SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                   FORM 10-KSB


                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 1999               File Number 333-79543

                               CORNERSTONE BANCORP
                 (Name of Small Business Issuer in its Charter)

            South Carolina                                   57-1077978
    (State or Other Jurisdiction of                        (IRS Employer
     Incorporation or Organization)                    Identification Number)

               1670 East Main Street, Easley, South Carolina 29640
                (Address of Principal Executive Office, Zip Code)

         Issuer's Telephone Number, Including Area Code: (864) 306-1444

        Securities Registered Pursuant to Section 12(b) of the Act: None

        Securities Registered Pursuant to Section 12(g) of the Act: None

         Check whether the issuer (1) filed all reports  required to be filed by
Section  13 or 15(d) of the  Exchange  Act  during  the past 12  months  (or for
shorter period that the  Registrant was required to file such reports),  and (2)
has been subject to such filing  requirements for the past 90 days. Yes [X] No [
]

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]

         The issuer's revenues for its most recent fiscal year were $283,293.36.

         The aggregate  market value of the Common Stock held by  non-affiliates
on March 1, 2000, was approximately  $5,121,000. As of March 1, 2000, there were
800,000 shares of the Registrant's Common Stock, no par value, outstanding.  For
purposes of the foregoing calculation only, all directors and executive officers
of the Registrant have been deemed affiliates.

                       DOCUMENTS INCORPORATED BY REFERENCE
         None

Transitional Small Business Disclosure Format (check one):
Yes [  ]  No [X]

<PAGE>

                                     PART I

Item 1.  Description of Business.

General

         Cornerstone  Bancorp (the  "Company") is a South  Carolina  corporation
incorporated  in 1999. The Company is a bank holding  company with no operations
other than those carried on by its wholly-owned subsidiary, Cornerstone National
Bank (the "Bank"). The Bank conducts a general banking business under a national
bank  charter  granted by the Office of the  Comptroller  of the Currency of the
United  States  (the  "OCC")  pursuant to the  National  Bank Act.  The Bank was
organized in 1999. The Bank conducts its activities  from its main office opened
in 1999, located in Easley, South Carolina.

         The Bank's  primary  market area is the Town of Easley,  South Carolina
and the immediately surrounding areas of Pickens County. Pickens County and four
neighboring counties make up the Greenville-Spartanburg-Anderson, South Carolina
Metropolitan  Statistical  Area (the  "Greenville  MSA").  The population of the
Greenville MSA is over 900,000 with approximately 470,000 employed in 1997. Over
90% of those employed were in non-agricultural employment with over 50% of those
employed in manufacturing and trades, in roughly equal numbers.

         The Bank's business primarily consists of accepting deposits and making
loans.  The Bank seeks deposit  accounts from  households  and businesses in its
primary  market areas by offering a full range of savings  accounts,  retirement
accounts (including Individual Retirement  Accounts),  checking accounts,  money
market  accounts,  and time  certificates  of deposit.  It also makes  primarily
commercial,  real estate and installment loans, primarily on a secured basis, to
borrowers  in and around  Easley,  South  Carolina  and makes  other  authorized
investments.  Residential  mortgage loans are primarily maintained in-house with
conventional  mortgage  financing  arranged  through  a  correspondent  mortgage
company. As of December 31, 1999, the Bank employed 12 persons.

Competition

         South Carolina law permits statewide branching by banks and savings and
loan  associations.  Consequently,  many  financial  institutions  have branches
located in several communities. Currently, in addition to the Bank, 8 commercial
banks  and  2  savings   institutions   operate   branches  in  Pickens  County.
Approximately $862 million in deposits are maintained in these branches.  Six of
the  institutions  have branches in Easley with an aggregate of  $358,036,000 in
deposits at June 30, 1999. The principal areas and methods of competition in the
banking  industry  are the  services  offered,  pricing of those  services,  the
convenience and  availability  of the services,  and the degree of expertise and
personal manner with which those services are offered.

         The Bank  encounters  strong  competition  from  most of the  financial
institutions in its extended market area. In the conduct of certain areas of its
business, the Bank also competes with credit unions, insurance companies,  money
market  mutual  funds and other  financial  institutions,  some of which are not
subject to the same degree of regulation and  restrictions  as the Bank. Most of
these  competitors have  substantially  greater  resources and lending abilities
than  the  Bank and  offer  certain  services,  such as  international  banking,
investment  banking,  and  trust  services,  that  the Bank  does not  presently
provide.

                              SERVICES OF THE BANK

Deposits

         The Bank offers the full range of deposit services typically  available
in most banks and savings and loan  associations,  including  checking accounts,
NOW accounts, and savings and other time deposits of various types, ranging from
daily  money  market  accounts  to  longer-term  certificates  of  deposit.  The
transaction  accounts and time certificates are tailored to the principal market
area  at  rates  competitive  with  those  offered  in the  area.  In  addition,
retirement accounts such as IRA's (Individual  Retirement Accounts) are offered.
All deposit  accounts are insured by the FDIC up to the maximum amount permitted
by  law.  The  Bank  solicits  these  accounts  from  individuals,   businesses,
associations and organizations,  and government  authorities.  Although the Bank
intends to be competitive in its efforts to attract  deposit  accounts,  it does
not  aggressively  seek jumbo  certificates of deposit  (certificates in amounts
greater than $100,000) and does not accept brokered deposit accounts.


<PAGE>

Lending Activities

         The Bank emphasizes a range of lending services, including real estate,
commercial and consumer loans.  Consumer loans include both installment and term
loans, and include loans for automobiles,  household goods, education, boats and
general personal expenses.

         To address the risks inherent in making loans,  management maintains an
allowance  for loan losses based on, among other  things,  an  evaluation of the
Bank's  loan  loss  experience,   management's  experience  at  other  financial
institutions in the market area, the amount of past due and nonperforming loans,
current  and  anticipated  economic  changes  and the  values  of  certain  loan
collateral.  Based upon such factors,  management makes various  assumptions and
judgments about the ultimate  collectibility  of the loan portfolio and provides
an  allowance  for  potential  loan  losses  based  upon  a  percentage  of  the
outstanding  balances and specific  loans.  However,  because  there are certain
risks  that  cannot  be  precisely  quantified,  management's  judgment  of  the
allowance is necessarily approximate and imprecise. The adequacy and methodology
of the  allowance  for loan  losses is subject  to  regulatory  examination  and
compared to a peer group of financial institutions identified by the regulators.

Real Estate Loans

         One of the primary  components  of the Bank's loan  portfolio  is loans
secured by first or second  mortgages on residential and commercial real estate.
These loans generally consist of commercial real estate loans,  construction and
development  loans and residential  real estate loans (including home equity and
second mortgage  loans).  Interest rates may be fixed or adjustable and the Bank
generally  charges an  origination  fee. The Bank seeks to manage credit risk in
the  commercial  real estate  portfolio by emphasizing  loans on  owner-occupied
office  and retail  buildings  where the  loan-to-value  ratio,  established  by
independent  appraisals,  does not exceed 80%. The loan-to-value ratio for first
and second mortgage loans and for  construction  loans generally does not exceed
80%. In addition,  the Bank may require  personal  guarantees  of the  principal
owners  of the  property.  The Bank  also  originates  mortgage  loans for other
institutions,  earning a fee, but  avoiding  the  interest  rate risk of holding
long-term, fixed-rate loans.

         The principal  economic risk associated with all loans,  including real
estate loans, is the creditworthiness of the Bank's borrowers.  The ability of a
borrower to repay a real estate loan depends upon a number of economic  factors,
including employment levels and fluctuations in the value of real estate. In the
case of a real estate  construction  loan, there is generally no income from the
underlying property during the construction period, and the developer's personal
obligations  under  the  loan  are  typically  limited.  Each of  these  factors
increases the risk of  nonpayment by the borrower.  In the case of a real estate
purchase  loan,  the  borrower may be unable to repay the loan at the end of the
loan  term and may thus be  forced to  refinance  the loan at a higher  interest
rate,  or,  in  certain  cases,  the  borrower  may  default  as a result of its
inability to refinance the loan.  In either case,  the risk of nonpayment by the
borrower is increased.

         The Bank also  faces  additional  credit  risks to the  extent  that it
engages in making  adjustable  rate mortgage loans  ("ARMs").  In the case of an
ARM, as interest rates increase, the borrower's required payments increase, thus
increasing  the  potential  for default.  The  marketability  of all real estate
loans,  including  ARMs, is also generally  affected by the prevailing  level of
interest rates.

Commercial Loans

         The Bank  makes  loans for  commercial  purposes  in  various  lines of
business.  Commercial loans include both secured and unsecured loans for working
capital  (including  inventory and  receivables),  loans for business  expansion
(including acquisition of real estate and improvements), and loans for purchases
of equipment and  machinery.  Equipment  loans are typically  made for a term of
five  years or less at  either  fixed or  variable  rates,  with the loan  fully
amortized over the term and secured by the financed  equipment.  Working capital
loans  typically  have terms not exceeding  one year and are usually  secured by
accounts  receivable,  inventory or personal guarantees of the principals of the
business.  Commercial loans vary greatly  depending upon the  circumstances  and
loan terms are  structured  on a  case-by-case  basis to better  serve  customer
needs.



                                       2
<PAGE>

         The risks  associated  with  commercial  loans vary with many  economic
factors,   including  the  economy  in  the  Easley/Pickens   County  area.  The
well-established  banks in the Easley/Pickens  County area make  proportionately
more loans to  medium-  to  large-sized  businesses  than the Bank.  Many of the
Bank's commercial loans are made to small- to medium-sized businesses, which are
typically  smaller,  have shorter operating  histories,  and less  sophisticated
record keeping systems than larger entities. As a result, these smaller entities
may be less  able to  withstand  adverse  competitive,  economic  and  financial
conditions than larger borrowers. In addition, because payments on loans secured
by  commercial  property  generally  depend to a large  degree on the results of
operations  and  management  of the  properties,  repayment of such loans may be
subject, to a greater extent than other loans, to adverse conditions in the real
estate market or the economy.

Consumer Loans

         The Bank  makes a variety  of loans to  individuals  for  personal  and
household purposes,  including secured and unsecured installment and term loans,
home equity loans and lines of credit and  unsecured  revolving  lines of credit
such as credit  cards.  The  secured  installment  and term  loans to  consumers
generally  consist  of  loans  to  purchase  automobiles,   boats,  recreational
vehicles,  mobile homes and household furnishings,  with the collateral for each
loan being the purchased  property.  The  underwriting  criteria for home equity
loans and lines of credit  are  generally  the same as  applied by the Bank when
making a first  mortgage  loan,  as  described  above,  and home equity lines of
credit  typically expire 15 years or less after  origination,  unless renewed or
extended.

         Consumer  loans  generally  involve  more credit risks than other loans
because of the type and nature of the  underlying  collateral  or because of the
absence  of any  collateral.  Consumer  loan  repayments  are  dependent  on the
borrower's  continuing  financial  stability  and  are  likely  to be  adversely
affected by job loss,  divorce and  illness.  Furthermore,  the  application  of
various  federal and state laws,  including  federal  and state  bankruptcy  and
insolvency  laws,  may limit the amount  which can be recovered on such loans in
the case of default. In most cases, any repossessed  collateral will not provide
an adequate  source of repayment of the outstanding  loan balance.  Although the
underwriting  process for consumer  loans  includes a comparison of the value of
the security,  if any, to the proposed loan amount,  the Bank cannot predict the
extent to which the  borrower's  ability to pay, and the value of the  security,
will be affected by prevailing economic and other conditions.

Other Services

         The  Bank  participates  in a  regional  network  of  automated  teller
machines  that may be used by Bank  customers  in major  cities  throughout  the
Southeast.  The Bank  offers  both  VISA and  MasterCard  brands  of bank  cards
together  with  related  lines of  credit.  The lines of credit  may be used for
overdraft protection as well as pre-authorized credit for personal purchases and
expenses. The Bank also provides travelers checks, direct deposit of payroll and
social security checks, and automatic drafts for various accounts,  but will not
provide  international  or trust banking  services in the near future.  The Bank
will soon release an internet  banking product  accessible via the Bank's custom
website.  The service will include an electronic bill payment service which will
allow customers to make scheduled and/or irregular bill payments electronically.

Asset and Liability Management

         The primary  earning  assets of the Bank consist of the loan  portfolio
and investment  portfolio.  Efforts are made  generally to match  maturities and
rates of loans and the  investment  portfolio  with those of deposits,  although
exact  matching  is  not  possible.   The  majority  of  the  Bank's  securities
investments  are in  marketable  obligations  of the United  States  government,
federal  agencies and state and  municipal  governments,  generally  with varied
maturities.

         Long-term loans are priced primarily to be interest-rate sensitive with
only a small portion of the Bank's  portfolio of long-term loans at fixed rates.
In the near term,  such fixed-rate  loans will not have  maturities  longer than
fifteen years, except in exceptional cases.

