total loans was 1.01% at September 30, 1999 and
1.07% at September 30, 1998.

Non-performing assets at September 30, 1999 were $2.4 million compared to $1.2
million at September 30, 1998.  Of this $1.2 million increase, approximately 70%
is related to a single commercial real estate loan.

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

Other income increased $1.3 million or 34.2% to $5.1 million in 1999 from $3.8
million in 1998.  Loan and deposit account service charges increased $1.2
million to $3.5 million in 1999 from $2.3 million in 1998 as a result of an
increase in checking accounts and fees.  Loss on sale of investments was
$146,000 in 1999 compared to a gain of $177,000 in 1998.  Gain of sale of real
estate held for development increased $240,000 to $355,000 in 1999 from $115,000
in 1998.  Earnings on bank owned life insurance increased $344,000 to $436,000
in 1999 compared to

                                       10
<PAGE>

Comparison of Operating Results for the Years Ended September 30, 1999 and 1998,
--------------------------------------------------------------------------------
Continued
---------

Other Income, Continued
-----------------------

$92,000 in 1998 as the average balance of cash surrender value of life insurance
was $7.7 million in 1999 and $1.9 million in 1998.

Other income decreased $155,000 to $863,000 in 1999 from $1,018,000 in 1998.
Earnings on the investment in the limited partnership was $0 in 1999 compared to
earnings of $140,000 in 1998.

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

General and administrative expenses increased $800,000 or 9.4% to $9.3 million
in 1999 from $8.5 million in 1998.  Salaries and employee benefits increased
$500,000 or 11.6% to $4.8 million in 1999 from $4.3 million in 1998 due to the
expense of the Management Recognition and Development Plan.  Occupancy expense
increased $78,000 due to non-recurring property expenses associated with repairs
of one office.  Furniture and equipment expense increased $71,000 or 7.0% to
$1,082,000 in 1999 from $1,011,000 in 1998 due to the purchase of additional
equipment related to technology investments.  The FDIC insurance premiums
decreased $8,000 to $124,000 in 1999 from $132,000 in 1998.  Advertising
decreased $32,000 or 13% to $215,000 in 1999 from $247,000 in 1998.  Data
processing increased $129,000 or 29.1% to $572,000 in 1999 from $443,000 in 1998
due to expenses incurred with Year 2000 considerations, expenses associated with
the increasing number of checks processed, and ATM and debit card transactions.
Office supplies decreased $19,000 or 5.8% to $310,000 in 1998 from $329,000 in
1998 due to the elimination and consolidation of data processing forms.  Profit
improvement program expenses increased $45,000 to $488,000 or 10.2% in 1999 or
$443,000 in 1998 due to consultant fees for sales training, staff realignment
and product fee enhancement.  Other operating expenses increased $72,000 or 6.5%
to $1.2 million in 1999 from $1.1 million in 1998 due to increases in postage,
directors and officers' liability insurance and expenses establishing the
Company's dividend reinvestment program.

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

Income taxes increased $2.4 million to $2.9 million or an effective tax rate of
32.8% for 1999 from $549,000, or an effective tax rate of 30.3% in 1998 due
primarily to an increase in income before taxes of $7.1 million to $8.9 million
in 1999 from $1.8 million in 1998.

Comparison of Operating Results for the Years Ended September 30, 1998 and 1997
-------------------------------------------------------------------------------

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

Net income decreased $400,000 to $1.3 million or $0.30 basic earnings per share
and $0.29 diluted earnings per share in 1998 from $1.7 million or $0.40 basic
and diluted earnings per share in 1997.

                                       11
<PAGE>

Comparison of Operating Results for the Years Ended September 30, 1998 and 1997,
--------------------------------------------------------------------------------
Continued
---------

Net Income, Continued
---------------------

Net income was adversely affected by the establishment of the $4.5 million pre-
tax loss reserve on the limited partnership in 1998.

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

Net interest income increased 31.5% or $2.8 million to $11.7 million in 1998
from $8.9 million.  Interest income on loans increased 20.1% or $2.9 million to
$17.3 million from $14.4 million as the average loans receivable increased to
$198.4 million in 1998 from $165.0 in 1997, an increase of 20.2%.  Interest
income on mortgage-backed securities increased 27.3% or $900,000 to $4.2 million
in 1998 from $3.3 million in 1997 as the average balance of mortgage-backed
securities increased 35.6% or $17.3 million to $65.9 million in 1998 from $48.6
million in 1997.  Interest income on other investments increased $1.8 million to
$2.5 million in 1998 from $700,000 in 1997 as the average balance of investment
securities, interest-bearing deposits, and other earning assets increased $27.8
million to $38.9 million in 1998 from $11.1 million in 1997.

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

Interest expense on deposits increased 9.9% or $800,000 to $8.9 million in 1998
from $8.1 million in 1997 as the average deposits increased 12.7% or $23.1
million to $204.6 million in 1998 from $181.5 million in 1997.  The weighted
average cost of deposits decreased to 4.35% in 1998 from 4.47% in 1997.

Interest expense on borrowings increased 142.9% or $2 million to $3.4 million in
1998 from $1.4 million in 1997 as the average borrowings increased to $64.7
million in 1998 from $23.9 million in 1997.

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

The provision for loan losses decreased 7.4% to $606,500 for the year ended
September 30, 1998, from $655,000 for the year ended September 30, 1997.  Loan
charge-offs for 1998 were $174,000 compared to $332,000 in 1997 and recoveries
were $55,000 in 1998 compared to $29,000 in 1997.  The reduced charge-offs in
1998, combined with the recoveries, allowed the Company to decrease the loan
loss provision in 1998.  Despite the decrease in the provision for loan losses,
the allowance for loan losses to total loans increased to 1.07% at September 30,
1998, from 1.04% at September 30, 1997.

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

Other income increased $1.9 million or 102.7% to $3.8 million in 1998 from $1.9
million in 1997.  Loan and deposit account service charges increased $770,000 to
$2.3 million in 1998 from $1.5 million in 1997 as a result of an increase in the
number of checking accounts and fees from the use of debit cards and ATM's.
Gain on sale of investments was $177,000 in 1998 compared to a loss

                                       12
<PAGE>

Comparison of Operating Results for the Years Ended September 30, 1998 and 1997,
--------------------------------------------------------------------------------
Continued
---------

Other Income, Continued
-----------------------

of $308,000 in 1997.  Gain of sale of real estate held for development decreased
$184,000 to $115,000 in 1998 from $299,000 in 1997 due to a decrease in sale of
real estate held for

development.  Other income increased $614,000 to $1.1 million in 1998 compared
to $497,000 in 1997, due to the increase in earnings from the Mortgage First
Service Corporation, increase in income from the United Service Corporation of
Anderson, Inc., and income earned on bank owned life insurance.

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

General and administrative expenses increased $1.0 million or 13.3% to $8.5
million in 1998 from $7.5 million in 1997.  Salaries and employee benefits
increased $400,000 or 10.3% to $4.3 million in 1998 from $3.9 million in 1997
due to the opening of the Perpetual Square office in Anderson, South Carolina,
and the expense of the Management Recognition and Development Plan.  Occupancy
expense increased $22,000 or 4.5% due primarily from the opening of the
Perpetual Square office.  Furniture and equipment expense increased $265,000 or
35.5% to $1.0 million in 1998 from $746,000 in 1997 due to the purchase of
additional equipment related to technology investments and equipping the
Perpetual Square office.  The FDIC insurance premiums decreased $20,000 to
$132,000 in 1998 from $152,000 in 1997.  Advertising decreased $105,000 or 29.8%
to $247,000 in 1998 to $352,000 in 1997, as a result of the elimination of the
Free Checking Campaign.  Data processing increased $143,000 or 47.7% to $443,000
in 1998 from $300,000 in 1997 due to the new Perpetual Square office, expenses
associated with the increasing number of checks processed, and ATM and debit
card transactions.  Office supplies decreased $58,000 or 15.0% to $329,000 in
1998 from $387,000 in 1997 due to the elimination and consolidation of data
processing forms.  Profit improvement program expenses increased $324,000 to
$443,000 in 1998 from $119,00 in 1997 due to consultant fees for sales training,
staff realignment and product fee enhancement.  Other operating expenses
increased $139,000 or 14.2% to $1.1 million in 1998 from $977,000 in 1997 due to
the opening of the Perpetual Square Office.

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

Income taxes decreased 40.7% or $377,000 to $549,000 or an effective tax rate of
30.3% for 1998 from $926,000, or an effective tax rate of 35% in 1997 due
primarily to a decrease in income before taxes of $843,000 or 31.8% to
$1,811,000 in 1998 from $2,654,000 in 1997.

                                       13
<PAGE>

Average Balance Sheets

The following table sets forth, for the periods indicated, information regarding
average balances of assets and liabilities as well as the total dollar amounts
of interest income from average interest-earning assets and interest expense on
average interest-bearing liabilities, resultant yields, interest rate spread,
ratio of interest-earning assets to interest-bearing liabilities and net
interest margin. Average balances have been calculated using daily balances.

<TABLE>
<CAPTION>
                                                 1999                            1998                            1997
                                                 ----                            ----                            ----
                                      Average  Interest               Average  Interest               Average  Interest
                                                 and                              and                             and
                                      Balance  Dividends Yield/Cost   Balance  Dividends Yield/Cost   Balance  Dividends Yield/Cost
                                     --------- --------- ----------  --------- --------- ----------  --------- --------- ----------
                                                                          (Dollars in thousands)
<S>                                  <C>       <C>       <C>         <C>       <C>       <C>         <C>       <C>       <C>
Interest-earning assets(1):
  Mortgage loans                     $ 161,229    12,389       7.68% $ 139,497 $  11,401       8.17% $ 118,030 $   9,790       8.29%
  Commercial real estate loans          38,888     3,605       9.27%    28,943     2,961      10.23%    23,098     2,102       9.10
  Commercial other                      11,681     1,047       8.96%     9,400       857       9.12%     6,114       592       9.68
  Consumer loans                        23,531     2,153       9.15%    20,525     2,056      10.02%    17,755     1,922      10.82
                                     --------- ---------             --------- ---------             --------- ---------
     Total loans                       235,329    19,194       8.16%   198,365    17,275       8.71%   164,997    14,406       8.73

Mortgage-backed securities and CMO's    74,004     4,824       6.51%    65,866     4,205       6.38%    48,638     3,303       6.79
Investment securities                   20,649     1,415       6.85%    20,013     1,383       6.91%     5,271       339       6.43
Interest-bearing deposits               10,671       533       5.00%    16,546       899       5.43%     4,485       251       5.60
Other earning assets                     3,507       262       7.47%     2,375       175       7.37%     1,311        97       7.40
                                     --------- ---------             --------- ---------             --------- ---------
  Total interest-earning assets        344,160    26,228       7.62%   303,165    23,937       7.90%   224,702    18,396       8.19

Non-interest-earning assets:
  Office properties and equipment,
     Net                                 6,072                           6,555                           5,645
  Real estate, Net                         192                             135                              56
  Other non-interest-earning assets     21,383                          16,369                           8,072
                                     ---------                       ---------                       ---------
     Total assets                    $ 371,807                       $ 326,224                       $ 238,475
                                     =========                       =========                       =========

Interest-bearing liabilities:
  Savings                               25,618       634       2.47%    25,569       637       2.49%    22,923       590       2.57
  Negotiable order of withdrawal
     ("NOW") accounts                   60,321     1,092       1.81%    44,420       643       1.45%    35,196       548       1.56
  Certificates of deposit              135,421     7,194       5.31%   134,574     7,622       5.66%   123,407     6,980       5.56
                                     --------- ---------             --------- ---------             --------- ---------
     Total deposits                    221,360     8,920       4.03%   204,563     8,902       4.35%   181,526     8,118       4.47

Other interest-bearing liabilities      86,965     4,518       5.20%    64,739     3,354       5.18%    23,951     1,378       5.75
                                     --------- ---------             --------- ---------             --------- ---------
  Total interest-bearing liabilities   308,325    13,438       4.36%   269,302    12,256       4.55%   205,477     9,496       4.62
                                     ---------                       ---------                       --------- ---------

Non-interest-bearing liabilities:
  Non-interest-bearing deposits          1,224                             247                             397
  Other liabilities                      3,573                           4,345                           2,693
                                     ---------                       ---------                       ---------
     Total liabilities                 313,122                         273,894                           3,090
  Stockholders' equity                  58,685                          52,330                          29,908
                                     ---------                       ---------                       ---------
     Total liabilities and stock-
        holders' equity              $ 371,807                       $ 326,224                       $ 238,475
                                     =========                       =========                       =========
</TABLE>

Average Balance Sheets Continued

                                       14
<PAGE>

<TABLE>
<CAPTION>
                                                 1999                            1998                            1997
                                                 ----                            ----                            ----
                                      Average  Interest               Average  Interest               Average  Interest
                                                 and                              and                             and
                                      Balance  Dividends Yield/Cost   Balance  Dividends Yield/Cost   Balance  Dividends Yield/Cost
                                     --------- --------- ----------  --------- --------- ----------  --------- --------- ----------
                                                                          (Dollars in thousands)
<S>                                  <C>       <C>       <C>         <C>       <C>       <C>         <C>       <C>       <C>
Net interest income                               12,790                       $  11,681                       $   8,900
                                               =========                       =========                       =========

Interest rate spread                                           3.26%                           3.35%                           3.57%
                                                         ==========                      ==========                      ==========

Net interest margin                                            3.72%                           3.85%                           3.96%
                                                         ==========                      ==========                      ==========
Ratio of average interest-earning
  assets to average interest-bearing
  liabilities                                                111.62%                         112.57%                         109.36%
                                                         ==========                      ==========                      ==========
</TABLE>

(1)  Excludes interest on loans 90 days or more past due.

                                       15
<PAGE>

Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on net
interest income of the Company. Information is provided with respect to (i)
effects on interest income attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) effects on interest income attributable to
changes in rate (changes in rate multiplied by prior volume); (iii) changes in
rate/volume (change in rate by change in volume); and (iv) the net change (the
sum of the prior columns).

