<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                  FORM 10-KSB

[X]  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934.

For the fiscal year ended June 30, 1999
                          -------------

Commission file number 0-24476
                       -------

                   South Carolina Community Bancshares, Inc.
                   ----------------------------------------
            (Exact name of registrant as specified in its charter)

                Delaware                                 57-0999615
                --------                                 ----------
     (State or other jurisdiction of        (I.R.S. Employer Identification No.)
     incorporation or organization)


          110 S. Congress Street                                   29180
         Winnsboro, South Carolina                                 -----
         -------------------------                               (Zip Code)
      (Address of principal executive
                offices)

                       Telephone Number: (803) 635-5536
                                         --------------

     Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 ______
                                     -----

     Securities Registered Pursuant to Section 12(g) of the Exchange Act: Common
Stock

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained to the
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 aggregate market value of the voting stock held by nonaffiliates of the
Registrant, computed by reference to the closing price of such stock on the
NASDAQ SmallCap Market on September 17, 1999 was approximately $6,668,000. For
the purpose of this calculation, officers and directors of the Registrant are
considered nonaffiliates.

     The Registrant's revenues for the fiscal year ended June 30, 1999 were
$3,532,000.

     The number of shares outstanding of the Registrant's Common Stock, the
registrant's only class of outstanding capital stock, as of June 30, 1999 was
538,716.

                      Documents Incorporated by Reference

     The following documents, in whole or in part, are specifically incorporated
by reference in the indicated Part of this Annual Report on Form 10-KSB:

I.   Portions of the South Carolina Community Bancshares, Inc. Proxy Statement
     for the 1999 Annual Meeting of Shareholders are incorporated by reference
     into certain items of Part III.
<PAGE>

                   South Carolina Community Bancshares, Inc.
                                  FORM 10-KSB

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                               Page
<S>                                                                                            <C>
PART I......................................................................................    1

Item 1.   Business..........................................................................    1

Item 2.   Properties........................................................................   20

Item 3.   Legal Proceedings.................................................................   20

Item 4.   Submission of Matters to a Vote of Security Holders...............................   20

PART II.....................................................................................   21

Item 5.   Market for Registrant's Common Equity and Related
           Shareholder Matters..............................................................   21

Item 5-A. Selected Financial Data...........................................................   21

Item 6.   Management's Discussion and Analysis of Financial Condition
           and Results of Operation.........................................................   22

Item 7.   Financial Statements..............................................................   30

Item 8.   Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure..............................................   56

PART III ...................................................................................   56

Item 9.   Directors and Officers of the Registrant..........................................   56

Item 10.  Executive Compensation............................................................   56

Item 11.  Security Ownership of Certain Beneficial Owners and Management....................   56

Item 12.  Certain Relationships and Related Transactions....................................   56

PART IV.....................................................................................   56

Item 13.  Exhibits and Reports on Form 8-K..................................................   56
          (a)  Exhibits Required by Securities and Exchange Commission
                Regulation S- B.............................................................   56
          (b)  Reports on Form 8-K .........................................................   56
</TABLE>
<PAGE>

                                    PART I

Item 1.  Business
------   --------

     South Carolina Community Bancshares, Inc. (the "Company") was organized in
March, 1994 at the direction of the Board of Directors of Community Federal
Savings Bank (the "Savings Bank"), formerly Community Federal Savings and Loan
Association, for the purpose of acquiring all of the capital stock to be issued
by the Savings Bank in the conversion of the Savings Bank from the mutual to the
stock form of organization (the "Conversion"). The Company received approval
from the OTS to become a savings and loan holding company and as such is subject
to regulation by the OTS. The Conversion was completed as of July 7, 1994, the
Company issued 780,275 shares of Common Stock, and retained approximately fifty-
percent of the net cash proceeds of the offering, or $3.6 million (the balance
of the proceeds was transferred to the Savings Bank in exchange for the capital
stock of the Savings Bank). In connection with the Conversion, the Company
loaned approximately $624,000 to the Community Federal Savings Bank Employee
Stock Ownership Plan ("ESOP") to enable the ESOP to purchase 62,422 shares of
the Company's Common Stock. The primary business activity of the Company
consists of the operations of its wholly-owned subsidiary, the Savings Bank.

     The Company is a savings and loan holding company and the owner of all of
the issued and outstanding shares of capital stock of the Savings Bank. At June
30, 1999 the assets of the Company consisted of its ownership of the capital
stock of the Savings Bank, the loan to the ESOP, $241,000 of interest earning
deposits, and $570,000 of investment securities. Community Federal Savings Bank
is a federally chartered savings bank that conducts its operations from two
facilities located in Winnsboro, South Carolina. The Savings Bank's deposits are
insured by the FDIC. The Savings Bank was chartered originally in 1934. The
Savings Bank is a member of the FHLB of Atlanta. At June 30, 1999, the Company
had total assets of $45.4 million, total deposits of $35.9 million, and
stockholders' equity of $9.0 million.

     The Savings Bank is a community-oriented savings institution that is
primarily engaged in the business of attracting deposits from the general public
in the Savings Bank's market area, and investing such funds in fixed-rate and
adjustable rate mortgage loans secured by one- to four-family residences, and,
to a lesser extent, investment securities. At June 30, 1999, mortgage loans
secured by one- to four-family residential real estate totaled $34.4 million, or
85.0%, of the total loan portfolio, loans secured by commercial and other
property totaled $4.0 million, or 9.8%, of the total loan portfolio, loans
secured by unimproved land totaled $928,000, or 2.3%, of the total loan
portfolio, and consumer loans totaled $1.2 million, or 2.9%, of the total loan
portfolio. The Company also invests in United States Government and agency
obligations, which investments totaled $2.7 million, or 5.9%, of total assets at
June 30, 1999, and interest-earning deposits at the Federal Home Loan Bank,
which totaled $1.4 million, or 3.1%, of total assets at June 30, 1999.

     The Savings Bank's principal sources of funds are deposits and principal
and interest payments on loans and maturing investment securities. Principal
sources of income are interest received from loans and investment securities.
The Savings Bank's principal expense is interest paid
<PAGE>

on deposits, compensation and related costs, SAIF insurance premiums, and other
noninterest expenses.

Lending

     Loan Portfolio Composition. The principal components of the loan portfolio
are fixed-rate and adjustable rate conventional first mortgage loans secured by
one- to four-family residential real estate, and, to a much lesser extent loans
collateralized by unimproved land and commercial and other real estate, and
consumer loans. At June 30, 1999, total loans receivable were $40.5 million, of
which $34.4 million, or 85.0% were one- to four-family residential real estate
mortgage loans, $928,000, or 2.3% were unimproved land loans, $4.0 million, or
9.8%, were commercial and other real estate loans, and $1.2 million, or 2.9%,
were consumer loans.

     The following table sets forth selected data relating to the composition of
the mortgage and other loan portfolios in dollar amounts and in percentages at
the dates indicated.