         Deposit accounts represent the majority of the liabilities of the Bank.
These include transaction  accounts,  time deposits and certificates of deposit.
The maturities of the majority of  interest-sensitive  accounts are 12 months or
less.



                                       3
<PAGE>

Financial Aspects of Business

         The following  information  describes  various financial aspects of the
Bank's business.  The reader should bear in mind that the Bank was only open for
business  for  slightly  more  than  one  quarter  in  1999.  Accordingly,   the
information  provided below will not necessarily  provide much information about
the future  condition or results of  operations  of the Bank.  This  information
should be read in conjunction with the financial statements of the Company which
appear  elsewhere in this document.  References in the  discussion  below to the
"period  ended  December 31, 1999" mean the period from  September 15, 1999 (the
opening of the Bank) to December 31, 1999.

         The table,  "Average Balances,  Yields and Rates",  provides a detailed
analysis of the effective yields and rates on the categories of interest earning
assets and interest bearing liabilities for the period ended December 31, 1999.


                       Average Balances, Yields and Rates

<TABLE>
<CAPTION>
                                                                               Period Ended December 31, 1999
                                                                               ------------------------------
                                                                                           Interest
                                                                          Average          Income/          Yields/
                                                                        Balances(1)        Expense         Rates(2)
                                                                        -----------        -------         --------
Assets
<S>                                                                      <C>              <C>                <C>
Securities ..................................................            $ 6,149,556      $106,881           5.87%
Federal Funds Sold ..........................................              5,481,852        85,953           5.30%
Loans(3) ....................................................              2,928,831        82,459           9.52%
                                                                         -----------      --------           -----
        Total interest earning assets .......................             14,560,239       275,293           6.39%
Cash and due from banks .....................................                661,227
Allowance for loan losses ...................................               (45,692)
Premises and equipment ......................................                790,593
Other assets ................................................                 80,101
                                                                         -----------
        Total assets ........................................            $16,046,468
                                                                         ===========

Liabilities and shareholders' equity
Interest bearing deposits
        Interest bearing transaction accounts ...............            $ 2,697,786        32,619           4.09%
        Savings .............................................                993,202        10,052           3.42%
        Time deposits $100M and over ........................              1,461,197        19,893           4.60%
        Other time deposits .................................              1,132,701        16,267           4.85%
                                                                         -----------      --------           -----
            Total interest bearing deposits .................              6,284,886      $ 78,831           4.24%
Noninterest bearing demand deposits .........................              3,049,829
Federal Funds purchased & repurchase agreements .............                698,668        10,531           5.09%
Other liabilities ...........................................                 12,458
Shareholders' equity ........................................              6,000,627
                                                                         -----------
        Total liabilities and shareholders' equity ..........            $16,046,468
                                                                         ===========
Interest rate spread(4)                                                                                      2.15%
Net interest income and net yield on earning assets(5) ......                             $196,462           4.56%
Interest free funds supporting earning assets(6) ............            $ 8,275,353
</TABLE>
---------------------------------------------------------------------
(1)  Average balances calculated based on a daily basis.
(2)  Calculated  based on the number of days in the year that each type of asset
     or liability was in existence.
(3)  Nonaccruing  loans are included in the average loan  balances and income on
     such loans is recognized on a cash basis.
(4)  Total  interest  bearing  assets  yield  less the  total  interest  bearing
     liabilities rate.
(5)  Net interest income divided by total interest earning assets.
(6)  Total interest earning assets less total interest bearing liabilities.



                                       4
<PAGE>

Interest Rate Sensitivity

         Interest  rate  sensitivity  measures  the timing and  magnitude of the
repricing  of  assets  compared  with the  repricing  of  liabilities  and is an
important  part of  asset/liability  management.  The objective of interest rate
sensitivity  management is to generate stable growth in net interest income, and
to  control  the risks  associated  with  interest  rate  movements.  Management
constantly  reviews  interest rate risk exposure and the expected  interest rate
environment so that adjustments in interest rate sensitivity can be timely made.

         The  table,  "Interest  Sensitivity  Analysis",  indicates  that,  on a
cumulative  basis,  rate sensitive  assets exceeded rate sensitive  liabilities,
resulting in an asset sensitive position at the end of 1999 of $7,892,000, for a
cumulative  gap  ratio of  1.78.  When  interest  sensitive  liabilities  exceed
interest  sensitive  assets  for a  specific  repricing  "horizon",  a  negative
interest  sensitivity gap results.  The gap is positive when interest  sensitive
assets exceed interest sensitive liabilities, as was the case at the end of 1999
with  respect  to the one year time  horizon.  For a bank with a  positive  gap,
rising  interest  rates  would be  expected  to have a  positive  effect  on net
interest income and falling rates would be expected to have the opposite effect.

         The table below  reflects the balances of interest  earning  assets and
interest  bearing  liabilities  at the  earlier of their  repricing  or maturity
dates.  Amounts of fixed rate loans are  reflected at the loans' final  maturity
dates.  Variable  rate loans are  reflected at the earlier of their  contractual
maturity  date or the date at which  the  loan  may be  repriced  contractually.
Deposits in other banks and debt securities are reflected at the earlier of each
instrument's  repricing  date for  variable  rate  instruments  or the  ultimate
maturity  date for fixed  rate  instruments.  Overnight  federal  funds sold are
reflected in the earliest  repricing  interval due to the immediately  available
nature  of  these  funds.  Interest  bearing  liabilities  with  no  contractual
maturity, such as interest bearing transaction accounts and savings deposits are
reflected in the earliest  repricing  interval due to  contractual  arrangements
which give  management the  opportunity to vary the rates paid on these deposits
within a thirty-day or shorter period.  However, the Bank is under no obligation
to vary the rates paid on those  deposits  within any given  period.  Fixed rate
time  deposits,  principally  certificates  of deposit,  are  reflected at their
contractual  maturity  dates.  Federal funds  purchased  and long-term  debt are
presented in the earliest  repricing interval because their rates are adjustable
immediately by the lenders.

                          Interest Sensitivity Analysis
<TABLE>
<CAPTION>
                                                                           December 31, 1999
                                                                           -----------------
                                                         1-3      3-12       1-3       3-5      5-15      > 15
                                           Immediate   Months    Months     Years     Years    Years     Years       Total
                                           ---------   ------    ------     -----     -----    -----     -----       -----
                                                                        (Dollars in thousands)
Interest earning assets
<S>                                            <C>     <C>        <C>       <C>         <C>      <C>        <C>       <C>
    Securities                                         $3,073     $1,773    $3,874      $489                $180      $9,389
    Federal funds sold                         $1,910                                                                  1,910
    Loans(1)                                    2,987     573      1,527       602       393      654                  6,736
                                               ------  ------     ------    ------      ----     ----       ----     -------
        Total interest earning assets          $4,897  $3,646     $3,300    $4,476      $882     $654       $180     $18,035
                                               ======  ======     ======    ======      ====     ====       ====     =======
Interest bearing deposits
    Interest bearing transaction accounts                $397               $3,577                                    $3,974
    Savings                                                81                  898                                       979
    Time deposits $100M and over                        1,056        857                                               1,913
    Other time deposits                                   289        529       113        57                             988
    Federal funds purchased and securities
      sold under agreements to repurchase       2,289                                                                  2,289
                                               ------                                                                -------
        Total interest bearing liabilities     $2,289  $1,823     $1,386    $4,588       $57                         $10,143
                                               ======  ======     ======    ======       ===                         =======

Interest sensitivity gap                       $2,608  $1,823     $1,914    ($112)    $  825   $  654     $  180      $7,892
Cumulative interest sensitivity gap             2,608   4,431      6,345     6,233     7,058    7,712      7,892       7,892
Gap ratio                                        2.14    2.00       2.38      0.98     15.47                            1.78
Cumulative gap ratio                             2.14    2.08       2.15      1.62      1.70     1.76       1.78        1.78
</TABLE>
(1) There were no nonaccruing  loans or unamortized  deferred loan fees, both of
which would normally be subtracted from loans for purposes of this table.

                                       5
<PAGE>

Provision for Loan Losses

         The  provision  for  loan  losses  is  charged  to  earnings  based  on
management's  continuing review and evaluation of the loan portfolio and general
economic  conditions.  Provisions  for loan losses were  $105,000 for the period
ended December 31, 1999.  There were no charge-offs in 1999. In addition,  there
were no non-accrual,  past due and other unfavorable  performance-characteristic
loans.  See "Impaired Loans" and "Allowance for Loan Losses" for a discussion of
the factors management  considers in its review of the adequacy of the allowance
and provision for loan losses.

Securities

         The following table  summarizes the carrying amounts of securities held
by the Bank at December 31, 1999.

                        Securities Portfolio Composition

                                                December 31, 1999
                                                -----------------
                                                Available for sale
                                                ------------------
                                              (Dollars in thousands)

          U.S. Government Agencies                  $9,209
          FHLB Stock                                   180
                                                    ------

          Total                                     $9,389

Available-for-sale securities are stated at estimated fair value.

         The following table presents  maturities and weighted average yields of
securities at December 31, 1999.

                   Securities Portfolio Maturities and Yields

                                                       December 31, 1999
                                                       -----------------
                                               Available-for-sale        Yield
                                               ------------------        -----
                                                       (Dollars in thousands)
U.S. Government Agencies
      After one through five years .............       $4,846             5.73%
      After five through ten years .............        4,363             6.51%
                                                       ------             -----
                                                        9,209             6.10%
                                                       ------             -----

FHLB Stock (No Maturity) .......................          180             5.92%

Total
      Within one year ..........................        4,846             5.73%
      After one through five years .............        4,363             6.51%
      After five through ten years .............            0                -%
      No Maturity ..............................          180             5.92%
                                                       ------             -----

      Total ....................................       $9,389             6.10%

         Management  assigns securities upon purchase into one of the categories
(trading,  available-for-sale  and held-to-maturity)  designated by Statement of
Financial  Accounting  Standards  ("SFAS") No. 115 based on intent,  taking into
consideration  other factors including  expectations for changes in market rates
of interest, liquidity needs, asset/liability management strategies, and capital
requirements. The Bank has never held securities for trading purposes.



                                       6
<PAGE>

Loan Portfolio

         Management believes the loan portfolio is adequately diversified. There
are no  significant  concentrations  of loans in any  particular  individuals or
industry or group of related individuals or industries, and there are no foreign
loans.

         The amount of loans  outstanding  at December  31, 1999 is shown in the
following table according to type of loan:

                           Loan Portfolio Composition

                                                          December 31, 1999
                                                          -----------------
                                                                           % of
                                                    Amount                 Loans
                                                    ------                 -----
                                                       (Dollars in thousands)
Commercial and industrial                            $2,793                41.5%
Real Estate - construction                              130                 1.9%
Real Estate - mortgage
      Farmland                                            -
      1-4 family residential                          1,971                29.2%
      Nonfarm, nonresidential                           293                 4.4%
      Multifamily (5 or more) residential                 -
Consumer installment                                  1,549                23.0%
                                                      -----                -----
      Total loans                                     6,736               100.0%
      Less allowance for loan losses                   (105)
                                                       ----
      Net loans                                      $6,631
                                                     ======

Maturity Distribution of Loans

         The following table sets forth the maturity  distribution of the Bank's
loans,  by type,  as of  December  31,  1999,  as well as the  type of  interest
requirement on such loans.

                                       Maturity Distribution on Loans

<TABLE>
<CAPTION>
                                                                            December 31, 1999
                                                                            -----------------
                                                                1 Year       1-5       5 Years
                                                               or Less      Years      or More       Total
                                                               -------      -----      -------       -----
                                                                          (Dollars in thousands)

<S>                                                              <C>        <C>          <C>         <C>
Commercial and industrial .................................      $2,217     $  397       $  179      $2,793
Real Estate-construction ..................................         130          0            0         130
Real Estate-mortgage ......................................         695        429        1,140       2,264
Consumer installment ......................................       1,232        317            0       1,549
                                                                 ------     ------       ------      ------
      Total ...............................................      $4,274     $1,143       $1,319      $6,736
                                                                 ======     ======       ======      ======

Predetermined rate, maturity greater than one year ........                 $1,143       $1,319      $2,462
                                                                            ======       ======      ======

Variable rate or maturity within one year .................      $4,274     $    -       $    -      $4,274
                                                                 ======     ======       ======      ======
</TABLE>



                                       7
<PAGE>

Impaired Loans

         Because  the Bank had only been open for  slightly  over one quarter at
December 31, 1999, it had not yet experienced  any nonaccrual  loans or loans 90
days or more past due. The  following is a discussion  of the Bank's policy with
respect to such loans when incurred.