<TABLE>
<CAPTION>
                                              Years Ended September 30, 1999           Years Ended September 30, 1998
                                              Compared to September 30, 1998,          Compared to September 30, 1997,
                                                Increase (Decrease) Due to              Increase (Decrease) Due to
                                            ----------------------------------       ----------------------------------

                                                               Rate/                                    Rate/
                                            Volume    Rate    Volume     Net         Volume    Rate    Volume     Net
                                            ------   ------   ------   -------       ------   ------   ------   -------
                                                                      (Dollars in thousands)
<S>                                         <C>      <C>      <C>      <C>           <C>      <C>      <C>      <C>
Interest-earning assets:
  Mortgage loans                            $1,776    ($682)   ($106)  $   988       $1,781    ($144)    ($26)  $ 1,611
  Commercial real estate                     1,018     (278)     (96)      644          532      261       66       859
  Commercial other                             208      (15)      (3)      190          318      (35)     (18)      265
  Consumer loans                               301     (178)     (26)       97          300     (143)     (23)      134
                                            ------   ------   ------   -------       ------   ------   ------   -------
     Total loans                             3,303   (1,153)    (231)    1,919        2,931      (61)      (1)    2,869
  Mortgage-backed securities and CMO's         519       89       11       619        1,170     (198)     (70)      902
  Investment securities                         44      (11)      (1)       32          948       25       70     1,043
  Interest-earning deposits                   (319)     (72)      26      (365)         675       (7)     (20)      648
  Other interest-earning assets                 83        2        1        86           79        -        -        79
                                            ------   ------   ------   -------       ------   ------   ------   -------
     Total net change in income on
        interest-earning assets              3,630   (1,145)    (194)    2,291        5,803     (241)     (21)    5,541
                                            ------   ------   ------   -------       ------   ------   ------   -------

     Interest-bearing liabilities:
        Savings accounts                         1       (4)       -        (3)          68      (19)      (2)       47
        NOW accounts                           230      161       58       449          144      (39)     (10)       95
        Certificates of deposit                 48     (473)      (3)     (428)         631       10        1       642
                                            ------   ------   ------   -------       ------   ------   ------   -------

     Total deposits                            279     (316)      55        18          843      (48)     (11)      784
                                            ------   ------   ------   -------       ------   ------   ------   -------

     Other interest-bearing liabilities      1,151       10        3     1,164        2,347     (137)    (234)    1,976
                                            ------   ------   ------   -------       ------   ------   ------   -------
     Total net change in expense on
        interest-bearing liabilities         1,430     (306)      58     1,182        3,190     (185)    (245)    2,760
                                            ------   ------   ------   -------       ------   ------   ------   -------

     Net change in net interest income      $2,200    ($839)   ($252)  $ 1,109       $2,613     ($56)  $  224   $ 2,781
                                            ======   ======   ======   =======       ======   ======   ======   =======
</TABLE>

                                       16
<PAGE>

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

The Company's primary sources of funds are deposits, repayment of loan
principal, and repayment of mortgage backed securities and CMOs, and, to a
lesser extent, maturities of investment securities, and short-term investments
and operations.  While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan repayments are more
influenced by interest rates, general economic conditions, and competition.  The
Company attempts to price its deposits to meet its asset/liability objectives
consistent with local market conditions.  Excess balances are invested in
overnight funds.  In addition, the Company is eligible to borrow funds from the
FHLB of Atlanta and has $20.9 million of available credit based on eligible
collateral as of September 30, 1999.  Under OTS regulations, a member thrift
institution is required to maintain an average daily balance of liquid assets
(cash, certain time deposits and savings accounts, bankers' acceptances, and
specified U. S. government, state or federal agency obligations and certain
other investments) equal to a monthly average of not less than a specified
percentage of its net withdrawable accounts plus short-term borrowings.  This
liquidity requirement, which is currently 4.0%, may be changed from time to time
by the OTS to any amount within the range of 4.0% to 10.0%, depending upon
economic conditions and the savings flow of  member associations.  Monetary
penalties may be imposed for failure to meet liquidity requirements.  The
liquidity of the Company at September 30, 1999, was 17.23%.

At September 30, 1999, the Bank exceeded the OTS' capital requirements.  See
Note 12 to the financial statements for discussion of these capital
requirements.

The primary investing activity of the Company is lending.  During the year ended
September 30, 1999, the Company originated $93.5 million of loans and sold $7.5
million.  The Company also purchased $30.6 million of loans.  The retained
originations were primarily funded by increases in deposits, principal
repayments of loans and mortgage-backed securities and CMO's, FHLB Advances, and
securities sold under agreements to repurchase.

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

The Company anticipates that it will have sufficient funds available through
normal loan repayments to meet current loan commitments.  At September 30, 1999,
the Company had outstanding commitments to originate loans of approximately
$10.6 million.  The Company plans to spend approximately $400,000 in capital
expenditures in fiscal year 2000.

Certificates of deposit scheduled to mature in one year or less at September 30,
1999, totaled $117.7 million.  Based upon management's experience and
familiarity with the customers involved and the Company's pricing policy
relative to that of its perceived competitors, management believes that a
significant portion of such deposits will remain with the Company.

The Company plans to repurchase up to 250,299 shares of its common stock during
the first six months of fiscal year 2000.  At approximately $22.00 per share, up
to $5.5 million may be required

                                       17
<PAGE>

Liquidity and Capital Resources, Continued
------------------------------------------

to fund the repurchase.  The Company intends to fund the repurchase program
through liquidation of some of its interest earning assets.

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

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

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

1.  Awareness - Educational initiatives on Year 2000 issues and concerns. This
    phase is ongoing, especially as it relates to informing customers of the
    Company's Year 2000 preparedness. Additional emphasis has been placed on
    customer awareness during the fourth quarter of 1999 as the end of the year
    approaches. A company newsletter has been mailed to all customers,
    explaining the company's Y2K plan. Literature has been placed in the lobbies
    of all branches covering Y2K issues. Statement stuffers have been included
    in customer statements and banners have been placed at each branch
    reflecting the company's Y2K readiness.
2.  Assessment - Inventory of all technology assets and identification of third-
    party vendors and service providers. This phase was completed as of
    September 30, 1997.
3.  Renovation - Review of vendor and service providers responses to the
    Company's Year 2000 inquiries and development of a follow-up plan and
    timeline. This phase was completed as of December 31, 1998.
4.  Validation - The Company has successfully completed the validation phase of
    the Y2K plan. Testing was completed on mission critical systems as of
    December 10, 1998. Baseline, future date and user acceptance tests were
    performed at a test site, using six critical dates, covering all
    applications used by the Company. Third party vendors were identified
    through software inventory and department interviews conducted by the Year
    2000 coordinator. These applications were successfully tested and validated
    as of June 25, 1999. Tests were performed on site using Y2K compliant
    hardware and software. System dates were rolled to the dates deemed critical
    by the Company. Other parties whose Year 2000 compliance may effect the
    Company include the Federal Home Loan Bank of Atlanta, brokerage firms, the
    Company's ATM network provider, and the Company's pension plan
    administrator. These third parties have indicated their compliance. Where
    testing was not possible, the Company relied on certifications from vendors
    and service providers. The responses from all system vendors and other
    company's are monitored and tracked by computer.

                                       18
<PAGE>

Year 2000 Considerations, Continued
-----------------------------------

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

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

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

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

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

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

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

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

                                       19
<PAGE>

Year 2000 Considerations, Continued
-----------------------------------

Because a substantial portion of the Company's loan portfolio consists of loans
to individuals rather than commercial enterprises, management believes that Year
2000 issues will not impair the ability of the Company's borrowers to repay
their debt.  An evaluation of the Company's commercial portfolio has been made
and a determination made that in the event of losses from the commercial loans
that could possibly be affected by Year 2000 failure, it would not have a
significant impact on the Company's financial condition at this particular time.
Each commercial borrower completes a Y2K work sheet and business plan
referencing their Year 2000 plan.

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

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

Market Risk and Asset and Liability Management
----------------------------------------------

Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises principally from interest rate risk inherent in
its lending, investment, deposit and borrowing activities.  Management actively
monitors and manages its interest rate risk exposure.  Although the Company
manages other risks such as credit quality and liquidity risk in the normal
course of business, management considers interest rate risk to be its most
significant market risk that could potentially have the largest material effect
on the Company's financial condition and results of operations.  Other types of
market risks such as foreign currency exchange rate risk and commodity price
risk, do not arise in the normal course of the Company's business activities.
The Company's profitability is affected by fluctuations in market interest
rates.  Management's goal is to maintain a reasonable balance between exposure
to interest rate fluctuations and earnings.  A sudden and substantial increase
in interest rates may adversely impact the Company's earnings to the extent that
the interest rates on interest-earning assets and interest-bearing liabilities
do not change at the same rate, to the same extent or on the same basis.  The
Company monitors the impact of changes in interest rates on its net interest
income using a test that measures the impact on net interest income and net
portfolio value of an immediate change in interest rates in 100 basis point
increments.  Net portfolio value is defined as the net present value of assets,
liabilities and off-balance sheet contracts.  At September 30, 1999, the
Company's calculations based on the information and assumptions produced for the
analysis, suggested that a 200 basis point increase in rates would decrease net
interest income over a 12-month period by 19.3% and reduce net portfolio value
by 28.4% while a 200 basis point decline in rates would increase net interest
income over a 12-month period by 17.5% and increase net portfolio value by 16.8%
in the same period.

The following table is provided to the Company by the Federal Home Loan Bank
(FHLB) and illustrates the percent change in Net Present Value (NPV) as of
September 30, 1999, based on FHLB assumptions.  No effect has been given to any
steps that the Company may take to counteract the effect of the interest rate
movements presented in the table.

                                       20
<PAGE>

Market Risk and Asset and Liability Management, Continued
---------------------------------------------------------

<TABLE>
<CAPTION>
                                                     Net Portfolio Value               NPV as Percent of
                                                                                       -----------------
                    Net Interest Income              Increase (Decrease)            Present Value of Assets
                    -------------------              -------------------            -----------------------

                                                                                       Basis
Basis Points (bp)                   %                                                  Point
Change In Rates      Amount      Change      Amount      $ Change      % Change      NPV Ratio      Change
---------------      ------      ------      ------      --------      --------      ---------      ------
<S>                 <C>          <C>        <C>          <C>           <C>           <C>            <C>
300 bp              $ 6,244       (30.2)    $27,140      $(21,134)        (43.8)          7.93%       (523)
200 bp                7,222       (19.3)     34,563       (13,711)        (28.4)          9.85        (331)
100 bp                8,152        (8.9)     41,884        (6,390)        (13.2)         11.65        (150)
 0  bp                8.947                  48,274
(100 bp)              9,734         8.8      53,239         4,965          10.3          14.27         111
(200 bp)             10,515        17.5      56,397         8,123          16.8          14.94         179
(300 bp)             11,302        26.3      58,796        10,522          21.8          15.43         228
</TABLE>

As with any method of measuring interest rate risk, certain shortcomings are
inherent in the method of analysis presented in the foregoing table.  For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates.  Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Furthermore, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates likely could
deviate significantly from those assumed in calculating the table.  Therefore,
the data presented in the table should not be relied upon as necessarily
indicative of actual results.

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

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

                                       21
<PAGE>

Interest Sensitive Asset and Liability Maturity Table

The following table presents the Company's financial instruments that are
sensitive to changes in interest rates, categorized by expected maturity, and
the instruments' fair values at September 30, 1999. Certain assumptions about
loan prepayment rates and deposit decay rates, among others, were utilized in
the preparation of the table. There are shortcomings inherent in this method of
analysis. For example, although a financial instrument may have a similar
maturity or remaining term to repricing as another financial instrument, the two
may react differently to changes in market interest rates. In the event of
changes in interest rates, prepayments and withdrawals would likely deviate
significantly from those assumed in the data underlying the table. (Dollar
amounts in the table are in thousands.)

<TABLE>
<CAPTION>
                                                                                    After 3
                                               Average    Within One   1 Year to    Years to     Beyond                   Fair
                                               -------
                                                Rate         Year       3 Years      5 Years     5 Years      Total       Value
                                                ----         ----       -------      -------     -------    ---------   ---------
<S>                                            <C>        <C>          <C>          <C>          <C>        <C>         <C>
Interest-sensitive assets:
  Loans receivable, net of loans in process
     and deferred loan fees                       7.90%   $  134,986   $  83,142    $ 26,068     $11,292    $ 255,488   $ 255,972
  Investment securities                           6.85%        1,008           -           -      15,228       16,236      16,236
  Mortgage-backed securities                      6.97%       22,795      12,003       8,141      15,446       58,385      58,385
  FHLB stock                                      7.50%        3,650           -           -           -            -       3,650
  FHLB overnight interest-bearing deposits        5.50%        8,523           -           -           -            -       8,523

Interest-sensitive liabilities:
  Interest bearing checking accounts              2.18%       11,671      15,561       2,593      29,160       58,985      58,437
  Savings accounts                                3.66%        8,347      18,040           -           -       26,387      26,353
  Certificates of deposits                        5.20%      117,723      16,890       1,273           -      135,886     136,019
  Advances from the FHLB                          4.90%       60,000      13,000           -           -       73,000      72,901
  Securities sold under agreement                 5.54%       20,254           -           -           -       20,254      20,254

Off balance sheet items:
  Commitments to extend credit                    7.42%       10,645           -           -           -       10,645      10,645
  Unused lines of credit                          9.07%       27,003           -           -           -       27,003      27,003
  Loans in process                                8.18%       16,204           -           -           -       16,204      16,204
</TABLE>

                                       22
<PAGE>

                 [LETTERHEAD OF ELLIOTT, DAVIS & COMPANY, LLP]



              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
SouthBanc Shares, Inc. and Subsidiary
Anderson, South Carolina

     We have audited the accompanying consolidated balance sheets of SouthBanc
Shares, Inc. and Subsidiary as of September 30, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended September 30, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
SouthBanc Shares, Inc. and Subsidiary as of September 30, 1999 and 1998 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1999 in conformity with generally
accepted accounting principles.

