EXHIBIT 13
                                        
                                        
<TABLE>                                        

Selected Financial Information and Other Data:

<CAPTION>
                                                                At September 30,
                                                           1998        1997       1996
                                                          -------    --------    -------
                                                            (Dollars in thousands)
                                                                                  
<S>                                                       <C>        <C>         <C>
Total amount of:
  Assets                                                  $66,820    $70,885     $63,861
  Cash and interest-bearing time deposits in banks          9,591      9,887       3,868
  Investment securities                                     3,553      8,911       9,945
  Mortgage-backed securities                                6,876      7,610       8,450
  Loans receivable, net                                    45,846     42,999      39,601
  Deposits                                                 55,557     55,875      57,138
  Equity                                                   11,101     14,470       5,685
                                                                                  
</TABLE>

<TABLE>

Summary of Earnings:

<CAPTION>

                                                               Year Ended September 30,
                                                               1998        1997        1996
                                                              -------     -------    -------
                                                                 (Dollars in thousands)
                                                                                 
<S>                                                           <C>         <C>        <C>
Interest income                                               $ 5,236     $ 5,048    $ 4,642
Interest expense                                                2,426       2,435      2,574
                                                              -------     -------    -------
Net interest income                                             2,810       2,613      2,068
Provision for loan losses                                           0           0        190
                                                              -------     -------    -------
Net interest income after provision for loan losses             2,810       2,613      1,878
Non-interest income, net                                          180         188        242
Non-interest expense, net                                       1,701       1,572      1,781
                                                              -------     -------    -------
Income before provision for income taxes                        1,289       1,229        339
Income tax expense                                                466         437        118
                                                              -------     -------    -------
Net income                                                    $   823     $   792    $   221
                                                              =======     =======    =======
</TABLE>

<PAGE>

<TABLE>

Selected Financial Ratios:

<CAPTION>
                                                              Year Ended September 30,
                                                              1998      1997       1996
                                                             -------    -------    ------
                                                               (Dollars in thousands)
<S>                                                          <C>        <C>        <C>
Performance ratios:                                                                 
  Return on average assets                                     1.2%       1.1%        .3%
  Return on average equity                                     6.8        5.8        3.9
  Interest rate spread (1)                                     3.4        3.0        3.0
  Net interest margin (2)                                      4.1        3.8        3.3
  Ratio of noninterest expenses to average assets              2.4        2.2        2.8
Average equity to average assets                              17.3       19.1        9.0
Average interest-earning assets to average                                          
  interest-bearing liabilities                               120.3      121.7      107.3
                                                                                    
Assets quality ratios:                                                              
  Nonperforming assets to total assets (3)                      .2         .4         .2
  Nonperforming loans to total loans (3)                        .2         .6         .4
  Allowance for loan losses to total loans                     1.7        1.9        1.9
  Allowance for loan losses to nonperforming loans (3)       763.9      304.2      524.2
                                                                                    

(1) Interest rate spread represents the difference between the weighted
    average yield on interest-earning assets and weighted average rate paid
    on interest-bearing liabilities.
   
(2) Net interest margin represents annualized net interest income as a
    percentage of average interest-earning assets.
   
(3) Nonperforming loans consist of nonaccrual loans and accruing loans 90 days
    or more delinquent and nonperforming assets consist of nonperforming loans
    and real estate owned.

</TABLE>

<PAGE>
                                        
                           COMMON STOCK DATA
                                   


The Company's common stock began trading on the NASDAQ on December 23,
1996, under the symbol "SCBS."  At September 30, 1998, there were
1,080,482 shares of the common stock outstanding and approximately 350
stockholders of record.  The following table sets forth information as
to high and low sales prices of the Company's common stock and cash
dividends per share of common stock for the calendar quarters
indicated.

<TABLE>
<CAPTION>

                               Price Per Share      Dividends Per Share
                               ----------------     -------------------
                               High      Low         Regular   Special
                               ------    ------     --------   --------
   <S>                         <C>       <C>          <C>       <C>
   Fiscal 1998:                                         
      First quarter            19.00     17.00        0.075     0.00
      Second quarter           20.00     17.50        0.000     2.50
      Third quarter            19.75     14.75        0.075     0.00
      Fourth quarter           17.75     14.75        0.075     0.00
                                                           
   Fiscal 1997:                                         
      First quarter            13.75     12.25        0.000     0.00
      Second quarter           13.50     13.00        0.075     0.00
      Third quarter            14.63     13.50        0.075     0.00
      Fourth quarter           16.75     14.75        0.075     0.00
                                                           
</TABLE>

<PAGE>

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

The principal business of the Association consists of accepting
deposits from the general public and investing those funds in loans
secured by one- to four-family residential properties located in the
Association's primary market area and loans for other general purposes
to individuals and businesses.  The Association's securities portfolio
consists primarily of U.S. Treasury notes and government agency
securities and mortgage-backed securities.

The Association's earnings are primarily dependent upon its net
interest income, the difference between interest income and interest
expense.  Interest income is a function of the balances of loans and
investments outstanding during a given period and the yield earned on
such loans and investments.  Interest expense is a function of the
amount of deposits outstanding during the same period and interest
rates paid on such deposits.  The Association's earnings are also
affected by provisions for loan losses, service charges, and other
noninterest income, operating expenses, and income taxes.

The Association is significantly affected by prevailing economic
conditions, as well as government policies and regulations concerning,
among other things, monetary and fiscal affairs, housing, and
financial institutions.  Deposit flows are influenced by a number of
factors, including interest rates paid on competing investments,
account maturities, and the level of personal income and savings
within the Association's market.  In addition, deposit growth is
affected by how customers perceive the stability of the financial
services industry amid various current events such as regulatory
changes, failures of other financial institutions, and financing of
the deposit insurance fund.  Lending activities are influenced by the
demand for and supply of housing lenders, the availability and cost of
funds, and various other items.  Sources of funds for lending
activities of the Association include deposits and income provided
from operations.

Changes in Financial Condition

At September 30, 1998, the Company's assets totaled $66.8 million, as
compared to $70.9 million at September 30, 1997.  Total assets
decreased by $4.1 million, or 5.7%, from September 30, 1997 to
September 30, 1998.  The decrease in total assets during this period
resulted from funding of a $2.2 million special dividend in the form
of a return of capital, $1.3 million in stock purchased for benefit
plan trusts and contributions to benefit plan trusts, and the purchase
of $800,000 in treasury stock.  This was reflected in decreases in
interest bearing deposits of $2.4 million, mortgage-backed securities
of $700,000 and investment securities of $5.4 million.  The decreases
in investment and mortgage-backed securities were primarily due to
maturities and significant prepayments due to the decreasing rate
environment.  These decreases were partially offset by a $1.0 million
increase in fed funds sold and a $2.8 million increase in loans.  The
increase in loans reflected the Company's continued emphasis to invest
excess funds in loans, especially one-to-four family residential
loans.

During the fiscal year ended September 30, 1998, total deposits
remained relatively constant, decreasing by only $300,000, or 0.6%, to
$55.6 million.  Total equity decreased by $3.4 million, primarily as a
result of the special dividend, the contribution to benefit plan
trusts and the purchase of treasury stock.

Results of Operations for the Years Ended September 30, 1998, 1997,
and 1996

The Company had net income of $823,000 for the year ended
September 30, 1998 compared to net income of $792,000 for fiscal 1997.
The $823,000 in net income represented a 4.0% increase over fiscal
1997.  The Company's net income of $792,000 for the fiscal year ended
September 30, 1997 represented an increase of $571,000 or 258.3%, from
fiscal 1996.  This increase from fiscal 1996 to fiscal 1997 was
primarily the result of the SAIF assessment during 1996.

Total interest income increased by $197,000, or 7.5%, in fiscal year
ended September 1998 compared to fiscal year ended September 30, 1997.
The increase was primarily the result of an increase in the average
yield on interest earning assets, primarily on loans.

Interest income increased by $735,000, or 39.2%, during the fiscal
year ended September 1997 compared to fiscal 1996.  Such increase was
due primarily to an increase in interest income as a result of
investing the stock offering proceeds in the average balance of
deposits.  The decrease in deposits was the result of withdrawals from
deposit accounts maintained with the association for payment of the
Company's common stock during the stock offering.

Provision for Loan Losses

The Association did not record a provision for loan losses during the
fiscal year ended September 30, 1998 or 1997 compared to a $190,000
provision during fiscal 1996.  The provision in fiscal 1996 was made
in order to adjust the allowance for the increased volume of mortgage
loans as well as the expansion of consumer and commercial lending.
Favorable charge-off experience since that time has not warranted
additions to the allowance.  Commercial and consumer loans
traditionally have higher rates of default and are secured by
collateral that often depreciates or is less liquid than the real
estate securing mortgage loans.

The Association's methodology for evaluating the adequacy of its
allowance for loan losses, which conforms with GAAP, considers
collateral valuation, changes in the loan portfolio mix, and certain
economic indicators, causing it to be a leading indicator of inherent
risk in the loan portfolio.  Accordingly, it is not necessarily
reflective of past trends in charge-offs and other factors.  The
methodology incorporates economic indicators such as growth in
personal income and unemployment rates as well as other economic
indicators affecting the Association's market area and considers
higher risk loan groups, including growth in the Association's
consumer and multi-family and non-residential loan portfolios.

Non-Interest Income

Non-interest income declined slightly to $180,000 in fiscal 1998.
Non-interest income amounted to $187,000 for the fiscal year ended
September 30, 1997 compared to $242,000 for fiscal 1996.  The primary
differences in non-interest income between fiscal 1998 and fiscal 1997
and between fiscal 1997 and fiscal 1996 were from reductions in fees
from deposit accounts.

Non-Interest Expenses

Non-interest expenses amounted to $1.7 million during the fiscal year
ended September 30, 1998, a $129,000, or 8.2%, increase over the $1.6
million of non-interest expenses during the year ended September 30,
1997.  The primary reason for the increase in non-interest expenses in
fiscal 1998 compared to fiscal 1997 was implementation of the
Management Retention Plan ("MRP") during fiscal 1998.  The primary
reason for the decrease in non-interest expenses in fiscal 1997
compared to fiscal 1996 was the 1996 one-time special assessment of
$370,000 on SAIF insured deposits as of March 31, 1996 which was
partially offset by the $150,000 increase in compensation and benefits
which resulted from increased personnel, merit raises, and $95,000 in
ESOP expense which was new in fiscal 1997.