<TABLE>
<CAPTION>
                                                                              At June 30,
                                                  ---------------------------------------------------------------
                                                        1997                   1998                   1999
                                                  ------------------     ------------------     -----------------
                                                  Amount     Percent     Amount     Percent     Amount    Percent
                                                  ------     -------     ------     -------     ------    -------
                                                                       (Dollars in Thousands)
<S>                                               <C>        <C>         <C>        <C>        <C>        <C>
Mortgage loans:
  One- to four-family..........................   $32,698     88.88%      $32,276     87.76%   $34,426      84.96%
  Multifamily..................................        12      0.03             5      0.01         --      --
  Commercial and other property................     2,128      5.78         2,532      6.88      3,974       9.81
     Unimproved land...........................       988      2.69         1,014      2.76        928       2.29
                                                   ------    ------       -------   -------    -------     ------
     Total mortgage loans......................    35,826     97.38        35,827     97.41     39,328      97.06

Other loans:
  Loans on savings accounts....................       354      0.96           284      0.77        292       0.72
  Installment loans............................       609      1.66           667      1.82        898       2.22
                                                   ------    ------       -------   -------    -------     ------

     Total loans receivable....................    36,789    100.00%       36,778    100.00%    40,518     100.00%
                                                             ======                 =======                ======
Less:
  Loans in process.............................      (285)                   (246)                (425)
Unearned loan fees, net of deferred loan costs.      (256)                   (232)                (237)
  Allowance for loan losses....................      (293)                   (293)                (291)
                                                   ------                 -------              -------

  Net loans receivable.........................    $35,955                $36,007              $39,565
                                                   =======                =======              =======
</TABLE>

                                       2
<PAGE>

     Loan Maturity Schedule. The following table shows the maturity of the loan
portfolio at June 30, 1999. The table does not reflect anticipated prepayments
or scheduled principal amortization.

<TABLE>
<CAPTION>
                                                          At June 30, 1999
                                       ------------------------------------------------------
                                                           Mortgage Loans
                                       ------------------------------------------------------
                                        One- To        Commercial
                                         Four-         and Other        Other
                                        Family         Property         Loans          Total
                                       ---------      ------------     -------        -------
                                                                     (In Thousands)
<S>                                    <C>            <C>             <C>            <C>
Amount due:
  Within 1 year......................  $      342      $     114      $      250     $      706

  After 1 year:
    1 to 3 years.....................       1,038             99             288          1,425
    3 to 5 years.....................       1,455          1,528             463          3,446
    5 to 10 years....................       6,991            459              87          7,537
    10 to 20 years...................      16,854          2,634             102         19,590
    Over 20 years....................       7,746             68              --          7,814
                                       ----------     ----------      ----------     ----------

       Total due after one year......      34,084          4,788             940         39,812
                                       ----------     ----------      ----------     ----------

       Total amounts due.............  $   34,426      $   4,902      $    1,190     $   40,518
                                       ==========     ==========      ==========

Loans in process.....................                                                      (425)
Deferred loan fees, net of deferred
  loan costs.........................                                                      (237)
Allowance for loan losses............                                                      (291)
                                                                                     ----------
Loans receivable, net................                                                $   39,565
                                                                                     ==========
</TABLE>

     One-to Four-Family Residential Real Estate Loans. The primary lending
activity currently consists of the origination of fixed rate one-to four-family
owner-occupied residential mortgage loans, virtually all of which are
collateralized by properties located in Fairfield County, South Carolina. The
Savings Bank does originate some adjustable-rate first mortgage loans. At June
30, 1999, $34.4 million, or 85.0% of the total loan portfolio, consisted of one-
to four-family residential real estate loans. The Savings Bank also originates
one-to four-family construction loans that convert to permanent loans after the
initial construction period which generally does not exceed six months. The
Savings Bank is a portfolio lender. It has not sold loans in the secondary
mortgage market and does not intend to conduct secondary market sales in the
foreseeable future. One-to four-family loans are underwritten and originated
according to policies approved by the Board of Directors. In the current lending
environment, savings deposits and loan repayments have exceeded demand for
loans.

     The Savings Bank currently offers fixed rate and adjustable rate one-to
four-family residential mortgage loans with terms ranging up to 30 years. One-
to four-family residential real estate loans often remain outstanding for
significantly shorter periods than their contractual terms because borrowers may
refinance or prepay loans at their option. The average length of time that the
Savings Bank's one-to four-family residential mortgage loans remain outstanding
varies significantly depending upon trends in market interest rates and other
factors. In recent years, the average maturity of the Savings Bank's mortgage
loans has decreased significantly due to unprecedented volume of refinancing
activity.

                                       3
<PAGE>

     Originations of fixed rate mortgage loans are monitored on an ongoing basis
and are affected significantly by the level of market interest rates, the
Savings Bank's interest rate gap position, and loan products offered by the
Savings Bank's competitors. The Savings Bank's mortgage loans amortize on a
monthly basis with principal and interest due each month. To make the Savings
Bank's loan portfolio more interest rate sensitive, the Savings Bank currently
emphasizes the origination of loans with terms of 15 years or less.

     The Savings Bank's one- to four-family residential first mortgage loans
customarily include due-on-sale clauses, which are provisions giving the Savings
Bank the right to declare a loan immediately due and payable in the event, among
other things, that the borrower sells or otherwise disposes of the underlying
real property serving as security for the loan. Due-on-sale clauses are an
important means of adjusting the rates on the Savings Bank's fixed-rate mortgage
loan portfolio, and the Savings Bank has generally exercised its rights under
these clauses.

     Regulations limit the amount that a savings bank may lend relative to the
appraised value of the real estate securing the loan, as determined by an
appraisal at the time of loan origination. Such regulations permit a maximum
loan-to-value ratio of 100% for residential property and 90% for all other real
estate loans. The Savings Bank's lending policies limit the maximum loan-to-
value ratio on fixed rate loans without private mortgage insurance to 80% of the
lesser of the appraised value or the purchase price of the property to serve as
collateral for the loan. The Savings Bank makes one- to four-family real estate
loans with loan-to-value ratios of up to 90%; however, for one- to four-family
real estate loans with loan-to-value ratios of between 80% and 90%, the Savings
Bank requires the amount of the loan that exceeds 80% of the appraised value to
be covered by private mortgage insurance. The Savings Bank requires fire and
casualty insurance, as well as a certificate of title, on all properties
securing real estate loans made by the Savings Bank.

     Commercial and Other Real Estate Loans. The Savings Bank originates
commercial and other real estate loans on a limited basis. Savings Bank lending
policies require that all commercial loans be secured solely by real estate,
with no security interest allowed in furniture and fixtures, inventory,
goodwill, or other assets of the business. At June 30, 1999, such loans had an
aggregate balance of $4.0 million, or 9.8%, of the total loan portfolio. The
commercial and other real estate loans are generally collateralized by, among
others, real estate used by small businesses, church property, convenience
stores, and small manufacturing operations. The Savings Bank generally does not
solicit such loans, and originates such loans selectively and on a case-by-case
basis. All of the commercial real estate loans have fixed rates of interest. The
Savings Bank generally offers such loans with loan-to-value ratios of up to 75%
and terms of up to 15 years. To compensate the Savings Bank for the increased
credit risk associated with commercial loans, interest rates are maintained at a
level above that charged for one- to four-family residential properties.