                                               /s/ Elliott, Davis & Company, LLP



Elliott, Davis & Company, L.L.P.
Greenville, South Carolina
November 12, 1999

                                      23
<PAGE>

                    SouthBanc Shares, Inc. and Subsidiary
                          Consolidated Balance Sheets


<TABLE>
<CAPTION>
                                                                                      September 30,
---------------------------------------------------------------------------------------------------------------
                                                                                1999                  1998
---------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                    <C>
Assets
------
Cash and cash equivalents                                                   $ 15,546,360           $ 21,197,419
Investment securities available for sale                                      16,243,703             23,300,684
Federal Home Loan Bank stock, at cost                                          3,650,000              3,289,200
Mortgage-backed securities available for sale                                 58,384,541             73,933,292
Loans receivable                                                             255,488,141            219,896,116
Investment in limited partnership                                              1,575,373                825,373
Real estate acquired in settlement of loans                                      229,900                 88,965
Real estate held for development                                               2,095,903              1,909,394
Premises and equipment                                                         5,722,230              6,350,491
Accrued interest receivable
   Loans receivable                                                            1,860,838              1,697,058
   Mortgage-backed and other securities                                          453,968                527,823
Cash surrender value of life insurance                                         7,865,743              7,473,136
Other                                                                          3,034,571              2,039,982
                                                                            ------------           ------------

               Total Assets                                                 $372,151,271           $362,528,933
                                                                            ============           ============

Liabilities and Stockholders' Equity
------------------------------------
Deposits                                                                     221,257,085           $207,790,775
Advances from the Federal Home Loan Bank                                      73,000,000             56,000,000
Securities sold under agreements to repurchase                                20,254,436             20,173,933
Advance payments by borrowers for property taxes and insurance                   438,484                333,681
Accrued interest payable                                                       1,356,578              1,418,770
Accrued expenses and other liabilities                                         3,094,136              2,404,448
                                                                            ------------           ------------
               Total Liabilities                                             319,400,719            288,121,607
                                                                            ------------           ------------

Commitments and contingencies - Note 18

Stockholders' Equity
--------------------
Preferred stock ($0.01 par value; authorized 250,000 shares;
   none issued or outstanding at September 30, 1999 and 1998)                          -                      -
Common stock ($0.01 par value; authorized 7,500,000
   shares; issued and outstanding 4,322,030 and 4,306,410
   shares at September 30, 1999 and 1998, respectively.)                          43,220                 43,064
Additional paid-in capital                                                    57,741,324             57,470,324
Retained earnings, restricted                                                 22,351,722             18,154,380
Treasury stock - at cost (1,117,242 shares)                                 (22,515,585)
Accumulated other comprehensive income(loss), net                            (2,028,033)                180,009
Indirect guarantee of ESOP debt                                                (622,247)              (711,140)
Deferred compensation for Management
   Recognition Plan                                                          (2,219,849)              (729,311)
                                                                            ------------           ------------
               Total Stockholders' Equity                                     52,750,552             74,407,326
                                                                            ============           ============

               Total Liabilities and Stockholders' Equity                   $372,151,271           $362,528,933
                                                                            ============           ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       24
<PAGE>

                     SouthBanc Shares, Inc. and Subsidiary
                       Consolidated Statements of Income

<TABLE>
<CAPTION>
                                                                           For The Years Ended September 30,
---------------------------------------------------------------------------------------------------------------------
                                                                     1999                1998                1997
---------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                  <C>                 <C>
Interest Income:
     Loans                                                       $19,193,986          $17,275,097         $14,406,160
     Mortgage-backed securities                                    4,824,104            4,204,475           3,302,541
     Other investments                                             2,210,086            2,457,233             687,736
                                                                 -----------          -----------         -----------
        Total interest income                                     26,228,176           23,936,805          18,396,437
                                                                 -----------          -----------         -----------

Interest expense:
     Interest on deposits:
        Transaction accounts                                       1,091,659              642,545             547,795
        Passbook accounts                                            633,809              637,206             590,738
        Certificate accounts                                       7,194,190            7,622,013           6,979,888
                                                                 -----------          -----------         -----------
        Total interest on deposits                                 8,919,658            8,901,764           8,118,421

     Interest on borrowings                                        4,518,201            3,353,810           1,377,960
                                                                 -----------          -----------         -----------
        Total interest expense                                    13,437,859           12,255,574           9,496,381
                                                                 -----------          -----------         -----------

Net interest income                                               12,790,317           11,681,231           8,900,056
Provision for loan losses                                            481,000              606,500             655,000
                                                                 -----------          -----------         -----------
Net interest income after provision for
     loan losses                                                  12,309,317           11,074,731           8,245,056
                                                                 -----------          -----------         -----------
Other income:
     Loan and deposit account service charges                      3,520,334            2,295,710           1,526,208
     Gain (loss) on sale of investments                             (146,281)             177,388            (307,534)
     Gain on sale of real estate acquired in
        settlement of loans                                           31,958               45,570              19,894
     Gain on sale of loans, net                                       88,070               20,797              12,509
     Gain on sale of real estate held for
        development                                                  355,018              114,716             298,731
     Loss on sale of premises and equipment                             (204)              (4,161)           (191,894)
     Earnings on bank owned life insurance                           436,181               92,343                   -
     Other                                                           862,906            1,018,249             497,042
                                                                 -----------          -----------         -----------
        Total other income                                         5,147,982            3,760,612           1,854,956
                                                                 -----------          -----------         -----------

Provision for (recapture of) losses on limited partnership          (750,000)           4,500,000                   -
                                                                 -----------          -----------         -----------
General and administrative expenses:
     Salaries and employee benefits                                4,752,741            4,294,678           3,926,888
     Occupancy                                                       587,364              509,465             486,776
     Furniture and equipment expense                               1,082,470            1,011,422             746,182
     FDIC insurance premiums                                         123,872              132,163             151,903
     Advertising                                                     215,084              247,081             351,694
     Data processing                                                 571,690              442,664             299,951
     Office supplies                                                 309,524              328,981             386,525
     Profit improvement program                                      487,915              442,556             119,208
     Other                                                         1,188,123            1,115,594             976,719
                                                                 -----------          -----------         -----------
        Total general and administrative expenses                  9,318,783            8,524,604           7,445,846
                                                                 -----------          -----------         -----------

Income before income taxes                                         8,888,516            1,810,739           2,654,166
Income taxes                                                       2,915,738              548,696             925,803
                                                                 -----------          -----------         -----------
Net income                                                       $ 5,972,778          $ 1,262,043         $ 1,728,363
                                                                 ===========          ===========         ===========

Basic earnings per common share                                  $      1.76          $      0.30         $      0.41
                                                                 ===========          ===========         ===========
Diluted earnings per common share                                $      1.67          $      0.29         $      0.40
                                                                 ===========          ===========         ===========
Weighted average shares outstanding:
     Basic                                                         3,386,851            4,199,237           4,174,528
                                                                 ===========          ===========         ===========
     Diluted                                                       3,570,156            4,406,381           4,322,815
                                                                 ===========          ===========         ===========
Cash dividends per common share                                  $      0.53          $      0.35         $      0.23
                                                                 ===========          ===========         ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       25
<PAGE>

                     SouthBanc Shares, Inc. and Subsidiary
                Consolidated Statements of Stockholders' Equity
                Years Ended September 30, 1999, 1998, and 1997

<TABLE>
<CAPTION>
                                                                                                    Accumulated
                                                                                                    Other
                                                                      Additional     Retained       Comprehensive
                                        Common        Common          Paid-in        Earnings       Income (Loss),
                                        Shares        Stock           Capital        Restricted     Net
------------------------------------------------------------------------------------------------------------------
<S>                                     <C>           <C>             <C>            <C>            <C>
Balance at September 30, 1996             1,504,601   $ 1,504,601     $11,696,679    $17,607,269      $  (816,855)

Net Income                                        -             -               -      1,728,363                -

Other comprehensive income:
  Unrealized gain on securities, net              -             -               -              -          802,306
  Reclassification adjustment for
  losses realized in net income, net              -             -               -              -          202,972

Comprehensive income                              -             -               -              -                -

Exercise of stock options                     4,272         4,272          38,448              -                -
Reduction of ESOP debt                            -             -               -              -                -
ESOP compensation expense                         -             -          32,152              -                -
Purchase of common stock for MRP                  -             -               -              -                -
Earned portion of MRP                             -             -               -              -                -
Dividends on common stock                         -             -               -       (953,866)               -
Offering expenses for the sale of
  common stock                                    -             -        (115,362)             -                -
                                        -----------   -----------     -----------    -----------      -----------
Balance at September 30, 1997             1,508,873     1,508,873      11,651,917     18,381,766          188,423

Net income                                        -             -               -      1,262,043                -
Other comprehensive income:
  Unrealized gain on securities, net              -             -               -              -          108,662
  Reclassification adjustment for
  gains realized in net income, net               -             -               -              -         (117,076)
Comprehensive income                              -             -               -              -                -

Exercise of stock options                     1,317         1,317          31,937              -                -
Reduction of ESOP debt                            -             -               -              -                -
ESOP compensation expense                         -             -         187,592              -                -
Purchase of common stock for MRP                  -             -               -              -                -
Earned portion of MRP                             -             -               -              -                -
Dividends on common stock                         -             -               -     (1,489,429)               -
Sale of common stock (less offering
  expenses of $1,494,488)                 2,281,312        22,813      44,108,939              -                -
Shares issued in reorganization and
  par value adjustments                     514,908    (1,489,939)      1,489,939              -                -
                                        -----------   -----------     -----------    -----------      -----------
Balance at September 30, 1998             4,306,410        43,064      57,470,324     18,154,380          180,009

<CAPTION>
                                                      Indirect
                                                      Guarantee       Deferred
                                                      of              Compensation
                                        Treasury      ESOP            for
                                        Stock         Debt            MRP            Total
                                        -----------   -----------     -----------    -----------
<S>                                     <C>           <C>             <C>            <C>
Balance at September 30, 1996                     -   $  (900,900)    $         -    $29,090,794
                                                                                     -----------
Net Income                                        -             -               -      1,728,363
Other comprehensive income:
  Unrealized gain on securities,  net             -             -               -        802,306
  Reclassification adjustment for
  losses realized in net income, net              -             -               -        202,972
                                                                                     -----------
Comprehensive income                              -             -               -      2,733,641

Exercise of stock options                         -             -               -         42,720
Reduction of ESOP debt                            -        96,876               -         96,876
ESOP compensation expense                         -             -               -         32,152
Purchase of common stock for MRP                  -             -        (404,093)      (404,093)
Earned portion of MRP                             -             -          78,881         78,881
Dividends on common stock                         -             -               -       (953,866)
Offering expenses for the sale of
  common stock                                    -             -               -       (115,362)
                                        -----------   -----------     -----------    -----------
Balance at September 30, 1997                     -      (804,024)       (325,212)    30,601,743
                                                                                     -----------
Net income                                        -             -               -      1,262,043
Other comprehensive income:
  Unrealized gain on securities, net              -             -               -        108,662
  Reclassification adjustment for
  gains realized in net income, net               -             -               -       (117,076)
                                                                                     -----------
Comprehensive income                              -             -               -      1,253,629

Exercise of stock options                         -             -               -         33,254
Reduction of ESOP debt                            -        92,884               -         92,884
ESOP compensation expense                         -             -               -        187,592
Purchase of common stock for MRP                  -             -        (616,558)      (616,558)
Earned portion of MRP                             -             -         212,459        212,459
Dividends on common stock                         -             -               -     (1,489,429)
Sale of common stock (less offering
  expenses of $1,494,488)                         -             -               -     44,131,752
Shares issued in reorganization and
  par value adjustments                           -             -               -
                                        -----------   -----------     -----------    -----------

Balance at September 30, 1998                     -      (711,140)       (729,311)    74,407,326
                                                                                     -----------
</TABLE>

                                       26
<PAGE>

                     SouthBanc Shares, Inc. and Subsidiary
                Consolidated Statements of Stockholders' Equity
                Years Ended September 30, 1999, 1998, and 1997

<TABLE>
<CAPTION>
                                                                                                    Accumulated
                                                                                                    Other
                                                                      Additional     Retained       Comprehensive
                                       Common         Common          Paid-in        Earnings       Income (Loss),
                                       Shares         Stock           Capital        Restricted     Net
------------------------------------------------------------------------------------------------------------------
<S>                                    <C>            <C>             <C>            <C>            <C>
Net income                                         -             -               -      5,972,778              -
Other comprehensive income                         -             -               -              -              -
  Unrealized loss on securities, net               -             -               -              -     (2,304,587)
  Reclassification adjustment for                  -             -               -              -
  losses realized in net income, net               -             -               -              -         96,545

Comprehensive income                               -             -               -              -              -

Exercise of stock options                     15,620           156          68,057              -              -
Reduction of ESOP debt                             -             -               -              -              -
ESOP compensation expense                          -             -         180,130              -              -
Earned portion of MRP                              -             -               -              -              -
Dividends on common stock                          -             -               -     (1,775,436)             -
Transfer from Treasury Stock to  MRP               -                        22,813                             -
Purchase of Treasury Stock                         -             -               -              -              -
                                       -------------  ------------    ------------   ------------   ------------
Balance at September 30, 1999          $   4,322,030  $     43,220    $ 57,741,324   $ 22,351,722    ($2,028,033)
                                       =============  ============    ============   ============   ============

<CAPTION>
                                                            Indirect
                                                            Guarantee       Deferred
                                                            of              Compensation
                                             Treasury       ESOP            for
                                             Stock          Debt            MRP            Total
                                             -------------  ------------    ------------   ------------
<S>                                          <C>            <C>             <C>            <C>
Net income                                               -             -               -      5,972,778
Other comprehensive income                               -             -               -
     Unrealized loss on securities, net                  -             -               -     (2,304,587)
     Reclassification adjustment for                     -             -               -
     losses realized in net income, net                  -             -               -         96,545
                                                                                            -----------
Comprehensive income                                     -             -               -      3,764,736
Exercise of stock options                                -             -               -         68,213
Reduction of ESOP debt                                   -        88,893               -         88,893
ESOP compensation expense                                -             -               -        180,130
Earned portion of MRP                                    -             -         362,790        362,790
Dividends on common stock                                -             -               -     (1,775,436)
Transfer from Treasury Stock to MRP              1,830,515             -      (1,853,328)             -
Purchase of Treasury Stock                     (24,346,100)            -               -    (24,346,100)
                                             -------------  ------------    ------------   ------------

Balance at September 30, 1999                 ($22,515,585)    ($622,247)    ($2,219,849)   $52,750,552
                                             =============  ============    ============   ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       27
<PAGE>