         A loan will be considered to be impaired when, in management's judgment
based on  current  information  and  events,  it is  probable  that  the  loan's
principal or interest will not be  collectible  in accordance  with the terms of
the original loan agreement.  Impaired loans, when not material, will be carried
in the balance sheet at a value not to exceed their  observable  market price or
the fair value of the  collateral if the repayment of the loan is expected to be
provided  solely  by the  underlying  collateral.  The  carrying  values  of any
material  impaired loans will be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate, which is the
contractual  interest rate adjusted for any deferred loan fees or costs, premium
or discount existing at the inception or acquisition of the loan.

         Loans  which  management  identifies  as  impaired  generally  will  be
nonperforming loans. Nonperforming loans include nonaccrual loans or loans which
are 90 days or more delinquent as to principal or interest payments.

         Generally,  the accrual of interest  will be  discontinued  on impaired
loans and any previously accrued interest on such loans will be reversed against
current  income.  Any  subsequent  interest  income will be recognized on a cash
basis when received unless  collectibility of a significant  amount of principal
is in serious  doubt.  In such  cases,  collections  are  credited  first to the
remaining  principal balance on a cost recovery basis. An impaired loan will not
be returned to accrual status unless  principal and interest are current and the
borrower has demonstrated the ability to continue making payments as agreed.

         At December  31, 1999,  the Bank had  identified  no potential  problem
loans.

Allowance for Loan Losses

         Because  the Bank had only been open for  slightly  over one quarter at
December 31, 1999,  it is only  beginning to establish  its  allowance  for loan
losses.  The  following is a discussion of the Bank's policy with respect to the
allowance as the loan portfolio matures and begins to experience losses.

         The  allowance  for loan  losses  is  increased  by direct  charges  to
operating expense.  Losses on loans will be charged against the allowance in the
period in which management determines that it is more likely than not such loans
have become  uncollectible.  Recoveries of previously  charged off loans will be
credited  to the  allowance.  The  table,  "Summary  of Loan  Loss  Experience",
summarizes loan balances at the end of each period indicated,  averages for each
period, changes in the allowance arising from charge-offs and recoveries by loan
category (of which there had been none at December 31,  1999),  and additions to
the allowance  which have been charged to expense.  In reviewing the adequacy of
the  allowance  for loan  losses  at each year  end,  management  will take into
consideration  the  historical  loan  losses  experienced  by the bank,  current
economic  conditions  affecting the borrowers'  ability to repay,  the volume of
loans,  and the trends in  delinquent,  nonaccruing,  and any potential  problem
loans, and the quality of collateral  securing  nonperforming and problem loans.
Management  considers  the  allowance  for loan  losses  adequate  to cover  its
estimate of possible  future loan losses  inherent in the loan  portfolio  as of
December 31, 1999.

         In  calculating  the amount  required in the allowance for loan losses,
management  applies a  consistent  methodology  that is updated  quarterly.  The
methodology  utilizes a loan risk grading  system and  detailed  loan reviews to
assess credit risks and the overall  quality of the loan  portfolio,  as well as
considering  other  off-balance-sheet  credit risks such as loan commitments and
standby  letters of credit.  Also,  the  calculation  provides for  management's
assessment of trends in national and local economic conditions that might affect
the general quality of the loan portfolio.

                                       8
<PAGE>

                         Summary of Loan Loss Experience

                                                                Period Ended
                                                              December 31, 1999
                                                              -----------------
                                                          (Dollars in thousands)

Total loans outstanding at end of period,
      net of deferred net loan fees ...........................     $6,736
Average amount of loans outstanding ...........................     $2,929
Balance of allowance for loan losses-beginning ................     $    0
                                                                    ------
Loans charged off
      Commercial and industrial ...............................     $    0
      Consumer installment ....................................     $    0
                                                                    ------
      Total charge offs .......................................     $    0
Recoveries of loans previously charged-off
      Commercial and industrial ...............................     $    0
      Consumer installment ....................................     $    0
                                                                    ------
      Total recoveries ........................................     $    0
Net charge-offs (recoveries) ..................................     $    0
                                                                    ------
Additions to allowance charged to expense .....................     $  105
                                                                    ------
Balance of allowance for loan losses-ending ...................     $  105
                                                                    ------

Ratios
      Net charge-offs to average loans outstanding ............        0.0%
      Net charge-offs to loans at end of period ...............        0.0%
      Allowance for loan losses to average loans ..............        3.6%
      Allowance for loan losses to loans at end of period .....        1.6%
      Net charge-offs to allowance for loan losses ............        0.0%
      Net charge-offs to provision for loan losses ............        0.0%

         The following  table  presents the allocation of the allowance for loan
losses at the end of the period  ended  December  31,  1999,  compared  with the
percent of loans in the applicable categories to total loans.

                     Allocation of Allowance for Loan Losses

                                                       Period Ended
                                                     December 31, 1999
                                                     -----------------
                                                                     % of
                                                   Amount            Loans
                                                   ------            -----
                                                     (Dollars in thousands)
Commercial and industrial ...................       $ 44              41.5%
Real Estate - construction ..................          3               1.9%
Real Estate - mortgage ......................         35              33.6%
Consumer installment ........................         24              23.0%
                                                    ----             ------
      Total .................................       $105             100.0%

Deposits

         The average amounts and percentage  composition of deposits held by the
Bank for the period ended December 31, 1999, are summarized below:

                                       9
<PAGE>

                                Average Deposits

                                                            Period Ended
                                                          December 31, 1999
                                                          -----------------
                                                      Amount                 %
                                                      ------               ----
                                                        (Dollars in thousands)
Noninterest bearing demand                             $3,050              32.7%
Interest bearing transaction accounts                   2,698              28.9%
Savings                                                   993              10.6%
Time deposits $100M and over                            1,461              15.7%
Other time                                              1,133              12.1%
                                                       ------             ------
      Total                                            $9,335             100.0%
                                                       ======             ======

         As of December 31, 1999,  the Bank held  $1,912,977 in time deposits of
$100,000 or more with  approximately  $1,056,154  maturing  within three months,
$200,410  maturing  over three  through six months,  $656,412  maturing over six
through  twelve  months,  and $0.00  maturing over twelve  months.  Average time
deposits  $100,000  and over  comprised  approximately  15.7%  of total  average
deposits  during 1999. The vast majority of time deposits  $100,000 and over are
acquired from customers within the Bank's service area in the ordinary course of
business. The Bank does not purchase brokered deposits.  While most of the large
time deposits are acquired from customers with standing  relationships  with the
Bank, it is a common  industry  practice not to consider these types of deposits
as  core  deposits  because  their  retention  can  be  expected  to be  heavily
influenced  by  rates  offered,   and  therefore  such  deposits  may  have  the
characteristics  of shorter-term  purchased funds. Time deposits of $100,000 and
over involve the maintenance of an appropriate matching of maturity distribution
and a diversification of sources to achieve an appropriate level of liquidity.

Return on Equity and Assets

         The following  table shows the return on assets (net income  divided by
average total assets),  return on equity (net income divided by average equity),
dividend  payout ratio  (dividends  declared per share divided by net income per
share),  and equity to assets ratio  (average  equity  divided by average  total
assets) for the period ended December 31, 1999.

                                                                Period Ended
                                                                December 31,
                                                                ------------
                                                                    1999
                                                                    ----
Return on assets ......................................            (5.05%)
Return on equity ......................................            (2.39%)
Dividend payout ratio .................................              0.00%
Equity to assets ratio ................................             28.47%


                           SUPERVISION AND REGULATION

         Bank  holding  companies  and banks  are  extensively  regulated  under
federal and state law. To the extent that the  following  information  describes
statutory  and  regulatory  provisions,  it is  qualified  in  its  entirety  by
reference to such  statutes and  regulations.  Any change in  applicable  law or
regulation  may have a material  effect on the  business  of the Company and the
Bank.

General

         As a bank holding  company under the Bank Holding Company Act ("BHCA"),
the  Company  obtained  the  approval of the Board of  Governors  of the Federal
Reserve System (the "Federal Reserve") to acquire the Bank and is subject to the
regulations of the Federal Reserve. Under the BHCA, the Company's activities and
those of its subsidiaries are limited to banking, managing or controlling banks,
furnishing  services to or performing  services for its subsidiaries or engaging
in any other  activity  which the Federal  Reserve  determines  to be so closely
related to banking or managing or controlling  banks as to be a proper  incident
thereto. The Company may engage in a broader range of activities if it becomes a


                                       10
<PAGE>

"financial  holding company"  pursuant to the  Gramm-Leach-Bliley  Act, which is
described below under the caption "Recent  Legislation."  The BHCA prohibits the
Company  from  acquiring  direct  or  indirect  control  of more  than 5% of the
outstanding  voting stock or substantially all of the assets of any bank or from
merging or  consolidating  with  another  bank  holding  company  without  prior
approval of the Federal  Reserve.  Additionally,  the BHCA prohibits the Company
from engaging in or from  acquiring  ownership or control of more than 5% of the
outstanding voting stock of any company engaged in a non-banking business unless
such business is determined by the Federal  Reserve to be so closely  related to
banking as to be properly  incident  thereto.  The BHCA generally does not place
territorial   restrictions  on  the  activities  of  such  non-banking   related
activities.

         The Company is also subject to limited  regulation  and  supervision by
the South Carolina State Board of Financial Institutions.

Obligations of the Company to its Subsidiary Bank

         A number of obligations  and  restrictions  are imposed on bank holding
companies  and their  depository  institution  subsidiaries  by Federal  law and
regulatory  policy that are designed to reduce  potential  loss  exposure to the
depositors of such  depository  institutions  and to the FDIC insurance funds in
the event the depository  institution  is in danger of becoming  insolvent or is
insolvent.  For example, under the policy of the Federal Reserve, a bank holding
company is required to serve as a source of financial strength to its subsidiary
depository  institutions and to commit resources to support such institutions in
circumstances  where it might not do so absent such  policy.  In  addition,  the
"cross-guarantee"  provisions of the Federal  Deposit  Insurance Act, as amended
("FDIA"),  require  insured  depository  institutions  under  common  control to
reimburse the FDIC for any loss suffered or reasonably anticipated by either the
Savings  Association  Insurance Fund ("SAIF") or the Bank Insurance Fund ("BIF")
of the  FDIC  as a  result  of the  default  of a  commonly  controlled  insured
depository  institution or for any assistance provided by the FDIC to a commonly
controlled  insured  depository  institution in danger of default.  The FDIC may
decline to enforce the cross-guarantee provisions if it determines that a waiver
is in the best  interest  of the SAIF or the BIF or both.  The FDIC's  claim for
damages  is  superior  to  claims  of  shareholders  of the  insured  depository
institution  or its holding  company but is subordinate to claims of depositors,
secured  creditors and holders of subordinated  debt (other than  affiliates) of
the commonly controlled insured depository institutions.

         The FDIA also provides that amounts  received from the  liquidation  or
other resolution of any insured  depository  institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit  liabilities of
the  institution  prior to payment  of any other  general  or  unsecured  senior
liability,   subordinated  liability,  general  creditor  or  shareholder.  This
provision  would give  depositors  a preference  over  general and  subordinated
creditors  and  shareholders  in the event a receiver is appointed to distribute
the assets of the Bank.

         Any capital  loans by a bank holding  company to any of its  subsidiary
banks are  subordinate  in right of payment  to  deposits  and to certain  other
indebtedness of such subsidiary  bank. In the event of a bank holding  company's
bankruptcy,  any  commitment  by the bank  holding  company  to a  federal  bank
regulatory  agency to maintain the capital of a subsidiary  bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.

Capital Adequacy Guidelines for Bank Holding Companies and National Banks

         The various federal bank regulators,  including the Federal Reserve and
the OCC have adopted  risk-based and leverage  capital  adequacy  guidelines for
assessing bank holding company and bank capital adequacy. These standards define
what qualifies as capital and establish minimum capital standards in relation to
assets and  off-balance  sheet  exposures,  as  adjusted  for credit  risks.  In
addition,  the OCC may establish  individual minimum capital  requirements for a
national bank that are different from the general requirements.



                                       11
<PAGE>

         Failure  to meet  capital  requirements  could  subject  the  Bank to a
variety of enforcement remedies,  including the termination of deposit insurance
by the FDIC and a prohibition on the taking of brokered deposits.

         The risk-based  capital standards of both the Federal Reserve Board and
the OCC explicitly  identify  concentrations of credit risk and the risk arising
from non-traditional  activities,  as well as an institution's ability to manage
these risks,  as  important  factors to be taken into account by the agencies in
assessing an institution's overall capital adequacy. The capital guidelines also
provide that an institution's exposure to a decline in the economic value of its
capital due to changes in interest rates should be considered by the agencies as
a factor in evaluating a bank's capital  adequacy.  The Federal Reserve also has
recently issued  additional  capital  guidelines for bank holding companies that
engage in certain trading activities.

         The Company and the Bank exceeded all applicable  capital  requirements
by a wide margin at December 31, 1999.

