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, 2000                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 Identification Number)
 Incorporation or Organization)

               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 Exchange Act: None

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

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  Registrant was required to file such reports),  and (2)
has been subject to such filing  requirements for 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 $2,128,033.

         The aggregate  market value of the Common Stock held by  non-affiliates
on March 15, 2001, was  approximately  $10,000,000.  As of March 15, 2001, 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
(1)      None

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


<PAGE>



                                     PART I

Forward-Looking Statements

         This  Report on Form  10-KSB  may  contain  forward-looking  statements
relating  to  such  matters  as  anticipated  financial  performance,   business
prospects,  technological  developments,  new products and similar matters.  The
Private  Securities  Litigation  Reform Act of 1995  provides a safe  harbor for
forward-looking  statements.  In order to comply with terms of the safe  harbor,
Cornerstone  Bancorp (the "Company") notes that a variety of factors could cause
the  Company's  actual  results and  experience  to differ  materially  from the
anticipated   results  or  other   expectations   expressed  in  the   Company's
forward-looking  statements.  The risks and  uncertainties  that may  affect the
operations,  performances,  development  and results of the  Company's  business
include,  but are not limited to, the following:  risks from changes in economic
and industry  conditions;  changes in interest  rates;  risks inherent in making
loans including  repayment  risks and value of collateral;  dependence on senior
management ; and recently-enacted or proposed legislation.  Statements contained
in this filing regarding the demand for Cornerstone National Bank's products and
services,  changing economic conditions,  interest rates,  consumer spending and
numerous  other  factors may be  forward-looking  statements  and are subject to
uncertainties and risks.

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 September of 1999, located in Easley, South Carolina.

         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, 2000, the Bank employed 12 persons.

         On March 19, 2001,  Ben Garvin,  was hired as President of  Cornerstone
National Bank. Mr. Garvin's  responsibilities  will include business development
for the Easley headquarters and branch  development.  Prior to joining the Bank,
Mr. Garvin was senior vice president of Central Carolina Bank (CCB) and his most
recent responsibilities  included managing the western region of the Upstate for
CCB  including  Pickens,  Anderson,  Oconee,  Greenwood,  Saluda  and  McCormick
counties. Mr. Garvin was with CCB 17 years in various management capacities.  J.
Rodger  Anthony,  Cornerstone  National  Bank's  chairman of the board and chief
executive  officer,  will  retain  those  titles  and  continue  to act in those
capacities.

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, 9 commercial
banks  and 1  savings  institution  operate  branches  in  Pickens  County.  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.

<PAGE>

         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.

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 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


                                       2
<PAGE>

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 and are structured on a  case-by-case  basis to better serve customer
needs.

         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
offers an internet  banking product  accessible via the Bank's custom website at
www.cornerstonenatlbank.com.   The  interactive   banking  product  includes  an
electronic bill payment service which allows  customers to make scheduled and/or
recurring bill payments electronically.



                                       3
<PAGE>

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.

                           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
"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


                                       4
<PAGE>

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.

         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, 2000.

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.



                                       5
<PAGE>

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.

         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.



                                       6
<PAGE>

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, and a significant number of regulations have already been adopted.

         Under provisions of the new legislation, which were 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) complementary
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.



                                       7
<PAGE>

         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  Company  anticipates  that  the Act and  the  regulations  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.

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 had a temporary office facility on the property and
during 2000,  the Company  constructed  a main office on this site.  The Company
occupied the new building on January 16, 2001.  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 2000.



                                       8
<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 2000,  management was aware of a number of  transactions in which the
Company's  common stock  traded  between  $12.00 and $13.00 per share.  However,
management has not ascertained that these  transactions were 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 March 15, 2001, there were approximately 479 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 condition, 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.

         The following  information  describes  various financial aspects of the
Bank's  business.  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;  references  to the "period  ended  December 31, 2000" mean the year ended
December  31, 2000.  The year ended  December 31, 2000 was the Bank's first full
year of operation.



                                       9
<PAGE>

Earnings Performance

         The Company had net income from  operations for the year ended December
31, 2000 of $84,417 or $0.10 per diluted  share,  compared to a net loss for the
period ended  December 31, 1999 of $399,843 or $.50 per common  share.  The Bank
opened  September  15, 1999.  The Bank had net interest  income (the  difference
between interest earned on interest earning assets and interest paid on interest
bearing  liabilities)  of $1,221,044  for 2000 as compared to $220,912 for 1999.
The Bank also had other operating income (principally service fees on deposits )
of $73,074 in 2000 and $8,000 in 1999.  The Bank provided  $102,000 and $105,000
to its  reserve  for loan  losses in 2000 and 1999  respectively,  and had other
operating  expenses   (principally  salaries  and  benefits  and  occupancy  and
equipment expenses) of $1,074,044 in 2000 and $610,548 in 1999.

Net Interest Income

         Net  interest  income is the  amount  of  interest  earned on  interest
earning assets (loans,  investment securities,  time deposits in other banks and
federal funds sold),  less the interest  expenses  incurred on interest  bearing
liabilities (interest bearing deposits and borrowed money), and is the principal
source of the Bank's  earnings.  Net interest income is affected by the level of
interest rates,  volume and mix of interest  earning assets and interest bearing
liabilities and the relative funding of these assets.

         During  the year ended  December  31,  2000,  net  interest  income was
$1,221,044.  For the period ended  December 31,  1999,  net interest  income was
$220,912.  This increase was primarily  attributable to an increase in volume of
loans. The average interest earning assets increased to $25,617,091 in 2000 from
$14,560,239 in 1999. The average yield on interest earning assets increased from
6.39% to 8.02% from 1999 to 2000,  while the average  cost of  interest  bearing
deposits  increased  from  4.24% to  4.93%.  The net yield on  average  interest
earning assets increased from 4.56% in 1999 to 4.77% in 2000.

         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 periods ended December 31, 2000
and 1999.




                                       10
<PAGE>


                       Average Balances, Yields and Rates

<TABLE>
<CAPTION>
                                                                Year Ended December 31, 2000      Period Ended December 31, 1999
                                                                ----------------------------      ------------------------------
                                                                            Interest                             Interest
                                                               Average       Income/    Yields/     Average      Income/    Yields/
                                                             Balances(1)     Expense    Rates     Balances(1)    Expense    Rates(2)
                                                             -----------     -------    --------  -----------    -------    --------
Assets
<S>                                                          <C>            <C>            <C>     <C>           <C>           <C>
Securities ..............................................    $ 8,633,327    $  567,469     6.57%   $ 6,149,556   $106,881      5.87%
Federal Funds Sold ......................................      3,820,164       238,582     6.25%     5,481,852     85,953      5.30%
Loans(3) ................................................     13,163,600     1,248,908     9.49%     2,928,831     82,459      9.52%
                                                             -----------    ----------     ----    -----------   --------      -----
        Total interest earning assets ...................     25,617,091     2,054,959     8.02%    14,560,239    275,293      6.39%
Cash and due from banks .................................        950,331                               661,227
Allowance for loan losses ...............................       (154,746)                              (45,692)
Premises and equipment ..................................      1,185,631                               790,593
Other assets ............................................        340,008                                80,101
                                                             -----------                           -----------
        Total assets ....................................    $27,938,315                           $16,046,468
                                                             ===========                           ===========