     Loans collateralized by commercial real estate generally involve a greater
degree of credit risk than one- to four-family residential mortgage loans. This
increased credit risk is a result of several factors, including the effects of
general economic conditions on income producing properties, and the increased
difficulty of evaluating and monitoring these types of loans. Furthermore, the

                                       4
<PAGE>

repayment of loans secured by commercial real estate is typically dependent upon
the successful operation of the related real estate property. If the cash flow
from the project is reduced, the borrower's ability to repay the loan may be
impaired.

     Unimproved Land Loans. The Savings Bank also offers loans secured by
unimproved land, such as woodlands, pasture land, agricultural land,
recreational land, and other undeveloped land. In recent years the Savings Bank
has reduced its originations of such loans. Such loans totaled $928,000, or
2.3%, of the total loan portfolio at June 30, 1999. All of the Savings Bank's
unimproved land loans have fixed rates of interest. The Savings Bank offers such
loans with loan to value ratios of up to 75% on tracts of 15 acres or less, and
loan to value ratios of up to 70% on tracts of land larger than 15 acres. The
Savings Bank considers the credit risks associated with large acreage to be
greater than normal, and will charge a higher rate of interest for such loans.
The maximum term allowed for all land loans is 15 years. The Board of Directors
reserves the right to disregard the value of any timber that may be on the
subject property, and may require a review by a recognized forester, in addition
to the appraisal, if it is deemed necessary. The borrower may be required to
negotiate a release of timber rights prior to the harvesting of any timber from
the subject property.

     Loans collateralized by undeveloped land generally involve greater credit
risk than one- to four-family real estate loans. The increased credit risk is
the result of several factors, including the dependency of repayments on the
successful operation or management of the real estate collateralizing the loan.
In turn, the success of the management and operations frequently depends on
general economic conditions, climate, and in the case of agricultural property,
prevailing prices of commodities.

     Consumer Loans. To a much lesser extent, the Savings Bank also originates
consumer loans consisting of passbook loans, home equity lines of credit and
installment loans, primarily as a service to its customers. Such loans totaled
$1.2 million, or 2.9% of the total loan portfolio at June 30, 1999.

Delinquencies and Classified Assets

     Collection Procedures. The Savings Bank's policies provide for a 30-day
grace period on all payments. The Savings Bank's collection procedures provide
that if a payment is not received within the grace period, a computer-generated
delinquent notice is sent to the borrower requesting payment plus a late charge.
If delinquency continues 15 days past the end of the grace period, a second
delinquent notice is mailed requesting payment in full of the delinquency or
that the borrower contact the Savings Bank immediately to provide satisfactory
arrangements for the repayment of the debt. If a loan becomes 60 days past due
(inclusive of the 30 day grace period), the borrower is contacted personally, if
possible, by Savings Bank personnel to negotiate satisfactory arrangements for
the repayment of the debt. If a loan becomes 90 days past due, the Savings
Bank's President is authorized to send a right-to-cure notice to the borrower
advising him of the delinquency and providing a 30-day period for repayment
prior to the initiation of legal action to collect on the

                                       5
<PAGE>

collateral. At the end of this period, if satisfactory arrangements have not
been made for repayment, the President may then forward the account to the
Savings Bank's attorney for further collection. The Attorney will provide notice
to the borrower of pending legal action, and allow a seven-day period for
resolution prior to the commencement of foreclosure. It is sometimes necessary
and desirable to arrange special repayment schedules with mortgagors to prevent
foreclosure or filing for bankruptcy. The mortgagors are required to submit a
written repayment schedule which is closely monitored for compliance.

     Delinquent Loans. At June 30, 1997, 1998 and 1999 delinquencies in the loan
portfolio were as follows:

<TABLE>
<CAPTION>
                                                         At June 30, 1997        At June 30, 1998         At June 30, 1999
                                                    ------------------------   ----------------------     -------------------
                                                     Number     Principal       Number      Principal     Number     Principal
                                                       of        Balance          of         Balance        of        Balance
                                                      Loans     of Loans        Loans       of Loans      Loans      of Loans
                                                     ------     ---------       ------      ---------     ------     ---------
                                                                       (Dollars in Thousands)
<S>                                                  <C>        <C>             <C>         <C>           <C>        <C>
Period delinquent:
  Loans 60-89 days delinquent......................    13        $  511           24         $  650          19      $    507
  Loans 90 days or more delinquent.................    32           397           36            827          39           593
                                                      ---        ------         ----         --------       ---      --------
    Total loans delinquent 60 days or more.........    45        $  908           60         $1,477          58      $  1,100
                                                      ===        ======         ====         ========       ===      ========

Delinquent loan principal to total gross loans:
Loans 60-89 days delinquent  to
  total gross loans................................                1.39%                       1.77%                     1.25%

Loans 90 days or more delinquent
to total gross loans...............................                1.08%                       2.25%                     1.46%
</TABLE>

                                       6
<PAGE>

      Nonperforming Assets. The following table sets forth information with
respect to non-performing assets for the periods indicated. During the periods
shown, there were no restructured loans within the meaning of SFAS No. 15.

<TABLE>
<CAPTION>
                                                                                 At June 30,
                                                                      --------------------------------
                                                                       1997         1998         1999
                                                                      ------       ------       ------
                                                                         (Dollars in Thousands)
<S>                                                                   <C>          <C>          <C>
Loans accounted for on a non-accrual basis......................      $  397       $  827       $  593

Accruing loans which are contractually past due 90 days or more.          --           --           --
                                                                      ------       ------       ------

Total of nonaccrual and accruing loans 90 days or more past due.         397          827          593

Foreclosed real estate, net of related valuation allowance......          96           71          121
                                                                      ------        -----       ------

  Total nonperforming assets....................................      $  493       $  898       $  714
                                                                      ======        =====       ======

Nonperforming loans to total gross loans........................        1.08%        2.25%        1.46%
Nonperforming assets to total assets............................        1.06%        1.87%        1.57%
</TABLE>

     $46,000 in interest income was recognized during the year ended June 30,
1999 on loans accounted for as non-accrual on that date. An additional $4,900 in
interest income would have been recognized had those loans remained current
throughout the period.

     Real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure is deemed real estate owned ("REO") until such time as it is sold.
In general, collateral for a loan is considered to be in-substance foreclosed
if: (i) the borrower has little or no equity in the collateral; (ii) proceeds
for repayment of the loan can be expected to come only from the operation or
sale of the collateral; and (iii) the borrower has either formally or
effectively abandoned control of the collateral to the Savings Bank, or retained
control of the collateral but is unlikely to be able to rebuild equity in the
collateral or otherwise repay the loan in the foreseeable future. Cash flow
attributable to in-substance foreclosures is used to reduce the carrying value
of the collateral.