Income Taxes

The provisions for income taxes were $466,000, $437,000, and $118,000
in fiscal 1998, 1997, and 1996, respectively.  The changes in such
respective amounts primarily reflect the fluctuations in levels of
income before income taxes of the Company during those fiscal years of
$1,289,000, $1,229,000, and $339,000, respectively.

Net Interest Income

The Company's net interest income is determined by its interest rate
spread (i.e., the difference between the yields earned on its
interest-earning assets and the rates paid on its interest-bearing
liabilities) and the relative amounts of interest-earning assets and
interest-bearing liabilities.

Total interest income increased by $188,000, or 3.7%, in the fiscal
year ended September 30, 1998 compared to fiscal 1997.  The increase
was due primarily to an increase in interest on loans of $479,000
resulting from an increase in loan volume.  Interest income from other
interest earning assets decreased $291,000 as the average balances
decreased.

Total interest income increased by $406,000, or 8.8%, in the fiscal
year ended September 30, 1997 compared to fiscal 1996.  The increase
was due primarily to an increase in income and dividends on securities
held to maturity and securities available for sale (including
mortgage-backed securities and investment securities) increased
$156,000, or 14.9% resulting from an increase in the average balances
resulting from investing the stock offering proceeds.  Interest income
from other interest earning assets increased $159,000, or 77.9%, as
the average balance increased due to investing the proceeds from the
stock offering.

Liquidity and Capital Resources

The Association is required under applicable federal regulations to
maintain specified levels of "liquid" investments in qualifying types
of United States Government, federal agency, and other investments
having maturities of five years or less.  Current OTS regulations
require that a savings association maintain liquid assets of not less
than 5% of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less, of which
short-term liquid assets must consist of not less than 1%.  Monetary
penalties may be imposed for failure to meet applicable liquidity
requirements.  At September 30, 1998, the Association's liquidity, as
measured for regulatory purposes, was in excess of the minimum OTS
requirement.

Cash was generated by the Association's operating activities during
the years ended September 30, 1998 and 1997 primarily as a result of
net income.  The adjustments to reconcile net income to cash provided
by operating activities during the periods presented consisted
primarily of amortization of premiums and discounts, proceeds from the
sale of loans, and increases or decreases in interest and dividends
receivable, prepaid income taxes, accrued interest payable, and
accrued expenses and other liabilities.  The primary investing
activity of the Association is lending, which is funded with cash
provided by operations, as well as principal collections and
maturities of interest-bearing deposits in banks.  For additional
information about cash flows from the Association's operating,
financing, and investing activities, see the Statements of Cash Flows
included in the Consolidated Financial Statements.

At September 30, 1998, the Association had outstanding $691,000 in
undisbursed portion of mortgage loans.  At the same date, the total
amount of certificates of deposit which are scheduled to mature by
September 30, 1999 was $24.3 million.  The Association believes that
it has adequate resources to fund commitments as they arise and that
it can adjust the rate on savings certificates to retain deposits in
changing interest rate environments.  If the Association requires
funds beyond its internal funding capabilities, advances from the FHLB
of Atlanta are available as an additional source of funds.

The Association is required to maintain specified amounts of capital
pursuant to the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA") and regulations promulgated
thereunder by the OTS.  The capital standards generally require the
maintenance of regulatory capital sufficient to meet a tangible
capital requirement, a core capital requirement, and a risk-based
requirement.  At September 30, 1998, the Association's tangible and
core capital totaled $10.8 million, or 15.8% of adjusted total assets,
which exceeded the respective minimum requirements at that date by
approximately $9.8 million and $8.8 million, respectively, or 14.3%
and 12.8%, respectively.  The Association's risk-based capital totaled
$11.3 million at September 30, 1998, or 29.5% of risk-weighted assets,
which exceeded the current requirement of 8% by approximately
$8.2 million, or 21.5% of risk-weighted assets.

Impact of Inflation and Changing Prices

The financial statements and related financial data presented herein
have been prepared in accordance with GAAP, which requires the
measurement of financial position and operating results in terms of
historical dollars, without considering changes in relative purchasing
power over time due to inflation.

Unlike most industrial companies, virtually all of the Association's
assets and liabilities are monetary in nature.  As a result, interest
rates generally have a more significant impact on a financial
institution's performance than does the effect of inflation.

Year 2000 Problem

A great deal of information has been disseminated about the global
computer crash that may occur in the year 2000.  Many computer
programs that can only distinguish the final two digits of the year
entered (a common programming practice in earlier years) are expected
to read entries for the year 2000 as the year 1900.  All of the
significant data processing of the Association that could be affected
by this problem is provided by a third party service bureau.  The
service bureau of the Association has advised the Association that it
expects to resolve this potential problem before the year 2000.
However, if the service bureau is unable to resolve this potential
problem in time, the Association would likely experience significant
data processing delays, mistakes, or failures.  These delays,
mistakes, or failures could have a material adverse impact on the
financial condition and results of operations of the Association.

Risks to the Company if its computer system are not year 2000
compliant include the inability to process customer deposits or checks
drawn on the Association, inaccurate interest accruals, and maturity
dates of loans and time deposits, and the inability to update accounts
for daily transactions.  Other risks to the Company exist if certain
of its vendors', suppliers', and customers' computer systems are not
Year 2000 compliant.  These risks include the inability of the
Association to communicate with its third party service bureau if
phone systems are not working, the interruption of business in the
event of power outages, the inability of loan customers to comply with
repayment terms if their businesses are interrupted, the inability to
make payment for checks drawn on the Association, receive payment for
checks deposited by the Association's customers, or invest excess
funds if the Federal Home Loan Bank or correspondent banks are not
Year 2000 compliant.  The Company's most important mission critical
system is the software and hardware responsible for maintaining and
processing general ledger, deposits, and loan accounts.  The Company's
Year 2000 Compliance and Contingency Plans are structured in
accordance with the OTS and the FFIEC guidelines.  Remediation and
testing efforts relating to the Year 2000 are on schedule and are
expected to be completed by December 1998.  The Company has contacted
its key vendors, suppliers, and customers to determine their Year 2000
compliance.  The Company estimates that the cost of testing and
updating its systems for Year 2000 compliance will not be material.

Average Balance, Interest, and Average Yields and Rates

The following table sets forth certain information relating to the
Company's average interest-earning assets and interest-bearing liabilities
and reflects the average yield on assets and the average cost of liabilities
for the periods and at the date indicated.  Such yields and costs are
derived by dividing income or expense by the average monthly balance of
assets or liabilities, respectively, for the periods indicated.

The table also presents information for the periods indicated and at
September 30, 1998 with respect to the difference between the weighted
average yield earned on interest-earning assets and the weighted average
rate paid on interest-bearing liabilities, or "interest rate spread,"
which savings institutions have traditionally used as an indicator of
profitability.  Another indicator of an institution's net interest income
is its "net yield on interest-earning assets." which is its net interest
income divided by the average balance of interest-earning assets.  Net
interest income is affected by the interest rate spread and by the relative
amounts of interest-earning assets and interest-bearing liabilities.  When
interest-earning assets approximate or exceed interest-bearing liabilities,
any positive interest rate spread will generate net interest income.

<TABLE>
<CAPTION>

                                                                                      Year Ended September 30,
                                                                 ----------------------------------------------------------------
                                                                              1998                              1997
                                                                 ------------------------------     -----------------------------
                                                                 Average                Yield/      Average                Yield/
                                                                 Balance    Interest     Rate       Balance    Interest    Rate
                                                                 --------   --------    -------     --------   --------   -------
                                                                                       (Dollars in Thousands)
                                                                                                                     
<S>                                                              <C>         <C>        <C>         <C>        <C>        <C>
Interest-earning assets:
  Interest-bearing deposits in other financial institutions      $  9,445    $   483      5.12%     $  7,540    $  363      4.81%
  Investment securities and FHLB stock                              7,082        414      5.84        13,134       731      5.57
  Mortgage-backed securities                                        6,521        381      5.85         8,035       475      5.91
  Loans receivable                                                 45,478      3,958      8.70        40,609     3,479      8.57
                                                                 --------   --------                --------   --------
     Total interest-earning assets                                 68,526      5,236      7.64        69,318    $5,048      7.28
Non-interest-earning assets                                         1,325                              1,859  
                                                                 --------                           --------  
     Total assets                                                $ 69,851                           $ 71,177
                                                                 ========                           ======== 
Interest-bearing liabilities                                     $ 56,949      2,426      4.26      $ 56,950     2,435      4.28
Non-interest-bearing liabilities                                      839                                648  
                                                                 --------                           --------
     Total liabilities                                             57,788                             57,598
                                                                 --------                           -------- 
Equity                                                             12,063                             13,579 
                                                                 --------                           --------
     Total liabilities and retained earnings                     $ 69,851                           $ 71,177
                                                                 ========    --------               ========    ------
Net interest income                                                          $ 2,810                            $2,613
                                                                             ========                           ======
Interest rate spread                                                                      3.38%                             3.00%
                                                                                        =======                           =======
Net interest margin (net interest income as a percentage
 of average interest-earning assets)                                                      4.10%                             3.77%
                                                                                        =======                           =======
Average interest-earning assets to average interest-bearing
 liabilities                                                                            120.33%                           121.72%
                                                                                        =======                           =======
</TABLE>

Rate/Volume Analysis
                                   
The table below sets forth certain information regarding changes in
interest income and interest expense of the Association for the
periods indicated.  For each category of interest-earning asset and
interest-bearing liability, information is provided on changes
attributable to:  (i) changes in volume (changes in volume multiplied
by prior period rate) and (ii) changes in rates (change in rate
multiplied by prior period volume).  Changes in rate-volume (changes
in rate multiplied by changes in volume) are allocated proportionately
between changes in volume and changes in rates.