                     SouthBanc Shares, Inc. and Subsidiary
                     Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                    For The Years Ended September 30,
---------------------------------------------------------------------------------------------------------------------------------
                                                                          1999                   1998                    1997
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                    <C>                    <C>
Cash flows from operating activities:
     Net income                                                      $  5,972,778           $   1,262,043          $    1,728,363
     Adjustments to reconcile net income to net
        cash provided by operating activities:
           Depreciation                                                   877,133                 843,389                 647,848
           Accretion, Net                                                (918,562)               (768,076)               (136,529)
           Provision for loan losses                                      481,000                 606,500                 655,000
           Loss (earnings) on investment in limited partnership                 -                (140,413)               (184,960)
           Provision for (recapture of) losses on limited
                 partnership                                             (750,000)              4,500,000                       -
           (Gain) loss on sale of investments, net                        146,281                (177,388)                307,534
           Gain on sale of real estate                                    (31,958)                (45,570)                (19,894)
           Gain on sale of loans, net                                     (88,070)                (20,797)                (12,509)
           Gain on sale of real estate held for development              (355,018)               (114,716)                      -
           Loss on sale of premises and equipment                             204                   4,161                 191,894
           Deferred compensation                                          542,920                 395,941                 111,033
           Increase in accrued interest receivable and other
                 assets                                                (1,084,514)             (2,126,635)                (46,895)
           Increase (decrease) in other liabilities                       627,496                (986,822)              5,848,313
                                                                     ------------           -------------          --------------
                 Net cash provided by operating activities              5,419,690               3,231,617               9,089,198
                                                                     ------------           -------------          --------------

Cash flows from investing activities:
     Increase in loans receivable, net                                (13,414,267)            (21,497,351)            (12,676,474)
     Purchases of loans receivable                                    (30,624,420)            (54,055,109)            (31,960,810)
     Purchase of mortgage-backed securities                           (35,405,460)            (80,440,920)            (18,760,688)
     Purchases of investment securities                                (7,342,712)            (26,071,961)            (11,181,806)
     Purchase of investments in limited partnership                             -                (181,125)             (4,818,875)
     Purchase of life insurance                                                 -              (7,390,000)                      -
     Purchases of FHLB stock                                           (2,160,800)             (2,442,100)             (1,306,300)
     Purchase of premises and equipment                                  (249,576)               (924,376)             (2,281,841)
     Sales of loans receivable                                          7,476,562              28,516,313               5,746,769
     Proceeds from redemption of FHLB stock                             1,800,000                 802,900                 650,000
     Principal repayments on mortgage-backed securities                32,408,342              19,316,915               4,412,449
     Proceeds from maturities of investment securities                    500,000              14,710,657               2,550,000
     Proceeds from sale of mortgage-backed securities,
        available for sale                                             16,777,939              22,844,186              22,570,776
     Proceeds from sale of investment securities,
        available for sale                                             13,839,255                 430,298                       -
     Proceeds from the sale of premises and equipment                         500                  20,800                       -
     Proceeds from sale of real estate owned                              468,193                 282,325                  95,186
     Proceeds from sale of real estate held for development               924,044               1,213,625               1,149,353
     Capital improvements of real estate held for development            (755,535)               (724,265)             (2,027,247)
                                                                     ------------           -------------          --------------
                 Net cash used in investing activities                (15,757,935)           (105,589,188)            (47,839,508)
                                                                     ------------           -------------          --------------
</TABLE>

                                   Continued

                                       28
<PAGE>

                     SouthBanc Shares, Inc. and Subsidiary
                     Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                    For The Years Ended September 30,
------------------------------------------------------------------------------------------------------------------------------
                                                                          1999                   1998                 1997
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                    <C>                    <C>
Cash flows from financing activities:
     Increase in deposit accounts                                   $ 13,466,310           $   6,759,773          $ 40,963,515
     Proceeds from FHLB advances                                      89,000,000             153,813,120            68,000,000
     Repayment of FHLB advances                                      (72,000,000)           (112,813,120)          (69,000,000)
     Proceeds from securities sold under agreements to
        repurchase                                                        80,503              20,173,933                     -
     Proceeds from the sale of stock subscriptions                             -              45,659,494                     -
     Payment of stock offering costs                                                          (1,494,488)              (72,642)
     Purchase of Treasury Stock                                      (24,346,100)                      -                     -
     Proceeds from exercise of stock options                              68,213                  33,254                42,720
     Purchase of stock for MRP                                                 -                (616,558)             (404,093)
     Repayments of ESOP loan                                              88,893                  92,884                96,876
     Dividends paid on common stock                                   (1,775,436)             (1,489,429)             (953,866)
     Increase (decrease) in advance payments by borrowers
        for property taxes and insurance                                 104,803                 (63,205)               (7,436)
                                                                    ------------           -------------          ------------
                 Net cash provided by financing activities             4,687,186             110,055,658            38,665,074

Net increase (decrease) in cash and cash equivalents                  (5,651,059)              7,698,087               (85,236)

Cash and cash equivalents, beginning of year                          21,197,419              13,499,332            13,584,568
                                                                    ------------           -------------          ------------

Cash and cash equivalents, end of year                              $ 15,546,360           $  21,197,419          $ 13,499,332
                                                                    ============           =============          ============

Supplemental disclosures:
     Cash paid during the year for
        Interest                                                    $ 13,500,051           $  12,199,287          $  9,537,349
                                                                    ============           =============          ============
        Taxes                                                       $  2,862,964           $   1,668,726          $    641,000
                                                                    ============           =============          ============

Noncash investing activities:
     Additions to real estate acquired in settlement of loans       $    577,170           $     158,609          $    233,748
                                                                    ============           =============          ============
     Loans receivable exchanged for mortgage-backed
        securities                                                  $          -           $   5,167,985          $          -
                                                                    ============           =============          ============
     Change in unrealized net gain (loss) on securities
        available for sale, net of tax                              $ (2,208,042)          $      (8,414)         $  1,005,278
                                                                    ============           =============          ============
     Increase (decrease) in Employee Stock
        Ownership Plan debt guaranteed by the
        Bank                                                        $     88,893           $     (92,884)         $    (96,876)
                                                                    ============           =============          ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       29
<PAGE>

                            SouthBanc Shares, Inc.
                  Notes to Consolidated Financial Statements

(1)  Organization and Summary of Significant Accounting Policies
     -----------------------------------------------------------

     In September 1997, SouthBanc Shares, Inc. ("Company"), a Delaware
     Corporation, was formed at the direction of Perpetual Bank, A Federal
     Savings Bank, ("Bank") to become the holding company for the Bank in
     connection with the conversion of the Bank's parent mutual holding company,
     SouthBanc Shares, M.H.C. ("MHC"), to a stock form of organization. The
     conversion and reorganization was consummated on April 14, 1998. The
     Company exchanged 2.85164 shares of its common stock for each outstanding
     share of common stock held by stockholders of the Bank other than the MHC.
     The additional 2,281,312 shares of common stock were sold at $20.00 per
     share for gross proceeds of $45,626,240, less offering cost of $1,494,488
     resulting in net proceeds of $44,131,752.

     Consolidation
     -------------

     The accompanying consolidated financial statements include the accounts of
     the Company, the Bank and its wholly owned subsidiaries, United Service
     Corporation of Anderson, Inc. ("USC"), which primarily engages in real
     estate development, and Mortgage First Service Corporation, which holds an
     equity investment in a mortgage banking company (collectively the Company).
     USC has a wholly-owned subsidiary, United Investment Services, Inc., which
     primarily engages in brokerage service. All significant intercompany
     accounts and transactions have been eliminated in consolidation.

     Loans Receivable
     ----------------

     Loans receivable are stated at their unpaid principal balances less the
     allowance for loan losses, and net of deferred loan origination fees and
     discounts. The Company provides for loan losses on the allowance method.
     Accordingly, all loan losses are charged to the related allowance and all
     recoveries are credited to the allowance. Additions to the allowance for
     loan losses are provided by charges to operations based on various factors
     which, in management's judgment, deserve current recognition in estimating
     losses. Such factors considered by management include the market value of
     the underlying collateral, growth and composition of the loan portfolios,
     the relationship of the allowance for loan losses to outstanding loans,
     loss experience, delinquency trends and economic conditions. Management
     evaluates the carrying value of loans periodically and the allowance is
     adjusted accordingly. While management uses the best information available
     to make evaluations, future adjustments to the allowance may be necessary
     if economic conditions differ substantially from the assumptions used in
     making evaluations. Allowances for loan losses are subject to periodic
     evaluation by various regulatory authorities and may be subject to
     adjustment upon their examination.

     Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting
     by Creditors for Impairment of a Loan," requires that creditors value all
     specifically reviewed loans for which it is probable that the creditors
     will be unable to collect all amounts due according to the terms of the
     loan agreement at either the present value of expected cash flows
     discounted at the loan's effective interest rate, or if more practical, the
     market price or value of the collateral. If the resulting value of the
     impaired loan is less than the recorded balance, the

                                       30
<PAGE>

(1)  Organization and Summary of Significant Accounting Policies, Continued
     ----------------------------------------------------------------------

     Loans Receivable, Continued
     ---------------------------

     impairment must be recognized by creating a valuation allowance for the
     difference and recognizing a corresponding bad debt expense. SFAS No. 118,
     "Accounting by Creditors for Impairment of a Loan - Income Recognition and
     Disclosures," amends SFAS No. 114 to allow a creditor to use existing
     methods for recognizing interest income on an impaired loan and requires
     additional disclosures about how a creditor recognizes interest income
     related to impaired loans. The Company adopted the provisions of SFAS No.
     114 and No. 118 effective October 1, 1995. The adoption of these standards
     required no increase to the reserve for loan losses and had no impact on
     net income.

     Interest income on loans and lease financing is recorded on the accrual
     basis. Accrual of interest on loans (including loans impaired under SFAS
     No. 114) generally is discontinued when the loan is 90 days past due and
     management deems that collection of additional interest is doubtful.
     Interest received on nonaccrual loans and impaired loans is generally
     applied against principal or may be reported as interest income depending
     on management's judgment as to the collectibility of principal. When
     borrowers with loans on a nonaccrual status demonstrate their ability to
     repay their loans in accordance with the contractual terms of the notes,
     the loans are returned to accrual status.

     The Company provides an allowance for uncollectible interest based on an
     experience method of anticipated collections. This allowance is netted
     against accrued interest receivable for financial statement reporting
     purposes.

     Loan fees and direct incremental costs of originating loans are deferred
     and amortized over the contractual life of the related loan. The
     amortization of the net fees or costs are recognized as a yield adjustment
     using the interest method.

     Investment and Mortgage-Backed Securities
     ------------------------------------------

     SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
     Securities," addresses the accounting and reporting for investments in
     equity securities that have readily determinable fair values and for all
     investments in debt securities. These investments are classified in three
     categories and are accounted for as follows: (a) debt securities that the
     Company has the positive intent and ability to hold to maturity are
     classified as held for investment and reported at amortized cost; (b) debt
     and equity securities that are bought and held principally for the purpose
     of selling them in the near term are classified as trading securities and
     reported at fair value, with unrealized gains and losses included in
     earnings; and (c) debt and equity securities not classified as either held
     for investment securities or trading securities are classified as available
     for sale securities and reported at fair value, with unrealized gains and
     losses excluded from earnings and reported as a component of accumulated
     other comprehensive income in stockholders' equity. The Company has no
     securities classified as held for investment or trading. SFAS No. 115 may
     cause fluctuations in stockholders' equity based on changes in values of
     debt and equity securities classified as available for sale.

     Securities classified as available for sale will be considered in the
     Company's asset/liability management strategies and may be sold in response
     to changes in interest rates, liquidity

                                       31
<PAGE>

(1)  Organization and Summary of Significant Accounting Policies, Continued
     ----------------------------------------------------------------------

     Investment and Mortgage-Backed Securities, Continued
     ----------------------------------------------------

     needs and/or significant prepayment risk. The cost of investment securities
     sold is determined by the "identified certificate" method.

     Declines in the fair value of individual securities below their cost that
     are deemed by management to be other than temporary result in write-downs
     of the individual securities to their fair value. The write-downs are
     included in earnings as realized losses.

     Investment In Limited Partnership
     ---------------------------------

     Investment in limited partnership represents an equity investment in a
     limited partnership in which the Company owned more than 20% but not in
     excess of 50% of the limited partnership and is accounted for under the
     equity method. Accordingly, the Company records 20.625% of the
     partnership's profits and losses in the consolidated statement of income.

     Real Estate Acquired in Settlement of Loans
     -------------------------------------------

     Real estate acquired in settlement of loans represents real estate acquired
     through foreclosure and is initially recorded at estimated fair value.
     Subsequent to acquisition, real estate acquired in settlement of loans is
     stated at the lower of cost or fair value, less estimated selling costs.
     Costs related to holding these properties are charged to operations. Market
     values of real estate acquired in settlement of loans are reviewed
     regularly and allowances for losses are established when the carrying
     values of real estate acquired in settlement of loans exceeds fair value
     less costs to sell.

     Premises and Equipment
     ----------------------

     Premises and equipment are carried at cost less accumulated depreciation.
     Depreciation is calculated primarily on the straight-line method over the
     estimated useful lives of the respective assets, five to forty years.

     Securities Sold Under Agreements to Repurchase
     ----------------------------------------------

     The Company enters into sales of securities under agreements to repurchase.
     Fixed-coupon reverse repurchase agreements are treated as financings, with
     the obligation to repurchase securities sold being reflected as a liability
     and the securities underlying the agreements remaining as an asset. The
     securities are delivered by appropriate entry by the Company's safekeeping
     agent to the counterparties' accounts. The dealers may have sold, loaned or
     otherwise disposed of such securities to other parties in the normal course
     of their operations, and have agreed to resell to the Company substantially
     identical securities at the maturities of the agreements.

                                       32
<PAGE>

(1)  Organization and Summary of Significant Accounting Policies, Continued
     ----------------------------------------------------------------------

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

     The provision for income taxes is based upon income and expense reported
     for financial statement purposes after adjustment for permanent differences
     such as tax-exempt interest income.

     When income and expenses are recognized in different periods for financial
     reporting purposes than for income tax purposes, deferred taxes are
     provided in recognition of these temporary differences. The Company
     computes its income taxes in accordance with SFAS No. 109, "Accounting for
     Income Taxes," which requires the use of the liability method to record
     income taxes. The liability method calculates the effect of tax rates
     expected to be in place when the related temporary differences reverse.
     Subsequent changes in tax rates will require adjustment to these deferred
     tax assets and liabilities.

     Stock Based Compensation
     ------------------------

     The Company has adopted the disclosure provisions of SFAS No. 123
     "Accounting for Stock Based Compensation." The statement permits the
     Company to continue accounting for stock based compensation as set forth in
     Accounting Principles Board ("APB") Opinion 25, "Accounting for Stock
     Issued to Employees," provided the Company discloses the pro forma effect
     on net income and earnings per share of adopting the full provisions of
     SFAS No. 123. Accordingly, the Company continues to account for stock based
     compensation under APB Opinion 25 and has provided the required pro forma
     disclosures.