     When REO is acquired or otherwise deemed REO, it is recorded at the lower
of cost or its estimated fair value, less estimated selling expenses. Valuations
are periodically performed by management, and any subsequent decline in fair
value is charged to operations. At June 30, 1997, 1998, 1999, REO totaled
$96,000, $71,000 and $121,000, respectively.

     Classification of Assets. OTS regulations provide for the classification of
loans and other assets such as debt and equity securities considered by the OTS
to be of lesser quality as "substandard," "doubtful," or "loss" assets. An asset
is considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the savings institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets

                                       7
<PAGE>

classified as "loss" are those considered "uncollectible" and of such little
value that their continuance as assets without the establishment of a specific
loss reserve is not warranted. Assets that do not expose the savings institution
to risk sufficient to warrant classification in one of the aforementioned
categories, but which possess some weaknesses, are designated "special mention"
by management. Loans designated as special mention are generally loans that,
while current in required payments, have exhibited some potential weaknesses
that, if not corrected, could increase the level of risk in the future. At June
30, 1999, classified assets totaled $1,221,000, of which $527,000 were
classified substandard, $7,000 were classified doubtful, and $687,000 were
designated special mention.

     Allowance for Loan Losses. The Savings Bank provides a valuation allowance
for estimated losses from uncollectible loans. Management's periodic evaluation
of the adequacy of the allowance for loan losses is based on loss experience,
known and inherent risk in the portfolio, prevailing market conditions, and
management's judgment as to collectibility. The allowance for loss on loans is
increased by charges to income and decreased by charge-offs (net of recoveries).
Charge-offs for the year ended June 30, 1999 totaled $2,000. No additions were
made during the years ended June 30, 1997, 1998, or 1999. The allowance for loan
losses totaled $293,000 at June 30, 1997 and 1998 and $291,000 at June 30, 1999.

     Analysis of the Allowance for Loan Losses. The following table sets forth
the allowance for loan losses at or for the dates indicated.

<TABLE>
<CAPTION>
                                                                                  At or For the Year Ended June 30,
                                                                                -------------------------------------
                                                                                  1997         1998         1999
                                                                                --------     --------     --------
                                                                                        (Dollars in Thousands)
<S>                                                                             <C>          <C>          <C>
Balance at beginning of period................................................   $    293      $   293      $   293
Provision for loan losses.....................................................         --           --           --
Chargeoffs /(1)/..............................................................         --           --            2
Recoveries....................................................................         --           --           --
                                                                                 --------      -------      -------
  Balance at end of period....................................................   $    293      $   293      $   291
                                                                                 ========      =======      =======

Ratio of charge-offs during the period to average loans outstanding
  during the period...........................................................         --           --           --
Ratio of allowance for loan losses to nonperforming loans at
  end of period...............................................................      73.80%       35.43%       49.07%
Ratio of allowance for loan losses to total nonperforming assets
  at end of period............................................................      59.43%       32.63%       40.76%
Ratio of allowance for loan losses to net loans receivable at end of period...        .81%         .81%        0.74%
</TABLE>

------------------------------------
/(1)/  All charge-offs related to loans secured by one- to four-family
       residential real estate.

                                       8
<PAGE>

     Allocation of Allowance for Loan Losses. The following table sets forth the
allocation of the allowance for loan losses by loan category at the dates
indicated.

<TABLE>
<CAPTION>
                                                                        At June 30,
                                              --------------------------------------------------------------------
                                                     1997                   1998                   1999
                                              ----------------------  ---------------------  ---------------------
                                                Total      % of        Total      % of        Total      % of
                                               Amount    Loans /(1)/  Amount    Loans /(1)/  Amount    Loans /(1)/
                                               ------    -----------  ------    -----------  ------    -----------
                                                                 (Dollars in Thousands)
<S>                                           <C>        <C>          <C>       <C>          <C>       <C>
Balance at end of period applicable to:
   One- to four-family residential........    $   264      88.88%      $   263     87.76%     $  260      84.96%
   Multifamily residential................         --        .03            --       .01          --         --
   Unimproved land........................         11       2.69            11      2.76          10       2.29
   Commercial and other...................         14       5.78            16      6.88          17       9.81
   Consumer loans.........................          4       2.62             3      2.59           4       2.94
                                              -------     ------       -------    -------     ------     ------

     Total allowance for loan losses......    $   293     100.00%      $   293    100.00%     $  291     100.00%
                                              =======     ======       =======    ======      ======     ======
</TABLE>

-------------------------------------
/(1)/ Represents the percent of the Savings Bank's total loan portfolio that is
composed of loans in each specific loan category.


Investment Activities

     Investment Portfolio. The following table sets forth certain information
regarding the carrying and estimated market values of the investment securities
of the Company at the dates indicated.

<TABLE>
<CAPTION>

                                                                          At June 30,
                                         ---------------------------------------------------------------------------
                                                  1997                       1998                      1999
                                         -----------------------     ---------------------     ---------------------
                                          Carrying       Market       Carrying     Market       Carrying     Market
                                            Value        Value         Value        Value        Value        Value
                                         ----------     --------     ----------   --------     ----------   --------
                                                                          (In Thousands)
<S>                                      <C>            <C>          <C>          <C>          <C>          <C>
Investment securities:
   U.S. Government and federal
     agency obligations................   $ 3,352       $ 3,370       $1,755      $1,771       $ 2,583       $ 2,559
   FHLB stock..........................       429           429          321         321           330           330
   Other /(1)/.........................        --            --          147         147           170           170
                                          -------       -------       ------      ------       -------       -------

     Total investment securities.......   $ 3,781       $ 3,799       $2,223      $2,239       $ 3,083       $ 3,059
                                          =======       =======       ======      ======       =======       =======
</TABLE>

------------------------
/(1)/ Consists of certificate of deposit and equity securities.

                                       9
<PAGE>

     Investment Portfolio Maturities. The following table sets forth information
regarding the carrying value, weighted average yields, and maturities of the
investment securities of the Company at June 30, 1999.