<TABLE>
<CAPTION>

                                                                          Year Ended September 30,
                                              ---------------------------------------------------------------------------------
                                                      1998 Compared to 1997                       1997 Compared to 1996
                                              ------------------------------------     ----------------------------------------
                                               Increase     Increase                    Increase       Increase
                                              (Decrease)   (Decrease)     Total       (Decrease)     (Decrease)       Total
                                                Due to       Due to      Increase        Due to         Due to        Increase
                                                 Rate        Volume     (Decrease)        Rate          Volume       (Decrease)
                                               --------     --------    ----------     ----------    ----------      ----------
                                                                             (In thousands)
<S>                                              <C>        <C>           <C>          <C>               <C>           <C>
Interest income attributable to:
  Interest-bearing deposits in other                                                                                           
    financial institutions                       $ 24       $   96        $ 120        $   (4)           $163          $ 159
  Investment securities                            38         (355)        (317)           (2)            151            149
  Mortgage-backed securities                       (5)         (89)         (94)           (2)              9              7
  Loans receivable                                 56          423          479             1              90             91
                                                 -----      -------       ------       -------          ------        -------
     Total interest income                        113           75          188            (7)            413            406
                                                 -----      -------       ------       -------          ------        -------
Interest expense attributable to:
  Deposits                                         (9)           0           (9)         (103)            (36)          (139)
                                                 -----      -------       ------       -------          ------        -------
Increase (decrease) in net interest income       $122       $   75        $ 197        $   96            $449          $ 545
                                                 =====      =======       ======       =======          ======        =======
                                   
</TABLE>


<PAGE>
               REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                                   
                                   
                                   
                                   
                                   
                                   
To Southern Community Bancshares, Inc.:


We have audited the accompanying consolidated statements of financial
condition of SOUTHERN COMMUNITY BANCSHARES, INC. (a Delaware
corporation) AND SUBSIDIARY as of September 30, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended
September 30, 1998.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Southern Community Bancshares, Inc. and
subsidiary as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the
period ended September 30, 1998, in conformity with generally accepted
accounting principles.



                                        ARTHUR ANDERSEN LLP



Birmingham, Alabama
November 4, 1998
                                   
                                   
<PAGE>                                   
<TABLE>

               SOUTHERN COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
                                        
                                        
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                        
                           SEPTEMBER 30, 1998 AND 1997

<CAPTION>

                                     ASSETS
                                        
                                                                                       1998           1997
                                                                                  -------------   -------------
<S>                                                                               <C>             <C>
CASH AND DUE FROM BANKS                                                           $  1,614,385    $    579,544
                                                                                                              
INTEREST BEARING DEPOSITS IN BANKS                                                   7,976,978       9,307,720
                                                                                                              
INVESTMENT SECURITIES AVAILABLE-FOR-SALE, at fair value                              2,554,087       7,412,925
                                                                                                              
MORTGAGE-BACKED SECURITIES AVAILABLE-FOR-SALE, at fair value                         6,038,694       5,583,924
                                                                                                              
INVESTMENT SECURITIES HELD-TO-MATURITY, fair value of $1,004,116                                              
   and $1,492,141, respectively                                                        999,042       1,498,407
                                                                                                              
MORTGAGE-BACKED SECURITIES HELD-TO-MATURITY, fair value                                                       
   of $854,528 and $2,033,126, respectively                                            837,224       2,026,416
                                                                                                              
LOANS RECEIVABLE, net                                                               45,846,372      42,998,875
                                                                                                              
ACCRUED INTEREST RECEIVABLE                                                            406,034         469,453
                                                                                                              
PREMISES AND EQUIPMENT, net                                                            297,708         545,564
                                                                                                              
INCOME TAXES RECEIVABLE                                                                203,275         185,579
                                                                                                              
OTHER ASSETS                                                                            46,420         276,604

                                                                                  -------------   -------------
     Total assets                                                                 $ 66,820,219    $ 70,885,011
                                                                                  =============   =============
                      LIABILITIES AND STOCKHOLDERS' EQUITY
                                        
DEPOSITS                                                                          $ 55,557,060    $ 55,874,668
                                                                                                              
ACCRUED INTEREST PAYABLE                                                                90,261         102,304
                                                                                                              
ACCRUED EXPENSES AND OTHER LIABILITIES                                                  72,371         437,922
                                                                                  -------------   -------------
     Total liabilities                                                              55,719,692      56,414,894
                                                                                  -------------   -------------
COMMITMENTS AND CONTINGENCIES
                                                                                                              
PREFERRED STOCK, par value $.01, no shares issued, 100,000 shares authorized                 0               0
                                                                                                              
COMMON STOCK, par value $.01 per share, 3,000,000 shares authorized,                                          
   1,137,350 shares issued and outstanding                                              11,374          11,374
                                                                                                              
ADDITIONAL PAID-IN CAPITAL                                                          10,807,847      10,786,689
                                                                                                              
RETAINED EARNINGS, substantially restricted                                          4,865,649       6,445,252
                                                                                                              
TREASURY STOCK, at cost, 56,868 shares                                                (830,891)              0
                                                                                                              
UNEARNED COMPENSATION                                                               (3,771,076)     (2,736,893)
                                                                                                              
UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES, net of deferred taxes          17,624         (36,305)
                                                                                  -------------   -------------
     Total stockholders' equity                                                     11,100,527      14,470,117
                                                                                  -------------   -------------
     Total liabilities and stockholders' equity                                   $ 66,820,219    $ 70,885,011
                                                                                  =============   =============
                                        
  The accompanying notes are an integral part of these consolidated statements.

</TABLE>

<PAGE>
<TABLE>
                                        
                                        
               SOUTHERN COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
                                        
                                        
                        CONSOLIDATED STATEMENTS OF INCOME
                                        
             FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996


<CAPTION>
                                                                       1998            1997            1996
                                                                     ----------     ----------       ----------
<S>                                                                  <C>            <C>              <C>
INTEREST INCOME:
   Interest and fees on loans                                        $3,958,307     $3,479,134       $3,387,699
   Interest and dividends on investment securities                      413,368        730,798          581,317
   Interest on mortgage-backed and related securities                   381,347        475,408          468,809
   Other interest income                                                483,187        362,505          203,800
                                                                     ----------     ----------       ----------
     Total interest income                                            5,236,209      5,047,845        4,641,625
                                                                                                            
INTEREST EXPENSE--DEPOSITS                                            2,426,019      2,434,567        2,573,461
                                                                     ----------     ----------       ----------
     Net interest income before provision
       for loan losses                                                2,810,190      2,613,278        2,068,164
                                                                                                            
PROVISION FOR LOAN LOSSES                                                     0              0          190,170
                                                                     ----------     ----------       ----------
     Net interest income after provision
       for loan losses                                                2,810,190      2,613,278        1,877,994
                                                                     ----------     ----------       ----------
NONINTEREST INCOME:
   Service charges on deposit accounts                                  175,677        182,225          234,963
   Income (loss) from real estate operations, net                             0              0              838
   Gain on sale of premises and equipment                                 1,313              0            1,500
   Other                                                                  2,807          5,224            4,958
                                                                     ----------     ----------       ----------
     Total non-interest income                                          179,797        187,449          242,259
                                                                     ----------     ----------       ----------
NONINTEREST EXPENSE:
   Compensation and benefits                                          1,015,113        869,414          719,704
   Occupancy and equipment                                              173,374        171,158          180,007
   SAIF deposit insurance                                                35,565         50,310          498,942
   Data processing                                                      140,541        119,329          118,208
   Professional fees                                                     54,854         55,564           45,243
   Other                                                                281,630        306,388          219,137
                                                                     ----------     ----------       ----------
     Total non-interest expense                                       1,701,077      1,572,163        1,781,241
                                                                     ----------     ----------       ----------
     Income before income taxes                                       1,288,910      1,228,564          339,012
                                                                                                            
INCOME TAX EXPENSE                                                      465,510        436,723          118,024
                                                                     ----------     ----------       ----------
     Net income                                                      $  823,400     $  791,841       $  220,988
                                                                     ==========     ==========       ==========
BASIC EARNINGS PER SHARE                                                   $.91           $.66              N/A
                                                                     ==========     ==========       ==========
DILUTED EARNINGS PER SHARE                                                 $.87           $.66              N/A
                                                                     ==========     ==========       ==========
                                        
                                        
  The accompanying notes are an integral part of these consolidated statements.
                                        
</TABLE>

<PAGE>

<TABLE>
                                        
                                        
               SOUTHERN COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
                                        
                                        
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                        
             FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996

<CAPTION>

                                                                                                          Unrealized        
                                                                                                          Gain (Loss)        
                                                                                                             on            
                                                                                                          Available         
                                                                                                           for Sale         
                                                                                                          Securities,        
                                                   Additional                                               Net of          
                                        Common      Paid-In       Retained       Unearned      Treasury    Deferred         
                                        Stock       Capital       Earnings     Compensation     Stock       Taxes         Total
                                        -------   -----------     ----------   -----------     ---------  ----------   ----------
<S>                                     <C>       <C>            <C>           <C>            <C>         <C>         <C>
BALANCE, September 30, 1995             $     0   $         0    $ 5,650,521   $         0    $       0   $ (44,934)  $ 5,605,587
                                                                                                                                   
  Net income                                  0             0        220,988             0            0           0       220,988
  Change in net unrealized gain 
    (loss) on securities 
    available-for-sale, net                   0             0              0             0            0    (141,794)     (141,794)
                                        -------   -----------     ----------   -----------     ---------  ----------   ----------
BALANCE, September 30, 1996                   0             0      5,871,509             0            0    (186,728)    5,684,781
                                                                                                                                   
  Net income                                  0             0        791,841             0            0           0       791,841
  Change in unrealized gain (loss) 
    on securities 
    available-for-sale, net                   0             0              0             0            0     150,423       150,423
  Issuance of common stock               11,374    10,752,273              0      (909,880)           0           0     9,853,767
  Amortization of unearned
    compensation                              0        34,416                       60,824                        0        95,240
  Repurchase of stock for stock  
    plan trusts                               0                            0    (1,878,680)           0           0    (1,878,680)
  Contribution to plan trust                  0             0              0        (9,157)           0           0        (9,157)
  Dividends declared ($.225 per share)        0                     (218,098)                                     0      (218,098)
                                        -------   -----------     ----------   -----------     ---------  ----------   ----------
BALANCE, September 30, 1997              11,374    10,786,689      6,445,252    (2,736,893)           0     (36,305)   14,470,117
                                                                                                                                   