Liabilities and shareholders' equity
Interest bearing deposits
        Interest bearing transaction accounts ...........    $ 4,869,945    $ 193,565     3.97%    $ 2,697,786   $ 32,619      4.09%
        Savings .........................................      2,435,636      101,886     4.18%        993,202     10,052      3.42%
        Time deposits $100M and over ....................      3,028,297      179,667     5.93%      1,461,197     19,893      4.60%
        Other time deposits .............................      3,708,195      216,533     5.84%      1,132,701     16,267      4.85%
                                                             -----------    ---------     ----     -----------   --------      -----
            Total interest bearing deposits .............     14,042,073      691,651     4.93%      6,284,886     78,831      4.24%
Federal Funds purchased & repurchase agreements .........      2,911,907      142,264     4.89%        698,668     10,531      5.09%
                                                             -----------    ---------     ----     -----------   --------      -----
            Total interest bearing liabilities ..........     16,953,980      833,915     4.92%      6,983,554      88,993     4.36%
Noninterest bearing demand deposits .....................      5,198,214                             3,049,829

Other liabilities .......................................         89,258                                12,458
Shareholders' equity ....................................      5,696,863                             6,000,627
                                                             -----------                           -----------
        Total liabilities and shareholders' equity ......    $27,938,315                           $16,046,468
                                                             ===========                           ===========
Interest rate spread(4)                                                                  3.10%                                 2.03%
Net interest income and net yield on earning assets(5) ..                   1,221,044    4.77%                   $196,462      4.56%
Interest free funds supporting earning assets(6) ........    $11,575,018                           $ 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.

Rate/Volume Analysis of Net Interest Income

         The  effect  of  changes  in  average  balances  (volume)  and rates on
interest income,  interest  expense and net interest  income,  has been excluded
because  virtually  all of the  increase  in net  interest  income  is from  the
increase in volume of loans and  deposits.  This is a result of the short period
which the Bank was open in 1999.

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.



                                       11
<PAGE>

         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 2000 of $7,806,000, for a
cumulative  gap  ratio of  1.33.  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 2000
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 securities sold under
agreements  to  repurchase  are  presented in the 1-3 month  repricing  interval
because their rates are adjustable at their contractual maturity dates.

                          Interest Sensitivity Analysis

<TABLE>
<CAPTION>
                                                                                   December 31, 2000
                                                                                   -----------------
                                                                 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 ...................................          -     399      2,141     7,301         -        -          -       9,841
    Federal funds sold ...........................      3,330       -          -         -         -        -          -       3,330
    Loans ........................................      2,796   4,872      4,771     2,851     1,609    1,539          -      18,438
    Interest bearing balances ....................          -     100          -     -             -        -          -         100
                                                        -----   -----      -----    ------     -----    -----      -----      ------
        Total interest earning assets ............      6,126   5,371      6,912    10,152     1,609    1,539          -      31,709
                                                        -----   -----      -----    ------     -----    -----      -----      ------

Interest bearing deposits
    Interest bearing transaction accounts ........      1,459       -          -     4,376         -        -          -       5,835
    MMDA's .......................................        754       -          -     2,263         -        -          -       3,017
    Savings ......................................          -       -          -       652         -        -          -         652
    Time deposits $100M and over .................          -     411      2,693     1,706         -        -          -       4,810
    Other time deposits ..........................          -   1,241      2,577     2,963        29        -          -       6,810
    Federal funds purchased and
    securities sold under agreements to
    repurchase ...................................          -   2,779          -         -         -        -          -       2,779
                                                        -----   -----      -----    ------     -----    -----      -----      ------
        Total interest bearing ...................      2,213   4,431      5,270    11,960        29        -          -      23,903
                                                        =====   =====      =====    ======     =====    =====      =====      ======
        liabilities

Interest sensitivity gap .........................      3,913     940      1,642   (1,808)     1,580    1,539          -       7,806
Cumulative interest sensitivity gap ..............      3,913   4,853      6,495     4,687     6,267    7,806      7,806       7,806
Gap ratio ........................................       2.77    1.21       1.31       .85      1.02        -          -        1.33
Cumulative gap ratio .............................       2.77    1.73       1.55      1.20      1.26     1.33       1.33        1.33
</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.



                                       12
<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 $102,000 and $105,000 for
the  periods  ended  December  31,  2000 and 1999,  respectively.  There were no
charge-offs  or  non-accrual  loans in 2000 or 1999. For the year ended December
31, 2000 the Bank maintained a single past due loan with an outstanding  balance
of $7,180.50.  There were no past due loans at December 31, 1999.  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.

Other Income

         In 2000 the Bank had income from  service  fees on deposit  accounts of
$73,074 compared to $8,000 of such income in the period ended December 31, 1999.
The combination of increased accounts and account activity as well as the longer
reporting period accounted for the difference.

Other Expenses

         Other  expenses,  which  consist  primarily  of salaries  and  employee
benefits,  net occupancy,  data processing,  and  organizational and pre-opening
expenses totaled  $1,074,044 for the year ended December 31, 2000 as compared to
$610,548  for the period ended  December  31, 1999.  The increase in expenses is
related  to a full  year  of  operations  in 2000  compared  to one  quarter  of
operations in 1999.

Income Taxes

         During  the year  ended  December  31,  2000,  the Bank  recorded a tax
expense of $33,657  compared to a tax  benefit of $86,793  for the period  ended
December  31,  1999.  The Bank  accounts  for income  taxes  under SFAS No. 109,
"Accounting for Income Taxes." Certain items of income and expense  (principally
provision for loan losses, depreciation,  and pre-opening expenses) are included
in one reporting period for financial accounting purposes and another for income
tax purposes.


Investment Securities

         The following table  summarizes the carrying amounts of securities held
by the Bank at December 31, 2000 and 1999.

                   Investment Securities Portfolio Composition

                                            December 31, 2000  December 31, 1999
                                            -----------------  -----------------
                                                         Available for sale
                                                         ------------------
                                                       (Dollars in thousands)

U.S. Government Agencies .....................    $ 9,841                $ 9,209
Federal Reserve Bank Stock ...................        180                    180
                                                  -------                -------

Total ........................................    $10,021                $ 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, 2000 and 1999.



                                       13
<PAGE>



              Investment Securities Portfolio Maturities and Yields

<TABLE>
<CAPTION>
                                                    December 31, 2000                    December 31, 1999
                                               ------------------------------       ------------------------------
                                               Available-for-sale       Yield       Available-for-sale       Yield
                                               ------------------       -----       ------------------       -----
                                                                    (Dollars in thousands)
U.S. Government Agencies
<S>                                                   <C>                <C>                <C>              <C>
      Within one year .......................         $ 2,540            6.49%              $    -              -
      After one through five years ..........           7,301            6.75%               4,846           5.73%
      After five through ten years ..........               -               -%               4,363           6.51%
                                                      -------            ----               ------           -----
                                                        9,841            6.68%               9,209           6.10%
                                                      -------            ----               ------           -----

Federal Reserve Bank Stock (No Maturity) ....             180            6.00%                 180           5.92%

Total
      Within one year .......................           2,540            6.49%               4,846           5.73%
      After one through five years ..........           7,301            6.75%               4,363           6.51%
      After five through ten years ..........               -               -%                   0              -%
      No Maturity ...........................             180            6.00%                 180           5.92%
                                                      -------            ----               ------           -----

      Total .................................         $10,021            6.67%              $9,389           6.10%
                                                      =======            ====               ======           ====
</TABLE>

         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.

Loan Portfolio

         Management believes the loan portfolio is adequately  diversified.  The
Bank has no significant concentrations of loans in any particular individuals or
groups of related individuals and has no foreign loans.  However,  the Bank does
have a concentration of loans in the services and construction industries, which
by category  comprise  over 25% of the Bank's Tier 1 Capital and  allowance  for
loan losses.