<TABLE>
<CAPTION>
                                                                                                      At June 30, 1999
                                        ----------------------------------------------------------------------------------
                                             One Year or Less          One to Five Years           Five to Ten Years
                                        -------------------------   -------------------------   --------------------------
                                                     Annualized                  Annualized                  Annualized
                                                      Weighted                    Weighted                    Weighted
                                          Carrying    Average      Carrying       Average        Carrying      Average
                                          Value       Yield /(1)/    Value       Yield /(1)/      Value        Yield /(1)/
                                         ---------  -------------  ----------   ------------    ----------   -------------
                                                                 (Dollars in Thousands)
<S>                                      <C>        <C>            <C>          <C>             <C>          <C>
U.S. Treasury obligations...........      $  100        7.69%        $    --          --%         $   --          --
Federal Home Loan Bank obligations..          --          --           2,483        5.89              --          --
Federal Home Loan Bank stock /(2)/..          --          --              --          --              --          --
Other /(3)/.........................         170        3.80              --          --              --          --
                                          ------                     -------                      ------
  Total investments.................      $  270                     $ 2,483                      $   --
                                          ======                     =======                      ======
<CAPTION>

                                        -----------------------------------------------------------------
                                            More than Ten Years        Total Investment Securities
                                        ------------------------   --------------------------------------
                                                     Annualized                             Annualized
                                                      Weighted                                Weighted
                                         Carrying     Average       Carrying      Market      Average
                                          Value      Yield /(1)/      Value        Value      Yield /(1)/
                                        ---------   ------------   ----------    ---------   ------------
<S>                                     <C>         <C>           <C>           <C>         <C>
U.S. Treasury obligations...........    $   --            --        $   100      $   101         7.69%
Federal Home Loan Bank obligations..        --            --          2,483        2,458         5.89
Federal Home Loan Bank stock /(2)/..       330          7.50            330          330         7.50
Other /(3)/.........................        --            --            170          170         3.80
                                        ------                      -------      -------
  Total investments.................    $  330                      $ 3,083      $ 3,059         6.01%
                                        ======                      =======      =======         ====
</TABLE>

----------------------------------
/(1)/ Annualized interest return as a percentage of acquisition cost.
/(2)/ Federal Home Loan Bank stock has no stated maturity, and is assumed for
      these purposes to be held ten years.
/(3)/ Consists of certificate of deposit and equity securities.

                                       10
<PAGE>

SOURCES OF FUNDS

         General. The Company's sources of funds are the net proceeds retained
by it in connection with the Conversion, and dividends from the Savings Bank. In
1999 the Savings Bank paid $1,155,000 in dividends to the Company. Deposits are
the major source of funds for lending and other investment purposes of the
Savings Bank. The Savings Bank's deposit-gathering activities are currently
conducted from the Savings Bank's two facilities in Winnsboro, South Carolina.
In addition to deposits, the Savings Bank derives funds from the amortization
and prepayment of loans, the maturity of investment securities, and operations.
Scheduled loan principal repayments are a relatively stable source of funds,
while deposit inflows and outflows and loan prepayments are influenced
significantly by general interest rates and market conditions. Borrowings may be
used on a short-term basis to compensate for reductions in the availability of
funds from other sources or on a longer term basis for general business
purposes.

         Deposits. Consumer and commercial deposits are attracted principally
from within the Savings Bank's market area through the offering of Now accounts,
statement savings, money market deposit, checking accounts, term certificate
accounts and individual retirement accounts. Deposit account terms vary
according to the minimum balance required, the period of time during which the
funds must remain on deposit, and the interest rate, among other factors. The
Savings Bank regularly evaluates its internal cost of funds, surveys rates
offered by competing institutions, reviews the Savings Bank's cash flow
requirements for lending and liquidity, and executes rate changes when deemed
appropriate. The Savings Bank has sought to decrease the risk associated with
changes in interest rates by offering competitive rates on deposit accounts and
by pricing certificates of deposit to provide customers with incentives to
choose certificates of deposit with longer terms. Due to the current interest
rate environment, however, longer terms are not attractive to customers. The
Savings Bank does not obtain funds through brokers or through solicitations
outside its market area.

         The weighted-average interest rate on savings deposits was
approximately 4.75% at June 30, 1998 and 4.33% at June 30, 1999. Balances are as
follows:

<TABLE>
<CAPTION>
                                                                      At June 30,
                                        ---------------------------------------------------------------------------------
                                                 1997                        1998                         1999
                                        -----------------------     ------------------------    -------------------------
                                                        % of                        % of                         % of
                                         Amount         Total         Amount        Total         Amount         Total
                                        ---------    ----------     ----------    ----------    ----------     ----------
                                                                     (Dollars in Thousands)
<S>                                     <C>          <C>            <C>           <C>           <C>            <C>
NOW Accounts..........................  $   1,402          4.12%    $    1,906          5.01%   $    1,409           3.93%
Regular passbook......................      3,024          8.89          3,248          8.55         3,146           8.77
Money-market passbook.................      3,812         11.20          3,282          8.64         3,288           9.17
Certificates:
  3.99% and lower.....................          2           .01             42           .11            --             --
  4.00% - 4.99%.......................         14           .04            479          1.26            76           0.21
  5.00% - 5.99%.......................     22,301         65.54         28,297         74.47        13,379          37.30
  6.00% - 6.99%.......................      2,103          6.18            921          2.42        14,105          39.33
  7.00% - 7.99%.......................      1,559          4.58             --            --           612           1.71
  8.00% - 8.99%.......................         12           .04             --            --                           --
Deposit Premium.......................       (205)         (.60)          (178)         (.46)         (151)         (0.42)
                                        ---------    ----------     ----------    ----------    ----------     ----------
  Total...............................  $  34,024        100.00%    $   37,997        100.00%   $   35,864         100.00
                                        =========    ==========     ==========    ==========    ==========     ==========
</TABLE>

                                       11
<PAGE>

         At June 30, 1999 the Savings Bank had certificates of deposits in
amounts of $100,000 or more maturing as follows:

<TABLE>
<CAPTION>
         Maturity Period                                                                            Amount
         ---------------                                                                            ------
                                                                                                (In Thousands)
         <S>                                                                                    <C>
         One month through three months.................................................        $        2,273
         Three through six months.......................................................                 2,779
         Six through 12 months..........................................................                 4,996
         Over 12 months.................................................................                   690
                                                                                                --------------
               Total....................................................................        $       10,738
                                                                                                ==============
</TABLE>

REGULATION AND SUPERVISION

General

         The Savings Bank is subject to extensive regulation, examination and
supervision by the OTS, and the FDIC as the deposit insurer. The Savings Bank is
a member of the FHLB System and its deposit accounts are insured up to
applicable limits by the SAIF, which is managed by the FDIC. The Savings Bank
must file reports with the OTS and the FDIC concerning its activities and
financial condition in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with, or acquisitions of,
other financial institutions. There are periodic examinations by the OTS and the
FDIC to test the Savings Bank's compliance with various regulatory requirements.
This regulation and supervision establishes a comprehensive framework of
activities in which an institution can engage and is intended primarily for the
protection of the insurance fund and depositors. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
policies, whether by the OTS, the FDIC or Congress, could have a material
adverse impact on the Company, the Savings Bank and their operations. The
Company, as a savings and loan holding company, is also required to file certain
reports with, and otherwise comply with the rules and regulations of the OTS.
Certain of the regulatory requirements applicable to the Savings Bank and to the
Company are referred to below or elsewhere herein.

Federal Regulation of Savings Institutions

         Business Activities. The activities of savings institutions are
governed by the Home Owners' Loan Act, as amended (the "HOLA") and, in certain
respects, the Federal Deposit Insurance Act (the "FDI Act"). The federal banking
statutes, as amended by the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") and Federal Deposit Insurance Corporation
Improvement Act ("FDICIA") (1) restrict the solicitation of brokered deposits by
savings institutions that are troubled or not well-capitalized, (2) prohibit the
acquisition of any corporate debt security that is not rated in one of the four
highest rating categories, (3) restrict the aggregate amount of loans secured by
non-residential real estate property to 400% of capital, (4) permit savings and
loan holding companies to acquire up to 5% of the voting shares of
non-subsidiary savings institutions

                                       12
<PAGE>

or savings and loan holding companies without prior approval, and (5) permit
bank holding companies to acquire healthy savings institutions.