     Earnings Per Share
     ------------------

     Basic earnings per share is computed by dividing net income by the weighted
     average common shares outstanding. Diluted earnings per share is similar to
     the computation of basic earnings per share except that the denominator is
     increased to include the number of additional common shares that would have
     been outstanding if the dilutive potential common shares had been issued.
     The dilutive effect of options outstanding under the Company's stock option
     plan is reflected in diluted earnings per share by application of the
     treasury stock method.

     Risks and Uncertainties
     -----------------------

     In the normal course of its business, the Company encounters two
     significant types of risk: 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 bases, than its interest earning assets. Credit risk is the risk
     of default on the Company's loan portfolio that results from the borrowers'
     inability or unwillingness to make contractually required payments. Credit
     risk also applies to investment securities and mortgage-backed securities
     should the issuer of the security be unable to make principal and interest
     payments. Market risk reflects changes in the value of collateral
     underlying loans receivable, the valuation of real estate held by the
     Company and the valuation of investment securities.

                                       33
<PAGE>

(1)  Organization and Summary of Significant Accounting Policies, Continued
     ----------------------------------------------------------------------

     Risks and Uncertainties, Continued
     ----------------------------------

     The Company is subject to the regulations of various government 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
     resulting from the regulators' judgments based on information available to
     them at the time of their examination.

     In preparing the financial statements, management is required to make
     estimates and assumptions that affect the reported amounts of assets and
     liabilities and disclosures of contingent assets and liabilities as of the
     dates of the balance sheets and revenues and expenses for the periods
     covered. Actual results could differ significantly from those estimates and
     assumptions.

     Recently Issued Accounting Standards
     ------------------------------------

     In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
     Instruments and Hedging Activities." All derivatives are to be measured at
     fair value and recognized in the balance sheet as assets or liabilities.
     This statement's effective date was delayed by the issuance of SFAS No. 137
     "Accounting for Derivative Instruments and Hedging Activities - Deferral of
     the Effective Date of SFAS 133," and is effective for fiscal years and
     quarters beginning after June 15, 2000. The Company does not expect that
     the adoption of SFAS No. 133 will have a material impact on the
     presentation of the Company's financial results or financial position.

     In February 1999, the FASB issued SFAS No. 135, "Rescission of SFAS 75 and
     Technical Corrections." This statement provides technical corrections for
     previously issued statements and rescinds SFAS No. 75, which provides
     guidance related to pension plans of state and local governmental units.
     SFAS No. 135 is effective for fiscal years ending after February 15, 1999.
     The adoption of SFAS 135 did not have a material impact on the presentation
     of the Company's financial results or financial position.

     In June 1999, the FASB issued SFAS No. 136, "Transfers of Assets to a Not-
     for-Profit Organization or Charitable Trust that Raises or Holds
     Contributions for Others." This statement establishes standards for
     transactions in which an entity makes a contribution by transferring assets
     to a not-for-profit organization or a charitable trust and then requires
     these contributions to be used in specified manner. SFAS No. 136 is
     effective for fiscal periods beginning after December 15, 1999. The Company
     does not expect that the adoption of SFAS No. 136 will have a material
     impact on the presentation of the Company's financial results or financial
     position.

     Reclassification
     ----------------

     Certain reclassifications of accounts reported for previous periods have
     been made in these consolidated financial statements. Such
     reclassifications had no effect on stockholders' equity or the net income
     as previously reported.

                                       34
<PAGE>

(2)  Cash and Cash Equivalents
     -------------------------

     Cash and cash equivalents consisted of the following at September 30,
     1999 and 1998:

<TABLE>
<CAPTION>
                                                 1999         1998
                                                 ----         ----
      <S>                                    <C>          <C>
      Working funds                          $ 3,949,305  $ 3,518,448
      Noninterest-earning demand deposits      3,074,324    3,709,229
      Interest-earning overnight deposits      8,522,731   13,969,742
                                             -----------  -----------

                                             $15,546,360  $21,197,419
                                             ===========  ===========
</TABLE>

(3)  Investment In Limited Partnership
     ---------------------------------

     At September 30, 1999, the Company's investment in the limited partnership
     consisted of a 20.625% interest in Dovenmuehle Mortgage Company Limited
     Partnership which invests in mortgage servicing rights. The Company
     committed and invested $5.0 million in Dovenmuehle in December 1996. The
     Company has no obligation to contribute additional amounts to the limited
     partnership and has no additional or potential future liability to the
     limited partnership in excess of the commitment amount. External market
     appraisals of the limited partnership are reviewed quarterly. Based on
     review of these independent valuations, reserves have been recorded to
     report the investment at its approximate fair value. In 1998, the Company
     established a $4.5 million loss reserve for the limited partnership
     investment due to declines in market interest rates which impaired the
     valuation of the mortgage servicing rights. In 1999, the Company decreased
     the loss reserve $750,000 due to increases in market interest rates which
     improved the valuation of the mortgage servicing rights. The investment was
     valued at $1,575,373 and $825,373 at September 30, 1999 and 1998,
     respectively. The investment may be subject to future declines in value
     depending upon performance and market conditions.

                                       35
<PAGE>

(3)  Investment In Limited Partnership
     ---------------------------------

     The table below contains the summarized financial information of
     Dovenmuehle (unaudited):

<TABLE>
<CAPTION>
                                      FOR THE YEARS ENDED SEPTEMBER 30,
                                      ---------------------------------

Condensed Operations Statement              1999           1998
                                            ----           ----
<S>                                      <C>          <C>
Service Fees                             $ 6,046,437  $   7,585,911
Other Income                               1,580,909      1,778,192
                                         -----------  -------------
 Total Income                            $ 7,627,346  $   9,364,103

Servicing Expense                          1,593,516      1,937,430
Purchased Mortgage Servicing Rights
 Amortization                              1,404,648     21,088,038
Other Expense                              1,957,950      2,065,079
                                         -----------  -------------
 Total Expense                             4,956,114     25,090,547
                                         -----------  -------------

  Net Gain (Loss)                        $ 2,671,232   ($15,726,444)
                                         ===========  =============


                                             AT SEPTEMBER 30,
                                             ----------------

Condensed Balance Sheet                     1999           1998
                                            ----           ----
Cash                                     $   259,120  $     577,341
Accounts Receivable                          960,644      1,626,123
Purchased Mortgage Servicing Rights       25,881,063     27,220,384
Other Assets                                 321,562        397,726
Organizational Costs                          40,302         40,882
                                         -----------  -------------
 Total Assets                            $27,462,691  $  29,862,456
                                         ===========  =============

Accounts Payable                         $   813,499  $   1,464,496
Long Term Debt                            14,560,000     18,980,000
Shareholders' Equity                      12,089,192      9,417,960
                                         -----------  -------------
  Total Liabilities and Shareholders'
  Equity                                 $27,462,691  $  29,862,456
                                         ===========  =============
</TABLE>

                                       36
<PAGE>

(4)  Investment and Mortgage-Backed Securities Available for Sale
     ------------------------------------------------------------

     The Company had securities available for sale as follows:

<TABLE>
<CAPTION>

                                                        Gross        Gross
                                          Amortized   Unrealized  Unrealized     Fair
                                            Cost        Gains       Losses       Value
                                            ----        -----       ------       -----
      <S>                                 <C>         <C>         <C>         <C>
      September 30, 1999
      ------------------
      Investment securities:
         FHLB Zero Coupon Bond           $ 6,158,388  $        -  $  507,946  $ 5,650,442
         U.S. Treasury Note                1,009,129           -       1,004    1,008,125
         Stock Mutual Fund                 1,043,000           -           -    1,043,000
         Equity Investments                  150,000           -      43,125      106,875
         Municipal Bond                    3,289,905           -     502,065    2,787,840
         Agency Callable Bond              2,000,000           -           -    2,000,000
         Trust Preferred Bonds             4,022,800           -     375,379    3,647,421
                                         -----------  ----------  ----------  -----------
                                         $17,673,222  $        -  $1,429,519  $16,243,703
                                         ===========  ==========  ==========  ===========

      Mortgage-backed securities:
         FHLMC and FNMA
           fixed rate                    $10,259,848  $   28,445  $  211,409  $10,076,884
         GNMA Fixed Rate                  27,490,755           -   1,036,099   26,454,656
         FNMA Adjustable Rate                280,539           -       3,306      277,233
         Private label collateralized
           mortgage obligations
           (CMOs)                         11,439,739      24,442       9,972   11,454,209
         Agency CMOs                      10,556,918           -     435,359   10,121,559
                                         -----------  ----------  ----------  -----------

                                         $60,027,799  $   52,887  $1,696,145  $58,384,541
                                         ===========  ==========  ==========  ===========
</TABLE>

                                       37
<PAGE>

(4)  Investment and Mortgage-Backed Securities Available for Sale, Continued
     -----------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                        Gross       Gross
                                          Amortized   Unrealized  Unrealized     Fair
                                            Cost        Gains       Losses       Value
                                            ----        -----       ------       -----
      <S>                                <C>            <C>         <C>       <C>
      September 30, 1998
      ------------------

      Investment securities:
         FHLB Zero Coupon Bond           $ 5,706,038    $122,905    $ 30,393  $ 5,798,550
         U.S. Treasury Note                  500,000         940           -      500,940
         Stock Mutual Fund                   993,695           -           -      993,695
         Equity Investments                1,732,524           -      86,274    1,646,250
         Municipal Bond                    6,128,961      22,679           -    6,151,640
         Bank Preferred Stock              3,152,581      27,419           -    3,180,000
         Trust Preferred Bonds             5,028,292      20,000      18,683    5,029,609
                                         -----------    --------    --------  -----------
                                         $23,242,091    $193,943    $135,350  $23,300,684
                                         ===========    ========    ========  ===========

      Mortgage-backed securities:
         FHLMC and FNMA
            fixed rate                   $14,695,509    $163,306    $      -  $14,858,815
         GNMA Fixed Rate                   4,697,785       7,137           -    4,704,922
         GNMA Adjustable Rate             12,075,269     106,180           -   12,181,449
         FNMA Adjustable Rate                357,267           -      11,508      345,759
         Private label collateralized
           mortgage obligations
           (CMOs)                         16,706,471      66,367      22,737   16,750,101
         Agency CMOs                      25,186,843      67,158     161,755   25,092,246
                                         -----------    --------    --------  -----------
                                         $73,719,144    $410,148    $196,000  $73,933,292
                                         ===========    ========    ========  ===========
</TABLE>

   The amounts of scheduled maturities of investments and mortgage-backed
   securities at September 30, 1999 were as follows:

<TABLE>
<CAPTION>
                                                 Amortized          Fair
                                                   Cost             Value
                                                   ----             -----
      <S>                                       <C>              <C>
      Less than one year                        $ 1,009,129      $ 1,008,125
      One year to ten years                         169,086          176,113
      Ten to twenty years                        17,778,093       16,613,881
      Twenty to twenty-five years                18,170,727       17,976,033
      Twenty-five to thirty years                39,373,563       37,696,794
      No stated maturity                          1,200,423        1,157,298
                                                -----------      -----------
                                                $77,701,021      $74,628,244
                                                ===========      ===========
</TABLE>

      The amortized cost and fair value of investment and mortgage-backed
      securities available for sale at September 30, 1999 by contractual
      maturity are shown above.  Expected maturities will differ from
      contractual maturities because borrowers may have the right to call or
      repay obligations with or without call or prepayment penalties.

                                       38
<PAGE>

(4)  Investment and Mortgage-Backed Securities Available for Sale, Continued
     -----------------------------------------------------------------------

     At September 30, 1999 and 1998, $656,035 and $300,000, respectively, of
     securities were pledged as collateral for certain deposits.


     Proceeds from sales of securities available for sale and the related gross
     realized gains and losses were as follows:

<TABLE>
<CAPTION>
                                                                 For The Years Ended September 30,
                                                               ---------------------------------
                                                            1999              1998              1997
                                                            ----              ----              ----
          <S>                                            <C>               <C>               <C>
          Proceeds from sales of securities              $30,617,194       $23,274,484       $22,570,776
          Gross realized gains                               449,953           226,884             7,866
          Gross realized losses                              596,234            49,496           315,400
</TABLE>

(5)      Loans Receivable
         ----------------

     Loans receivable at September 30, 1999, and 1998 are summarized as follows:

<TABLE>
<CAPTION>
                                                           1999           1998
                                                           ----           ----
          <S>                                          <C>             <C>
          First mortgage loans, substantially all
             one to four family                        $131,952,534    $118,624,939
          Construction                                   41,141,117      33,746,675
          Commercial real estate                         48,107,184      35,069,154
          Loan participations purchased                  11,572,799      12,492,101
          Home improvement loans                          1,453,977       2,122,370
          Commercial loans                               15,441,282      11,155,726
          Consumer loans                                 20,692,077      19,134,765
          Loans secured by deposits                       1,377,831       1,583,465
                                                       ------------    ------------
                                                        271,738,801     233,929,195
          Less:
             Deferred loan fees, net                        317,371         272,752
             Allowance for loan losses                    2,617,662       2,374,044
             Undisbursed loans in process                13,315,627      11,386,283
                                                       ------------    ------------
                  Loans receivable, net                $255,488,141    $219,896,116
                                                       ============    ============
</TABLE>

     Changes in the allowance for loan losses for the years ended September 30,
     1999, 1998, and 1997 are summarized as follows:

<TABLE>
<CAPTION>
                                       1999         1998         1997
                                       ----         ----         ----
<S>                                 <C>          <C>          <C>
      Balance, beginning of year    $2,374,044   $1,886,243   $1,534,773
      Provision for loan losses        481,000      606,500      655,000
      Charge-offs                     (275,583)    (174,183)    (332,194)
      Recoveries                        38,201       55,484       28,664
                                    ----------   ----------   ----------
            Balance, end of year    $2,617,662   $2,374,044   $1,886,243
                                    ==========   ==========   ==========
</TABLE>

     Loans serviced for others amounted to approximately $59,990,000,
     $74,877,000, and $62,148,000 at September 30, 1999, 1998, and 1997,
     respectively.

     At September 30, 1999 and 1998, the Company had $-0- in loans receivable,
     which were ninety days or more delinquent and accruing interest.

                                       39
<PAGE>

(5)  Loans Receivable (Continued)
     ----------------------------

     At September 30, 1999, 1998 and 1997, the Company had approximately
     $2,357,000, $1,175,000, and $403,000, respectively, in non-accrual loans.
     The amount of interest income that would have been recognized had these
     loans performed according to their contractual terms amounted to
     approximately $209,000, $110,000, and $19,000, during the years ended
     September 30, 1999, 1998, and 1997, respectively. The actual interest
     income recognized on these loans amounted to approximately $103,000,
     $26,000, and $11,000 during the years ended September 30, 1999, 1998, and
     1997, respectively.