  Net income                                  0             0        823,400             0            0           0       823,400
  Change in unrealized gain (loss) 
    on securities  
    available-for-sale, net                   0             0              0             0            0      53,929        53,929
  Amortization of unearned                                                                                                          
    compensation                              0        21,158              0       225,213            0           0       246,371
  Repurchase of stock for stock 
    plan trusts                               0             0              0      (563,120)           0           0      (563,120)
  Purchase of treasury stock                  0             0              0             0     (830,891)          0      (830,891)
  Contribution to plan trust                  0             0              0      (696,276)           0           0      (696,276)
  Dividends declared ($2.725 per share)       0             0     (2,403,003)            0            0           0    (2,403,003)
                                        -------   -----------    -----------   -----------     ---------  ----------   ----------
BALANCE, September 30, 1998             $11,374   $10,807,847    $ 4,865,649   $(3,771,076)   $(830,891)  $  17,624   $11,100,527
                                        =======   ===========    ===========   ===========     =========  ==========   ==========
                                        
                                        
  The accompanying notes are an integral part of these consolidated statements.
</TABLE>                                        
                                        
<PAGE>
<TABLE>
                                        
               SOUTHERN COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
                                        
                                        
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                        
             FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996


<CAPTION>
                                                                                            1998          1997          1996
                                                                                        ------------  ------------   ------------
<S>                                                                                     <C>           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                            $   823,400   $   791,841    $   220,988
  Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation                                                                             84,746        82,388         82,388
    Amortization and accretion on securities                                                 39,634       (35,252)       (49,120)
    Amortization of unearned ESOP                                                           246,371        95,240              0
    Amortization of net deferred loan origination fees and costs                            (70,023)      (47,407)       (42,452)
    Provision (benefit) for deferred income taxes                                           (57,499)      122,904       (198,635)
    Provision for loan losses                                                                     0             0        190,170
    Loss on sale of foreclosed real estate, net                                                   0             0            291
    Gain on sale of premises and equipment, net                                              (1,313)            0         (1,500)
    Change in assets and liabilities:                             
      Increase (decrease) in income taxes receivable/payable                                  7,781       (81,822)       (98,442)
      Increase (decrease) in accrued interest receivable                                     63,419       (37,443)       (48,029)
      Decrease (increase) in other assets                                                   230,184       363,435       (536,612)
      Decrease in accrued interest payable                                                  (12,043)       (6,461)        (4,513)
      Increase (decrease) in accrued expenses and other liabilities                        (280,250)     (576,802)       693,579
                                                                                        ------------  ------------   ------------
        Total adjustments                                                                   251,007      (121,220)       (12,875)
                                                                                        ------------  ------------   ------------
        Net cash provided by operating activities                                         1,074,407       670,621        208,113
                                                                                        ------------  ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from maturities/calls of investment securities available-for-sale              4,950,000     3,620,636      1,000,000
  Proceeds from maturities/calls of investment securities held-to-maturity                  500,000     2,760,000      3,950,497
  Purchases of investment securities available-for-sale                                           0    (5,272,915)    (4,102,853)
  Purchases of investment securities held-to-maturity                                             0             0              0
  Net loan repayments (originations)                                                     (2,777,474)   (3,350,673)    (1,217,051)
  Proceeds from maturities of mortgage-backed securities available-for-sale               1,647,192     1,072,607        672,582
  Proceeds from maturities of mortgage-backed securities held-to-maturity                 1,183,680       474,148        650,497
  Purchases of mortgage-backed securities available-for-sale                             (2,141,930)     (500,825)    (4,492,120)
  Capital expenditures                                                                      (35,007)      (24,674)       (84,678)
  Proceeds from sale of foreclosed real estate                                                    0             0         43,924
  Proceeds from sale of fixed assets                                                        199,430             0          1,500
                                                                                        ------------  ------------   ------------
        Net cash provided by (used in) investing activities                               3,525,891    (1,221,696)    (3,577,702)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Increase (decrease) in deposits                                                          (317,608)   (1,263,034)     1,129,732
  Net proceeds from public stock offering                                                         0     9,853,767              0
  Repurchase of stock for stock plan trusts                                                (563,120)   (1,878,680)             0
  Contributions to plan trusts                                                             (696,276)       (9,157)             0
  Payment of dividends                                                                   (2,488,304)     (132,797)             0
  Purchase of treasury stock                                                               (830,891)            0              0
                                                                                        ------------  ------------   ------------
        Net cash provided by (used in) financing activities                              (4,896,199)    6,570,099      1,129,732
                                                                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                       (295,901)    6,019,024     (2,239,857)
                                                         
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                            9,887,264     3,868,240      6,108,097
                                                                                        ------------  ------------   ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                                $ 9,591,363   $ 9,887,264    $ 3,868,240
                                                                                        ============  ============   ============
SUPPLEMENTAL DISCLOSURES:                                          
  Cash paid for:                                                  
    Interest on deposits                                                                $ 2,438,062   $ 2,341,955    $ 2,577,974
    Income taxes                                                                            510,979       339,991        418,241
  Transfers from loans to real estate acquired through foreclosure                            7,306             0         38,771
                                                                                        ============  ============   ============
CHANGE IN UNREALIZED NET LOSS ON SECURITIES AVAILABLE-                              
  FOR-SALE, net of deferred taxes                                                       $    53,929   $   150,423    $   141,794
                                                                                        ============  ============   ============
                                        
  The accompanying notes are an integral part of these consolidated statements.

</TABLE>

<PAGE>

          SOUTHERN COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
                                   
                                   
                     NOTES TO FINANCIAL STATEMENTS
                                   
                      SEPTEMBER 30, 1998 AND 1997
                                   
                                   

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   
   Organization, Nature of Operations, and Principles of
   Consolidation
   
Southern Community Bancshares, Inc. (the "Company") was incorporated
in the State of Delaware in July 1996, for the purpose of becoming a
holding company to own all of the outstanding capital stock of First
Federal Savings and Loan Association of Cullman (the "Association")
upon the Association's conversion from a federally chartered mutual
savings association to a federally chartered stock savings association
(the "Conversion").  The accounting for the conversion is in a manner
similar to that utilized in a pooling of interests.

The Association received its federal charter in 1905 and was converted
to a federally chartered stock organization on December 23, 1996
through the sale of all of its common stock to the Company.  The
Association is primarily engaged in the business of obtaining funds in
the form of various savings deposit products and investing those funds
in mortgage loans or single family real estate and, to a lesser
extent, in consumer loans.  The Association operates from its two
offices in the primary market area of Cullman County, Alabama.

The accompanying consolidated financial statements include the
accounts of the Company, and the Association.  All significant
intercompany balances and transactions have been eliminated in
consolidation.

   Use of Estimates
   
The accounting principles and reporting policies of the Company, and
the methods of applying these principles, conform with generally
accepted accounting principles ("GAAP") and with general practices
within the thrift industry.  In preparing the financial statements,
management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period.  Actual
results could differ significantly from those estimates.

Material estimates that are particularly susceptible to significant
changes in the near-term relate to the determination of the allowance
for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans.  In
connection with the determination of the allowances for loan losses
and real estate owned, management obtains independent appraisals for
significant properties, evaluates the overall portfolio
characteristics and delinquencies and monitors economic conditions.

A substantial portion of the Company's loans are secured by real
estate in its primary market area.  Accordingly, the ultimate
collectibility of a substantial portion of the Company's loan
portfolio and the recovery of a portion of the carrying amount of
foreclosed real estate are susceptible to changes in economic
conditions in the Company's primary market areas.

   Cash and Cash Equivalents
   
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, interest-bearing
deposits in banks, and federal funds sold.  Federal funds are
generally purchased and sold for one-day periods.

   Investment and Mortgage-Backed Securities
   
Securities classified as held-to-maturity are stated at cost, adjusted
for amortization of premiums and accretion of discounts on the
constant effective yield method.  Management has the positive intent
and the Company has the ability to hold these securities to maturity.
Available-for-sale securities are carried at fair value, except for
FHLB required stock holding which are carried at cost, and include all
equity securities and debt not classified as held-to-maturity or
trading.  Trading securities are those held principally for the
purpose of selling in the near future and are carried at fair value.
The Company does not currently have any trading securities.

Unrealized gains and losses for trading securities are included in
earnings.  Unrealized gains and losses for available-for-sale
securities are excluded from earnings and reported, net of any income
tax effect, as a separate component of retained earnings.  Realized
gains and losses for securities classified as either
available-for-sale or held-to-maturity are reported in earnings based
on the adjusted cost of the specific security sold.

   Loans Receivable
   
Loans receivable are stated at their unpaid balances, less the
allowance for loan losses and net deferred loan origination fees and
discounts.

The Company ceases accrual of interest on substantially all loans when
payment on a loan is in excess of 90 days past due.  An allowance is
established by a charge to interest income equal to all interest
previously accrued but unpaid.  Interest income is subsequently
recognized only to the extent that cash payments are received until,
in management's judgment, the borrower's ability to make periodic
interest and principal payments is in accordance with the terms of the
loan agreement; in which case the loan is returned to accrual status.

The allowance for loan losses is increased by charges to income and
decreased by loan charge-offs, net of recoveries.  The allowance for
loan losses is maintained at a level which management considers
adequate to absorb losses inherent in the loan portfolio at each
reporting date.  Management's estimation of this amount includes a
review of all loans for which full collectibility is not reasonably
assured and considers, among other factors, prior years' loss
experience, economic conditions, distribution of portfolio loans by
risk class, and the estimated value of the underlying collateral.
Though management believes the allowance for loan losses to be
adequate, ultimate losses may vary from their estimates.  However,
estimates are reviewed periodically, and as adjustments become
necessary, they are reported in earnings in periods in which they
become known.  In addition, various regulatory agencies, as an
integral part of their examination process periodically review the
Company's allowance for losses on loans and the carrying value of
foreclosed real estate.  Such agencies may require the Company to
recognize additions to the allowances based on their judgments about
information available to them at the time of their examinations.