         The description of statutory provisions and regulations applicable to
savings banks set forth in this annual report does not purport to be a complete
description of such statutes and regulations and their effect on the Savings
Bank. Moreover, because some of the provisions of FDICIA are still in the
process of being implemented through the adoption of regulations by the various
federal banking agencies, the Savings Bank cannot yet fully assess the impact of
these provisions on its operations.

         Loans to One Borrower. Under the HOLA, savings institutions are
generally subject to the national bank limits on loans to one borrower.
Generally, savings institutions may not make a loan or extend credit to a single
or related group of borrowers in excess of 15% of unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if such loan is secured by readily marketable collateral, which is
defined to include certain securities and bullion, but generally does not
include real estate. At June 30, 1999, the Savings Bank was in compliance with
its loans to one borrower limitations.

         Qualified Thrift Lender Requirement. The HOLA requires savings
institutions to be qualified thrift lenders ("QTL"). To be a QTL, the Bank can
either satisfy the QTL test, or the Domestic Building and Loan Association
("DBLA") Test of the Internal Revenue Code of 1986, as amended (the "Code").
Under the QTL test, a savings bank is required to maintain at least 65% of its
"portfolio assets" (total assets less (i) specified liquid assets up to 20% of
total assets, (ii) intangibles, including goodwill, and (iii) the value of
property used to conduct business) in certain "qualified thrift investments,"
primarily residential mortgages and related investments, including certain
mortgage-backed and related securities on a monthly basis in 9 out of every 12
months. Under the DBLA test, an institution must meet a "business operations
test" and a "60% of assets test." The business operations test requires the
business of a DBLA to consist primarily of acquiring the savings of the public
and investing in loans. An institution meets the public savings requirements
when it meets one of two conditions: (i) the institution acquires its savings in
conformity with OTS rules and regulations; or (ii) the general public holds more
than 75% of its deposits, withdrawable shares, and other obligations. The
general public may not include family or related business groups or persons who
are officers or directors of the institution.

         The 60% of assets test requires that at least 60% of a DBLA's assets
must consist of assets that thrifts normally hold, except for consumer loans
that are not educational loans. The DBLA test does not include, as the QTL test
does to a limited or optional extent, mortgage loans originated and sold into
the secondary market and subsidiary investments. A savings bank that fails to be
a QTL must either convert to a bank charter or operate under certain
restrictions. As of June 30, 1999, the Savings Bank satisfied the QTL test.

         Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise

                                       13
<PAGE>

acquire its shares, payments to stockholders of another institution in a cash-
out merger and other distributions charged against capital. A "well capitalized"
institution can, after prior notice but without the approval of the OTS, make
capital distributions during a calendar year in an amount up to 100 percent of
its net income during the calendar year, plus its retained net income for the
preceding two years. As of June 30, 1999, the Savings Bank was a "well-
capitalized" institution.

         Liquidity. The Savings Bank is required to maintain an average daily
balance of liquid assets as defined by OTS regulations. This liquidity
requirement, which is currently 4%, may be changed from time to time by the OTS
to any amount within the range of 4% to 10% depending upon economic conditions
and the savings flow of member institutions. The Savings Bank's liquidity ratio
averaged 11.2% during the month ended June 30, 1999. Monetary penalties may be
imposed for failure to meet these liquidity requirements. At June 30, 1999, the
Savings Bank was in compliance with its liquidity requirements.

         Assessments. Savings institutions are required by OTS regulation to pay
assessments to the OTS to fund the operations of the OTS. The general
assessment, paid on a semi-annual basis, is computed upon the savings
institution's total assets, including consolidated subsidiaries, as reported in
the institution's latest quarterly thrift financial report. Based on its assets
at March 31, 1999, the Savings Bank is required to pay a semi-annual assessment
of approximately $8,000.

         Community Reinvestment. Under the Community Reinvestment Act (the
"CRA"), as implemented by OTS regulations, a savings institution has a
continuing and affirmative obligation, consistent with its safe and sound
operation, to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions, nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OTS, in connection with its examination of a savings
institution, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications by such institution. The CRA rating system identifies four levels
of performance that may describe an institution's record of meeting community
needs: outstanding, satisfactory, needs to improve and substantial
non-compliance. The CRA also requires all institutions to make public disclosure
of their CRA ratings. The CRA regulations were recently revised. Effective July
1, 1995, the OTS will assess the CRA performance of a savings institution under
lending, service and investment tests, and based on such assessment, will assign
an institution in one of the four above-referenced ratings. The Savings Bank
received an "outstanding" CRA rating under the current CRA regulations in its
most recent federal examination by the OTS.

         Transactions with Related Parties. The Savings Bank's authority to
engage in transactions with related parties or "affiliates" (i.e., any company
that controls or is under common control with an institution, including the
Company and its non-savings institution subsidiaries) or to make loans to
certain insiders, is limited by Sections 23A and 23B of the Federal Reserve Act
("FRA"). Section 23A limits the aggregate amount of transactions with any
individual affiliate to 10% of the

                                       14
<PAGE>

capital and surplus of the savings institution and also limits the aggregate
amount of transactions with all affiliates to 20% of the savings institution's
capital and surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in Section 23A and
the purchase of low quality assets from affiliates is generally prohibited.
Section 23B provides that certain transactions with affiliates, including loans
and asset purchases, must be on terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the
institution as those prevailing at the time for comparable transactions with
non-affiliated companies. In addition, savings institutions are prohibited from
lending to any affiliate that is engaged in activities that are not permissible
for bank holding companies and no savings institution may purchase the
securities of any affiliate other than a subsidiary. At June 30, 1999, the
Savings Bank was in compliance with the transactions with affiliates rules
governed by Sections 23A and 23B.

         The Savings Bank's authority to extend credit to executive officers,
directors and 10% stockholders, as well as entities controlled by such persons,
is currently governed by Sections 22(g) and 22(h) of the FRA, and Regulation O
thereunder. Among other things, these regulations generally require such loans
to be made on terms substantially the same as those offered to unaffiliated
individuals and do not involve more than the normal risk of repayment.
Regulation O also places individual and aggregate limits on the amount of loans
the Savings Bank may make to such persons based, in part, on the Savings Bank's
capital position, and requires certain approval procedures to be followed.

         Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring
enforcement action against all "institution-related parties," including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors of the institutions, receivership, conservatorship or the termination
of deposit insurance. Civil penalties cover a wide range of violations and
actions, and range up to $25,000 per day, unless a finding of reckless disregard
is made, in which case penalties may be as high as $1 million per day. Criminal
penalties for most financial institution crimes include fines of up to $1
million and imprisonment for up to 30 years. Under the FDI Act, the FDIC has the
authority to recommend to the Director of OTS that enforcement action be taken
with respect to a particular savings institution. If action is not taken by the
Director, the FDIC has authority to take such action under certain
circumstances.