         The amount of loans outstanding at December 31, 2000 and 1999 are shown
in the following table according to type of loan:

                           Loan Portfolio Composition
<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                                     ------------
                                                                          2000                          1999
                                                                          ----                          ----
                                                                                   % of                        % of
                                                                  Amount          Loans         Amount         Loans
                                                                  ------          -----         ------         -----
                                                                               (Dollars in thousands)

<S>                                                              <C>              <C>          <C>            <C>
Commercial and industrial ..................................     $ 6,808          36.9%        $2,793         41.5%
Real Estate - construction .................................       1,930          10.5%           130          1.9%
Real Estate - mortgage
      Farmland .............................................           -             -              -            -
      1-4 family residential ...............................       5,130          27.8%         1,971         29.2%
      Nonfarm, nonresidential ..............................       1,909          10.4%           293          4.4%
      Multifamily (5 or more) residential ..................         299           1.6%             -
Consumer installment .......................................       2,362          12.8%          1,549        23.0%
                                                                 -------          ----          ------       -----
      Total loans ..........................................      18,438           100%          6,736       100.0%
      Less allowance for loan losses .......................        (207)                         (105)
                                                                 -------                        ------
      Net loans ............................................     $18,231                        $6,631
                                                                 =======                        ======
</TABLE>



                                       14
<PAGE>

Maturity Distribution of Loans

         The following table sets forth the maturity  distribution of the Bank's
loans,  by type,  as of  December  31,  2000,  as well as the  type of  interest
requirement on such loans.

             Maturity and Interest Sensitivity Distribution of Loans

<TABLE>
<CAPTION>
                                                                            December 31, 2000
                                                                            -----------------
                                                                1 Year       1-5       5 Years
                                                               or Less      Years      or More       Total
                                                               -------      -----      -------       -----
                                                                          (Dollars in Thousands)

<S>                                                              <C>        <C>          <C>        <C>
Commercial and industrial ..................................     $3,394     $2,676       $  738     $ 6,808
Real Estate-construction ...................................      1,769        161            0       1,930
Real Estate-mortgage .......................................      2,034      3,037        2,267       7,338
Consumer installment .......................................      1,753        609            0       2,362
                                                                 ------     ------       ------     -------
      Total ................................................     $8,950     $6,483       $3,005     $18,438
                                                                 ======     ======       ======     =======

Predetermined rate, maturity greater than one year .........                $6,288       $2,521     $ 8,809
                                                                            ======       ======     =======

Variable rate or maturity within one year ..................     $8,950     $  195       $  484     $ 9,629
                                                                 ======     ======       ======     =======
</TABLE>

Impaired Loans

         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.

Real Estate Owned

         The  Bank  had  no  real  estate  owned   pursuant  to  foreclosure  or
in-substance  foreclosure  at December 31, 2000.  Real estate owned is initially
recorded at the lower of net loan principal balance or its estimated fair market
value less estimated  selling  costs.  The estimated fair value is determined by
appraisal at the time of acquisition.



                                       15
<PAGE>

Allowance for Loan 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,  2000),  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 loan losses inherent in the loan portfolio as of December 31, 2000.

         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.


                         Summary of Loan Loss Experience
<TABLE>
<CAPTION>
                                                                                                       Periods ended December 31,
                                                                                                       --------------------------
                                                                                                       2000                 1999
                                                                                                       ----                 ----
                                                                                                        (Dollars in thousands)
<S>                                                                                                   <C>                   <C>
Total loans outstanding at end of period,
      net of deferred net loan fees ....................................................              $18,438               $ 6,736
Average amount of loans outstanding ....................................................              $13,164               $ 2,929

Balance of allowance for loan losses-beginning .........................................              $   105               $     0
                                                                                                      -------               -------
Loans charged off ......................................................................              $     0               $     0
Recoveries of loans previously charged-off .............................................              $     0               $     0
                                                                                                      -------               -------
Net charge-offs (recoveries) ...........................................................              $     0               $     0
                                                                                                      -------               -------
                                                                                                      $   102               $   105
                                                                                                      -------               -------


Additions to allowance charged to expense
Balance of allowance for loan losses-ending ............................................              $   207               $   105
                                                                                                      -------               -------

Ratios
      Net charge-offs to average loans outstanding .....................................                  0.0%                  0.0%
      Net charge-offs to loans at end of period ........................................                  0.0%                  0.0%
      Allowance for loan losses to average loans .......................................                 1.57%                  3.6%
      Allowance for loan losses to loans at end of period ..............................                 1.12%                  1.6%
      Net charge-offs to allowance for loan losses .....................................                  0.0%                  0.0%
      Net charge-offs to provision for loan losses .....................................                  0.0%                  0.0%
</TABLE>



                                       16
<PAGE>

         The following  table  presents the allocation of the allowance for loan
losses at the end of the periods ended December 31, 2000 and 1999, compared with
the percent of loans in the applicable  categories to total loans. The allowance
for loan  losses  is not  allocated  to  specific  categories  of  loans  and is
available to absorb losses in all categories.

                     Allocation of Allowance for Loan Losses

<TABLE>
<CAPTION>
                                                                                     Periods ended December 31,
                                                                                     --------------------------
                                                                                2000                             1999
                                                                                ----                             ----
                                                                                         % of                               % of
                                                                     Amount              Loans            Amount            Loans
                                                                     ------              -----            ------            -----
                                                                                       (Dollars in thousands)
<S>                                                                   <C>               <C>              <C>                 <C>
Commercial and industrial ..............................              $ 76              36.9%            $ 44                 41.5%
Real Estate - construction .............................              $ 22              10.5%               2                  1.9%
Real Estate - mortgage .................................              $ 82              39.8%              35                 33.6%
Consumer installment ...................................              $ 27              12.8%              24                 23.0%
                                                                      ----              ----             ----                -----

      Total ............................................              $207               100%            $105                100.0%
</TABLE>

Deposits

         The average amounts and percentage  composition of deposits held by the
Bank for the periods ended December 31, 2000 and 1999, are summarized below:

                                Average Deposits

<TABLE>
<CAPTION>
                                                                                         Periods Ended December 31,
                                                                                         --------------------------
                                                                                      2000                        1999
                                                                                      ----                        ----
                                                                           Amount           Rate          Amount              Rate
                                                                           ------           ----          ------              ----
                                                                                           (Dollars in thousands)

<S>                                                                      <C>               <C>           <C>                 <C>
Noninterest bearing demand ...................................           $ 5,198           27.0%         $ 3,050              32.7%
Interest bearing transaction accounts ........................           $ 4,870           25.3%           2,698              28.9%
Savings ......................................................           $ 2,436           12.7%             993              10.6%
Time deposits $100M and over .................................           $ 3,028           15.7%           1,461              15.7%
Other time ...................................................           $ 3,708           19.3%           1,133              12.1%
                                                                         -------          -----          -------             -----
      Total ..................................................           $19,240          100.0%         $ 9,335             100.0%
                                                                         =======          =====          =======             =====
</TABLE>

         As of December 31, 2000,  the Bank held  $4,809,864 in time deposits of
$100,000 or more with  approximately  $935,518  maturing  within  three  months,
$471,901  maturing over three through six months,  $1,696,314  maturing over six
through twelve months, and $1,706,131 maturing over twelve months.  Average time
deposits  $100,000  and over  comprised  approximately  15.7%  of total  average
deposits  during 2000 and 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 deposit $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.



                                       17
<PAGE>

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 periods ended December 31, 2000 and 1999.

                                                      Periods ended December 31,
                                                      --------------------------
                                                         2000             1999
                                                         ----             ----
Return on assets ............................             .42%           (5.05%)
Return on equity ............................            2.06%           (2.39%)
Dividend payout ratio .......................            0.00%            0.00%
Equity to assets ratio ......................           16.40%           28.47%

         During  2001,  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  intends  to offer
competitive  rates for such accounts and may seek new accounts by offering rates
slightly above those  prevailing in the market.  Loan business is expected to 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 are expected to be the Bank's
principal marketing tools.