Certain Transactions by the Company with its Affiliates

         Federal  law   regulates   transactions   among  the  Company  and  its
affiliates,  including  the  amount of bank loans to or  investments  in nonbank
affiliates  and the  amount  of  advances  to third  parties  collateralized  by
securities of an affiliate.  Further,  a bank holding company and its affiliates
are prohibited  from engaging in certain tie-in  arrangements in connection with
any extension of credit, lease or sale of property or furnishing of services.

FDIC Insurance Assessments

         Because the Bank's deposits are insured by the BIF, the Bank is subject
to insurance assessments imposed by the FDIC. Currently, the assessments imposed
on all FDIC deposits for deposit insurance have an effective rate ranging from 0
to 27 basis points per $100 of insured deposits,  depending on the institution's
capital position and other supervisory  factors.  However,  because  legislation
enacted in 1996  requires  that  insured  deposits pay a pro rata portion of the
interest due on the obligations  issued by the Financing  Corporation  ("FICO"),
the FDIC is currently  assessing  BIF-insured  deposits an additional 1.26 basis
points per $100 of deposits,  and SAIF-insured deposits an additional 6.30 basis
points per $100 of deposits,  to cover those  obligations.  The FICO  assessment
will  continue to be adjusted  quarterly  to reflect  changes in the  assessment
bases of the  respective  funds  based  on  quarterly  Call  Report  and  Thrift
Financial Report submissions.

Regulation of the Bank

         The Bank is subject to the limitations of the National Bank Act and the
regulations  of the OCC as well as to  examination  by the OCC. The Bank is also
subject to various other state and federal laws and regulations, including state
usury laws, laws relating to  fiduciaries,  consumer credit and laws relating to
branch  banking.  The Bank's  loan  operations  are  subject to certain  federal
consumer credit laws and regulations promulgated thereunder,  including, but not
limited to: the federal  Truth-In-Lending  Act, governing  disclosures of credit
terms  to  consumer  borrowers;  the Home  Mortgage  Disclosure  Act,  requiring
financial  institutions to provide certain information concerning their mortgage
lending;  the Equal Credit Opportunity Act and the Fair Housing Act, prohibiting
discrimination on the basis of certain  prohibited  factors in extending credit;
the Fair Credit Reporting Act, governing the use and provision of information to
credit  reporting  agencies;  the Bank Secrecy Act,  dealing  with,  among other
things,  the  reporting  of  certain  currency  transactions;  and the Fair Debt
Collection Act, governing the manner in which consumer debts may be collected by
collection agencies. The deposit operations of the Bank are subject to the Truth
in  Savings  Act,  requiring  certain  disclosures  about  rates paid on savings
accounts;  the Expedited Funds  Availability Act, which deals with disclosure of
the availability of funds deposited in accounts and the collection and return of
checks by banks;  the Right to Financial  Privacy Act,  which  imposes a duty to
maintain  certain   confidentiality  of  consumer  financial  records,  and  the
Electronic  Funds Transfer Act and  regulations  promulgated  thereunder,  which
govern  automatic   deposits  to  and  withdrawals  from  deposit  accounts  and
customers'  rights and  liabilities  arising  from the use of  automated  teller
machines and other electronic banking services.



                                       12
<PAGE>

         The  Bank  is  also  subject  to  the  requirements  of  the  Community
Reinvestment  Act (the  "CRA").  The CRA imposes on  financial  institutions  an
affirmative  and  ongoing  obligation  to meet the credit  needs of their  local
communities,  including low- and moderate-income neighborhoods,  consistent with
the safe and sound operation of those institutions. Each financial institution's
actual performance in meeting community credit needs is evaluated as part of the
examination process, and also is considered in evaluating mergers,  acquisitions
and applications to open a branch or facility.

Other Safety and Soundness Regulations

         Prompt  Corrective  Action.  The federal  banking  agencies  have broad
powers under  current  federal law to take prompt  corrective  action to resolve
problems of insured depository institutions.  The extent of these powers depends
upon whether the  institutions in question are "well  capitalized,"  "adequately
capitalized,"    "undercapitalized,"    "significantly    undercapitalized"   or
"critically undercapitalized."

         A bank that is "undercapitalized"  becomes subject to provisions of the
FDIA:   restricting  payment  of  capital  distributions  and  management  fees;
requiring the FDIC to monitor the condition of the bank; requiring submission by
the bank of a capital  restoration  plan;  restricting  the growth of the bank's
assets and requiring prior approval of certain expansion proposals.  A bank that
is  "significantly   undercapitalized"   is  also  subject  to  restrictions  on
compensation  paid  to  senior  management  of  the  bank,  and a bank  that  is
"critically   undercapitalized"  is  further  subject  to  restrictions  on  the
activities of the bank and restrictions on payments of subordinated  debt of the
bank.  The  purpose  of these  provisions  is to  require  banks  with less than
adequate  capital to act quickly to restore  their  capital and to have the FDIC
move  promptly  to take over  banks  that are  unwilling  or unable to take such
steps.

         Brokered Deposits.  Under current FDIC regulations,  "well capitalized"
banks may accept brokered deposits without restriction, "adequately capitalized"
banks may accept  brokered  deposits  with a waiver  from the FDIC  (subject  to
certain  restrictions on payment of rates), while  "undercapitalized"  banks may
not accept brokered deposits.

Interstate Banking

         Under the Riegle-Neal  Interstate Banking and Branching  Efficiency Act
of 1994 the Company and any other  adequately  capitalized  bank holding company
located in South  Carolina can acquire a bank located in any other state,  and a
bank  holding  company  located  outside  South  Carolina  can acquire any South
Carolina-based  bank, in either case subject to certain  deposit  percentage and
other restrictions.  Unless prohibited by state law, adequately  capitalized and
managed bank holding  companies are permitted to  consolidate  their  multistate
bank operations into a single bank subsidiary and to branch  interstate  through
acquisitions. De novo branching by an out-of-state bank is permitted only if the
laws of the host state expressly permit it. The authority of a bank to establish
and operate  branches within a state continue to be subject to applicable  state
branching  laws.  South  Carolina law was amended,  effective  July 1, 1996,  to
permit such  interstate  branching but not de novo branching by an  out-of-state
bank.

Recent Legislation

         On November 12, 1999, the President signed the Gramm-Leach-Bliley  Act,
which  makes it easier for  affiliations  between  banks,  securities  firms and
insurance companies to take place. The Act removes Depression-era  barriers that
had separated  banks and securities  firms,  and seeks to protect the privacy of
consumers' financial information.  Most of the provisions of the Act require the
applicable   regulators  to  adopt  regulations  in  order  to  implement  these
provisions.



                                       13
<PAGE>

         Under provisions of the new legislation,  which are effective March 11,
2000, banks,  securities firms and insurance companies are able to structure new
affiliations  through  a  holding  company  structure  or  through  a  financial
subsidiary.  The legislation creates a new type of bank holding company called a
"financial  holding  company" which has powers much more extensive than those of
standard holding companies. These expanded powers include authority to engage in
"financial  activities,"  which are activities that are (1) financial in nature;
(2) incidental to activities that are financial in nature;  or (3) complimentary
to a  financial  activity  and that do not impose a safety and  soundness  risk.
Significantly,   the  permitted  financial   activities  for  financial  holding
companies  include  authority  to  engage  in  merchant  banking  and  insurance
activities,  including insurance portfolio investing. A bank holding company can
qualify as a financial holding company and expand the services it offers only if
all of its subsidiary depository institutions are well-managed, well-capitalized
and  have  received  a  rating  of   "satisfactory"   on  their  last  Community
Reinvestment Act examination.

         The  legislation  also  creates  another  new type of  entity  called a
"financial subsidiary." A financial subsidiary may be used by a national bank or
a group of national banks to engage in many of the same activities permitted for
a financial holding company, though several of these activities,  including real
estate development or investment,  insurance or annuity underwriting,  insurance
portfolio  investing and merchant  banking,  are reserved for financial  holding
companies.  A bank's  investment  in a financial  subsidiary  affects the way in
which the bank calculates its regulatory capital, and the assets and liabilities
of financial  subsidiaries  may not be consolidated  with those of the bank. The
bank must also be certain that its risk  management  procedures  are adequate to
protect it from  financial and  operational  risks created both by itself and by
any financial subsidiary.  Further, the bank must establish policies to maintain
the separate corporate  identities of the bank and its financial  subsidiary and
to prevent each from becoming liable for the obligations of the other.

         The Act also  establishes  the  concept  of  "functional  supervision,"
meaning that  similar  activities  should be  regulated  by the same  regulator.
Accordingly,  the Act spells out the regulatory authority of the bank regulatory
agencies,  the Securities and Exchange Commission and state insurance regulators
so that each type of activity is  supervised by a regulator  with  corresponding
expertise.  The Federal  Reserve Board is intended to be an umbrella  supervisor
with the  authority  to  require a bank  holding  company or  financial  holding
company  or any  subsidiary  of  either  to  file  reports  as to its  financial
condition,  risk management  systems,  transactions with depository  institution
subsidiaries  and  affiliates,  and compliance  with any federal law that it has
authority to enforce.

         Although the Act reaffirms that states are the regulators for insurance
activities  of  all  persons,  including   federally-chartered  banks,  the  Act
prohibits  states from preventing  depository  institutions and their affiliates
from conducting insurance activities.

         The Act also  establishes  a minimum  federal  standard  of  privacy to
protect the confidentiality of a consumer's  personal financial  information and
gives the consumer the power to choose how personal financial information may be
used by financial  institutions.  The privacy  provisions of the Act will not go
into effect until after adoption of implementing  regulations by various federal
agencies.

         The Company  anticipates that the Act and the regulations  which are to
be adopted pursuant to the Act will be likely to create new opportunities for it
to offer  expanded  services to customers in the future,  though the Company has
not yet determined what the nature of the expanded services might be or when the
Company might find it feasible to offer them. The Company  further  expects that
the Act will increase  competition from larger financial  institutions  that are
currently more capable than the Company of taking  advantage of the  opportunity
to provide a broader  range of  services.  However,  the  Company  continues  to
believe that its commitment to providing high quality,  personalized  service to
customers will permit it to remain competitive in its market area.



                                       14
<PAGE>

Legislative Proposals

         New proposed legislation, which could significantly affect the business
of banking,  has been  introduced  or may be introduced in Congress from time to
time.  Management  of the  Company  cannot  predict  the  future  course of such
legislative proposals or their impact on the Company and the Bank should they be
adopted.

Fiscal and Monetary Policy

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

Item 2.  Description of Property.

         The Company owns 1.83 acres of land at 1670 East Main Street in Easley,
South Carolina.  The Company has a temporary office facility on the property and
plans to build a permanent facility on the property.  The property is considered
to be well suited for the Company's purposes.

Item 3.  Legal Proceedings.

         The  Company  may  from  time  to  time be a  party  to  various  legal
proceedings  arising in the ordinary  course of business,  but management of the
Company  is not aware of any  pending or  threatened  litigation  or  unasserted
claims or assessments that are expected to result in losses,  if any, that would
be material to the Company's business and operations.

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

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of 1999.



                                       15
<PAGE>

                                     PART II

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

         Although  the common  stock of the  Company  may be traded from time to
time on an individual  basis,  no  established  trading market has developed and
none is expected to develop in the foreseeable  future.  The common stock is not
listed on any exchange nor is it traded on the NASDAQ  National  Market  System,
nor are there any market makers known to  management.  During 1999,  the Company
sold  800,000  shares of its common  stock in a public  offering  for $10.00 per
share.  In 1999,  management  was  aware  of a few  transactions  in  which  the
Company's  common stock traded for about $10.00 per share.  However,  management
has not  ascertained  that these  transactions  are the  result of arm's  length
negotiations  between the parties,  and because of the limited  number of shares
involved,  these prices may not be  indicative of the market value of the common
stock.

         As of February 28, 2000, there were approximately 475 holders of record
of the Company's  common stock,  excluding  individual  participants in security
position listings.

         The Company  has never paid any cash  dividends,  and to  maintain  its
capital,  does not expect to pay cash dividends in the near future. The dividend
policy of the Company is subject to the discretion of the Board of Directors and
depends upon a number of factors, including earnings, financial conditions, cash
needs  and  general  business  conditions,  as  well  as  applicable  regulatory
considerations.  Because the Company has no  operations  other than those of the
Bank and only has limited income of its own, the Company would rely on dividends
from the Bank as its principal source of cash to pay dividends.

         Each national banking  association is required by federal law to obtain
the prior  approval of the OCC for the payment of  dividends if the total of all
dividends  declared  by the  board of  directors  of such  bank in any year will
exceed the total of (i) such bank's net profits (as defined and  interpreted  by
regulation)  for that year plus (ii) the  retained  net  profits (as defined and
interpreted  by  regulation)  for the  preceding  two years,  less any  required
transfers to surplus. In addition,  national banks can only pay dividends to the
extent that retained net profits (including the portion  transferred to surplus)
exceed bad debts (as defined by regulation).