     At September 30, 1999, 1998, and 1997, the carrying value of loans that are
     considered to be impaired under SFAS No. 114 totaled approximately
     $2,587,000, $1,264,000, and $517,000, respectively. Impairments on these
     loans are included in loan losses. The average balance of impaired loans
     was $2,111,000, $1,339,000, and $512,000, for years ended September 30,
     1999, 1998 and 1997, respectively. Interest income recognized on impaired
     loans was $103,087, $26,489, and $68,414, for years ended September 30,
     1999, 1998 and 1997, respectively.

     Activity in loans to officers, directors and other related parties for the
     years ended September 30, 1999, 1998 and 1997 is summarized as follows:

<TABLE>
<CAPTION>
                                         1999         1998        1997
                                         ----         ----        ----
      <S>                             <C>           <C>        <C>
      Balance at beginning of year    $  917,014    $925,503   $ 975,762
      New loans                          572,000      88,000     143,923
      Repayments                        (243,989)    (96,489)   (194,182)
                                      ----------    --------   ---------

      Balance at end of year          $1,245,025    $917,014   $ 925,503
                                      ==========    ========   =========
</TABLE>

     The Company primarily grants residential loans to customers in Anderson
     County, South Carolina, and the surrounding communities. The Company's
     ability to collect these balances depends substantially upon the economic
     conditions and real estate market in the region. The Company does not have
     any concentrations of loans to any one borrower. The Company has increased
     its commercial and consumer loan portfolios which may entail greater risk
     than residential mortgage loans.

(6)  Real Estate
     -----------

     Real estate is summarized at September 30, 1999 and 1998 as follows:

<TABLE>
<CAPTION>
                                                        1999         1998
                                                        ----         ----
      <S>                                             <C>         <C>
      Real estate held for development                $2,095,903  $1,909,394
      Real estate acquired in settlement of loans        229,900      88,965
                                                      ----------  ----------

                                                      $2,325,803  $1,998,359
                                                      ==========  ==========
</TABLE>

     Real estate held for development is comprised of four projects. At
     September 30, 1999, the net investment in two single family residential
     subdivisions was $1,262,966 compared to $978,928 at September 30, 1998, and
     the net investment in two commercial real estate

                                       40
<PAGE>

(6)  Real Estate, Continued
     ----------------------

     development projects at September 30, 1999 was $832,937 compared to
     $930,466 at September 30, 1998.

(7)  Premises and Equipment
     ----------------------

     Premises and equipment are summarized at September 30, 1999 and 1998 as
     follows:

<TABLE>
<CAPTION>

                                               1999          1998
                                               ----          ----
      <S>                                  <C>           <C>
      Land                                 $   871,242   $   871,242
      Office and other buildings             3,750,102     3,716,123
      Furniture, fixtures and equipment      5,436,934     5,174,312
                                           -----------   -----------
                                            10,058,278     9,761,677
      Less accumulated depreciation         (4,336,048)   (3,411,186)
                                           -----------   -----------

                                           $ 5,722,230   $ 6,350,491
                                           ===========   ===========
</TABLE>

     Depreciation expense was $877,133, $843,389, and $647,848 for the years
     ended September 30, 1999, 1998, and 1997, respectively.

(8)  Deposits
     --------

     Deposits outstanding by type of account and range of interest rates at
     September 30, 1999 and 1998 are summarized as follows:

<TABLE>
<CAPTION>
                                                               1999                               1998
                                                ---------------------------------   -------------------------------
                                                                    Range of                         Range of
                                                                    Interest                         Interest
                                                   Balance            Rates          Balance           Rates
                                                   -------            -----          -------           -----
      <S>                                       <C>                <C>              <C>              <C>
      Non-interest bearing checking accounts    $ 15,729,029             -          $ 15,198,169           -
      Interest-bearing checking accounts          43,255,605       1.21% - 3.49%      35,795,875     1.21% - 5.01%
      Passbook accounts                           26,386,582       2.12% - 4.59%      25,203,536     2.12% - 3.04%
                                                ------------                        ------------
                                                  85,371,216                          76,197,580

      Certificate accounts                       135,885,869       2.28% - 8.00%     131,593,195     2.50% - 8.00%
                                                ------------                        ------------

                                                $221,257,085                        $207,790,775
                                                ============                        ============

      Weighted average interest rate                                  4.08%                             4.35%
                                                                      ====                              ====
</TABLE>

                                       41
<PAGE>

(8)  Deposits, Continued
     -------------------

     The amounts of scheduled maturities of certificate accounts at September
     30, 1999 and 1998 were as follows:

<TABLE>
<CAPTION>
                                              1999          1998
                                              ----          ----
      <S>                                 <C>           <C>
      Maturing within one year            $117,722,833  $ 96,866,360
      Maturing one through three years      16,889,586    34,348,026
      Maturing after three years             1,273,450       378,809
                                          ------------  ------------

                                          $135,885,869  $131,593,195
                                          ============  ============
</TABLE>

     At September 30, 1999, 1998 and 1997, the aggregate amounts of time
     deposits of $100,000 or more amounted to $20,175,089, $17,412,810, and
     $18,540,473, and, respectively. Interest paid on time deposits greater than
     $100,000 was $864,223, $988,989, and $1,083,484 for the years ended
     September 30, 1999, 1998 and 1997, respectively.


(9)  Advances from the FHLB
     ----------------------

     Advances from the FHLB at September 30, 1999 and 1998 are summarized as
     follows:

<TABLE>
<CAPTION>
                                                 September 30, 1999
                                                 ------------------

     Maturity Date             Call Date               Interest Rate           Balance
     -------------             ---------               -------------           -------
     <S>                       <C>                     <C>                   <C>
     Daily Advance                                         5.75%             $20,000,000
     January 2002              October 1999                5.78%               5,000,000
     January 2002              October 1999                4.83%              10,000,000
     July 2008                 October 1999                4.78%              25,000,000
     June 2009                 June 2001                   5.30%              13,000,000
                                                                             -----------
                                                                             $73,000,000
                                                                             ===========
</TABLE>

<TABLE>
<CAPTION>
                                                 September 30, 1998
                                                 ------------------

     Maturity Date           Call Date              Interest Rate             Balance
     -------------           ---------              -------------             -------
     <S>                     <C>                    <C>                     <C>
     Daily Advance                                      6.00%               $16,000,000
     January 2002            January 1999               5.78%                 5,000,000
     January 2008            January 1999               4.83%                10,000,000
     July 2008               October 1998               4.78%                25,000,000
                                                                            -----------
                                                                            $56,000,000
                                                                            ===========
</TABLE>


     At September 30, 1999, the Company had $73,000,000 in outstanding FHLB
     advances and, based upon eligible collateral, additional available credit
     of $20,900,000.

                                       42
<PAGE>

(9)  Advances from the FHLB, Continued
     ---------------------------------

     The Company, as a member institution of the FHLB of Atlanta, is required to
     own capital stock in the FHLB of Atlanta based generally on the Company's
     balances of residential mortgage loans and FHLB Advances. No ready market
     exists for the FHLB stock, and it has no quoted market value. Redemption of
     this stock has historically been at par value. As collateral for its
     Advances, the Company has pledged qualifying residential mortgage loans
     totaling $148.4 million at September 30, 1999, and all of its FHLB stock.

(10) Securities Sold Under Agreements to Repurchase
     ----------------------------------------------

     The Company had $20,254,436 and $20,173,933 borrowed under agreements to
     repurchase at September 30, 1999 and 1998, respectively. The amortized cost
     of the securities underlying the agreements to repurchase at September 30,
     1999 and 1998 was $22,630,102 and $22,916,463, respectively. The maximum
     amount outstanding at any month end during fiscal 1999 and 1998 was
     $20,366,481 and $20,185,183, respectively. The average amount of
     outstanding agreements for fiscal 1999 and 1998 was approximately
     $20,244,801 and $17,912,000, respectively.


(11) Income Taxes
     ------------

     Income taxes for the years ended September 30, 1999, 1998 and 1997 are
     summarized as follows:

<TABLE>
<CAPTION>
                                  1999           1998          1997
                                  ----           ----          ----
      <S>                      <C>            <C>            <C>
      Current                  $2,383,738     $ 994,696      $544,803
      Deferred                    532,000      (446,000)      381,000
                               ----------     ---------      --------
             Total             $2,915,738     $ 548,696      $925,803
                               ==========     =========      ========
</TABLE>

     Income tax expense differs from the amount computed at the federal
     statutory rate of 34% for the years ended September 30, 1999, 1998 and
     1997, as a result of the following:

<TABLE>
<CAPTION>
                                                       1999          1998        1997
                                                       ----          ----        ----
      <S>                                           <C>          <C>          <C>
      Income taxes at federal rate                  $3,022,095   $  615,651   $902,416
         Differences resulting from:
         State taxes, net of
           federal benefit                              41,000       29,000     81,000
         Decrease in beginning of year
           valuation allowance                         (48,000)    (120,000)   (81,000)
         Income from unconsolidated
           subsidiary                                  (48,000)     (50,000)         -
         Non-deductible compensation                   123,000       71,000          -
         Tax exempt interest                          (113,000)     (34,000)         -
         Tax exempt earnings on life
           insurance policies                         (133,000)     (28,000)         -
         Non-deductible ESOP expense                    62,000       64,000          -
         Other                                           9,643        1,045     23,387
                                                    ----------   ----------   --------
                                                    $2,915,738   $  548,696   $925,803
                                                    ==========   ==========   ========
       Effective income tax rate                       32.8%        30.3%        34.9%
                                                       ====         ====         ====
</TABLE>

                                       43
<PAGE>

(11) Income Taxes, Continued
     -----------------------

     At September 30, 1998, the Company has state net operating loss
     carryforwards of approximately $37,000,000. These carryforwards expire in
     various amounts beginning in fiscal year 2000 through 2011.

     The tax effects of temporary differences that give rise to significant
     portions of the deferred tax assets and deferred tax liabilities at
     September 30, 1999 and 1998 are presented below:

<TABLE>
<CAPTION>
                                                                   1999            1998
                                                                   ----            ----
        <S>                                                    <C>             <C>
        Deferred tax assets:
         Loan loss allowances deferred for tax purposes        $   901,000     $   901,000
         State loss carryforwards                                2,220,000       2,401,000
         Unrealized loss on securities available for sale        1,045,000               -
         Limited partnership book expenses in excess
          of tax deductions                                        745,000       1,333,000
         Other                                                     300,000         286,000
                                                               -----------     -----------
           Total gross deferred tax assets                       5,211,000       4,921,000

         Less valuation allowances, primarily for tax
          loss carryforwards                                    (2,352,000)     (2,400,000)
                                                               -----------     -----------
           Net deferred tax assets                               2,859,000       2,521,000
                                                               -----------     -----------


        Deferred tax liabilities:
         Depreciation for tax purposes in excess of such
          amount for financial reporting purposes                  119,000         177,000
         Tax bad debt reserve in excess of base year               307,000         307,000
         Unrealized gain on securities available for sale                -          86,000
         Loan fee income adjustments for tax purposes                    -          22,000
         Other                                                      14,000         109,000
                                                               -----------     -----------
           Total gross deferred tax liabilities                    440,000         701,000
                                                               -----------     -----------
           Net deferred tax asset (included in
        other assets)                                          $ 2,419,000     $ 1,820,000
                                                               ===========     ===========
</TABLE>

     A portion of the change in the deferred tax asset relates to unrealized
     losses on securities available for sale. In fiscal 1999, the related
     deferred tax benefit of $1,131,000 has been recorded directly to
     stockholders' equity. The balance of the change in the net deferred tax
     asset results from the current period deferred tax expense of $532,000. In
     fiscal 1998, the deferred taxes related to the unrealized gains on
     securities available for sale of $11,000 has been recorded directly to
     stockholders' equity with the balance of the change in the net deferred tax
     asset resulting from the 1998 deferred tax benefit of $446,000.

     The realization of net deferred tax assets may be based on utilization of
     carrybacks to prior taxable periods, anticipation of future taxable income
     in certain periods, and the utilization of tax planning strategies.
     Management has determined that it is more likely than not that the net
     deferred tax assets can be supported based upon these criteria except for
     the state loss carryforwards. A valuation allowance for the deferred tax
     asset has been reflected to reduce the potential deferred tax assets,
     primarily for state loss carryforwards, to an amount that more likely than
     not can be realized at September 30, 1999 and 1998.

                                       44
<PAGE>

(11) Income Taxes, Continued
     -----------------------

     Federal legislation has been passed which repeals the "Percentage of
     Taxable Income Method" of accounting for savings and loan bad debt reserves
     for the first tax year beginning after December 31, 1995 (the fiscal year
     ending September 30, 1997 for the Company). This legislation requires all
     savings and loan institutions to account for bad debts using either the
     specific charge-off method (available to all savings and loans) or the
     experience method (available only to savings and loans that qualify as
     "small banks", i.e., under $500 million in assets.) The Company currently
     uses the experience method of accounting for its bad debt reserves.

     The legislation suspends the recapture of bad debt reserves taken through
     1987 (i.e., the base year reserve), but requires savings and loans to
     recapture or repay bad debt deductions taken after 1987 over a six-year
     period. The legislation allows the Company to defer recapture of this
     amount for the years ended September 30, 1998 and 1997, suspending the
     recapture to begin with the year ended September 30, 1999. The recapture is
     then shortened to four years due to the two year deferral. As of September
     30, 1999, the bad debt reserve subject to recapture, for which deferred
     taxes have previously been provided, totaled approximately $808,000. As
     permitted under SFAS 109, no deferred tax liability is provided for
     approximately $5,200,000 of such tax bad debt reserves that arose prior to
     October 1, 1988.