Liquidity

         Liquidity is the ability to meet current and future obligations through
liquidation  or maturity of existing  assets or the  acquisition  of  additional
liabilities.  Adequate  liquidity  is  necessary  to meet  the  requirements  of
customers for loans and deposit  withdrawals  in the most timely and  economical
manner. Some liquidity is ensured by maintaining assets which may be immediately
converted  into cash at minimal cost  (amounts due from banks and federal  funds
sold).  However,  the most  manageable  sources of  liquidity  are  composed  of
liabilities, with the primary focus on liquidity management being on the ability
to obtain deposits within the Bank's service area. Core deposits (total deposits
less wholesale time deposits) provide a relatively stable funding base, and were
equal to 58.2% of total assets at December 31, 2000. Asset liquidity is provided
from several sources,  including  amounts due from banks and federal funds sold,
and funds from  maturing  loans.  The  Company had over  $1,900,000  in cash and
liquid  assets at December  31,  2000.  These funds are expected to be more than
sufficient to absorb potential  operating losses in 2001. The Bank also has $1.5
million  available  through a line of credit with another bank as an  additional
source of liquidity funding.

         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 headquarters until a permanent main office building could be built at
the location.  On January 16, 2001, the Bank completed the  construction  of its
permanent  main office  building and relocated its  operations.  It is estimated
that the cost of the  building  together  with  furnishings  and  equipment  was
approximately $1,582,000.

         The Company has plans to hire as many as 6 or 7 additional employees in
2001 to help  support  the Bank's  growth and  maintain a high level of customer
service.

         Management  believes  that the Bank's  overall  liquidity  sources  are
adequate to meet its operating needs.  Accordingly,  the Company does not expect
to have to raise additional funds in 2001.

Capital Resources
         At  December  31,  2000,  shareholders'  equity  increased  from 1999's
balance of $7,576,494 to $7,691,883 as a result of earnings and unrealized gains
on investment securities.



                                       18
<PAGE>

         The Bank is subject to regulatory  capital  adequacy  standards.  Under
these standards, financial institutions are required to maintain certain minimum
ratios of capital to  risk-weighted  assets and average total assets.  Under the
provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991,
federal financial institution  regulatory  authorities are required to implement
prescribed  "prompt  corrective  actions" upon the  deterioration of the capital
position of a bank. If the capital  position of an affected  institution were to
fall below certain levels,  increasingly stringent regulatory corrective actions
are mandated.

         The Bank's  December  31,  2000  capital  ratios are  presented  in the
following table,  compared with the "well  capitalized" and minimum ratios under
the FDIC regulatory definitions and guidelines:

<TABLE>
<CAPTION>
                                                                                                                    To be well
                                                                                                                   capitalized
                                                                                          For capital              under prompt
                                                                                          For capital               corrective
                                                                                       adequacy purposes        action provisions
                                                                                       -----------------        -----------------
                                                                       Actual                 Minimum                  Minimum
                                                                       ------                 -------                  -------
                                                                 Amount       Ratio      Amount       Ratio      Amount       Ratio
                                                                 ------       -----      ------       -----      ------       -----
                                                                                       (Dollars in thousands)
As of December 31, 2000
<S>                                                              <C>           <C>       <C>           <C>      <C>           <C>
   Total Capital (to risk Weighted assets) ...............       $5,974        27.1%     $1,760        8.0%     $2,200        10.0%
   Tier 1 Capital (to risk Weighted assets) ..............        5,767        26.2%        880        4.0%      1,320         6.0
   Tier 1 Capital (to average Assets)(leverage) ..........        5,767        16.9%      1,367        4.0%      1,709         5.0
</TABLE>

Inflation

         Since the assets and  liabilities  of a bank are primarily  monetary in
nature (payable in fixed,  determinable  amounts),  the performance of a bank is
affected  more by changes in interest  rates than by inflation.  Interest  rates
generally increase as the rate of inflation increases,  but the magnitude of the
change in rates may not be the same.

         While the effect of inflation  on banks is normally not as  significant
as is its influence on those  businesses  which have large  investments in plant
and inventories, it does have an effect. During periods of high inflation, there
are  normally  corresponding  increases  in the money  supply,  and  banks  will
normally experience  above-average  growth in assets,  loans and deposits.  Also
general  increases in the prices of goods and services  will result in increased
operating expenses.


Item 7.  Financial Statements.

         Report of Independent Certified Public Accounts
         Consolidated Balance Sheets
         Consolidated Statements of Operations
         Consolidated Statements of Shareholders' Equity
         Consolidated Statements of Cash Flows
         Notes to Consolidated Financial Statements


                                       19
<PAGE>











               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
Cornerstone Bancorp and Subsidiary
Easley, South Carolina


         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Cornerstone  Bancorp and Subsidiary  (the "Company") as of December 31, 2000 and
1999 and the related consolidated statements of operations, shareholders' equity
and cash  flows for the year ended  December  31,  2000 and for the period  from
January 11, 1999 (inception) to December 31, 1999. These consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America.  Those standards  require that we plan
and  perform  the  audits 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 audits  provide a  reasonable  basis for our
opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects,  the financial position of Cornerstone
Bancorp and  Subsidiary  at December  31, 2000 and 1999 and the results of their
operations  and cash  flows for the year  ended  December  31,  2000 and for the
period from January 11, 1999  (inception)  to December 31, 1999,  in  conformity
with accounting principles generally accepted in the United States of America.




                                       Elliott, Davis & Company, L.L.P.

February 2, 2001
Greenville, South Carolina





                                       20
<PAGE>


                       CORNERSTONE BANCORP AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                              December 31,
                                                                                                              ------------
                                                                                                        2000                 1999
                                                                                                        ----                 ----
                                                          ASSETS

<S>                                                                                                <C>                 <C>
CASH AND DUE FROM BANKS ....................................................................       $  1,109,001        $    711,239

FEDERAL FUNDS SOLD .........................................................................          3,330,000           1,910,000

INVESTMENT SECURITIES ......................................................................         10,021,055           9,388,957

LOANS, NET .................................................................................         18,230,770           6,631,232

PROPERTY AND EQUIPMENT, NET ................................................................          2,285,755             871,704

OTHER ASSETS ...............................................................................            405,858             285,562
                                                                                                   ------------        ------------
         Total assets ......................................................................       $ 35,382,439        $ 19,798,694
                                                                                                   ============        ============

                                           LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
     Deposits
         Noninteresting bearing ............................................................       $  3,666,474        $  2,067,449
         Interest bearing ..................................................................         21,124,387           7,853,887
                                                                                                   ------------        ------------
         Total deposits ....................................................................         24,790,861           9,921,336
     Securities sold under repurchase agreements ...........................................          2,779,254           2,289,278
     Other liabilities .....................................................................            120,441              11,586
                                                                                                   ------------        ------------
         Total liabilities .................................................................         27,690,556          12,222,200

COMMITMENTS AND CONTINGENCIES - Notes 9 and 13

SHAREHOLDERS' EQUITY
     Preferred  stock, 10,000,000 shares authorized,
           no shares issued Common  stock, no par value,
           20,000,000 shares authorized, 800,000 shares issued .............................          7,985,000           7,985,000
     Retained deficit ......................................................................           (315,426)           (399,843)
     Accumulated other comprehensive income (loss) .........................................             22,309              (8,663)
                                                                                                   ------------        ------------
         Total shareholders' equity ........................................................          7,691,883           7,576,494
                                                                                                   ------------        ------------
         Total liabilities and shareholders' equity ........................................       $ 35,382,439        $ 19,798,694
                                                                                                   ============        ============
</TABLE>




The accompanying notes are an integral part of these financial statements.