         The  payment  of  dividends  by the  Company  and the  Bank may also be
affected  or limited by other  factors,  such as the  requirements  to  maintain
adequate capital above regulatory guidelines. In addition, if, in the opinion of
the applicable regulatory authority, a bank under its jurisdiction is engaged in
or is about to engage in an unsafe or unsound practice (which,  depending on the
financial  condition of the Bank, could include the payment of dividends),  such
authority may require, after notice and hearing, that such bank cease and desist
from such practice.  The OCC has indicated that paying  dividends that deplete a
national  bank's  capital  base to an  inadequate  level  would be an unsafe and
unsound banking practice.  The Federal Reserve, the OCC and the FDIC have issued
policy  statements  which provide that bank holding  companies and insured banks
should generally only pay dividends out of current operating earnings.

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

         The Company is a bank holding company and has no operations  other than
those carried on by its wholly owned subsidiary,  Cornerstone National Bank. The
Bank  commenced  business on September 15, 1999.  It conducts a general  banking
business in Easley, South Carolina, out of one office.

         For the Year 2000 the Bank's  plan of  operation  is to seek to attract
new deposit and loan customers. Deposit accounts will be sought from individuals
and  businesses  in the  Easley,  South  Carolina  area.  The  Bank  will  offer
competitive  rates for such accounts and may seek new accounts by offering rates
slightly above those  prevailing in the market.  Loan business will be sought by
offering competitive rates and terms to credit worthy customers. Management will
emphasize  personal  service and  accessibility  as reasons for  customers to do
business with the Bank.  Personal  contacts by management as well as advertising
and  competitive  prices and  services  will be the Bank's  principal  marketing
tools.



                                       16
<PAGE>

         The  Company  sold $8 million of common  stock in the third  quarter of
1999. At December 31, 1999, shareholders' equity had declined to $7,572,030 as a
result of operating losses.  However, the Company had over $1,900,000 million in
cash and liquid assets at December 31, 1999. These funds are expected to be more
than sufficient to absorb  operating  losses in 2000.  Accordingly,  the Company
does not expect to have to raise additional funds in 2000.

         In 1999,  the Bank  purchased  a 1.83 acre tract of land for its office
site. A modular office facility was located on a portion of the site to serve as
the Bank's office until permanent  quarters could be built on the site. In early
2000 the Bank engaged an architect to design a permanent  office  building.  The
Bank expects to complete the plans for the building, let a contract and commence
construction  in 2000.  It is estimated  that the cost of the building  together
with furnishings and equipment will be approximately $1,500,000.

         The Company  does not expect there will be  significant  changes in the
number of employees in 2000 although 2 or 3 additional employees may be hired.

Item 7.  Financial Statements.

     Included herewith are the following financial statements:

          Consolidated Balance Sheet at December 31, 1999

          Consolidated  Statement of Operations  for the period from January 11,
               1999 (inception) to December 31, 1999

          Consolidated  Statement  of  Changes in  Shareholders'  Equity for the
               period from January 11, 1999 (inception) to December 31, 1999

          Consolidated  Statement  of Cash Flows for the period from January 11,
               1999 (inception) to December 31, 1999

          Notes to Financial Statements



                                       17
<PAGE>







               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
Cornerstone Bancorp and Subsidiary
Easley, South Carolina


         We  have  audited  the  accompanying   consolidated  balance  sheet  of
Cornerstone  Bancorp and Subsidiary  (the "Company") as of December 31, 1999 and
the related consolidated statements of operations, shareholders' equity and cash
flows for the period from  January 11, 1999  (inception)  through  December  31,
1999. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audit.

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

         In our opinion, the consolidated financial statements referred to above
present  fairly,  in  all  material  respects,  the  financial  position  of the
Cornerstone Bancorp and Subsidiary at December 31, 1999 and the results of their
operations  and cash flows for the period  from  January  11,  1999  (inception)
through  December 31, 1999, in conformity  with  generally  accepted  accounting
principles.







February 4, 2000
Elliott, Davis & Company, LLP
Greenville, South Carolina


                                       18
<PAGE>


                       CORNERSTONE BANCORP AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 1999

          ASSETS

CASH AND DUE FROM BANKS .....................................      $    711,239

FEDERAL FUNDS SOLD ..........................................         1,910,000

INVESTMENT SECURITIES .......................................         9,388,957

LOANS, NET ..................................................         6,631,232

PROPERTY AND EQUIPMENT, NET .................................           871,704

OTHER ASSETS ................................................           285,562
                                                                   ------------
       Total assets .........................................      $ 19,798,694
                                                                   ============

          LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
   Deposits
     Noninterest bearing ....................................      $  2,067,449
     Interest bearing .......................................         7,853,887
                                                                   ------------
       Total deposits .......................................         9,921,336

   Securities sold under repurchase agreements ..............         2,289,278
   Other liabilities ........................................            11,586
                                                                   ------------
       Total liabilities ....................................        12,222,200

COMMITMENTS AND CONTINGENCIES - Notes 9 and 13

SHAREHOLDERS' EQUITY
   Preferred stock, 10,000 shares authorized,
     no shares issued
   Common stock, no par value, 20,000,000 shares
     authorized, 800,000 shares issued ......................         7,985,000
   Retained deficit .........................................          (399,843)
   Accumulated other comprehensive loss .....................            (8,663)
                                                                   ------------
       Total shareholders' equity ...........................         7,576,494
                                                                   ------------
       Total liabilities and shareholders' equity ...........      $ 19,798,694
                                                                   ============


         The  accompanying   notes  are  an  integral  part  of  this  financial
statement.


                                       19
<PAGE>


                       CORNERSTONE BANCORP AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF OPERATIONS
                For the period from January 11, 1999 (inception)
                            through December 31, 1999

INTEREST INCOME
   Loans and fees on loans .....................................      $  82,459
   Investment securities .......................................        192,834
   Escrow account ..............................................         34,612
                                                                      ---------

       Total interest income ...................................        309,905

INTEREST EXPENSE
   Deposits and borrowings .....................................         88,993
                                                                      ---------

       Net interest income .....................................        220,912

PROVISION FOR POSSIBLE LOAN LOSSES .............................        105,000
                                                                      ---------

       Net interest income after provision for possible
         loan losses ...........................................        115,912

NONINTEREST INCOME
   Service fees on deposit accounts ............................          8,000

NONINTEREST EXPENSES
   Salaries and benefits .......................................        154,327
   Advertising .................................................         21,016
   Supplies ....................................................         31,041
   Data processing .............................................         20,073
   Occupancy and equipment .....................................         53,806
   Organizational and pre-opening expenses .....................        249,678
   Other operating .............................................         80,607
                                                                      ---------

       Total noninterest expenses ..............................        610,548
                                                                      ---------
       Loss before income taxes ................................       (486,636)

INCOME TAX BENEFIT .............................................         86,793
                                                                      ---------
       Net loss ................................................      $(399,843)
                                                                      =========

NET LOSS PER COMMON SHARE ......................................      $    (.50)
                                                                      =========

WEIGHTED AVERAGE NUMBER OF
   COMMON SHARES OUTSTANDING ...................................        800,000
                                                                      =========

    The accompanying notes are an integral part of this financial statement.


                                       20
<PAGE>


                       CORNERSTONE BANCORP AND SUBSIDIARY
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
   For the period from January 11, 1999 (inception) through December 31, 1999

<TABLE>
<CAPTION>
                                                                                                     Accumulated
                                                                  Common stock                           Other            Total
                                                                  ------------           Retained    Comprehensive    Shareholders'
                                                               Shares       Amount        Deficit        loss             equity
                                                               ------       ------        -------    -------------    --------------

<S>                                                       <C>            <C>            <C>             <C>             <C>
BALANCE, JANUARY 11, 1999 (inception) ................              -     $        -     $        -      $        -      $        -

   Net loss ..........................................              -              -       (399,843)              -        (399,848)

   Other comprehensive loss, net of taxes
     Unrealized loss on investment securities ........              -              -              -          (8,663)         (8,663)
                                                                                                                        -----------

   Comprehensive loss ................................                                                                     (408,506)

   Sale of stock (net of offering
     expenses of 15,000) .............................        800,000      7,985,000              -               -       7,985,000
                                                          -----------    -----------    -----------     -----------     -----------
BALANCE, DECEMBER 31, 1999 ...........................        800,000    $ 7,985,000    $  (399,843)    $    (8,663)    $ 7,576,494
                                                          ===========    ===========    ===========     ===========     ===========
</TABLE>







    The accompanying notes are an integral part of this financial statement.



                                       21
<PAGE>




                       CORNERSTONE BANCORP AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                For the period from January 11, 1999 (inception)
                            through December 31, 1999


OPERATING ACTIVITIES
   Net loss ..................................................     $   (399,843)
   Adjustments to reconcile net loss to net cash used in
     operating activities
     Deferred income tax benefit .............................          (86,793)
     Provision for possible loan losses ......................          105,000
     Depreciation and amortization ...........................           20,296
     Increase in other assets ................................         (194,306)
     Increase in other liabilities ...........................           11,585
                                                                   ------------
         Net cash used in operating activities ...............         (544,061)
                                                                   ------------

INVESTING ACTIVITIES
   Increase in federal funds sold ............................       (1,910,000)
   Purchase of investment securities .........................       (9,402,083)
   Increase in loans, net ....................................       (6,736,232)
   Purchase of property and equipment ........................         (892,000)
                                                                   ------------
         Net cash used in investing activities ...............      (18,940,315)
                                                                   ------------

FINANCING ACTIVITIES
   Sale of stock, net ........................................        7,985,000
   Net increase in deposits ..................................       12,210,615
                                                                   ------------
         Net cash provided by financing activities ...........       20,195,615
                                                                   ------------
         Net increase in cash and cash equivalents ...........          711,239

CASH AND CASH EQUIVALENTS, BEGINNING
   OF PERIOD .................................................                -
                                                                   ------------

CASH AND CASH EQUIVALENTS, END OF
   PERIOD ....................................................     $    711,239
                                                                   ============


CASH PAID FOR
   Interest ..................................................     $     77,993
                                                                   ============
   Income taxes ..............................................$               -
                                                                   ============





    The accompanying notes are an integral part of this financial statement.


                                       22
<PAGE>

                       CORNERSTONE BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES

         Cornerstone Bancorp, (the "Company") was incorporated under the laws of
the State of South  Carolina  for the  purpose of  operating  as a bank  holding
company with respect to a then proposed de novo bank,  Cornerstone National Bank
(the "Bank").  The Company offered its common stock for sale to the public under
an initial public  offering price of $10 per share and raised  approximately  $8
million in capital,  net of offering expenses.  The Company obtained  regulatory
approval  to  operate  a  national  bank and  opened  the Bank for  business  on
September 15, 1999, with a total capitalization of $6 million. The Bank provides
full  commercial  banking  services to customers and is subject to regulation by
the Office of the  Controller  of the  Currency  (OCC) and the  Federal  Deposit
Insurance  Corporation.  The Company is subject to the regulation of the Federal
Reserve Board.

         Prior to September 15, 1999, the Company  devoted all of its efforts to
establishing the Bank and accordingly operated as a development stage enterprise
as  defined  by  Statement  of  Financial  Accounting  Standard  (SFAS)  No.  7,
"Accounting and Reporting by Development Stage Enterprises".

     Basis of presentation

         The  consolidated  financial  statements  include  the  accounts of the
         Company and its wholly-owned subsidiary, the Bank. The Company operates
         as one business  segment.  All  significant  intercompany  balances and
         transactions  have  been  eliminated.   The  accounting  and  reporting
         policies  conform to generally  accepted  accounting  principles and to
         general practices in the banking industry. The Company uses the accrual
         basis of accounting.

         Estimates

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

         Concentrations of credit risk

              The  Company  makes loans to  individuals  and  businesses  in and
              around Upstate South Carolina for various  personal and commercial
              purposes.  The  Bank  has a  diversified  loan  portfolio  and the
              borrowers'  ability to repay their loans is not dependent upon any
              specific economic sector.

         Investment securities

              The Company accounts for investment  securities in accordance with
              SFAS No.  115,  "Accounting  for Certain  Investments  in Debt and
              Equity Securities".  The statement requires  investments in equity
              and debt securities to be classified into three categories:

               1.   Available for sale  securities:  These are securities  which
                    are not  classified as either held to maturity or as trading
                    securities.  These  securities  are  reported at fair market
                    value.  Unrealized  gains and  losses are  reported,  net of
                    income taxes, as separate components of shareholders' equity
                    (accumulated other comprehensive loss).





                                       23
<PAGE>


               2.   Held to maturity securities: These are investment securities
                    which the  Company  has the ability and intent to hold until
                    maturity.  These securities are stated at cost, adjusted for
                    amortization of premiums and the accretion of discounts. The
                    Company has no held to maturity securities.

               3.   Trading  securities:  These are securities  which are bought
                    and held  principally for the purpose of selling in the near
                    future.  Trading  securities  are  reported  at fair  market
                    value,   and  related   unrealized   gains  and  losses  are
                    recognized  in the  income  statement.  The  Company  has no
                    trading securities.