(12) Capital
     -------

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

                                       45
<PAGE>

(12) Capital, Continued
     ------------------

<TABLE>
<CAPTION>
                                                                                                       To Be Well
                                                                                                    Capitalized Under
                                                                        For Capital Adequacy        Prompt Corrective
                                                   Actual                     Purposes              Action Provisions
                                                   ------                     --------              -----------------

                                           Amount        Ratio          Amount        Ratio        Amount       Ratio
                                           ------        -----          ------        -----        ------       -----
As of September 30, 1999:
-------------------------
<S>                                        <C>           <C>            <C>           <C>          <C>          <C>
Tangible Capital (To Total Assets)         $41,305        11.4%         $ 5,419        1.5%        $     -           -%
Core Capital (To Total Assets)              41,305        11.4           14,431        4.0          18,039        5.00
Tier I Capital (To Risk-Weighted            41,305        17.9                -          -          13,816        6.00
 Assets)
Risk-Based Capital (To Risk-Weighted
 Assets)                                    43,817        19.0           18,422        8.0          23,074       10.00

As of September 30, 1998:
-------------------------
Tangible Capital (To Total Assets)         $49,983        14.8%         $ 5,075        1.5%        $     -           -%
Core Capital (To Total Assets)              49,983        14.8           13,533        4.0          16,916        5.00
Tier I Capital (To Risk-Weighted            49,983        23.7                -          -          12,661        6.00
 Assets)
Risk-Based Capital (To Risk-Weighted
     Assets)                                50,266        23.8           16,881        8.0          21,101       10.00
</TABLE>

                                       46
<PAGE>

(12) Capital, Continued
     ------------------

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

The following table reconciles the Company's consolidated stockholders' equity
to its regulatory capital positions at September 30, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                              1999            1998
                                                                              ----            ----
          <S>                                                              <C>              <C>
          Stockholders' equity                                             $ 52,750,552     $ 74,407,326
            Adjustment for equity of Company not eligible
              for computation                                               (10,948,406)     (21,672,605)
            Adjustments for unrealized (gains) losses on
              available for sale securities                                   1,751,820         (217,984)
            Investments in and advances to nonincludable
              subsidiaries                                                   (2,179,143)      (1,920,541)
            Disallowed  servicing assets                                        (69,557)        (613,615)
                                                                           ------------     ------------
              Regulatory tangible and core capital                           41,305,266       49,982,581
                 Supplemental capital                                         2,587,923        2,318,291
            Equity Assets to be deducted                                        (76,300)      (2,035,031)
                                                                           ------------     ------------
            Risk-based capital                                             $ 43,816,889     $  50,265,841
                                                                           ============     =============
</TABLE>

(13)  Employee Benefit Plans
      ----------------------

     The Company has a profit sharing and deferred compensation plan for
     substantially all full-time employees. The plan permits eligible
     participants to contribute a percentage of their salary up to amounts
     permitted by the Internal Revenue Code each year. At the discretion of the
     Board of Directors, the Company may match a percentage of each
     participant's contribution during the plan year. In addition, the Board of
     Directors may from year to year make a discretionary contribution to the
     plan. The Company's contribution recorded as expense for the years ended
     September 30, 1999, 1998 and 1997, was $138,200, $203,790, and $219,123,
     respectively.

     Supplemental benefits are provided to certain key officers under
     Supplemental Executive Retirement Agreements. These agreements are not
     qualified under the Internal Revenue Code, and the benefits are unfunded.
     However, certain benefits are informally and indirectly funded by insurance
     policies on the lives of the covered officers. The cash surrender values of
     the life insurance policies are recorded in the accompanying balance sheets
     at $7,865,743 and $7,473,136 at September 30, 1999 and 1998, respectively.

(14) Stock Option Plan
     -----------------

     The Company has stock option plans through which the Board of Directors may
     grant options to directors, officers and employees to purchase the
     Company's common stock at prices not less than the market value of the
     stock on the option grant date. The granted options become exercisable in
     various increments and expire ten years from the grant date.

                                       47
<PAGE>

(14) Stock Option Plan, Continued
     ----------------------------

The following table summarizes option activity during the years ended September
30, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                  Number of        Price Per
                                                                   Shares            Share
                                                                   ------            -----
        <S>                                                       <C>              <C>
        Outstanding at September 30, 1996                           25,300          $ 3.51
        Granted                                                    166,825            8.85
        Exercised                                                   12,182            3.51
                                                                   -------          ------
        Outstanding at September 30, 1997                          179,943            8.47
        Granted                                                          -               -
        Exercised                                                    3,753            8.85
                                                                   -------          ------
        Outstanding at September 30, 1998                          176,190            8.45
        Granted                                                    228,131           20.31
        Exercised                                                   15,620            4.37
                                                                   -------          ------
        Outstanding at September 30, 1999                          388,701          $15.58
                                                                   =======          ======
</TABLE>

     The Company applies APB Opinion 25 in accounting for the stock option
     plans. Accordingly, no compensation expense has been recognized for the
     plans. Had compensation cost been recognized for the stock option plans
     applying the fair-value-based method as prescribed by SFAS 123, the Bank's
     net income and earnings per share would have been reduced to the pro forma
     amounts indicated below:

<TABLE>
<CAPTION>
                                                 1999            1998             1997
                                                 ----            ----             ----
          <S>                                 <C>             <C>              <C>
          Net Income
          ----------
               As reported                    $5,972,778      $1,262,043       $1,728,363
               Pro forma                       5,803,728       1,184,589        1,702,803

          Earnings Per Share
          ------------------
             Basic
               As reported                    $     1.76      $      .30       $      .41
               Pro forma                            1.71             .28              .41

             Diluted
               As reported                    $     1.67      $      .29       $      .40
               Pro forma                            1.63             .27              .39
</TABLE>

     The effects of applying SFAS 123 may not be representative of the effects
     on reported net income in future years.

     The fair value of each option granted is estimated on the date of grant
     using the Black-Scholes option-pricing model with the following weighted-
     average assumptions:

<TABLE>
<CAPTION>
                                                        1999             1997
                                                        ----             ----
                         <S>                           <C>               <C>
                         Dividend yield                2.50              3.25%
                         Expected volatility             10 %              38
                         Risk-free interest rate       5.00 %            6.59%
                         Expected lives                10.0 years        7.5 years
</TABLE>

   There were no options granted in 1998.

                                       48
<PAGE>

(15) Management Recognition Plan
     ---------------------------

     The Company has Management Recognition Plans (MRP) through which the Board
     of Directors may grant shares of the Company's common stock to management.
     During the years ended September 30, 1999, 1998 and 1997, 91,252, 0 and
     66,728 shares of common stock were granted to management. The shares vest
     in equal increments over a five-year period beginning one year from the
     grant date. Compensation expense related to vesting of MRP shares was
     $362,790, $212,459 and $78,881 for the years ended September 30, 1999, 1998
     and 1997, respectively.

(16) Employee Stock Ownership Plan
     -----------------------------

     The Company maintains an Employee Stock Ownership Plan (ESOP) for eligible
     employees. The ESOP has a loan used to acquire shares of common stock of
     the Company. Such stock is pledged as collateral for the loan. In
     accordance with the requirements of Statement of Position (SOP) 93-6, the
     Company presents the outstanding loan amount as an other liability and as a
     reduction of stockholders' equity in the accompanying consolidated balance
     sheets. Company contributions to the ESOP, which are at the discretion of
     the Board of Directors, are the primary source of funds used by the ESOP to
     service the debt. Contributions of $146,814, $158,729 and $169,428 were
     charged to operations for the years ended September 30, 1999, 1998 and
     1997, respectively. In accordance with SOP 93-6, the Company is required to
     record compensation expense or income for the difference between the cost
     of the stock to the ESOP at the time of purchase and the market value of
     the stock at the time shares are released to ESOP participants.
     Compensation expense recorded under the ESOP was $180,130, $187,592, and
     $32,152 for the years ended September 30, 1999, 1998 and 1997,
     respectively.

                                       49
<PAGE>

(17) Earnings Per Share
     ------------------

    The following is a summary of the earnings per share (EPS) calculation for
    the years ended September 30, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                       1999
                                                       ----

                                        INCOME         SHARE      PER SHARE
                                      (NUMERATOR)  (DENOMINATOR)    AMOUNT
                                      -----------  -------------  ---------
     <S>                              <C>          <C>            <C>
     Basic EPS                        $5,972,778      3,386,851     $  1.76
                                                                    =======

     Effect of dilutive securities:
     Stock options                             -         91,120
     Unearned ESOP Shares                      -         92,185
                                      ----------      ---------

     Diluted EPS                      $5,972,778      3,570,156     $  1.67
                                      ==========      =========     =======
</TABLE>

<TABLE>
<CAPTION>
                                                       1998
                                                       ----

                                        INCOME        SHARE       PER SHARE
                                      (NUMERATOR)  (DENOMINATOR)    AMOUNT
                                      ----------   ------------   ---------
     <S>                              <C>          <C>            <C>
     Basic EPS                        $1,262,043      4,199,237     $  0.30
                                                                    =======

     Effect of dilutive securities:
     Stock options                             -        101,790
     Unearned ESOP Shares                      -        105,354
                                      ----------      ---------

     Diluted EPS                      $1,262,043      4,406,381     $  0.29
                                      ==========      =========     =======
</TABLE>

<TABLE>
<CAPTION>
                                                        1997
                                                        ----

                                        INCOME         SHARE      PER SHARE
                                      (NUMERATOR)  (DENOMINATOR)   AMOUNT
                                      ----------   ------------   ---------
     <S>                              <C>          <C>            <C>
     Basic EPS                        $1,728,363      4,174,528     $  0.41
                                                                    =======

     Effect of dilutive securities:
     Stock options                             -         29,172
     Unearned ESOP Shares                      -        119,115
                                      ----------      ---------

     Diluted EPS                      $1,728,363      4,322,815     $  0.40
                                      ==========      =========     =======
</TABLE>

(18) Commitments and Contingencies
     -----------------------------

     In conjunction with its lending activities, the Company enters into various
     commitments to extend credit and issue letters of credit. Loan commitments
     (unfunded loans and unused lines of credit) and letters of credit are
     issued to accommodate the financing needs of the Bank's customers. Loan
     commitments are agreements to lend moneys at a future date, so long as
     there are no violations of any conditions established in the agreement.
     Letters of credit commit the Company to make payments on behalf of
     customers when certain specified events occur.

                                       50
<PAGE>

(18) Commitments and Contingencies, Continued
     ----------------------------------------

     Financial instruments where the contract amount represents the Company's
     credit risk at September 30, 1999 and 1998, include loan and letter of
     credit commitments of $44,852,000, and $35,815,000, respectively.

     These loan and letter of credit commitments are subject to the same credit
     policies and reviews as loans on the balance sheet. Collateral, both the
     amount and nature, is obtained based upon management's assessment of the
     credit risk. Since many of the extensions of credit are expected to expire
     without being drawn, the total commitment amounts do not necessarily
     represent future cash requirements.

     Outstanding commitments on mortgage loans not yet closed amounted to
     approximately $9,000,000, and $22,697,000 at September 30, 1999 and 1998,
     respectively. Substantially, all of these commitments were at variable
     interest rates. Such commitments, which are funded subject to certain
     limitations, extend over varying periods of time with the majority being
     funded within thirty days. These commitments will be funded with the cash
     flow generated from normal operations, as well as possible utilization of
     existing credit facilities available to the Company.

(19) Carrying Amounts and Fair Value of Financial Instruments
     --------------------------------------------------------

     SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
     requires disclosure of fair value information, requires disclosure of fair
     value information, whether or not recognized in the balance sheets, when it
     is practical to estimate the fair value. SFAS No. 107 defines a financial
     instrument as cash, evidence of an ownership interest in an entity or
     contractual obligations which require the exchange of cash or other
     financial instruments. Certain items are specifically excluded from the
     disclosure requirements, including the Company's common stock, premises and
     equipment, accrued interest receivable and payable, and other assets and
     liabilities.

     For cash and cash equivalents and FHLB stock, the carrying value is a
     reasonable estimate of fair value.

     For investment securities available for sale, mortgage-backed securities
     and collateralized mortgage obligations, fair value is based on available
     quoted market prices or quoted market prices for similar securities if a
     quoted market price is not available.

     The fair value of the limited partnership is based on an appraised value by
     an independent appraiser.

     The fair value of fixed rate loans is estimated based upon discounted
     future cash flows using discount rates comparable to rates currently
     offered for such loans. The discounted future cash flows reflect estimated
     maturity dates adjusted for expected prepayments. For adjustable rate
     loans, the fair value is equal to the carrying amount due to frequent
     repricing.

     The fair value of time deposits is estimated by discounting the amounts
     payable at the certificate rates currently offered for deposits of similar
     remaining maturities. The fair value of all other deposit account types is
     the amount payable on demand at year-end.

                                       51
<PAGE>

(19) Carrying Amounts and Fair Value of Financial Instruments, Continued
     -------------------------------------------------------------------

     For FHLB Advances, fair value is estimated based on discounting amounts
     payable at the current rates offered to the Company for debt of the same
     remaining maturities.

     The fair value of securities sold under agreements to repurchase is equal
     to the carrying amount due to their short maturities.

     The carrying amounts and calculated fair values of the Company's financial
     instruments are as follows at September 30, 1999 and 1998:

<TABLE>
<CAPTION>

                                                        1999                             1998
                                              --------------------------       --------------------------
                                                Carrying     Calculated          Carrying     Calculated
                                                 Amount      Fair Value           Amount      Fair Value
                                                 ------      ----------           ------      ----------
      <S>                                     <C>           <C>                <C>           <C>
      Financial assets:
         Cash and cash equivalents            $ 15,546,360  $ 15,546,360       $ 21,197,419  $ 21,197,419
         Investment in limited partnership       1,575,373     1,575,373            825,373       825,373
         Investment securities available
           for sale                             16,243,703    16,243,703         23,300,684    23,300,684
         Federal Home Loan Bank stock            3,650,000     3,650,000          3,289,200     3,289,200
         Mortgage-backed securities and
           collateralized mortgage
           obligations                          58,384,541    58,384,541         73,933,292    73,933,292


         Loans receivable                      255,488,141   255,971,599        219,896,116   220,019,468

      Financial liabilities:
         Deposits
           Demand deposits                      85,371,216    84,789,908         76,197,580    76,311,647
           Certificate accounts                135,885,869   136,018,943        131,593,195   131,511,270
         Advances from the FHLB                 73,000,000    72,901,130         56,000,000    55,356,682
         Securities sold under agreements
            to repurchase                       20,254,436    20,254,436         20,173,933    20,173,933
</TABLE>

     The Company had $53,900,000 of off-balance sheet financial commitments,
     which are commitments to originate loans and unused consumer lines of
     credit. Since these obligations are based on current market rates, the
     carrying amount is considered to be a reasonable estimate of fair value.