                                       21
<PAGE>

<TABLE>
<CAPTION>
                                                                                                                         For the
                                                                                                                       period from
                                                                                                  For the           January 11, 1999
                                                                                                year ended           (inception) to
                                                                                               December 31,           December 31,
                                                                                                   2000                   1999
                                                                                                   ----                   ----
INTEREST INCOME
<S>                                                                                               <C>                    <C>
     Loans and fees on loans ........................................................             $1,248,908             $   82,459
     Investment securities ..........................................................                803,955                192,834
     Escrow and interest bearing accounts ...........................................                  2,096                 34,612
                                                                                                  ----------             ----------

         Total interest income ......................................................              2,054,959                309,905
INTEREST EXPENSE
     Deposits and borrowings ........................................................                833,915                 88,993
                                                                                                  ----------             ----------
         Net interest income ........................................................              1,221,044                220,912

PROVISION FOR POSSIBLE LOAN LOSSES ..................................................                102,000                105,000
                                                                                                  ----------             ----------
         Net interest income after provision for possible
            loan losses .............................................................              1,119,044                115,912

NONINTEREST INCOME
     Service fees on deposit accounts ...............................................                 73,074                  8,000
NONINTEREST EXPENSES
     Salaries and wages .............................................................                566,222                154,327
     Advertising ....................................................................                 34,005                 21,016
     Supplies .......................................................................                 32,886                 31,041
     Data processing ................................................................                 76,558                 20,073
     Occupancy and equipment ........................................................                141,344                 53,806
     Organizational and pre-opening expenses ........................................                      -                249,678
     Other operating ................................................................                223,029                 80,607
                                                                                                  ----------             ----------
         Total noninterest expenses .................................................              1,074,044                610,548
                                                                                                  ----------             ----------
         Income (loss) before income taxes ..........................................                118,074               (486,636)
INCOME TAX PROVISION (BENEFIT) ......................................................                 33,657                (86,793)
                                                                                                  ----------             ----------
         Net income (loss) ..........................................................             $   84,417             $ (399,843)
                                                                                                  ==========             ==========
BASIC NET INCOME (LOSS) PER COMMON SHARE ............................................             $     0.11             $    (0.50)
                                                                                                  ==========             ==========

DILUTED NET INCOME (LOSS) PER
     COMMON SHARE ...................................................................             $     0.10             $    (0.50)
                                                                                                  ==========             ==========

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

DILUTED WEIGHTED AVERAGE NUMBER OF
     COMMON SHARES OUTSTANDING ......................................................                832,000                800,000
                                                                                                  ==========             ==========
</TABLE>



The accompanying notes are an integral part of these financial statements.



                                       22
<PAGE>


                       CORNERSTONE BANCORP AND SUBSIDIARY
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY




<TABLE>
<CAPTION>

                                                                                                        Accumulated
                                                                     Common stock                           Other         Total
                                                                     ------------           Retained    Comprehensive  Shareholders'
                                                                Shares          Amount       Deficit     Income (loss)    equity
                                                                ------          ------       -------     -------------    ------

<S>                                                         <C>             <C>            <C>           <C>          <C>
BALANCE, JANUARY 11, 1999 (inception) ....................             -    $         -    $        -    $         -  $           -
                                                             -----------    -----------   -----------    -----------    -----------
   Net loss ..............................................             -              -      (399,843)             -       (399,843)
   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
   Net income ............................................             -              -        84,417              -         84,417
   Other comprehensive income, net of income taxes:
     Unrealized gain on investment securities ............             -              -             -         30,972         30,972
                                                                                                                        -----------
   Comprehensive income ..................................             -              -             -              -        115,389
                                                             -----------    -----------   -----------    -----------    -----------

BALANCE, DECEMBER 31, 2000 ...............................       800,000    $ 7,985,000   $  (315,426)   $    22,309    $ 7,691,883
                                                             ===========    ===========   ===========    ===========    ===========
</TABLE>





























The accompanying notes are an integral part of these financial statements.



                                       23
<PAGE>




                       CORNERSTONE BANCORP AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                                        For the
                                                                                                                      period from
                                                                                                   For the          January 11, 1999
                                                                                                  year ended         (inception) to
                                                                                                 December 31,         December 31,
                                                                                                     2000                 1999
                                                                                                     ----                 ----
OPERATING ACTIVITIES
<S>                                                                                            <C>                     <C>
     Net income (loss) .............................................................           $     84,417            $   (399,843)
     Adjustments to reconcile net income (loss) to net cash
        provided by (used in) operating activities
        Depreciation and amortization ..............................................                 71,150                  20,296
        Deferred income tax provision (benefit) ....................................                 33,657                 (86,793)
        Provision for possible loan losses .........................................                102,000                 105,000
        Increase in other assets ...................................................               (160,984)               (194,306)
        Increase in other liabilities ..............................................                108,855                  11,585
                                                                                               ------------            ------------

           Net cash provided by (used for) operating activities ....................                239,095                (544,061)
                                                                                               ------------            ------------

INVESTING ACTIVITIES
     Increase in federal funds sold ................................................             (1,420,001)             (1,910,000)
     Proceeds from maturities of investment securities .............................              4,801,644                       -
     Purchase of investment securities .............................................             (5,395,732)             (9,402,083)
     Increase in loans, net ........................................................            (11,701,539)             (6,736,232)
     Purchase of property and equipment ............................................             (1,485,205)               (892,000)
                                                                                               ------------            ------------

           Net cash used for investing activities ..................................            (15,200,833)            (18,940,315)
                                                                                               ------------            ------------

FINANCING ACTIVITIES
     Sale of stock, net ............................................................                      -               7,985,000
     Net increase in deposits ......................................................             14,869,524               9,921,337
     Net increase in securities sold under
        repurchase agreements ......................................................                489,976               2,289,278
                                                                                               ------------            ------------

           Net cash provided by financing activities ...............................             15,359,500              20,195,615
                                                                                               ------------            ------------

           Net increase in cash and cash equivalents ...............................                397,762                 711,239

CASH AND DUE FROM BANKS, BEGINNING OF PERIOD .......................................                711,239                       -
                                                                                               ------------            ------------

CASH AND DUE FROM BANKS, END OF PERIOD .............................................           $  1,109,001            $    711,239
                                                                                               ============            ============

CASH PAID FOR
     Interest ......................................................................           $    755,024            $     77,993
                                                                                               ============            ============

     Income taxes ..................................................................           $          -            $          -
                                                                                               ============            ============
</TABLE>

The  accompanying  notes are an  integral  part of these  financial  statements.


                                       24
<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 for  Cornerstone  National  Bank (the "Bank").  The Company  offered its
common stock for sale to the public at 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
     accounting  principles  generally  accepted in the United States of America
     requires  management  to make  estimates  and  assumptions  that affect the
     reported  amounts of assets and  liabilities  and  disclosure of contingent
     assets and  liabilities 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.   The  Bank  has
     concentrations of credit in services and construction industries,  which by
     category  comprise over 25 percent of Tier 1 Capital and allowance for loan
     losses.

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 income (loss)).

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.



                                       25
<PAGE>

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  judgment 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. 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.

     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.

   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.




                                       26
<PAGE>

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.

Net income (loss) per common share

     Basic net income  (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 per share
     amounts for the period ended December 31, 1999, 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.

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.