         The federal banking agencies recently adopted a final regulation and
Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") to implement the safety and soundness standards required under
the FDI Act. The Guidelines set forth the safety and soundness standards that
the federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. The standards set forth
in the Guidelines address internal controls and information systems; internal
audit system; credit underwriting; loan documentation; interest rate risk
exposure; asset growth; and compensation, fees and benefits. The

                                       15
<PAGE>

agencies also adopted a proposed rule which proposes asset quality and earnings
standards which, if adopted, would be added to the Guidelines. If the
appropriate federal banking agency determines that an institution fails to meet
any standard prescribed by the Guidelines, the agency may require the
institution to submit to the agency an acceptable plan to achieve compliance
with the standard, as required by the FDI Act. The final regulations establish
deadlines for the submission and review of such safety and soundness compliance
plans.

         Capital Requirements. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3.0% leverage ratio (or core capital ratio) and an 8.0% risk-based capital
standard. However, to be considered "adequately capitalized," a savings
institution must maintain a 4.0% leverage capital ratio. Core capital is defined
as common stockholders' equity (including retained earnings), certain
non-cumulative perpetual preferred stock and related surplus, minority interests
in equity accounts of consolidated subsidiaries less intangibles other than
certain qualifying supervisory goodwill and certain purchased mortgage servicing
rights ("PMSRs"). The OTS regulations also require that, in meeting the tangible
ratio, leverage and risk-based capital standards, institutions must deduct
investments in and loans to subsidiaries engaged in activities not permissible
for a national bank. At June 30, 1999, the Savings Bank's ratio of tangible
capital to total assets, and its ratio of core (leverage) capital to total
assets, was 18.0%.

         The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk weighted assets of 4.0% and 8.0%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight of
0% to 100%, as assigned by the OTS capital regulation based on the risks the OTS
believes are inherent in the type of asset. The components of Tier 1 (core)
capital are equivalent to those discussed earlier under the 3.0% leverage ratio
standard. The components of supplementary capital currently include cumulative
preferred stock, long-term perpetual preferred stock, mandatory convertible
securities, subordinated debt and intermediate preferred stock and allowance for
loan and lease losses. Allowance for loan and lease losses includable in
supplementary capital is limited to a maximum of 1.25%. Overall, the amount of
supplementary capital included as part of total capital cannot exceed 100% of
core capital. At June 30, 1999, the Savings Bank's ratio of core capital to
total adjusted assets was 32.6%, and its ratio of total capital to risk-weighted
assets was 33.8%.

         OTS regulatory capital rules also incorporate an interest rate risk
component. Savings banks with "above normal" interest rate risk exposure are
subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. A savings bank's interest rate risk is measured
by the decline in the net portfolio value of its assets (i.e., the difference
between incoming and outgoing discounted cash flows from assets, liabilities and
off-balance sheet contracts) that would result from a hypothetical 200-basis
point increase or decrease in market interest rates, divided by the estimated
economic value of the Savings Bank's assets. In calculating its total capital
under the risk-based rule, a savings bank whose measured interest rate risk
exposure exceeds 2%, must deduct an interest rate component equal to one-half of
the difference between the institution's measured interest rate risk and 2%,
multiplied by the estimated economic value of the institution's

                                       16
<PAGE>

assets. The OTS has indefinitely deferred the implementation of the interest
rate risk component in the computation of an institution's risk-based capital
requirements. The rule also provides that the Director of the OTS may waive or
defer an institution's interest rate risk component on a case-by-case basis. The
OTS continues to monitor the interest rate risk of individual institutions and
retains the right to impose additional capital requirements on individual
institutions. At June 30, 1999, the Bank was not required to maintain any
additional risk-based capital under this rule.

         The following table presents the pro forma computations of the
Company's net portfolio value as of June 30, 1999.

<TABLE>
<CAPTION>
              Change in
           Interest Rates
           in Basis Points                                 Net Portfolio Value
                                              --------------------------------------------
            (Rate Shock)                      Amount            $ Change          % Change
           ---------------                    ------            --------          --------
                                                          (Dollars in thousands)
           <S>                                <C>               <C>               <C>
                 300                           3,679              (4,365)             54.3
                 200                           5,135              (2,909)             36.2
                  --                           8,044                  --                --
                (200)                         10,433               2,389              29.7
                (300)                         11,085               3,041              37.8
</TABLE>

         At June 30, 1999, the Savings Bank was in compliance with all of its
capital requirements.

Prompt Corrective Regulatory Action

         Under the OTS Prompt Corrective Action regulations, the OTS is required
to take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of capitalization.
Generally, a savings institution that has total risk-based capital of less than
8.0% or a leverage ratio or a Tier 1 core capital ratio that is less than 4.0%
is considered to be undercapitalized. A savings institution that has a total
risk-based capital ratio of less than 6.0%, a Tier 1 core risk-based capital
ratio of less than 3.0% or a leverage ratio that is less than 3.0% is considered
to be "significantly undercapitalized" and a savings institution that has a
tangible capital to assets ratio equal to or less than 2.0% is deemed to be
"critically undercapitalized." Subject to a narrow exception, the banking
regulator is required to appoint a receiver or conservator for an institution
that is "critically undercapitalized." The regulation also provides that a
capital restoration plan must be filed with the OTS within 45 days of the date
an institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." In addition, numerous
mandatory supervisory actions become immediately applicable to the institution,
including, but not limited to, restrictions on growth, investment activities,
capital distributions, and affiliate transactions. The OTS could also take any
one of a number of discretionary supervisory actions, including the issuance of
a capital directive and the replacement of senior executive officers and
directors.

                                       17
<PAGE>

Insurance of Deposit Accounts

         The Savings Bank is a member of the SAIF, which is administered by the
FDIC. Deposits are insured up to applicable limits by the FDIC and such
insurance is backed by the full faith and credit of the U.S. Government. As
insurer, the FDIC imposes deposit insurance premiums and is authorized to
conduct examinations of and to require reporting by FDIC-insured institutions.
It also may prohibit any FDIC-insured institution from engaging in any activity
the FDIC determines by regulation or order to pose a serious risk to the FDIC.
The FDIC also has the authority to initiate enforcement actions against savings
banks, after giving the OTS an opportunity to take such action, and may
terminate the deposit insurance if it determines that the institution has
engaged or is engaging in unsafe or unsound practices, or is in an unsafe or
unsound condition.

         The minimum annual deposit insurance premiums are currently assessed at
the rate of .065% of deposits for all SAIF-insured members. The FDIC, however,
is authorized to raise premiums in certain circumstances related to fund losses
and severe economic circumstances and has exercised this authority several times
with respect to premiums paid to the Bank Insurance Fund ("BIF") by commercial
banks and BIF-member savings banks.