Losses on individually identified impaired loans are measured based on
the present value of expected future cash flows discounted at each
loan's original effective interest rate.  As a practical expedient,
impairment may be measured based on the loan's observable market price
or the fair value of the collateral if the loan is collateral
dependent.  When the measure of the impaired loan is less than the
recorded investment in the loan, the impairment is recorded through a
provision added to the allowance for loan losses.  Because on the
Company's loan portfolio primarily consists of one-to-four family
residential mortgages and consumer installment loans that are
evaluated collectively for impairment, the Company had no loans
designated as impaired under the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 114 at September 30, 1998 or 1997.

   Loan Origination Fees and Related Costs
   
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the
related loan over the remaining period to contractual maturity.

   Foreclosed Real Estate
   
Real estate acquired through, or in lieu of, loan foreclosure is
initially recorded at fair value at the date of foreclosure,
establishing a new cost basis.  Costs to maintain or hold the property
are expensed and amounts incurred to improve the property, to the
extent that fair value is not exceeded, are capitalized.  Valuations
are periodically performed by management, and an allowance for losses
is established by a charge to income if the carrying value of a
property exceeds its fair value less the estimated costs to sell.

   Premises and Equipment
   
Land is carried at cost.  Buildings, leasehold improvements, and
furniture, fixtures and equipment are carried at cost, less
accumulated depreciation and amortization.  Depreciation is provided
using the straight-line and accelerated methods over the estimated
useful lives of the assets.  The cost of leasehold improvements is
amortized using the straight-line method over the life of the lease.
The estimated useful lives of furniture, fixtures, and equipment range
from 5 to 15 years and for building and improvements range from 5 to
33 years.

   Income Taxes
   
The Company accounts for income taxes through the use of the asset and
liability method.  Under the asset and liability method, deferred
taxes are recognized for the tax consequences of temporary differences
by applying enacted statutory rates applicable to future years to
differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities.  The effect on deferred
taxes of a change in tax rates would be recognized in income in the
period that includes the enactment date.

   Treasury Stock
   
Treasury stock purchases and sales are accounted for using the cost
method.

   Pending Accounting Pronouncements
   
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, Reporting of Comprehensive Income, which establishes
standards for reporting and display of comprehensive income and its
components (revenues expenses, gains, and losses) in a full set of
financial statements.  This statement also requires that all items
that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements.

This statement is effective for fiscal years beginning after
December 15, 1997.  Earlier application is permitted.
Reclassification of financial statements for earlier periods provided
for comparative purposes is required.  Management will provide this
additional disclosure in the coming year.

In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments
of an Enterprise and Related Information, which establishes standards
for the way that public business enterprises report information about
operating segments in annual financial statements and also establishes
standards for related disclosures about products and services,
geographic areas, and major customers.  This statement is effective
for financial statements for periods beginning after December 15,
1997.  Management believes there will be no material effect on the
consolidated financial statements from the adoption of this
pronouncement.

The AICPA has issued Statements of Position 98-1, Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use.
This statement requires capitalization of external direct costs of
materials and services; payroll and payroll-related costs for
employees directly associated; and interest costs during development
of computer software for internal use (planning and preliminary costs
should be expensed).  Also, capitalized costs of computer software
developed or obtained for internal use should be amortized on a
straight-line basis unless another systematic and rational basis is
more representative of the software's use.  This statement is
effective for financial statements for fiscal years beginning after
December 15, 1998 (prospectively) and is not expected to have a
material effect on the consolidated financial statements.

The FASB has issued SFAS No. 133, Accounting for Derivative
Instruments for Hedging Activities.  The statement requires
derivatives to be recorded in the balance sheet as either an asset or
liability measured at its fair value.  The statement also requires
that changes in the derivatives' fair value be recognized currently in
earnings unless specific hedge accounting criteria are met.  This
statement is effective for fiscal years beginning after June 15, 1999
(prospectively) and is not expected to have a material effect on the
consolidated financial statements.

   Financial Statement Reclassification
   
The financial statements for prior years have been reclassified in
order to conform with the 1998 financial statement presentation.  The
reclassification did not change total assets or net income in the
prior year.


2.    EARNINGS PER SHARE
   
In 1998, the Company adopted SFAS No. 128, Earnings Per Share,
effective December 15, 1997.  Basic earnings per share were computed
by dividing net income by the weighted average number of shares of
common stock outstanding during the years ended September 30, 1998,
and 1997.  Common stock outstanding consists of issued shares less
unallocated ESOP shares, and shares owned by the MRP and Stock Option
Plan Trust.  Earnings per share for the period from December 23, 1996,
the date of Conversion, to September 30, 1997, have been computed
based on the earnings during that period and on the weighted average
number of shares of common stock and common stock equivalents
outstanding during that period.  The weighted average number of shares
used for the period from December 23, 1996 through September 30, 1997,
was 975,727.  Diluted earnings per share for this period was the same
as basic earnings per share because there were no dilutive securities
outstanding during the period.

The following table represents the earnings per share calculations for
the years ended September 30, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                        Per
                                                                        Share
                                                  Income      Shares    Amount
                                                                
 <S>                                             <C>         <C>        <C> 
 September 30, 1998:
   Net income                                    $823,400  
   Basic earnings per share:      
     Income available to common shareholders      823,400    909,123    $.91
                                                                        ====
   Dilutive securities                                  0     37,005
                                                 --------    ------- 
   Diluted earnings per share                    $823,400    946,128    $.87
                                                 ========    =======    ====
 September 30, 1997:                         
   Net income for the period December 23,          
     1996 to September 30, 1997                  $623,652
   Basic earnings per share:                                      
     Income available to common shareholders      643,652    975,727    $.66
                                                                        ====
   Dilutive securities                                  0          0
                                                 --------    -------
   Diluted earnings per share                    $643,652    975,727    $.66
                                                 ========    =======    ====
</TABLE>

<PAGE>

3.    INVESTMENT AND MORTGAGE-BACKED SECURITIES

Details of securities are as follows:

<TABLE>
<CAPTION>
                                                                                    September 30, 1998
                                                                                      Gross        Gross            
                                                                    Amortized      Unrealized    Unrealized    Estimated
                                                                       Cost          Gains        Losses      Fair Value
                                                                  ------------      --------     ---------    ------------
<S>                                                               <C>               <C>          <C>          <C>    
Available-for-sale:
  U.S. Treasury and federal agencies                              $ 1,977,968       $ 6,319      $      0     $ 1,984,287
  Equity securities                                                   140,000             0             0         140,000
  Federal Home Loan Bank stock                                        429,800             0             0         429,800
                                                                  ------------      --------     ---------    ------------
  Investment securities                                             2,547,768         6,319             0       2,554,087
  Mortgage-backed securities                                        6,018,319        20,375             0       6,038,694
                                                                  ------------      --------     ---------    ------------
      Total                                                       $ 8,566,087       $26,694      $      0     $ 8,592,781
                                                                  ============      ========     =========    ============
Held-to-maturity:                                                                                                    
  U.S. Treasury and federal agencies                              $   849,042       $     0      $   (401)    $   848,641
  Obligations of state and political subdivisions                     150,000         5,475             0         155,475
                                                                  ------------      --------     ---------    ------------
  Investment securities                                               999,042         5,475          (401)      1,004,116
  Mortgage-backed securities                                          837,224        17,304             0         854,528
                                                                  ------------      --------     ---------    ------------
      Total                                                       $ 1,836,266       $22,779      $   (401)    $ 1,858,644
                                                                  ============      ========     =========    ============

<CAPTION>
                                                                                     September 30, 1997
                                                                                     Gross        Gross            
                                                                    Amortized     Unrealized    Unrealized    Estimated
                                                                       Cost          Gains        Losses      Fair Value
                                                                  ------------      --------     ---------    ------------
<S>                                                               <C>               <C>          <C>          <C>    
Available-for-sale:
  U.S. Treasury and federal agencies                              $ 6,980,741       $ 2,384      $      0     $ 6,983,125
  Equity securities                                                         0             0             0               0
  Federal Home Loan Bank stock                                        429,800             0             0         429,800
                                                                  ------------      --------     ---------    ------------
  Investment securities                                             7,410,541         2,384             0       7,412,925
  Mortgage-backed securities                                        5,643,733         4,503       (64,312)      5,583,924
                                                                  ------------      --------     ---------    ------------
      Total                                                       $13,054,274       $ 6,887      $(64,312)    $12,996,849
                                                                  ============      ========     =========    ============
Held-to-maturity:                                                                                                    
  U.S. Treasury and federal agencies                              $ 1,348,407       $     0      $(14,869)    $ 1,333,538
  Obligations of state and political subdivisions                     150,000         8,603             0         158,603
                                                                  ------------      --------     ---------    ------------
  Investment securities                                             1,498,407         8,603       (14,869)      1,492,141
  Mortgage-backed securities                                        2,026,416        20,084       (13,374)      2,033,126
                                                                  ------------      --------     ---------    ------------
      Total                                                       $ 3,524,823       $28,687      $(28,243)    $ 3,525,267
                                                                  ============      ========     =========    ============

</TABLE>

<PAGE>



The amortized cost and estimated fair value of securities, by contractual
maturity, are shown below.  Expected maturities will differ from contractual
maturity because borrowers may have the right to call or prepay obligations:

<TABLE>
<CAPTION>
                                                                 September 30, 1998
                                                     Available-for-Sale            Held-to-Maturity
                                                  ------------------------    --------------------------
                                                   Amortized                   Amortized
                                                      Cost      Fair Value        Cost        Fair Value
                                                  ----------    ----------     -----------    -----------
 <S>                                              <C>           <C>            <C>            <C>
 Due in one year or less                          $1,249,212    $1,253,744     $   350,000    $   349,891
 Due after one year through five years               753,756       755,543         649,042        654,225
 Due after five years through ten years                    0             0               0              0
 Due after ten years                                 544,800       544,800               0              0
                                                  ----------    ----------     -----------    -----------
                                                   2,547,768     2,554,087         999,042      1,004,116
 Mortgage-backed securities                        6,018,319     6,038,694         837,224        854,528
                                                  ----------    ----------     -----------    -----------
     Total                                        $8,566,087    $8,592,781      $1,836,266     $1,858,644
                                                  ==========    ==========     ===========    ===========
</TABLE>

All mortgage-backed securities were issued by either U.S. government
agencies (Government National Mortgage Association) or
government-sponsored enterprises (Federal Home Loan Mortgage
Corporation or Freddie Mac).  The mutual funds are backed primarily by
Federal Home Loan Mortgage Association mortgage-backed securities and
private issuer mortgage-backed securities.
                                   