              Gains or losses on dispositions of investment securities are based
              on the  differences  between  the net  proceeds  and the  adjusted
              carrying  amount  of  the  securities  sold,  using  the  specific
              identification method.

     Loans, interest and fee income on loans

         Loans  are  stated  at  the  principal  balance  outstanding.  Unearned
         discount,  unamortized  loan fees and the  allowance  for possible loan
         losses are  deducted  from total loans in the balance  sheet.  Interest
         income is  recognized  over the term of the loan based on the principal
         amount  outstanding.  Points on real estate loans are taken into income
         to the extent they  represent the direct cost of initiating a loan. The
         amount in excess of direct  costs is deferred  and  amortized  over the
         expected life of the loan.

         Loans are  generally  placed on  non-accrual  status when  principal or
         interest  becomes  ninety days past due, or when payment in full is not
         anticipated.  When a loan is placed  on  non-accrual  status,  interest
         accrued but not received is generally reversed against interest income.
         If  collectibility  is in doubt, cash receipts on non-accrual loans are
         not recorded as interest income, but are used to reduce principal.

     Allowance for possible loan losses

          The provision for possible loan losses  charged to operating  expenses
          reflects the amount deemed  appropriate  by management to establish an
          adequate   reserve  to  meet  the   present   and   foreseeable   risk
          characteristics of the current loan portfolio.  Management's judgement
          is based on periodic and regular  evaluation of individual  loans, the
          overall risk  characteristics of the various portfolio segments,  past
          experience  with  losses  and  prevailing  and  anticipated   economic
          conditions. Loans which are determined to be uncollectible are charged
          against  the  allowance.  Provisions  for  possible  loan  losses  and
          recoveries on loans previously charged off are added to the allowance.

          The Bank accounts for impaired loans in accordance  with SFAS No. 114,
          "Accounting  by Creditors  for  Impairment  of a Loan".  This standard
          requires  that all lenders  value loans at the loan's fair value if it
          is probable  that the lender will be unable to collect all amounts due
          according  to the  terms  of the loan  agreement.  Fair  value  may be
          determined based upon the present value of expected cash flows, market
          price  of  the  loan,  if  available,   or  value  of  the  underlying
          collateral.  Expected  cash flows are required to be discounted at the
          loan's effective interest rate.

          Under SFAS No. 114 when the  ultimate  collectibility  of an  impaired
          loan's principal is in doubt,  wholly or partially,  all cash receipts
          are  applied  to  principal.  When this  doubt  does not  exist,  cash
          receipts are applied under the contractual terms of the loan agreement
          first  to  principal  then  to  interest  income.  Once  the  reported
          principal  balance has been reduced to zero,  future cash receipts are
          applied to interest  income,  to the extent that any interest has been
          foregone.  Further cash  receipts are  recorded as  recoveries  of any
          amounts previously charged off.



                                       24
<PAGE>

          A loan is also  considered  impaired  if its terms are  modified  in a
          troubled debt  restructuring.  For these accruing impaired loans, cash
          receipts are typically applied to principal and interest receivable in
          accordance with the terms of the restructured loan agreement. Interest
          income  is  recognized  on these  loans  using the  accrual  method of
          accounting. As of December 31, 1999, the Bank had no impaired loans.

     Non-performing assets

         Non-performing  assets include real estate acquired through foreclosure
         or deed taken in lieu of foreclosure,  and loans on non-accrual status.
         Loans  are  placed  on  non-accrual  status  when,  in the  opinion  of
         management,  the  collection  of additional  interest is  questionable.
         Thereafter no interest is taken into income unless  received in cash or
         until  such  time  as the  borrower  demonstrates  the  ability  to pay
         principal  and  interest.  At  December  31,  1999,  the  Bank  had  no
         non-performing assets.

         Property and equipment

              Property  and  equipment  are stated at cost,  net of  accumulated
              depreciation.  Depreciation  is computed  using the  straight-line
              method over the  estimated  useful  lives of the  related  assets.
              Maintenance  and repairs are  charged to  operations,  while major
              improvements  are  capitalized.  Upon  retirement,  sale or  other
              disposition  of property and equipment,  the cost and  accumulated
              depreciation are eliminated from the accounts, and gain or loss is
              included in income from operations.

         Organizational costs

              In accordance  with Statement of Position 98-5,  "Reporting on the
              Costs  of  Start-up   Activities,"   the  Company   expenses   all
              organizational and pre-opening costs as incurred.

         Income taxes

              The financial  statements have been prepared on the accrual basis.
              When income and expenses are  recognized in different  periods for
              financial  reporting  purposes  versus for  purposes of  computing
              income taxes  currently  payable,  deferred  taxes are provided on
              such temporary differences.  The Company accounts for income taxes
              in accordance  with SFAS No. 109,  "Accounting  for Income Taxes".
              Under SFAS 109, deferred tax assets and liabilities are recognized
              for the expected future tax  consequences of events that have been
              recognized in the consolidated financial statements or tax return.
              Deferred tax assets and liabilities are measured using the enacted
              tax  rates  expected  to apply to  taxable  income in the years in
              which those  temporary  differences are expected to be realized or
              settled.

         Advertising and public relations expense

              Advertising,  promotional and other business development costs are
              generally  expensed  as  incurred.   External  costs  incurred  in
              producing  media  advertising  are  expensed  the  first  time the
              advertising takes place. External costs relating to direct mailing
              costs are expensed in the period in which the direct  mailings are
              sent.

     Basic net loss per common share

         Basic  net  loss  per  common  share is  computed  on the  basis of the
         weighted average number of common shares outstanding in accordance with
         SFAS No. 128,  "Earnings per Share".  For purposes of  calculating  net
         loss per share,  the calculation  assumed the stock was outstanding all
         of 1999.  The  treasury  stock  method is used to compute the effect of
         stock  options  on  the  weighted   average  number  of  common  shares
         outstanding  for the  diluted  method.  No  dilution  occurs  under the
         treasury  stock method as the exercise price of stock options equals or
         exceeds the market value of the stock.



                                       25
<PAGE>


         Statement of cash flows

              For purposes of reporting  cash flows,  cash and cash  equivalents
              are defined as those amounts included in the balance sheet caption
              "Cash  and Due From  Banks".  Cash and  cash  equivalents  have an
              original maturity of three months or less.

    Fair values of financial instruments

      SFAS No. 107, "Disclosures About Fair Value of Financial  Instruments," as
      amended by SFAS No. 119, requires disclosure of fair value information for
      financial  instruments,  whether or not  recognized in the balance  sheet,
      when it is practicable to estimate the fair value.  SFAS No. 107 defines a
      financial  instrument  as cash,  evidence of an  ownership  interest in an
      entity or  contractual  obligations  which require the exchange of cash or
      other financial instruments.  Certain items are specifically excluded from
      the  disclosure  requirements,  including the Company's  common stock.  In
      addition,  other  nonfinancial  instruments such as premises and equipment
      and  other  assets  and  liabilities  are not  subject  to the  disclosure
      requirements.

      The  following  methods  and  assumptions  were  used  by the  Company  in
      estimating fair values of financial instruments as disclosed herein:

          Cash and due from  banks - The  carrying  amounts of cash and due from
          banks (cash on hand and due from banks) approximate their fair value.

          Federal  funds  sold - The  carrying  amounts  of  federal  funds sold
          approximate their fair value.

          Investment  securities  held to maturity and available for sale - Fair
          values for investment securities are based on quoted market prices.

          Loans - For variable rate loans that reprice  frequently and for loans
          that mature within one year, fair values are based on carrying values.
          Fair values for all other loans are estimated  using  discounted  cash
          flow analyses,  with interest rates  currently being offered for loans
          with similar terms to borrowers of similar credit quality. Fair values
          for impaired loans are estimated  using  discounted cash flow analyses
          or underlying collateral values, where applicable.

          Deposits - The fair  values  disclosed  for demand  deposits  are,  by
          definition,  equal to their carrying amounts.  The carrying amounts of
          variable  rate,   fixed-term  money  market  accounts  and  short-term
          certificates of deposit approximate their fair values at the reporting
          date. Fair values for long-term fixed-rate certificates of deposit are
          estimated  using a  discounted  cash  flow  calculation  that  applies
          interest rates  currently  being offered on certificates to a schedule
          of aggregated expected monthly maturities.

          Securities sold under repurchase  agreements - The carrying amounts of
          securities sold under  repurchase  agreements  approximate  their fair
          value.

          Off balance  sheet  instruments  - Fair  values of off  balance  sheet
          lending  commitments are based on fees currently charged to enter into
          similar  agreements,  taking into account the  remaining  terms of the
          agreements and the counterparties' credit standing.

    Recently issued accounting standards

      In June 1998, the Financial  Accounting Standards Board (FASB) issued SFAS
      133,  "Accounting for Derivative  Instruments and Hedging Activities." All
      derivatives are to be measured at fair value and recognized in the balance
      sheet as  assets  or  liabilities.  This  statement's  effective  date was
      delayed  by  the  issuance  of  SFAS  137,   "Accounting   for  Derivative
      Instruments  and Hedging  Activities - Deferral of the  Effective  Date of
      SFAS 133," and is effective for fiscal years and quarters  beginning after
      June 15,  2000.  The Company does not expect that the adoption of SFAS 133
      will have a material impact on the presentation of the Company's financial
      results or financial position.




                                       26
<PAGE>

    Risks and Uncertainties

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

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


NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS

         The Bank is required to maintain average reserve balances,  computed by
applying prescribed percentages to its various types of deposits,  either at the
bank or on deposit  with the Federal  Reserve  Bank.  At December 31, 1999 these
required reserves were met by vault cash.

NOTE 3 - FEDERAL FUNDS SOLD

         When the Bank's cash  reserves  (Note 2) are in excess of the  required
amount,  it may lend excess to other banks on a daily basis.  As of December 31,
1999 federal funds sold amounted to $1,910,000.


NOTE 4 - INVESTMENT SECURITIES

         The amortized costs and fair value of investment  securities  available
for sale are as follows:

<TABLE>
<CAPTION>
                                                                                    December 31, 1999
                                                                                    -----------------
                                                                                    Gross unrealized
                                                                   Amortized        ----------------           Fair
                                                                      cost        Gains        Losses          value
                                                                      ----        -----        ------          -----
<S>                                                             <C>             <C>          <C>          <C>
Federal agencies .........................................      $   9,222,083   $       -    $   13,126   $     9,208,957
Federal Reserve Bank stock - restricted ..................            180,000           -             -           180,000
                                                                -------------   ---------    ----------   ---------------

       Total investment securities .......................      $   9,402,083   $       -    $   13,126   $     9,388,957
                                                                =============   =========    ==========   ===============
</TABLE>

         The amortized costs and fair values of securities available for sale at
December 31, 1999, by contractual  maturity,  are shown in the following  chart.
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay  obligations with or without call or prepayment
penalties.


                                       27
<PAGE>

NOTE 4 - INVESTMENT SECURITIES, Continued

                                                       Amortized
                                                          cost        Fair value
                                                          ----        ----------
Within one year ..................................     $4,848,975     $4,845,630
Due after one through five years .................      4,373,108      4,363,327
Federal Reserve Bank stock (no maturity) .........        180,000        180,000
                                                       ----------     ----------
    Total investment securities ..................     $9,402,083     $9,388,957
                                                       ==========     ==========

         At  December  31,  1999,   $902,192  in  securities   were  pledged  to
collateralize public deposits.

NOTE 5 - LOANS
         The  composition of net loans by major loan category as of December 31,
1999 is presented below:

Commercial .................................................          $2,793,000
Real estate - construction .................................             130,000
Real estate - mortgage .....................................           2,264,000
Consumer ...................................................           1,549,232
                                                                      ----------

Loans, gross ...............................................           6,736,232
Less allowance for possible loan losses ....................             105,000
                                                                      ----------
Loans, net .................................................          $6,631,232
                                                                      ==========

         At December  31,  1999 there were no  nonaccruing  or  impaired  loans.
During the period ended December 31, 1999 there were no loans charged off and no
recoveries on loans previously charged off.