     Fair value estimates are made at a specific point in time, based on
     relevant market information and information about the financial instrument.
     These estimates do not reflect any premium or discount that could result
     from offering for sale the Company's entire holdings of a particular
     financial instrument. Because no active market exists for a significant
     portion of the Company's financial instruments, fair value estimates are
     based on judgments regarding future expected loss experience, current
     economic conditions, current interest rates and prepayment trends, risk
     characteristics of various financial instruments, and other factors. These
     estimates are subjective in nature and involve uncertainties and matters of
     significant judgment and therefore cannot be determined with precision.
     Changes in any of these assumptions used in calculating fair value would
     also significantly affect the estimates. Further, the fair value estimates
     were calculated as of September 30, 1999 and 1998. Changes in market
     interest rates and prepayment assumptions could significantly change the
     fair value. Therefore, management believes that the foregoing information
     is of

                                       52
<PAGE>

(19) Carrying Amounts and Fair Value of Financial Instruments, Continued
     -------------------------------------------------------------------

     limited value and has no basis for determining whether the fair value
     presented would be indicative of the value which could be negotiated during
     an actual sale.

     Fair value estimates are based on existing on and off-balance sheet
     financial instruments without attempting to estimate the value of
     anticipated future business and the value of assets and liabilities that
     are not considered financial instruments. For example, the Company has
     significant assets and liabilities that are not considered financial assets
     or liabilities including deposit franchise value, loan servicing portfolio,
     real estate, deferred tax liabilities, premises and equipment, and
     goodwill. In addition, the tax ramifications related to the realization of
     the unrealized gains and losses can have a significant effect on fair value
     estimates and have not been considered in any of these estimates.

(20) Dividends
     ---------

     On April 14, 1998, the Company completed a conversion and reorganization
     from a mutual to a stock form of organization. A special liquidation
     account was established by the Bank for the preconversion retained earnings
     of approximately $12.9 million. The liquidation account will be maintained
     for the benefit of depositors who held a savings or demand account as of
     the June 30, 1996 eligibility or the December 31, 1997 supplemental
     eligibility record dates who continue to maintain their deposits at the
     Bank after the conversion. In the event of a future liquidation (and only
     in such an event), each eligible and supplemental eligible account holder
     who continues to maintain his or her savings account will be entitled to
     receive a distribution from the liquidation account. The total amount of
     the liquidation account will be decreased in an amount proportionately
     corresponding to decreases in the savings account balances of eligible and
     supplemental eligible account holders on each subsequent annual
     determination date. Except for payment of dividends by the Bank to the
     Company and repurchase of the Company's stock, the existence of the
     liquidation account will not restrict the use or application of such net
     worth.

     The Bank is prohibited from declaring cash dividends on its common stock or
     repurchasing its common stock if the effect thereof would cause its net
     worth to be reduced below either the amount required for the liquidation
     account or its minimum regulatory capital requirement. In addition, the
     Company is also prohibited from declaring cash dividends and repurchasing
     its own stock without prior regulatory approval in any amount in a calendar
     year in excess of 100% of its current year's net income to the date of any
     such dividend or repurchase, plus 50% of the excess of its capital at the
     beginning of the year over its regulatory capital requirement.

                                       53
<PAGE>

(21) Condensed Financial Information For SouthBanc Shares, Inc.
     ----------------------------------------------------------

     The following are condensed statements of the Company (in thousands):

<TABLE>
<CAPTION>

     Condensed Balance Sheets                  September 30, 1999   September 30, 1998
                                               ------------------   ------------------
     <S>                                       <C>                  <C>
      Assets
       Cash and cash equivalents                     $  4,976             $ 10,572
       Investment securities                            4,790               10,837
       Investment in bank subsidiary                   41,802               52,735
       ESOP loan                                          622                  711
       Other assets                                     1,171                  110
                                                     --------             --------
       Total Assets                                  $ 53,361             $ 74,965
                                                     ========             ========

     Liabilities and Stockholders' Equity
       Liabilities                                   $    610             $    558
       Stockholders' Equity                            52,751               74,407
                                                     --------             --------
     Total Liabilities and Stockholders' Equity      $ 53,361             $ 74,965
                                                     ========             ========
</TABLE>

<TABLE>
<CAPTION>
 -----------------------------------------------------------------------------------------------------------------
                                                                                               For The Period From
                                                                                                 April 14, 1998
                                                                    For The Year Ended           (Inception) to
                                                                    September 30, 1999          September 30, 1998
                                                                    ------------------          ------------------
    <S>                                                             <C>                        <C>
    Condensed Statements of Income
          Equity in undistributed net income of
             bank subsidiary                                              $  5,394                    $    904
          Interest income - investment securities                            1,368                         576
          Other expenses                                                      (789)                       (218)
                                                                          --------                    --------
               Net Income                                                 $  5,973                    $  1,262
                                                                          ========                    ========
 -----------------------------------------------------------------------------------------------------------------
     Condensed Statements of Cash Flows
       Cash flow from operating activities:
          Net income                                                      $  5,973                    $  1,262
          Adjustments to reconcile net income to net cash
             provided by (used in) operating activities:
          Undistributed net income of bank subsidiary                       (5,394)                       (904)
          Increase in other assets                                          (1,061)                       (110)
          Increase (decrease) in other liabilities                            (197)                        558
                                                                          --------                    --------
          Net cash provided by (used in) operating activities                 (679)                        806


     Cash flow from investing activities:

          Purchase (sale) of investment securities                           6,047                     (10,876)
          Increase (decrease) in ESOP loan                                      89                        (711)
                                                                          --------                    --------
          Net cash provided by (used in) investing activities                6,136                     (11,587)

     Cash flow from financing activities:

         Proceeds from sale of stock                                             -                      22,033
         Dividends paid                                                     (1,775)                     (1,489)
         Purchase of treasury stock                                        (24,346)                          -
         Exercise of stock options                                              68                          33
         Dividends received                                                 15,000                         776
                                                                          --------                    --------
          Net cash provided by (used in) financing
             activities                                                    (11,053)                     21,353
                                                                          --------                    --------
         Net increase (decrease) in cash and cash
             equivalents                                                    (5,596)                     10,572
         Cash and cash equivalents, beginning of year                       10,572                           -
                                                                          --------                    --------
         Cash and cash equivalents, end of year                           $  4,976                    $ 10,572
                                                                          ========                    ========
 -----------------------------------------------------------------------------------------------------------------
</TABLE>

                                       54
<PAGE>

(22)    Quarterly Results of Operations (Unaudited)

        Summarized unaudited quarterly operating results for the years ended
        September 30, 1999 and 1998 are as follows (in thousands, except share
        data):

<TABLE>
<CAPTION>
                                                                     First         Second          Third        Fourth
                                                                    Quarter        Quarter        Quarter       Quarter
                                                                    -------        -------        -------       -------
<S>                                                            <C>           <C>               <C>            <C>
September 30, 1999:
        Interest income                                        $     6,519   $     6,494       $    6,569     $     6,646
        Interest expense                                             3,333         3,444            3,334           3,327
                                                               -----------   -----------       ----------     -----------

        Net interest income                                          3,186         3,050            3,235           3,319
        Provision for loan losses                                       80            80              170             151
                                                               -----------   -----------       ----------     -----------

        Net interest income after provision for loan losses          3,106         2,970            3,065           3,168
        Noninterest income                                           1,505         1,207            1,261           1,176
        Recapture of losses on limited partnership                       -             -             (400)           (350)
        Noninterest expense                                          2,119         2,167            2,346           2,687
                                                               -----------   -----------       ----------     -----------

        Income before income taxes                                   2,492         2,010            2,380           2,007
        Income taxes                                                   870           605              783             658
                                                               -----------   -----------       ----------     -----------

        Net income                                             $     1,622   $     1,405       $    1,597     $     1,349
                                                               ===========   ===========       ==========     ===========

        Basic earnings per common share                        $      0.40   $      0.43       $     0.51     $      0.43
        Diluted earnings per common share                      $      0.39   $      0.40       $     0.48     $      0.40

        Weighted average shares outstanding
               Basic                                             4,061,389     3,288,729        3,137,542       3,121,361
               Diluted                                           4,154,804     3,483,601        3,350,282       3,344,502

September 30, 1998:
-------------------
        Interest income                                        $     5,073   $     5,688       $    6,378     $     6,798
        Interest expense                                             2,741         3,156            3,073           3,285
                                                               -----------   -----------       ----------     -----------

        Net interest income                                          2,332         2,532            3,305           3,513
        Provision for loan losses                                       88           175               40             304
                                                               -----------   -----------       ----------     -----------

        Net interest income after provision for loan losses          2,244         2,357            3,265           3,209
        Noninterest income                                             719           949              877           1,216
        Provision for losses on limited partnership                      -             -              100           4,400
        Noninterest expense                                          2,000         2,160            2,226           2,139
                                                               -----------   -----------       ----------     -----------

        Income (loss) before income taxes                              963         1,146            1,816          (2,114)
        Income taxes                                                   328           389              610            (778)
                                                               -----------   -----------       ----------     -----------

        Net income (loss)                                      $       635   $       757       $    1,206     $    (1,336)
                                                               ===========   ===========       ==========     ===========

        Basic earnings (loss) per common  share                $      0.15   $      0.18       $     0.28     $     (0.31)
        Diluted earnings (loss) per common share               $      0.14   $      0.17       $     0.27     $     (0.30)

        Weighted average shares outstanding
               Basic                                             4,302,763     4,302,763        4,304,596       4,306,410
               Diluted                                           4,404,281     4,412,576        4,411,353       4,400,474
</TABLE>

                                       55
<PAGE>

(23) Subsequent Event
     ----------------

     On October 15, 1999, the Company announced plans to repurchase up to
     250,299 of its outstanding common stock. The repurchase program began
     October 20, 1999, and is expected to be completed over the next six months.
     As of November 12, 1999, the Company has repurchased 56,500 shares of its
     common stock at a cost of $1,230,275.

                                       56
<PAGE>

                             CORPORATE INFORMATION


Executive and Senior Officers                   Title
-----------------------------                   -----

     Robert W. "Lujack" Orr                  President/CEO
     Thomas C. Hall                          Senior Vice President
     Barry C. Visioli                        Senior Vice President
     Sylvia B. Reed                          Corporate Secretary
     John W. Dawkins                         Vice President
     David L. Peters                         Vice President
     James P. Vickery                        Vice President
     Doris W. Hoover                         Vice President
     Teresa A. Hix                           Vice President
     Quinnette Morrison                      Vice President
     Rose Alice Robinson                     Vice President

<TABLE>
<CAPTION>
Directors                                            Occupation
---------                                            ----------
<S>                                <C>
     Richard C. Ballenger          President, City Glass Company and  D&B Glass Company, Inc., a
                                        glass company
     Martha S. Clamp               Certified Public Accountant
     F. Stevon Kay                 President, Hill Electric Company, Inc., an electrical contractor
     Jack F. McIntosh              Attorney
     Robert W. "Lujack" Orr        President/CEO, SouthBanc Shares, Inc.
     H. A. Pickens, Jr.            Retired owner of Harold A. Pickens & Sons, Inc., a commercial
                                        construction contractor
     C. G. Seabrook, Jr.           Mentor
     Jim Gray Watson               Retired President Perpetual Bank FSB
</TABLE>

<TABLE>
<CAPTION>
Director Emeriti                   Occupation
----------------                   ----------
<S>                                <C>
     Charles W. Fant, Jr.          Partner, Fant & Fant Architects, an architectural firm
     J. Roy Martin, Jr.            Retired Chairman of Martin Roofing Company, a commercial
                                        roofing contractor
     Wade A. Watson, Jr.           Retired President of Perpetual Bank FSB
</TABLE>

Form 10-K
---------
A copy of the Company's Annual Report on Form 10-K as filed with the Securities
and Exchange Commission  for the year ended September 30, 1999, may be obtained
without charge by writing to Thomas C. Hall, Chief Financial Officer, 907 North
Main Street, Anderson, South Carolina 29621.

Annual Meeting of Stockholders
------------------------------
The Annual Meeting of Stockholders will be held on Thursday, January 20, 2000,
at 10:00 A. M. Eastern Time at the Main Office located at 907 North Main Street,
Anderson, South Carolina.

                                       57
<PAGE>

                  MARKET FOR COMMON STOCK AND DIVIDEND POLICY

SouthBanc Shares' common stock is traded on the Nasdaq National Market under the
symbol "SBAN".  As of November 16, 1999, there were approximately 1,450
registered shareholders. The holders of common stock are entitled to receive
dividends when and as declared by the Board of Directors.  The payment of
dividends by the Company is within the discretion of the Company's Board of
Directors.  The ability of the Company to declare and pay cash dividends depends
primarily on the ability of the Savings Bank to pay cash dividends to the
Company.  See Note 20 of the Notes to the Consolidated Financial Statements for
the regulatory restrictions applicable to the Company's ability to pay cash
dividends.

The table below presents the range of high and low per share bid prices and
dividends, adjusted for the effect of the Conversion and Reorganization on April
14, 1998, declared during the quarter.  The Company's common stock began trading
on April 15, 1998.  Data presented before that date is for the common stock of
the Savings Bank.

<TABLE>
<CAPTION>
                                  HIGH             LOW            DIVIDEND
                                  ----             ---            --------
<S>                              <C>              <C>             <C>
December 31, 1997                $22.97           $17.71            $0.12

March 31, 1998                   $23.40           $20.95            $0.12

June 30, 1998                    $23.76           $18.50            $0.12

September 30, 1998               $20.75           $15.00            $0.12

December 31, 1998                $20.88           $15.25            $0.12

March 31, 1999                   $20.63           $18.38            $0.12

June 30, 1999                    $23.25           $18.88            $0.15

September 30, 1999               $25.00           $19.25            $0.15
</TABLE>

                                       58
<PAGE>

                               Corporate Offices
                               -----------------
                            SouthBanc Shares, Inc.
                             907 North Main Street
                        Anderson, South Carolina 29621

                         Perpetual Bank Branch Offices
                         -----------------------------

                               Northtowne Branch
                             3898 Liberty Highway
                        Anderson, South Carolina 29621

                               Perpetual Square
                             2125 North Highway 81
                        Anderson, South Carolina 29621

                                 Seneca Office
                                1007 Bypass 123
                         Seneca, South Carolina 29678

                                Watson Village
                            2821 South Main Street
                        Anderson, South Carolina 29626

                               Whitehall Office
                              104 Whitehall Road
                        Anderson, South Carolina 29625



                             Independent Auditors
                             --------------------
                         Elliott, Davis & Company LLP
                          Greenville, South Carolina


                          Special Securities Counsel
                          --------------------------
                        Muldoon, Murphy & Faucette LLP
                               Washington, D. C.


                                       59