During the year ended September 30, 1998, the Company sold mutual
funds with a book and fair value of $1,870,636 with no gain or loss.
There were no other sales of securities during the years ended
September 30, 1998 and 1997.
                                   
<PAGE>

4.    LOANS RECEIVABLE, NET
                                   
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>

                                                September 30,     September 30,
                                                    1998               1997
                                                 ------------     ------------
<S>                                              <C>              <C>
Mortgage loans: 
  Principal balances:                                          
    Secured by 1-4 family residences             $27,972,399      $25,617,086
    Secured by nonresidential properties           8,384,027        8,077,000
    Secured by multifamily properties              2,514,375        4,172,496
    Construction loans                             1,357,500        1,266,600
                                                 ------------     ------------
                                                  40,228,301       39,133,182
    Less:                                                                      
      Undisbursed portion of mortgage loans         (691,229)        (815,502)
      Net deferred loan origination fees            (161,971)        (169,738)
                                                 ------------     ------------
        Total mortgage loans                      39,375,101       38,147,942

Commercial loans                                   3,658,012        2,293,540
Consumer loans:                                                            
  Principal balances:                                                        
    Loans secured by automobiles                   1,477,235        1,534,822
    Loans secured by savings accounts                518,366          518,173
    Other                                          1,607,372        1,310,362
                                                 ------------     ------------
        Total consumer loans                       3,602,973        3,363,357
                                                 ------------     ------------
        Total loans                               46,636,086       43,804,839
    Less allowance for loan losses                   789,714          805,964
                                                 ------------     ------------
Loans receivable, net                            $45,846,372      $42,998,875
                                                 ============     ============
</TABLE>

In the ordinary course of business, the Company makes loans to
officers, directors, employees, and other related parties of the
Company.  Management believes that these loans are made on
substantially the same terms as those prevailing for comparable
transactions with others and that they do not involve more than normal
risk of collectibility nor do they present other unfavorable features.
The amounts of such related party loans and commitments at
September 30, 1998 and 1997 were $1,020,000 and $1,035,000,
respectively.  During the year ended September 30, 1998, new loans
totaled $423,000 and repayments were $438,000.
                                   
Activity in the allowance for loan losses is summarized as follows:
                                   
                                    1998        1997         1996
                                   ---------   --------     ---------
Balance at beginning of year       $805,964    $802,034     $623,638
Provision charged to income               0           0      190,170
Charge-offs                         (23,917)    (55,878)     (20,141)
Recoveries                            7,667      59,808        8,367
                                   ---------   --------     ---------
   Balance at end of year          $789,714    $805,964     $802,034
                                   =========   ========     =========

The Company had loans on nonaccrual status of approximately $103,000
and $265,000 at September 30, 1998 and 1997, respectively.  Interest
income foregone on these nonaccrual loans was not significant for
fiscal years 1998 and 1997.
                                   
                                   
5.    LOAN SERVICING
                                   
The Company originates and services mortgage loans for Freddie Mac.
Mortgage loans serviced for Freddie Mac are not included in the
accompanying statements of financial condition.  Unpaid principal
balances of serviced loans totaled $4,202,781 at September 30, 1998
and $1,723,251 at September 30, 1997.  The serviced loans were sold
without recourse.
                                   
                                   
6.    ACCRUED INTEREST RECEIVABLE
                                   
Accrued interest receivable at September 30 is summarized as follows:
                                   
                                               1998       1997
                                             --------   --------
      Investment securities                 $  62,816   $116,948
      Mortgage-backed securities               36,206     41,333
      Loans receivable                        307,012    311,172
                                             --------   --------
           Total                             $406,034   $469,453
                                             ========   ========

                         
7.   PREMISES AND EQUIPMENT
                         
A summary of premises and equipment at September 30 is as follows:
<TABLE>
<CAPTION>
                                                       1998             1997
                                                   ------------     -----------
                                                                   
<S>                                                <C>              <C>
Land                                               $     62,500     $   163,081
Buildings and improvements                              567,700         768,216
Leasehold improvements                                   30,166          30,166
Furniture, fixtures, and equipment                      771,374         736,366
                                                   ------------     -----------
                                                      1,431,740       1,697,829
Less accumulated depreciation and amortization        1,134,032       1,152,265
                                                   ------------     -----------
    Net premises and equipment                     $    297,708     $   545,564
                                                   ============     ===========
</TABLE>                         

8.    DEPOSITS
<TABLE>                         

Deposits are summarized as follows:
<CAPTION>
                                                September 30, 1998          September 30, 1997
                                               Amount       Percent         Amount       Percent
                                              -----------   -------         -----------  -------
<S>                                           <C>            <C>            <C>            <C>
Demand and NOW accounts, including
  noninterest-bearing deposits of                                                   
  $104,527 in 1998 and $93,914 in 1997        $10,375,612     18.7%         $10,561,301     18.9%
Money market accounts                           1,074,189      1.9            1,093,499      2.0
Passbook savings                                9,035,095     16.2            9,286,230     16.6
                                              -----------    ------         -----------    ------
                                               20,484,896     36.8           20,941,030     37.5
Certificates of deposit, rates from 2.51%                                           
  to 6.60% in 1998 and 1997                    35,072,164     63.2           34,933,638     62.5
                                              -----------    ------         -----------    ------
      Total                                   $55,557,060    100.0%         $55,874,668    100.0%
                                              ===========    ======         ===========    ======
</TABLE>

The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was $7,150,843 at September 30, 1998 and
$6,578,414 at September 30, 1997.  Deposits in excess of $100,000
are not federally insured.
                         
Scheduled maturities of certificates of deposit are as follows:
                         
                  Years Ending                  
                  September 30                  Amount
                                                
                      1999                   $24,322,553
                      2000                     5,732,301
                      2001                     3,778,514
                      2002                       621,550
                      2003                       617,246
                                             -----------
                                             $35,072,164
                                             ===========

Interest expense on deposits at September 30 are summarized as follows:

<TABLE>
<CAPTION>
                                          1998           1997               1996
                                       -----------     -----------       -----------
      <S>                              <C>             <C>               <C>
      NOW accounts                     $  252,214      $  250,614        $  247,313
      Money market accounts                55,839          58,778            55,289
      Passbook savings                    216,857         250,510           240,093
      Certificates of deposit           1,903,411       1,877,771         2,033,947
      Withdrawal penalties                 (2,302)         (3,106)           (3,181)
                                       -----------     -----------       -----------
           Total                       $2,426,019      $2,434,567        $2,573,461
                                       ===========     ===========       ===========
</TABLE>

The Company has pledged U.S. government and government agency
obligations totaling $1,235,000 and $1,120,000 at September 30,
1998 and 1997, respectively, as collateral against certain large deposits.
                         
                         
9.    INCOME TAXES
                         
The provisions for income taxes for the years ended September 30
are as follows:

<TABLE>
<CAPTION>
                                    1998          1997        1996
                                  ---------    ---------   ----------
         <S>                      <C>          <C>         <C>
         Current:
           Federal                $431,664     $260,611    $ 286,824
           State                    91,345       53,208       29,835
                                  ---------    ---------   ----------
                                   523,009      313,819      316,659
         Deferred:                                               
           Federal                 (47,805)     104,083     (180,222)
           State                    (9,694)      18,821      (18,413)
                                  ---------    ---------   ----------
                                   (57,499)     122,904     (198,635)
                                  ---------    ---------   ----------
              Total               $465,510     $436,723    $ 118,024
                                  =========    =========   ==========

</TABLE>

The differences between the provision for income taxes and the
amount computed by applying the statutory federal income tax
rate of 34% to income before income taxes at September 30
were as follows:

<TABLE>
<CAPTION>
                                                       1998          1997        1996
                                                     ---------    ---------    ---------
     <S>                                             <C>          <C>          <C>
     Expected income tax expense at
       statutory federal tax rate                    $438,229     $417,712     $115,264
     Increase (decrease) resulting from:                                                       
       State income tax, net of federal benefit        53,890       47,539        7,539
       Tax-exempt interest income                     (23,302)     (41,063)      (2,639)
       Other, net                                      (3,307)      12,535       (2,140)
                                                     ---------    ---------    ---------
                                                     $465,510     $436,723     $118,024
                                                     =========    =========    =========
     Effective rate                                        36%          36%          36%
                                                     =========    =========    =========
</TABLE>

Temporary differences between the financial statement carrying amounts
and tax bases of assets and liabilities at September 30 that give rise
to significant portions of the net deferred tax asset relate to the
following:

<TABLE>
<CAPTION>
                                                             1998           1997
                                                          -----------   -----------
<S>                                                       <C>           <C>
Deferred loan fees, net                                   $    4,167    $    8,333
Allowance for loan losses for financial reporting            296,753       296,753
Unrealized loss on securities available for sale                   0        18,703
Other                                                         53,007        47,913
                                                          -----------   -----------
    Deferred tax asset                                       353,927       371,702
Allowance for loan losses for the tax reserve in                                
 excess of base year                                         (42,546)      (56,881)
Depreciation                                                 (15,091)      (47,341)
Unrealized gain on securities available for sale              (9,070)            0
Other                                                        (35,419)      (45,405)
                                                          -----------   -----------
    Deferred tax liability                                  (102,126)     (149,627)
                                                          -----------   -----------
    Net deferred tax asset                                $  251,801    $  222,075
                                                          ===========   ===========

</TABLE>


Thrift institutions, in determining taxable income, have historically
been allowed special bad debt deductions based on specified experience
formulae or on a percentage of taxable income before such deductions.
On August 2, 1996, Congress passed the Small Business Job Protection
Act that repealed the tax bad debt reserve method for thrifts
effective for taxable years which began after December 31, 1996.  As a
result, thrifts must recapture into taxable income the amount of their
post-1987 tax bad debt reserves over a six-year period beginning after
1995.  The Association is expected to recapture approximately
$115,000; $43,000 tax effected, of its tax bad debt reserves into
taxable income over the remaining four-year period as a result of this
new law.  The recapture has no effect on the Association's financial
statements because the related tax expense has already been accrued.
                                   