NOTE 6 - PROPERTY AND EQUIPMENT
         Property   and   equipment   are   stated  at  cost  less   accumulated
depreciation. Components of property and equipment included in the balance sheet
as of December 31, 1999 are as follows:

Land and improvements ......................................            $570,981
Furniture and equipment ....................................             295,754
Vehicles ...................................................              25,265
                                                                        --------
                                                                         892,000
Accumulated depreciation ...................................              20,296
                                                                        --------
    Total property and equipment ...........................            $871,704
                                                                        ========

         Depreciation expense for the period ended December 31, 1999 amounted to
$20,296.  Depreciation is charged to operations over the estimated  useful lives
of the assets.  The estimated  useful lives and methods of depreciation  for the
principal items follow:

         Type of Asset              Life in Years           Depreciation Method
         -------------              -------------           -------------------
   Software                            3                      Straight-line
   Furniture and equipment             5 to 7                 Straight-line
   Improvements                        5 to 40                Straight-line
   Vehicles                            3                      Straight-line


                                       28
<PAGE>


NOTE 7 - DEPOSITS

         The  following  is a detail of the deposit  accounts as of December 31,
1999:

Noninterest bearing .....................................             $2,067,449
Interest bearing:
  NOW accounts ..........................................              3,973,730
  Money market accounts .................................                627,321
  Savings ...............................................                352,411
  Time, less than $100,000 ..............................                987,448
  Time, $100,000 and over ...............................              1,912,977
                                                                      ----------
Total deposits ..........................................             $9,921,336
                                                                      ==========

         Interest  expense on time deposits greater than $100,000 was $19,983 in
1999.

         At December  31,  1999 the  scheduled  maturities  of  certificates  of
deposit are as follows:

     2000                                                             $2,730,404
     2001                                                                 91,717
     2002                                                                 21,278
     2003                                                                 57,026
                                                                      ----------
                                                                      $2,900,425

NOTE 8 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

           Securities sold under repurchase  agreements consist of the following
as of December 31, 1999:

U. S. Government securities with an amortized
  cost of $2,799,029($2,783,852 fair value) are
  used as collateral for the agreements ......................        $2,289,278
                                                                      ==========

The Bank enters into sales of securities under  agreements to repurchase.  These
obligations  to repurchase  securities  sold are reflected as liabilities in the
balance  sheets.  The dollar amount of securities  underlying the agreements are
book entry securities  maintained by a safekeeping  agent. The  weighted-average
interest  rate of these  agreements  was 4.5 percent at December 31,  1999.  The
maximum amount outstanding at any month-end was $2,289,278 during 1999.

NOTE 9 - COMMITMENTS AND CONTINGENCIES

         The Bank may  become  party to  litigation  and  claims  arising in the
normal  course of  business.  As of December 31,  1999,  there is no  litigation
pending.

         The Company has a five year  contract with a data  processing  service.
Monthly costs are approximately $4,500.

         The Company  purchased and is the beneficiary of life insurance for its
chief executive officer and chief financial officer.

         Refer to Note 13  concerning  financial  instruments  with off  balance
sheet risk.

NOTE 10 - UNUSED LINES OF CREDIT

         At December 31, 1999, the Bank had an unused line of credit to purchase
federal funds totaling $1,500,000 from an unrelated bank. This line of credit is
available  on a one to seven day basis for  general  corporate  purposes  of the
Bank. The lender has reserved the right to withdraw the line at their option.



                                       29
<PAGE>

NOTE 11 - INCOME TAXES

         The income tax benefit of $86,793  recorded in 1999  reflects the value
of net operating  losses  available for offset against future taxable income and
are available through 2014.

NOTE 12 - RELATED PARTY TRANSACTIONS

         Certain directors, executive officers and companies with which they are
affiliated,  are customers of and have banking transactions with the Bank in the
ordinary  course of business.  These loans were made on  substantially  the same
terms, including interest rates and collateral,  as those prevailing at the time
for comparable arms-length transactions.

         A  summary  of  loan  transactions  with  directors,   including  their
affiliates, and executive officers as of December 31, 1999 are as follows:

Balance, beginning of period .............................       $             -
New loans ................................................             1,857,067
Less loan payments .......................................                18,733
                                                                      ----------
Balance, end of period ...................................            $1,838,334
                                                                      ==========

         Deposits by directors and their related interests, at December 31, 1999
approximated $2,365,042.

         For a portion of 1999, the Company leased  temporary  office space from
one of the directors. Rent expense charged to operations was $4,500.

         The Company purchased the land for its main office from a director at a
cost of $450,000 which was less than the appraised value.

NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK

         In the ordinary course of business,  and to meet the financing needs of
its customers,  the Bank is a party to various  financial  instruments  with off
balance sheet risk. These financial  instruments,  which include  commitments to
extend  credit  and  standby  letters of credit,  involve,  to varying  degrees,
elements of credit and interest rate risk in excess of the amounts recognized in
the balance sheet. The contract amount of those instruments  reflects the extent
of involvement the Bank has in particular classes of financial instruments.

         The Bank's  exposure to credit loss in the event of  nonperformance  by
the other party to the financial instrument for commitments to extend credit and
standby  letters of credit is  represented by the  contractual  amounts of those
instruments.  The Bank uses the same credit  policies in making  commitments and
conditional obligations as it does for on balance sheet instruments.

         Commitments  to extend  credit are  agreements to lend to a customer as
long as there is no  violation  of any  material  condition  established  in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require the  payment of a fee. At December  31,  1999,  unfunded
commitments to extend credit were $1,310,429 and  outstanding  letters of credit
were  $233,000.  The Bank  evaluates  each  customer's  credit  worthiness  on a
case-by-case  basis. The amount of collateral  obtained,  if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation of
the borrower. Collateral varies but may include accounts receivable,  inventory,
property, plant and equipment, commercial and residential real estate.


NOTE 14 - EMPLOYEE BENEFIT PLAN

         On September  27, 1999,  the Company  adopted a Simple IRA Plan for the
benefit of all eligible  employees.  The Bank contributes up to 3 percent of the
employee's  compensation.  Employer  contributions  made  to the  Plan  in  1999
amounted to $7,230.


                                       30
<PAGE>


NOTE 15 - STOCK OPTION PLAN

         During 1999, the Board of Directors adopted a stock option plan for the
benefit of the directors. The Board granted 40,000 options at an option price of
$10 per share.  All options vest 33 percent each year for three years and expire
10  years  from  the  grant  date.  The Bank  has  adopted  the  disclosure-only
provisions of Statement of Financial  Accounting  Standards No. 123, "Accounting
for  Stock-Based  Compensation".  Accordingly,  no  compensation  cost  has been
recognized  for the stock option plan.  Had  compensation  cost been  determined
based on the fair  value at the grant  date for the above  stock  option  awards
consistent with the provisions of SFAS 123, the Bank's net loss and net loss per
common share would have been increased to the pro forma amounts indicated below:

                                                            For the period ended
                                                             December 31, 1999
                                                             -----------------
Net loss - as reported ....................................       $(399,843)
Net loss - pro forma ......................................        (417,043)
Net loss per common share - as reported ...................            (.50)
Net loss per share  - pro forma ...........................            (.52)


         The fair value of the option  grant is  estimated  on the date of grant
using the  Black-Scholes  option  pricing  model and the  minimum  value  method
allowed by SFAS 123.  The risk free  interest  rate used was 5.89  percent,  the
expected option life was 3 years and the assumed dividend rate was zero.

         A summary of the status of the plan as of December 31, 1999 and changes
during the year ending on that date is presented below:

                                                                Weighted average
                                                Shares          exercise price
                                                ------          --------------
Outstanding at beginning of period                   -
Granted                                         40,000         $      10.00
Exercised                                            -
Forfeited or expired                                 -
                                                ------
Outstanding at end of period                    40,000
                                                ======
Options exercisable at December 31, 1999          None
Shares available for grant                        None

NOTE 16 - DIVIDENDS

         There are no current  plans to initiate  payment of cash  dividends and
future  dividend  policy  will  depend  on  the  Company's   earnings,   capital
requirements,  financial  condition and other factors considered relevant by the
Company's Board of Directors. Federal banking regulations restrict the amount of
dividends  that the Bank can pay to the  Company.  At December 31, 1999 the Bank
has no retained earnings from which to pay dividends.

NOTE 17 - REGULATORY MATTERS

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


                                       31
<PAGE>


         Quantitative  measures  established  by  regulation  to ensure  capital
adequacy  require the Bank to maintain  minimum amounts and ratios (set forth in
the table  below) of total and Tier 1 capital to  risk-weighted  assets,  and of
Tier 1 capital to average assets.  Management believes, as of December 31, 1999,
that the Bank meets all capital adequacy requirements to which it is subject.

         As of December 31, 1999,  the most recent  notification  of the banking
regulators  categorized  the  Bank  as well  capitalized  under  the  regulatory
framework for prompt corrective action.  There are no conditions or events since
that  notification  that  management  believes  have  changed the  institution's
category.  The Bank's actual capital  amounts and ratios and minimum  regulatory
amounts and ratios are presented as follows:

<TABLE>
<CAPTION>
                                                                                                              To be well capitalized
                                                                                           For capital       Under prompt corrective
                                                                                         Adequacy purposes      Action provisions
                                                                                         -----------------      -----------------
                                                                    Actual                    Minimum                 Minimum
                                                                    ------                    -------                 -------
                                                              Amount        Ratio       Amount       Ratio       Amount        Ratio
                                                              ------        -----       ------       -----       ------        -----
                                                                                      (amounts in thousands)
As of December 31, 1999
<S>                                                         <C>             <C>        <C>            <C>       <C>            <C>
Total Capital (to risk weighted assets) ............        $5,741          59.9%      $  767         8.0%      $  958         10.0%
Tier 1 Capital (to risk weighted assets) ...........         5,636          58.8          225         4.0          575          6.0
Tier 1 Capital (to average assets) .................         5,636          33.3          383         4.0          847          5.0
</TABLE>


NOTE 18 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

         The estimated fair values of the Company's  financial  instruments were
as follows at December 31, 1999:

                                                         Carrying        Fair
                                                          amount         value
                                                          ------         -----
FINANCIAL ASSETS
    Cash and due from banks ........................    $  711,239    $  711,239
    Federal funds sold .............................     1,910,000     1,910,000
    Investment securities ..........................     9,388,957     9,388,957
    Loans ..........................................     6,631,232     6,504,192
FINANCIAL LIABILITIES
    Deposits .......................................     9,921,336     9,779,696
    Securities sold under repurchase agreements ....     2,289,278     2,289,278

OFF BALANCE SHEET INSTRUMENTS
    Commitments to extend credit ...................     1,310,429     1,310,429
    Standby letters of credit ......................       233,000       233,000


NOTE 19 - PARENT COMPANY INFORMATION

        Following is condensed  financial  information  of  Cornerstone  Bancorp
(parent company only):

                             CONDENSED BALANCE SHEET

                                                                         1999
                                                                         ----
    ASSETS
    Cash .................................................            $1,936,312
    Investment in subsidiary .............................             5,640,182
                                                                      ----------
                                                                      $7,576,494

STOCKHOLDERS' EQUITY .....................................            $7,576,494
                                                                      ==========

                                       32
<PAGE>

                        CONDENSED STATEMENT OF OPERATIONS

                                                              For the period
                                                             January 11, 1999
                                                                (inception)
                                                                  through
                                                             December 31, 1999
                                                             -----------------
INCOME
    Escrow accounts ........................................     $  34,613

EXPENSES
    Sundry .................................................        83,301
                                                                 ---------
       Loss before equity in undistributed net loss
           of bank subsidiary ..............................       (48,688)

EQUITY IN UNDISTRIBUTED NET LOSS OF
    SUBSIDIARY .............................................      (351,155)
                                                                 ---------

       Net loss ............................................     $(399,843)
                                                                 =========


                        CONDENSED STATEMENT OF CASH FLOWS

                                                              For the period
                                                             January 11, 1999
                                                                (inception)
                                                                  through
                                                             December 31, 1999
                                                             -----------------

OPERATING ACTIVITIES
    Net loss ..................................................  $  (399,843)
    Adjustments to reconcile net loss to net cash
        used for operating activities
        Equity in undistributed net loss of bank subsidiary ...      351,155
                                                                 -----------
           Net cash used for operating activities .............      (48,688)

INVESTING ACTIVITIES
    Investment in bank subsidiary .............................   (6,000,000)

FINANCING ACTIVITIES
    Proceeds from sale of stock, net ..........................    7,985,000
                                                                 -----------

           Net increase in cash ...............................    1,936,312

CASH, BEGINNING OF PERIOD .....................................            -
                                                                 -----------

CASH, END OF PERIOD ...........................................  $ 1,936,312
                                                                 ===========



                                       33
<PAGE>

Item  8.  Changes  In and  Disagreements  With  Accountants  on  Accounting  and
          Financial Disclosure.

         Not Applicable.

                                    PART III

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

Directors

         The table shows,  as to each director,  his name,  age,  positions held
with the Company and principal occupation for the past five years and the period
during  which he served as a director of the  Company.  Directors of the Company
serve  until the first  annual  meeting of  shareholders  in 2000 or until their
successors are elected and qualify.