                                       27
<PAGE>

      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  - 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
     No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities."
     All  derivatives  are to be measured at fair market value and recognized in
     the balance sheet as assets and liabilities.  SFAS No. 138, "Accounting for
     Certain Derivative  Instruments and Certain Hedging  Activities" was issued
     in June 2000 and amends the accounting and reporting  standards of SFAS No.
     133 for certain  derivative  instruments  and hedging  activities.  The two
     statements  are to be adopted  concurrently  and are  effective  for fiscal
     years and quarters  beginning after June 15, 2000. The adoption of SFAS No.
     133 and SFAS No.  138 did not have any  impact on the  presentation  of the
     Company's financial results or financial position.

     Other  accounting  standards  that have  been  issued  or  proposed  by the
     Financial  Accounting  Standards Board that do not require adoption until a
     future date are not expected to have a material impact on the  consolidated
     financial statements upon adoption.

    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.



                                       28
<PAGE>

            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, 2000 and
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,
2000  and 1999  federal  funds  sold  amounted  to  $3,330,000  and  $1,910,000,
respectively.

NOTE 4 - INVESTMENT SECURITIES

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

<TABLE>
<CAPTION>
                                                                                   December 31, 2000
                                                                                   -----------------
                                                                                    Gross unrealized
                                                                   Amortized        ----------------              Fair
                                                                      cost        Gains        Losses             value
                                                                      ----        -----        ------             -----
<S>                                                             <C>             <C>          <C>          <C>
Federal agencies ..........................................     $   9,807,254   $  33,801    $       -    $     9,841,055
Federal Reserve Bank stock - restricted ...................           180,000           -             -           180,000
                                                                -------------   ---------    ----------   ---------------

       Total investment securities ........................     $   9,987,254   $  33,801    $        -   $    10,021,055
                                                                =============   =========    ===========  ===============
</TABLE>


<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>



                                       29
<PAGE>

           The Bank is required to own stock in the  Federal  Reserve  Bank as a
member  institution.  No ready market  exists for the stock and it has no quoted
market  value.  However,  redemption of the stock has  historically  been at par
value.

           The amortized  cost and fair value of securities at December 31, 2000
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.

                                                           December 31, 2000
                                                           -----------------
                                                       Amortized         Fair
                                                         Cost            Value
                                                         ----            -----
Within one year ................................     $ 2,539,407     $ 2,540,418
Due after one through five years ...............       7,267,847       7,300,637
Federal Reserve Bank stock (no maturity) .......         180,000         180,000
                                                     -----------     -----------
    Total investment securities ................     $ 9,987,254     $10,021,055
                                                     ===========     ===========

           At December 31, 2000 and 1999, $1,361,536 and $902,192, respectively,
of securities were pledged to collateralize public deposits.

NOTE 5 - LOANS
           The  composition  of net loans by major loan  category  is  presented
below:
                                                             December 31,
                                                             ------------
                                                        2000             1999
                                                        ----             ----

Commercial .....................................     $ 6,808,319     $ 2,793,000
Real estate - construction .....................       1,929,782         130,000
Real estate - mortgage .........................       7,337,868       2,264,000
Consumer .......................................       2,361,801       1,549,232
Loans, gross ...................................      18,437,770       6,736,232

Less allowance for possible loan losses ........         207,000         105,000
                                                     -----------     -----------

Loans, net .....................................     $18,230,770     $ 6,631,232
                                                     ===========     ===========


           At December 31, 2000 and 1999 there were no  nonaccruing  or impaired
loans.  During the periods ended  December 31, 2000 and 1999 there were no loans
charged off and no recoveries.


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
are as follows:
                                                              December 31,
                                                              ------------
                                                        2000               1999
                                                        ----               ----
Land and improvements ......................        $  570,981        $  570,981
Furniture and equipment ....................           298,367           295,754
Vehicles ...................................            25,265            25,265
Construction in progress ...................         1,482,588                 -
                                                    ----------        ----------
                                                     2,377,201           892,000
Accumulated depreciation ...................            91,446            20,296
                                                    ----------        ----------
     Total property and equipment ..........        $2,285,755        $  871,704
                                                    ==========        ==========




                                       30
<PAGE>

         Construction  of the  Company's  main office was  completed in January,
2001. Total costs of the building were approximately $1,582,000.

         Depreciation  expense for the periods ended  December 31, 2000 and 1999
amounted  to  $71,150  and  $20,296,  respectively.  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


NOTE 7 - DEPOSITS

     The following is a detail of the deposit accounts as of:

                                                            December 31,
                                                            ------------
                                                       2000             1999
                                                       ----             ----
Noninterest bearing ........................       $ 3,666,474       $ 2,067,449
Interest bearing:
     NOW accounts ..........................         5,835,386         3,973,730
     Money market accounts .................         3,017,532           627,321
     Savings ...............................           651,830           352,411
     Time, less than $100,000 ..............         6,809,775           987,448
     Time, $100,000 and over ...............         4,809,864         1,912,977
                                                   -----------       -----------
     Total deposits ........................       $24,790,861       $ 9,921,336
                                                   ===========       ===========

           Interest  expense on time deposits greater than $100,000 was $179,667
in 2000 and $19,983 in 1999.

           At December 31, 2000 the  scheduled  maturities  of  certificates  of
deposit are as follows:

       2001 ...................    $    53,625
       2002 ...................      6,675,797
       2003 ...................      4,614,358
       2004 ...................         57,151
       2005 ...................         15,086
       2006 ...................        203,622
                                   -----------
                                   $11,619,639
                                   ===========


NOTE 8 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS


         Securities sold under repurchase agreements consist of the following:

                                                             December 31,
                                                             ------------
                                                       2000             1999
                                                       ----             ----
Sweep accounts .........................          $1,779,254          $2,289,278
Repurchase agreements ..................           1,000,000                   -
                                                  ----------          ----------
                                                  $2,779,254          $2,289,278
                                                  ==========          ==========


         U. S.  Government  securities  with an amortized cost of $2,879,950 and
$2,799,029  ($2,891,787  and $2,783,852  fair value) were used as collateral for
the sweep  accounts and  repurchase  agreements,  at December 31, 2000 and 1999,
respectively.



                                       31
<PAGE>

          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 for sweep  accounts was 4.5 percent at December
31,  2000  and 1999  and  6.43  percent  at  December  31,  2000 for  repurchase
agreements.  The maximum  amount  outstanding at any month-end was $2,868,892 in
2000 and  $2,289,278  in 1999 for sweep  accounts  and  $1,000,000  in 2,000 for
repurchase agreements.


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,  2000,  there is no  litigation
pending.

           The Company has a four year contract with a data processing  service.
Monthly costs are approximately $7,500.

           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,  2000,  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 its
option.

NOTE 11 - INCOME TAXES

           The  provision for income taxes is reconciled to the amount of income
tax  computed at the federal  statutory  rate on income  before  income taxes as
follows:

<TABLE>
<CAPTION>
                                                                                    For the periods ended December 31,
                                                                                    ----------------------------------
                                                                                  2000                               1999
                                                                                  ----                               ----

<S>                                                                  <C>                     <C>        <C>                     <C>
Tax expense at statutory rate ................................       $  40,145               34%        $(165,456)              34%
Increase (decrease) in taxes resulting from:
    Valuation allowance adjustment ...........................          (6,488)              (5)           78,663              (16)
                                                                     ---------        ---------         ---------        ---------

Income tax provision (benefit) ...............................       $  33,657               29%        $ (86,793)              18%
                                                                     =========        =========         =========        =========
</TABLE>



                                       32
<PAGE>

     The income tax effect of cumulative  temporary  differences at December 31,
are as follows:

                                                         2000              1999
                                                         ----              ----
Deferred tax asset (liability):
    Allowance for loan losses ..................      $  70,380       $  35,700
    Unrealized net losses (gains)
       on securities available for sale ........        (11,493)          4,463
    Depreciation ...............................        (62,772)        (30,779)
    Net operating loss carryforward ............         91,983         246,448
                                                      ---------       ---------
        Gross deferred tax assets ..............         88,098         255,832
        Less valuation allowance ...............        (46,456)       (164,577)
                                                      ---------       ---------
        Net deferred tax asset .................      $  41,642       $  91,255
                                                      =========       =========

           The net  deferred  tax  asset  is  included  in other  assets  in the
consolidated balance sheets.