The portion of a thrift's tax bad debt reserve that is not recaptured
under this new law is only subject to recapture at a later date under
similar circumstances.  These include stock repurchases redemptions by
the thrift or if the thrift converts to a type of institution (such as
a credit union) that is not considered a bank for tax purposes.
However, no further recapture would be allowed if the thrift converted
to a commercial bank charter or was acquired by a bank.  The
Association does not anticipate engaging in any transactions at this
time that would require the recapture of its remaining tax bad debt
reserves.
                                   
                                   
10.   REGULATORY MATTERS
                                   
The Association is subject to various regulatory capital requirements
administered by the federal banking agencies.  Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Association's financial
statements.  Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Association must meet
specific capital guidelines that involve quantitative measures of the
Association's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices.  The
Association's capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors.
                                   
Quantitative measures established by regulation to ensure capital
adequacy require the Association to maintain minimum amounts and
ratios (set forth in the table which follows) of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier 1 capital (as defined) to average assets (as
defined).  Management believes, as of September 30, 1998 and 1997, the
Association meets all capital adequacy requirements to which it is
subject.
                                   
As of September 30, 1998 and 1997, the most recent notification from
the regulatory authorities categorized the Association as well
capitalized under the regulatory framework for prompt corrective
action.  To be categorized as well capitalized, the Association must
maintain minimum total risk-based, Tier 1 risk-based, Tier 1 leverage
ratios as set forth in the table which follows.
                                   
Actual capital amounts and ratios are presented in the table below for
the Association:

<TABLE>
<CAPTION>

                                                                                                            To Be Well
                                                                                                         Capitalized Under
                                                                                     For Capital         Prompt Corrective
                                                                      Actual       Adequacy Purposes     Action Provisions
                                                               ------------------  ------------------    -----------------
                                                               Amount      Ratio    Amount    Ratio       Amount    Ratio
                                                               -------     ------  --------   -------    -------    ------
                                                                                  (Dollars in thousands)
<S>                                                            <C>         <C>       <C>        <C>       <C>        <C>
September 30, 1998:                                                                                       
   Total capital (to risk weighted assets)                     $11,288     29.5%     $3,064     8.0%      $3,830     10.0%
   Tier 1 (core) capital (to risk weighted assets)              10,809     28.2         N/A     N/A        2,298      6.0
   Tier 1 (core) capital (to adjusted total assets)             10,809     15.8       2,048     3.0        3,413      5.0
   Tangible capital (to adjusted total assets)                  10,809     15.8       1,024     1.5          N/A      N/A

September 30, 1997:                                    
   Total capital (to risk weighted assets)                     $10,699     30.4%     $2,817     8.0%      $3,522     10.0%
   Tier 1 (core) capital (to risk weighted assets)              10,259     29.1         N/A     N/A        2,113      6.0
   Tier 1 (core capital (to adjusted total assets)              10,259     15.1       2,044     3.0        3,407      5.0
   Tangible capital (to adjusted total assets)                  10,259     15.1       1,022     1.5          N/A      N/A
                                                                                                          
</TABLE>

The following table is a reconciliation of the Association's
stockholder's equity to tangible, Tier 1, and risk-based capital as
required by the OTS:

<TABLE>
<CAPTION>
                                                      1998       1997
                                                    --------   --------
                                                     (In thousands)
                                                            
<S>                                                 <C>        <C>
Stockholder's equity                                $10,827    $10,222
Net unrealized loss (gain) on debt securities                         
  available for sale                                    (18)        37
                                                    --------   --------
     Tangible and Tier 1 capital                     10,809     10,259
Allowance for loan losses                               479        440
                                                    --------   --------
     Total risk based capital                       $11,288    $10,699
                                                    ========   ========
Total assets                                        $67,285    $68,112
Adjusted total assets                                67,267     68,149
Total risk weighted assets                           38,297     35,218

</TABLE>

Pursuant to OTS regulations, an institution that exceeds fully
phased-in capital requirements before and after a proposed capital
distribution and has not been advised by the OTS that it is in need of
more than the normal supervision can, after prior notice but without
the approval of the OTS, make capital distributions during a calendar
year equal to the greater of (i) 100% of its net income to date during
the calendar year plus the amount that would reduce by one-half its
"surplus capital ratio" (the excess capital over its fully phased-in
capital requirements) at the beginning of the calendar year, or (ii)
75% of its net income over the most recent four-quarter period.  Any
additional capital distributions require prior regulatory approval.

The Company's principal source of funds for dividend payments is
dividends from the Association.  Certain restrictions exist regarding
the ability of the Association to pay dividends to the Company.  At
July 1, 1997, dividend payments by the Association were subject to
regulatory approval.


11.   COMMITMENTS AND CONTINGENCIES
   
   Lease Commitment
   
The Association leases property utilized as a branch office under a
long-term lease expiring March 31, 2000, at an annual rental of
$15,409 plus taxes and maintenance.  The Association has three 5-year
options to renew with rentals adjusted to the consumer price index.
Rent expense under this lease totaled $15,409 for the year ended
September 30, 1998.

At September 30, 1998, projected minimum lease payments for years
ending September 30 are as follows:

                     1999                       $15,409
                     2000                         7,705
                     2001                             0
                     2002                             0
                     2003                             0
                                                -------
                          Total                 $23,114
                                                =======

   Financial Instruments With Off-Balance-Sheet Risk
   
The Association does not engage in transactions involving options,
standby letters of credit, financial guarantees, interest-rate swaps,
and forward and future contracts.  Further, the Association does not
routinely issue loan commitments, other than undisbursed portions of
construction loans, and had none outstanding at September 30, 1998 and
1997.

   Significant Group Concentrations of Credit Risk
   
The majority of the Association's business activity is with customers
located in Cullman County and surrounding areas.  While this area is
heavily involved in agribusiness activities, there is significant
diversified industry with no heavy concentration in any one industry.

   FDIC Assessment
   
The deposits of the Association are currently insured by the Savings
Association Insurance Fund ("SAIF").  Both the SAIF and the Bank
Insurance Fund ("BIF"), the federal deposit insurance fund that covers
the deposits of state and national banks and certain state savings
banks, are required by law to attain and thereafter maintain a reserve
ratio of 1.25% of insured deposits.  The BIF achieved the required
reserve rate, and, as discussed below, the FDIC reduced the average
deposit insurance premium paid by BIF-insured banks to a level
substantially below the average premium paid by savings institutions.
Banking legislation was enacted September 30, 1996 to eliminate the
premium differential between SAIF-insured institutions and BIF-insured
institutions.  The FDIC Board of Directors established a special
assessment necessary to recapitalize the SAIF at 65.7 basis points of
SAIF assessable deposits held by affected institutions as of March 31,
1995.  Based upon its level of SAIF deposits as of March 31, 1995, the
Association paid a special assessment of approximately $370,000 during
the fiscal year ended September 30, 1997.  Upon recapitalization of
the SAIF, premiums paid by SAIF-insured institutions were reduced.
The legislation also provides for the merger of the BIF and the SAIF,
with such merger being conditioned upon the prior elimination of the
thrift charter.

   Litigation
   
The Company is a defendant in certain claims and legal actions arising
in the ordinary course of business.  In the opinion of management,
after consultation with legal counsel, the ultimate disposition of
these matters is not expected to have a material adverse effect on the
financial position of the Company.


12.   EMPLOYEE RETIREMENT AND SAVINGS PLANS
   
   Employee Stock Ownership Plan
   
In connection with the Conversion, the Association established an ESOP
for eligible employees.  The ESOP purchased 90,988 shares of the
Company's common stock with the proceeds of a $909,880 note payable
from the Association and secured by the Common Stock owned by the
ESOP.  Principal payments under the note are due in equal and annual
installments through 2006.  Impact of this financing is eliminated in
the consolidated financial statement presentation.

Expense related to the ESOP was approximately $160,000 and $61,000 for
1998 and 1997, respectively.  Unearned compensation related to the
ESOP was approximately $1.2 million and $930,000 at June 30, 1998 and
1997, respectively, and is shown as a reduction of stockholders'
equity in the accompanying consolidated statements of financial
condition.  Unearned compensation is amortized into compensation
expense based on employee services rendered in relation to shares
which are committed to be released.

   Management Recognition Plan
   
During fiscal 1998, the Association established a MRP which purchased
45,494 shares of the Company's common stock on the open market
subsequent to the Conversion.  The MRP provides for awards of common
stock to directors and officers of the Association.  The aggregate
fair market value of the shares purchased by the MRP is considered
unearned compensation at the time of purchase and compensation is
earned ratably over the stipulated vesting period.  The expense
related to the MRP was approximately $134,000 for 1998.  Unearned
compensation related to the MRP was approximately $600,000 for 1998
and is shown as a reduction to stockholders' equity in the
accompanying consolidated statements of financial condition.


13.   STOCK-BASED COMPENSATION PLANS
   
The Company has a stockholder approved Option Plan.  The Option Plan
provides for the grant of incentive stock options ("ISO's") to
employees and nonincentive stock options ("non-ISO's") to nonemployee
directors.  The Company utilizes the intrinsic value method of
accounting for stock option grants.  As the option price is considered
to be equal to the fair value of the stock at the date of grant, no
compensation cost is recognized.

The Company has adopted the disclosure requirements of SFAS No. 123,
Accounting for Stock-Based Compensation.  This Statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans.  Those plans include all arrangements by which
employees receive shares of stock or other equity instruments of the
employer or the employer incurs liabilities to employees in amounts
based on the price of the employer's stock.  Examples are stock
purchase plans, stock options, restricted stock, and stock
appreciation rights.

Under the Option Plan, the Company may grant options up to 113,735
shares and during 1998 granted options shares through September 30,
1998.  Under the Option Plan, the options vest 20% per year and become
exercisable upon the participant's completion of each of five years of
service

Had compensation costs for these plans been determined consistent with
SFAS No. 123, the Company's net income and earnings per share would
have been reduced to the following pro forma amounts for the year
ended September 30, 1998:

             Net income:                    
                As reported                  $823,400
                Pro forma                     748,620
                                                          
             Earnings per share:                       
                As reported:                              
                  Basic                          $.91
                  Diluted                         .82
                Pro forma:                                
                  Basic                           .87
                  Diluted                         .79
                                               
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to October 5, 1995, the resulting pro forma
compensation costs may not be representative of that to be expected in
future years.