<TABLE>
<CAPTION>

NAME                           AGE                  PRINCIPAL OCCUPATION                    DIRECTOR SINCE
----                           ---                  --------------------                    --------------
<S>                            <C>   <C>                                                         <C>
J. Rodger Anthony              54    President and Chief Executive Officer of the                1999
                                     Company, since 1999; Chief Executive Officer,
                                     First National Bank of Pickens County, Easley, SC,
                                     1979 to 1998

Walter L. Brooks               72    President, G&B Enterprises, Liberty, SC (egg                1999
                                     production)

T. Edward Childress, III       53    Pharmacist                                                  1999


Nicholas S. Clark              32    Vice President, Secretary, Treasurer and Chief              1999
                                     Financial Officer of the Company, since 1999;
                                     Chief Financial Officer, First National Bank of
                                     Pickens County, Easley, SC, 1993 to 1998

J. Bruce Gaston                42    Certified Public Accountant                                 1999

S. Ervin Hendricks, Jr.        56    President, Nu-Life Environmental, Inc., Easley, SC          1999


Joe E. Hooper                  60    President, Pride Mechanical & Fabrication Company,          1999
                                     Inc.

Robert R. Spearman             59    Owner, Spearman Surveying Company, Easley, SC               1999

John M. Warren, Jr., M.D.      48    Physician, Easley Ob-Gyn Associates, P.A.,                  1999
                                     Easley, SC

George I. Wike, Jr.            54    Investor                                                    1999
</TABLE>

         Neither the principal  executive officers nor any director nominees are
related by blood, marriage or adoption in the degree of first cousin or closer.

Executive Officers

         The names and positions with the Company of each  executive  officer of
the Company are as follows:

J. Rodger Anthony          President and Chief Executive Officer

Nicholas S. Clark          Vice President and Chief Financial Officer

         The age and business  experience  of Messrs.  Anthony and Clark are set
forth above under "-Directors." Neither the principal executive officers nor any
directors  are  related by blood,  marriage  or  adoption in the degree of first
cousin or closer.


                                       34
<PAGE>


Item 10. Executive Compensation.

         The following  table sets forth the  remuneration  paid during the year
ended  December  31, 1999 to the Chief  Executive  Officer.  No other  principal
officer of the Company was paid remuneration in excess of $100,000.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                  Number of
                                                                                 Securities
                                                Annual Compensation(1)            Underlying
                                                ----------------------             Options          All Other
Name and Principal Position                 Year       Salary         Bonus        Awarded       Compensation(2)
---------------------------                 ----       ------         -----        -------       ---------------

<S>                                         <C>      <C>                 <C>        <C>              <C>
J. Rodger Anthony                           1999     $100,000            -0-        4,000            $2,520
  President and Chief
  Executive Officer
---------------------
</TABLE>
(1)  Perquisites  and personal  benefits did not exceed the lesser of $50,000 or
     10% of Mr. Anthony's salary plus bonus payments.
(2)  Contributions  by the Company to the Company's Simple IRA Plan on behalf of
     Mr. Anthony in the amount of $2,520 in fiscal year 1999.

                            ORGANIZERS' STOCK OPTIONS

         On  December  14,  1999,  the Board of  Directors  of the  Company,  in
consideration  of the  time and  efforts  of the  directors  of the  Company  in
organizing the Company and its subsidiary  bank and each  director's  personally
guaranteeing a portion of the organizational  expenses,  granted options to each
director to purchase up to 4,000 shares of the common stock of the Company for a
purchase  price of $10.00  per  share,  which was the price at which the  common
stock was sold to the public in 1999.  The options become  exercisable  for each
director  one-third  each year  beginning  on  December  14,  2000 and expire on
December 14, 2009 unless they  terminate  sooner as the result of the director's
ceasing to be a director of the  Company,  in which case the options  expire six
months after the holder ceases to be a director.

                        OPTION GRANTS IN LAST FISCAL YEAR

         The  following  table  presents  information  about options held by the
person named in the Summary  Compensation Table at December 31, 1999. No options
were exercised by Mr. Anthony during the year ended December 31, 1999

<TABLE>
<CAPTION>
                                             Individual Grants
                                             -----------------
                                     Number of           % of Total
                                     Securities           Options
                                     Underlying          Granted to         Exercise
                                      Options            Employees            Price              Expiration
        Name                         Granted(1)           in 1999         (per share)                Date
        ----                         ----------           -------         -----------                ----

<S>                                    <C>                  <C>             <C>                   <C>
J. Rodger Anthony                      4,000                50%             $10.00                12/14/09
</TABLE>
(1)  Such options become exercisable in one-third increments on each of December
     14, 2000, 2001, and 2002.


                                       35
<PAGE>


          OPTION EXERCISES AND YEAR END OPTIONS OUTSTANDING AND VALUES

<TABLE>
<CAPTION>
                                                        Number of Securities           Value of Unexercised
                                                       Underlying Unexercised              In-the-Money
                       Shares Acquired     Value          Options 12/31/99              Options 12/31/99(1)
Name                     on Exercise     Realized   Exercisable     Unexercisable   Exercisable       Unexercisable
----                   ---------------   --------   -----------     -------------   -----------       -------------

<S>                           <C>            <C>            <C>         <C>            <C>              <C>
J. Rodger Anthony             0              0              0           4,000          $0.00            $0.00
</TABLE>
---------------
(1) Based on  exercise  prices of $10.00  per share and  assuming  that the fair
market value of the  Company's  common stock on December 31, 1999 was $10.00 per
share.

Compensation of Directors

         In 1999,  each director was granted options to purchase 4,000 shares of
common stock.  The exercise price of the options is $10.00 per share,  which was
the fair market  value of the options on the date of grant.  The options  become
exercisable  one-third  annually beginning December 14, 2000 and expire December
14, 2009.

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

       The number of shares owned and the percentage of outstanding common stock
such  number  represents  at March 1,  2000,  for all  directors  and  executive
officers of the Company and for all persons who are currently  beneficial owners
of 5% or more of the Company's common stock is set forth below.

<TABLE>
<CAPTION>
                                                         Number of Shares                   % of Outstanding
Name (and Address of 5% Owners)                         Beneficially Owned                    Common Stock
-------------------------------                         ------------------                    ------------
<S>                                                         <C>                                   <C>
J. Rodger Anthony                                           30,000                                3.80
Walter L. Brooks (1)                                         5,400                                0.68
T. Edward Childress, III                                    75,000                                9.40
    2905 White Horse Road
    Greenville, SC
Nicholas S. Clark                                           10,500                                1.30
J. Bruce Gaston                                             15,000                                1.90
S. Ervin Henricks, Jr.                                      28,500                                3.63
Joe E. Hooper                                               35,000                                4.38
Robert R. Spearman                                           3,000                                0.38
John M. Warren, Jr., M.D. (2)                               10,500                                1.31
George I. Wike, Jr.                                         75,000                                9.40
    28 Mandarin Circle
    Taylors, SC
All directors and executive                                _______                               _____
officers as a group (10 persons)                           287,900                               36.00
</TABLE>
--------------------
(1)  Includes  5,000  shares  owned by a  partnership  in which Mr.  Brooks is a
     partner.
(2)  Includes 500 shares  owned by a trust of which Dr.  Warren is trustee as to
     which Dr. Warren disclaims beneficial ownership.


                                       36
<PAGE>


Except as otherwise  indicated,  to the knowledge of management,  all shares are
owned directly with sole voting power.

Item 12. Certain Relationships and Related Transactions.

         Purchase  of Real  Estate.  In 1999 the Company  purchased  the land on
which its temporary office is located and on which it plans to build a permanent
office  from S.  Ervin  Hendricks,  Jr.,  a director  of the  Company.  The land
purchased  was 1.8 acres with 594 feet of  frontage on 2 streets.  The  purchase
price of  $450,000.00  was  negotiated at arm's length by an ad hoc committee of
the Board and was less than the  appraised  value of the property  determined by
two separate appraisers. The transaction resulted in a profit to Mr. Hendricks.

         Extensions  of  Credit.  The  Company,  in the  ordinary  course of its
business,  makes loans to and has other  transactions with directors,  officers,
principal  shareholders,  and their associates.  Loans are made on substantially
the same terms, including rates and collateral,  as those prevailing at the time
for comparable  transactions with other persons and do not involve more than the
normal risk of collectibility or present other unfavorable features. The Company
expects  to  continue  to enter  into  transactions  in the  ordinary  course of
business on similar terms with directors,  officers, principal stockholders, and
their  associates.  The  aggregate  dollar amount of such loans  outstanding  at
December 31, 1999 was  $1,838,334.  During 1999,  $1,857,067 new loans were made
and repayments totaled $18,733.

         Organizers  Options.  See the  discussion  in Item 10 under the caption
"ORGANIZERS' OPTIONS."


                                       37
<PAGE>


Item 13. Exhibits and Reports on Form 8-K.

(a)      Description of Exhibits.

Exhibit No.                Description

3.1                       Articles of Incorporation of Registrant*
3.2                       Bylaws of Registrant*
10.1                      Form of Option Agreements
21                        Subsidiaries of Registrant
27                        Financial Data Schedule
______________
*Incorporated  by  reference  to  Registration   statement  on  Form  SB-2  (No.
333-79543).

(b)      Reports on Form 8-K.

         No reports on Form 8-K were filed during the fourth quarter of 1999.



                                       38
<PAGE>

                           FORWARD-LOOKING STATEMENTS


         This document contains  forward-looking  statements with respect to the
financial condition,  results of operations, and business of the Company and the
Bank. These forward-looking  statements involve certain risks and uncertainties.
Factors  that  may  cause  actual  results  to  differ   materially  from  those
contemplated  by such  forward-looking  statements  include,  among others,  the
following possibilities: (1) The Company and its subsidiary bank may not be able
to operate  profitably;  (2)  Competitive  pressure in the banking  industry may
increase  significantly;  (3) Costs or difficulties  related to operation of the
Bank may be greater than expected;  (4) Changes in the interest rate environment
may reduce  margins;  (5) General  economic  conditions,  either  nationally  or
regionally,  may be less  favorable  than  expected,  resulting  in, among other
things, a deterioration  in credit demand and quality;  (6) Changes may occur in
the regulatory environment;  (7) Changes may occur in business conditions and/or
inflation; and (8) Changes may occur in the securities markets.  Forward-looking
statements include statements concerning plans,  objectives,  goals, strategies,
future events or performance  and underlying  assumptions  and other  statements
which are other  than  statements  of  historical  facts.  Such  forward-looking
statements  may be  identified,  without  limitation,  by the  use of the  words
"anticipates,"   "estimates,"   "expects,"   "intends,"   "plans,"   "predicts,"
"projects," and similar  expressions.  The Company's  expectations,  beliefs and
projections  are expressed in good faith and are believed by the Company to have
a reasonable basis,  including without limitation,  management's  examination of
historical  operating trends,  data contained in the Company's records and other
data  available  from  third  parties,  but  there  can  be  no  assurance  that
management's expectations,  beliefs or projections will result or be achieved or
accomplished.

                                       39

<PAGE>

         SIGNATURES

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

                                   Cornerstone Bancorp


                                        s/J. Rodger Anthony
March 27, 2000                     By:------------------------------------------
                                         J. Rodger Anthony
                                         President and Chief Executive Officer


                                        s/Nicholas S. Clark
                                   By:------------------------------------------
                                          Nicholas S. Clark
                                          Vice President
                                         (Principal Financial
                                          and Principal Accounting Officer)

         In  accordance  with the Exchange Act this Report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature                                Title                                              Date
---------                                -----                                              ----
<S>                                      <C>                                                <C>
s/J. Rodger Anthony
--------------------------               Director President, Chief Executive Officer,       March 27, 2000
J. Rodger Anthony

--------------------------               Director                                           March __, 2000
Walter L. Brooks

--------------------------               Director                                           March __, 2000
T. Edward Childress, III

s/Nicholas S. Clark
--------------------------               Vice   President,    Chief   Financial   Officer,  March 27, 2000
Nicholas S. Clark                        Principal Accounting Officer, Director

s/J. Bruce Gaston
--------------------------               Director                                           March 27, 2000
J. Bruce Gaston

s/S. Ervin Hendricks, Jr.
--------------------------               Director                                           March 27, 2000
S. Ervin Hendricks, Jr.

s/Joe E. Hooper
--------------------------               Director                                           March 27, 2000
Joe E. Hooper

s/Robert R. Spearman
--------------------------               Director                                           March 27, 2000
Robert R. Spearman

--------------------------               Director                                           March __, 2000
John M. Warren, Jr., M.D.

--------------------------               Director                                           March __, 2000
George I. Wike, Jr.
</TABLE>

                                       40
<PAGE>



      SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT
          TO SECTION 15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS

         The Registrant  will furnish an annual report and proxy material to its
security  holders  after the  filing of this  report and  furnish  copies to the
Commission when they are sent to security holders.


                                  EXHIBIT INDEX

Exhibit No.               Description                                    Page
-----------               -----------                                    ----

3.1                       Articles of Incorporation of Registrant*
3.2                       Bylaws of Registrant*
10.1                      Form of Option Agreements
21                        Subsidiaries of Registrant
27                        Financial Data Schedule
______________
*Incorporated  by  reference  to  Registration   statement  on  Form  SB-2  (No.
333-79543).