The following  summary of the provision for income taxes  includes tax deferrals
which arise from temporary  differences  in the  recognition of certain items of
revenue and expense for tax and financial reporting purposes:

                                                       For the periods ended
                                                             December 31,
                                                             ------------
                                                       2000              1999
                                                       ----              ----
Income taxes currently payable ..................       $      -       $      -

Deferred income tax provision (benefit) .........         33,657        (86,793)
                                                        --------       --------
    Income tax provision (benefit) ..............       $ 33,657       $(86,793)
                                                        ========       ========

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 are as follows:

                                                      For the periods ended
                                                             December 31,
                                                             ------------
                                                       2000              1999
                                                       ----              ----
Balance, beginning of period ...............        $1,838,334        $        -
New loans ..................................           782,900         1,857,067
Less loan payments .........................         1,081,104            18,733
                                                    ----------        ----------
Balance, end of period .....................        $1,540,130        $1,838,334
                                                    ==========        ==========

           Deposits by directors  and their related  interests,  at December 31,
2000 and 1999 approximated $4,348,000 and $2,365,000, respectively.

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

           During 1999, 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.



                                       33
<PAGE>

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, 2000 and 1999,
unfunded   commitments  to  extend  credit  were   $2,562,111  and   $1,310,429,
respectively,  and  outstanding  letters of credit were  $94,225  and  $233,000,
respectively.  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 three percent of
the employee's compensation. Employer contributions made to the Plan in 2000 and
1999 amounted to $13,739 and $7,230, respectively.

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 income (loss) and net
income (loss) per common share would have been the pro forma  amounts  indicated
below:
                                                        For the periods ended
                                                              December 31,
                                                              ------------
                                                          2000           1999
                                                          ----           ----
Net income (loss)
As reported ....................................        $84,417       $(399,843)
Pro forma ......................................         67,217        (417,043)
Basic net income (loss) per common share
As reported ....................................            .11            (.50)
Pro forma ......................................            .08            (.52)
Diluted net income (loss) per common share
As reported ....................................            .10            (.50)
Pro forma ......................................            .08            (.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.



                                       34
<PAGE>

         A summary of the plan is presented below:


<TABLE>
<CAPTION>
                                                                                   For the periods ended December 31,
                                                                                 2000                                1999
                                                                                 ----                                ----
                                                                                       Weighted                            Weighted
                                                                                        average                            average
                                                                        Shares       exercise price        Shares     exercise price
                                                                        ------       --------------        ------     --------------

<S>                                                                     <C>            <C>                  <C>            <C>
Outstanding at beginning of period .........................            40,000         $   10.00                 -                 -
Granted ....................................................                 -                 -            40,000         $   10.00
Exercised ..................................................                 -                 -                 -                 -
Forfeited or expired .......................................                 -                 -                 -                 -
                                                                                                            ------            ------

Outstanding at end of period ...............................            40,000             10.00            40,000             10.00
                                                                                                            ======            ======
Options exercisable at end of period .......................            13,333             10.00              None                 -
Shares available for grant .................................              None                 -              None                 -
</TABLE>


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, 2000 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.

           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, 2000,
that the Bank meets all capital adequacy requirements to which it is subject.

           As of December 31, 2000 and 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:


                                       35
<PAGE>

<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, 2000
<S>                                               <C>               <C>        <C>               <C>       <C>                 <C>
   Total Capital (to risk weighted assets) .....  $   5,974         27.1%      $   1,760         8.0%      $   2,200           10.0%
   Tier 1 Capital (to risk weighted assets) ....      5,767         26.2             880         4.0           1,320            6.0
   Tier 1 Capital (to average assets) ..........      5,767         16.9           1,367         4.0           1,709            5.0

As of December 31, 1999
   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:

<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                               ------------
                                                                                 2000                              1999
                                                                                 ----                              ----
                                                                    Carrying            Fair             Carrying           Fair
                                                                      amount            value             amount            value
                                                                      ------            -----             ------            -----
FINANCIAL ASSETS
<S>                                                                <C>               <C>               <C>               <C>
    Cash and due from banks ................................       $ 1,109,001       $ 1,109,001       $   711,239       $   711,239
    Federal funds sold .....................................         3,330,000         3,330,000         1,910,000         1,910,000
    Investment securities ..................................        10,021,055        10,021,055         9,388,957         9,388,957
    Loans ..................................................        18,230,770        16,380,347         6,631,232         6,504,192
FINANCIAL LIABILITIES
    Deposits ...............................................        24,790,861        21,865,539         9,921,336         9,779,696
    Securities sold under repurchase agreements ............         2,779,254         2,779,254         2,289,278         2,289,278

OFF BALANCE SHEET INSTRUMENTS
    Commitments to extend credit ...........................         2,562,111         2,562,111         1,310,429         1,310,429
    Standby letters of credit ..............................            94,225            94,225           233,000           233,000
</TABLE>

NOTE 19 - PARENT COMPANY INFORMATION

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

                            CONDENSED BALANCE SHEETS

                                                              December 31,
                                                              ------------
                                                          2000           1999
                                                          ----           ----
ASSETS
    Cash .....................................       $1,800,523       $1,936,312
    Certificate of deposit ...................          100,000                -
    Investment in subsidiary .................        5,788,732        5,640,182
    Other assets .............................            4,528                -
                                                     ----------       ----------

                                                     $7,693,783       $7,576,494
                                                     ==========       ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
    Accrued expenses .........................       $    1,900   $            -
    Shareholders' equity .....................        7,691,883        7,576,494
                                                     ----------       ----------

                                                     $7,693,783       $7,576,494
                                                     ==========       ==========

                                       36
<PAGE>

                              STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                               For the year         For the period
                                                                                                   ended           January 11, 1999
                                                                                                December 31,        (inception) to
                                                                                                   2000            December 31, 1999
                                                                                                   ----            -----------------
INCOME
<S>                                                                                              <C>                  <C>
    Interest .....................................................................               $   2,096            $  34,613
EXPENSES
    Sundry .......................................................................                  35,257               83,301
                                                                                                 ---------            ---------
       Loss before equity in undistributed
           net income (loss) of bank subsidiary ..................................                 (33,161)             (48,688)

EQUITY IN UNDISTRIBUTED NET INCOME
    (LOSS) OF SUBSIDIARY .........................................................                 117,578             (351,155)
                                                                                                 ---------            ---------

       Net income (loss) .........................................................               $  84,417            $(399,843)
                                                                                                 =========            =========
</TABLE>


                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                For the year        For the period
                                                                                                    ended          January 11, 1999
                                                                                                 December 31,       (inception) to
                                                                                                     2000          December 31, 1999
                                                                                                     ----          -----------------
OPERATING ACTIVITIES
<S>                                                                                              <C>                    <C>
    Net income (loss) ................................................................           $    84,417            $  (399,843)
        Adjustment to reconcile net income (loss) to net
        cash used for operating activities ...........................................                     -                      -
        Equity in undistributed net income (loss) of subsidiary ......................              (117,578)               351,155
        Increase in other assets .....................................................                (4,528)                     -
        Increase in accrued expenses .................................................                 1,900                      -
                                                                                                 -----------            -----------

           Net cash used for operating activities ....................................               (35,789)               (48,688)

INVESTING ACTIVITIES
    Investment in bank subsidiary ....................................................                     -             (6,000,000)
    Purchase of certificate of deposit ...............................................              (100,000)                     -
                                                                                                 -----------            -----------

           Net cash used for investing activities ....................................              (100,000)            (6,000,000)

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

           Net increase (decrease) in cash ...........................................              (135,789)             1,936,312

CASH, BEGINNING OF PERIOD ............................................................             1,936,312                      -
                                                                                                 -----------            -----------

CASH, END OF PERIOD ..................................................................           $ 1,800,523            $ 1,936,312
                                                                                                 ===========            ===========
</TABLE>


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

         Not Applicable.