Unearned compensation related to the Option Plan was approximately
$2.0 million at September 30, 1998 and is shown as a reduction of
stockholders' equity in the accompanying statements of financial
condition.  A summary of the status of the Company's stock option plan
at September 30, 1998 and the changes during the year then ended is as
follows:

<TABLE>
<CAPTION>
                                                           Weighted        
                                                           Average      Option
                                                           Exercise      Price
                                                Shares      Price      Per Share
                                               -------     --------    ---------
       <S>                                     <C>          <C>         <C>
       Outstanding at beginning of year              0      $  0.00     $  0.00
         Granted                               107,298        15.50       15.50
         Forfeitures                                 0         0.00        0.00
         Exercised                                   0         0.00        0.00
                                               -------       ------      ------
       Outstanding at end of year              107,298       $15.50      $15.50
                                               =======       ======      ======
       Exercisable at end of year                    0          N/A    
                                               =======       ======
       Weighted average fair value of the                        
         options granted                         $5.92
                                               =======

</TABLE>

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1998:  risk-free
interest rate of 5.56%; expected life of the options is seven years
from the date of grant and expected volatility and dividend yields of
17% and 2.99%, respectively.


14.   FAIR VALUE OF FINANCIAL INSTRUMENTS
   
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of fair value information about financial
instruments, whether or not recognized in the statement of condition,
for which it is practicable to estimate that value.  In cases where
quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques.  Those
techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows.  In
that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instrument.  The use of
different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.  Also, the fair
value estimates presented herein are based on pertinent information
available to Management as of September 30, 1998.  Such amounts have
not been comprehensively revalued for purposes of these financial
statements since those dates and, therefore, current estimates of fair
value may differ significantly from the amounts presented herein.

The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

   Investment Securities
   
Fair values for investment securities are primarily based on quoted
market prices.  If a quoted market price is not available, fair value
is estimated using market prices for similar securities.

   Loans
   
For equity lines and other loans with short-term or variable rate
characteristics, the carrying value reduced by an estimate for credit
losses inherent in the portfolio is a reasonable estimate of fair
value.  The fair value of all other loans is estimated by discounting
their future cash flows using interest rates currently being offered
for loans with similar terms, reduced by an estimate of credit losses
inherent in the portfolio.  The discount rates used are commensurate
with the interest rate and prepayment risks involved for the various
types of loans.

   Deposits
   
The fair value disclosed for demand deposits (e.g., interest and
noninterest bearing demand, savings, and money market savings), are,
as required by SFAS No. 107, equal to the amounts payable on demand at
the reporting date (i.e., their carrying amounts).  Fair values for
certificates of deposits are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated monthly maturities.

   Commitments to Extend Credit
   
The value of these unrecognized financial instruments is estimated
based on the fee income associated with the commitments which, in the
absence of credit exposure, is considered to approximate their
settlement value.  As no significant credit exposure exists and
because such fee income is not material to the Company's financial
statements at September 30, 1998 and 1997, the fair value of these
commitments is not presented.

Many of the Company's assets and liabilities are short-term financial
instruments whose carrying amounts reported in the statement of
condition approximate fair value.  These items include cash and due
from banks, interest-bearing bank balances, accrued interest
receivable and payable, and similar assets.  The estimated fair values
of the Company's remaining on-balance sheet financial instruments as
of September 30, 1998, are summarized below:

<TABLE>
<CAPTION>
                                                                 1998                         1997
                                                      --------------------------    -------------------------
                                                       Carrying      Estimated       Carrying      Estimated
                                                        Value        Fair Value       Value       Fair Value
                                                      -----------    -----------    -----------   -----------
<S>                                                   <C>            <C>            <C>           <C>
Financial Assets:
   Investment securities available for sale           $ 2,554,087    $ 2,554,087    $ 7,412,925   $ 7,412,925
   Mortgage backed and related securities                                                                    
     available for sale                                 6,038,694      6,038,694      5,583,924     5,583,924
   Investment securities held-to-maturity                 999,042      1,004,116      1,498,407     1,492,141
   Mortgage backed and related securities                                                                    
     held-to-maturity                                     837,224        854,528      2,026,416     2,033,126
   Loans, net                                          45,846,372     46,065,901     42,998,875    43,413,865
Financial Liabilities:                                                                                    
   Deposits                                            55,557,060     54,765,479     55,874,668    55,982,666

</TABLE>

SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements.  The
disclosures also do not include certain intangible assets, such as
customer relationships, deposit base intangibles and goodwill.
Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.


15.   STOCK CONVERSION
   
On December 23, 1996, the Conversion of the Bank from a federally
chartered mutual institution to a federally chartered stock savings
bank through amendment of its charter and issuance of common stock to
the Company was completed.  Related thereto, the Company sold
1,137,350 shares of common stock, par value $.01 per share, at an
initial price of $10 per share in subscription and community
offerings.  Costs associated with the Conversion were approximately
$575,000, including underwriting fees.  These conversion costs were
deducted from the gross proceeds of the sale of the common stock.

In connection with the Offering, the Association established a
liquidation account in an amount equal to its regulatory capital as of
the latest practicable date prior to consummation of the Offering.

The Company's ability to pay dividends will be largely dependent upon
dividends to the Company from the Association.  Pursuant to Office of
Thrift Supervision ("OTS") regulations, the Association will not be
permitted to pay dividends on its capital stock or repurchase shares
of its stock if its stockholders' equity would be reduced below the
amount required for the liquidation account or if stockholders' equity
would be reduced below the amount required by the OTS.

<PAGE>

16.    PARENT COMPANY FINANCIAL STATEMENTS
   
Separate condensed financial statements of Southern Community
Bancshares, Inc. (the "Parent Company") as of and for the years ended
September 30, 1998 and 1997 are presented below:


<TABLE>
                   Statements of Financial Condition
                                   
                      September 30, 1998 and 1997
                                   
                     (Dollar amounts in thousands)
<CAPTION>

                                                          1998         1997
                                                        ---------     ---------
<S>                                                     <C>           <C>
ASSETS:                                                          
   Cash and cash equivalents                            $    393      $    753
   Securities available for sale                             100         1,750
   Investment in subsidiary                               10,827        10,222
   Due from subsidiary                                         0         1,888
   Other assets                                               12            26
                                                        ---------     ---------
        Total assets                                    $ 11,332      $ 14,639
                                                        =========     =========

LIABILITIES:                                                          
   Other liabilities                                    $      0      $    169
   Due to subsidiary                                         231             0
                                                                       
                                                                       
STOCKHOLDERS' EQUITY:                                                 
   Common stock                                               11            11
   Additional paid-in capital                             10,808        10,787
   Retained earnings                                       4,866         6,445
   Treasury stock, at cost                                  (831)            0
   Unearned compensation                                  (3,771)       (2,737)
   Unrealized gain on securities available for                           
     sale, net                                                18           (36)
                                                        ---------     ---------
        Total stockholders' equity                        11,101        14,470
                                                        ---------     ---------
        Total liabilities and stockholders' equity      $ 11,332      $ 14,639
                                                        =========     =========

</TABLE>

<PAGE>
<TABLE>

                                   
                         Statements of Income
                                   
            For the Years Ended September 30, 1998 and 1997
                                   
                     (Dollar amounts in thousands)
                                   
<CAPTION>

                                                     1998        1997
                                                     ------      ------
 <S>                                                 <C>         <C>
 INTEREST INCOME                                     $  86       $ 143
                                                                      
 OPERATING EXPENSE                                     158         151
                                                     ------      ------
 LOSS BEFORE INCOME TAXES AND EQUITY IN
   UNDISTRIBUTED CURRENT YEAR SUBSIDIARY                              
   EARNINGS                                            (72)         (8)
                                                                      
 INCOME TAX (BENEFIT) EXPENSE                           (5)          3
                                                     ------      ------
 LOSS BEFORE EQUITY IN UNDISTRIBUTED CURRENT
   YEAR SUBSIDIARY EARNINGS                            (77)         (5)
                                                                      
 EQUITY IN UNDISTRIBUTED CURRENT YEAR                                 
   SUBSIDIARY EARNINGS                                 900         797
                                                     ------      ------
         Net income                                  $ 823       $ 792
                                                     ======      ======
                                   
</TABLE>

<PAGE>
<TABLE>

                       Statements of Cash Flows
                                   
            For the Years Ended September 30, 1998 and 1997
                                   
                     (Dollar amounts in thousands)
                                   
<CAPTION>                                   
                                   
                                                                       1998          1997
                                                                     --------      --------
<S>                                                                  <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                           
  Net income                                                         $   823       $   792
  Equity in undistributed current year earnings of subsidiary            900           797
                                                                     --------      --------
                                                                         (77)           (5)
  Adjustments to reconcile net income to net cash                      
    provided by (used in) operating activities:
      Amortization of discounts on securities                              0            (1)
      Other changes in equity of subsidiary                               32             0
      (Increase) decrease in other assets                                 14           (26)
      Net change in due to/from subsidiary                             2,119        (1,888)
      Increase in other liabilities                                      (83)          169
                                                                     --------      --------
         Net cash provided by (used in) operating activities           2,005        (1,836)
                                                                     --------      --------
CASH FLOWS FROM INVESTING ACTIVITIES:                                
  Purchase of securities available for sale                                0        (3,250)
  Proceeds from maturity of securities available for sale              1,650         1,500
                                                                     --------      --------
         Net cash provided by (used in) investing activities           1,650        (1,750)
                                                                     --------      --------
CASH FLOWS FROM FINANCING ACTIVITIES:                                
  Proceeds from issuance of common stock                                   0         9,854
  Purchase of Bank's common stock                                          0        (5,373)
  Repurchase of treasury stock                                          (831)            0
  Contributions to plan trusts of the Association                       (696)           (9)
  Dividends paid                                                      (2,488)         (133)
                                                                     --------      --------
         Net cash provided by (used in) financing activities          (4,015)        4,339
                                                                     --------      --------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                360           753
                                                                     
CASH AND CASH EQUIVALENTS, beginning of year                             753             0
                                                                     --------      --------
CASH AND CASH EQUIVALENTS, end of year                               $   393       $   753
                                                                     ========      ========
</TABLE>