                                       37
<PAGE>

                                    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 2001 or until their
successors are elected and qualify.


<TABLE>
<CAPTION>

NAME                           AGE                  PRINCIPAL OCCUPATION                    DIRECTOR SINCE
----                           ---                  --------------------                    --------------


<S>                            <C>   <C>                                                         <C>
J. Rodger Anthony              55    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               73    President, G&B Enterprises, Liberty, SC (egg                1999
                                     production)

T. Edward Childress, III       54    Registered Pharmacist and Long-term care facility           1999
                                     owner

Nicholas S. Clark              33    Vice President, Secretary, Treasurer and Chief
                                     Financial Officer of the Company, since 1999;               1999
                                     Chief Financial Officer, First National Bank of
                                     Pickens County, Easley, SC, 1993 to 1998
                                                                                                 1999
J. Bruce Gaston                43    Certified Public Accountant
                                                                                                 1999
S. Ervin Hendricks, Jr.        57    President, Nu-Life Environmental, Inc., Easley, SC

Joe E. Hooper                  61    President, Pride Mechanical & Fabrication Company,          1999
                                     Inc.
                                                                                                 1999
Robert R. Spearman             60    Surveyor
                                                                                                 1999
John M. Warren, Jr., M.D.      49    Physician
                                                                                                 1999
George I. Wike, Jr.            55    Investor
</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."



                                       38
<PAGE>

Item 10. Executive Compensation.

         The following  table sets forth the  remuneration  paid during the year
ended  December  31, 2000 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
                                                                                 Underlying
                                                Annual Compensation(1)             Options          All Other
                                                ----------------------
Name and Principal Position                 Year       Salary         Bonus        Awarded       Compensation(2)
---------------------------                 ----       ------         -----        -------       ---------------

<S>                                         <C>      <C>                 <C>         <C>              <C>
J. Rodger Anthony                           2000     $105,000            -0-           -0-            $3,150
  President and Chief                       1999      100,000            -0-         4,000             2,520
  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  amounts of $2,520 and $3,150 in fiscal  years 1999 and
     2000, respectively.

                            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 became/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 EXERCISES AND YEAR END OPTION VALUES

<TABLE>
<CAPTION>
                                                        Number of Securities           Value of Unexercised
                                                       Underlying Unexercised              In-the-Money
                       Shares Acquired     Value          Options 12/31/00              Options 12/31/00(1)
Name                     on Exercise     Realized   Exercisable     Unexercisable   Exercisable       Unexercisable
----                   ---------------   --------   -----------     -------------   -----------       -------------

<S>                           <C>            <C>        <C>             <C>            <C>             <C>
J. Rodger Anthony             0              0          1,333           2,667          $3,333          $6,667
</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, 2000 was $12.50
     per share.

Compensation of Directors

         See "Organizers' Stock Options.



                                       39
<PAGE>

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.

Name (and Address of 5% Owners)        Number of Shares        % of Outstanding
                                    Beneficially Owned(1)       Common Stock
------------------------------      --------------------        ----------------
J. Rodger Anthony                           31,333                     3.91
Walter L. Brooks (1)                         6,733                     0.84
T. Edward Childress, III                    76,333                     9.53
    2905 White Horse Road
    Greenville, SC
Nicholas S. Clark                           11,833                     1.48
J. Bruce Gaston                             16,333                     2.04
S. Ervin Henricks, Jr.                      29,833                     3.72
Joe E. Hooper                               36,333                     4.53
Robert R. Spearman                           4,333                     0.54
John M. Warren, Jr., M.D. (2)               11,833                     1.48
George I. Wike, Jr.                         76,333                     9.53
    28 Mandarin Circle
    Taylors, SC
All directors and executive                _______                    _____
officers as a group (10 persons)           301,230                    37.04
--------------------
(1)  Includes presently exercisable options for 1,333 shares for each person.
(2)  Includes  5,000  shares  owned by a  partnership  in which Mr.  Brooks is a
     partner.
(3)  Includes 500 shares  owned by a trust of which Dr.  Warren is trustee as to
     which Dr. Warren disclaims beneficial ownership.

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.

         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, 2000 was $1,540,130.  During 2000,  $782,900 of new loans were made
and repayments totaled $1,081,104.

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

         Purchase  of Real  Estate.  In 1999 the Company  purchased  the land on
which its office is  located  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.



                                       40
<PAGE>

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

(a)      Description of Exhibits.

Exhibit No.                Description

3.1                       Articles of Incorporation of Registrant(1)
3.2                       Bylaws of Registrant(1)
4.1                       Form of Stock Certificate (1)
10.1                      Form of Option Agreements(2)
21                        Subsidiaries of Registrant(2)
---------------
(1)  Incorporated  by  reference  to  Registration  Statement  on Form SB-2 (No.
     333-79543).
(2)  Incorporated  by  reference  to Annual  Report on Form  10-KSB for the year
     ended December 31, 1999.

(b)      Reports on Form 8-K.

         No reports on Form 8-K were filed during the fourth quarter of 2000.



                                       41
<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


March 30, 2001                 By: s/J. Rodger Anthony
                                  ----------------------------------------------
                                  J. Rodger Anthony
                                  Chairman and Chief Executive Officer

                               By: s/Nicholas S. Clark
                                  ----------------------------------------------
                                  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
__________________________               Chairman and Chief Executive Officer, Director     March 30, 2001
J. Rodger Anthony

__________________________               Director                                           March __, 2001
Walter L. Brooks

s/T. Edward Childress, III
__________________________               Director                                           March 30, 2001
T. Edward Childress, III

s/Nicholas S. Clark
__________________________               Vice President, Chief Financial Officer,           March 30, 2001
Nicholas S. Clark                        Principal Accounting Officer, Director

s/J. Bruce Gaston
__________________________               Director                                           March 30, 2001
J. Bruce Gaston

s/S. Ervin Hendricks, Jr.
__________________________               Director                                           March 30, 2001
S. Ervin Hendricks, Jr.

__________________________               Director                                           March __, 2001
Joe E. Hooper

s/Robert R. Spearman
__________________________               Director                                           March 30, 2001
Robert R. Spearman

__________________________               Director                                           March __, 2001
John M. Warren, Jr., M.D.

__________________________               Director                                           March __, 2001
George I. Wike, Jr.
</TABLE>




                                       42
<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
-----------                  -----------

3.1                       Articles of Incorporation of Registrant(1)
3.2                       Bylaws of Registrant(1)
4.1                       Form of Stock Certificate (1)
10.1                      Form of Option Agreements(2)
21                        Subsidiaries of Registrant(2)
---------------
(1)  Incorporated  by  reference  to  Registration  Statement  on Form SB-2 (No.
     333-79543).
(2)  Incorporated  by  reference  to Annual  Report on Form  10-KSB for the year
     ended December 31, 1999.