         In September 1996, Congress enacted legislation to recapitalize the
SAIF by a one-time assessment on all SAIF-insured deposits held as of March 31,
1995. The assessment was 65.7 basis points per $100 in deposits, payable on
November 30, 1996. For the Savings Bank, the assessment amounted to $193,000 (or
$127,000 when adjusted for taxes), based on the Savings Bank's deposits on March
31, 1995. In addition, pursuant to the legislation, interest payments on FICO
bonds issued in the late 1980's by the Financing Corporation to recapitalize the
now defunct Federal Savings and Loan Insurance Corporation are now paid jointly
by BIF-insured institutions and SAIF-insured institutions. The FICO assessment
is 1.29 basis points per $100 in BIF deposits and 6.44 basis points per $100 in
SAIF deposits. Beginning January 1, 2000, the FICO interest payments will be
paid pro rata by banks and thrifts based on deposits (approximately 2.4 basis
points per $100 in deposits).

         Several bills have been introduced in the current Congress that would
eliminate the federal thrift charter and OTS. The Savings Bank is unable to
predict whether the legislation will be enacted or, given such uncertainty,
determine the extent to which the legislation, if enacted, would affect its
business. The Savings Bank is also unable to predict whether the SAIF and BIF
funds will eventually be merged.

Federal Home Loan Bank System

         The Savings Bank is a member of the FHLB System, which consists of 12
regional FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Savings Bank, as a member of the FHLB, is required to acquire
and hold shares of capital stock in that FHLB in an amount at least equal to 1%
of the aggregate principal amount of its unpaid residential mortgage loans and
similar obligations at the beginning of each year, or 1/20 of its advances
(borrowings) from

                                       18
<PAGE>

the FHLB, whichever is greater. The Savings Bank was in compliance with this
requirement with an investment in FHLB-Atlanta stock, at June 30, 1999, of
$330,000.

         The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members.

Federal Reserve System

         The Federal Reserve Board regulations require savings institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for accounts aggregating $54.0 million or less
(subject to adjustment by the Federal Reserve Board) the reserve requirement is
3%; and for accounts greater than $54.0 million, the reserve requirement is $1.6
million plus 10% (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess of $54.0
million. The first $4.2 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the reserve
requirements. The Savings Bank is in compliance with the foregoing requirements.
The balances maintained to meet the reserve requirements imposed by the FRB may
be used to satisfy liquidity requirements imposed by the OTS.

Holding Company Regulation

         The Company is a non-diversified savings and loan holding company
within the meaning of the HOLA, as amended. As such, the Company is registered
with the OTS and is subject to OTS regulations, examinations, supervision and
reporting requirements. In addition, the OTS has enforcement authority over the
Company and its non-savings institution subsidiaries. Among other things, this
authority permits the OTS to restrict or prohibit activities that are determined
to be a serious risk to the subsidiary savings institution. The Savings Bank is
required to notify the OTS 30 days before declaring any dividend to the Company.

         As a unitary savings and loan holding company, the Company generally is
not restricted under existing laws as to the types of business activities in
which it may engage, provided that the Savings Bank continues to be a QTL. Upon
any nonsupervisory acquisition by the Company of another savings association or
savings bank that meets the QTL test and is deemed to be a savings institution
by the OTS, the Company would become a multiple savings and loan holding company
(if the acquired institution is held as a separate subsidiary) and would be
subject to extensive limitations on the types of business activities in which it
could engage. The HOLA limits the activities of a multiple savings and loan
holding company and its non-insured institution subsidiaries primarily to
activities permissible for bank holding companies under Section 4(c)(8) of the
Bank Holding Company Act, subject to the prior approval of the OTS, and
activities authorized by OTS

                                       19
<PAGE>

regulation. The OTS is prohibited from approving any acquisition that would
result in a multiple savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions: (i) the approval
of interstate supervisory acquisitions by savings and loan holding companies,
and (ii) the acquisition of a savings institution in another state if the laws
of the state of the target savings institution specifically permit such
acquisitions.

         The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring another savings
institution or holding company thereof, without prior written approval of the
OTS. It also prohibits the acquisition or retention of, with certain exceptions,
more than 5% of a non-subsidiary savings institution, a non-subsidiary holding
company, or a non-subsidiary company engaged in activities other than those
permitted by the HOLA; or acquiring or retaining control of an institution that
is not federally insured. In evaluating applications by holding companies to
acquire savings institutions, the OTS must consider the financial and managerial
resources, future prospects of the company and institution involved, the effect
of the acquisition on the risk to the insurance fund, the convenience and needs
of the community and competitive factors.

         Federal law generally provides that no "person," acting directly or
indirectly or through or in concert with one or more other persons, may acquire
"control," as that term is defined in OTS regulations, of a federally insured
savings institution without giving at least 60 days written notice to the OTS
and providing the OTS an opportunity to disapprove of the proposed acquisition.
Such acquisitions of control may be disapproved if it is determined, among other
things, that (i) the acquisition would substantially lessen competition; (ii)
the financial condition of the acquiring person might jeopardize the financial
stability of the savings institution or prejudice the interests of its
depositors; or (iii) the competency, experience or integrity of the acquiring
person or the proposed management personnel indicates that it would not be in
the interest of the depositors or the public to permit the acquisition of
control by such person.

Item 2.  Properties
-------------------

         The Company conducts its business through two facilities located in
Winnsboro, Fairfield County, South Carolina. The main office at its current
location opened and has been owned by the Savings Bank since 1970. The branch
office is leased. At June 30, 1999, the net book value of the Company's property
and equipment was $501,000.

Item 3.  Legal Proceedings
--------------------------

     None.

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

     Not applicable.

                                       20
<PAGE>

                                    PART II
Item 5.  Market for Registrant's Common Equity and Related Shareholder Matters
------------------------------------------------------------------------------

     As of June 30, 1999, the Company had 538,716 shares of common stock
outstanding. At such date, the Company had 320 shareholders of record, excluding
shareholders who have registered their common stock in street name. The
Company's common stock is traded on the NASDAQ SmallCap market under the symbol
"SCCB." Set forth below are the quarterly high and low bid prices for the Common
Stock, as reported on the NASDAQ SmallCap Market, for the last eight quarters of
trading.

<TABLE>
<CAPTION>
                                                       High        Low
                                                       -----      -----
          <S>                                          <C>        <C>
          Quarter ended September 30, 1997........     25.25      18.50
          Quarter ended December 31, 1997.........     24.50      21.50
          Quarter ended March 31, 1998............     23.63      21.50
          Quarter ended June 30, 1998.............     21.88      21.00
          Quarter ended September 30, 1998........     22.88      18.25
          Quarter ended December 31, 1998.........     17.50      13.25
          Quarter ended March 31, 1999............     15.00      13.25
          Quarter ended June 30, 1999.............     14.75      12.50
</TABLE>

     During 1998 and 1999, the Company declared semi-annual cash dividends of
$.34 per share.  For a discussion of limitations on the Company's ability to pay
cash dividends, see Item 1.  Business--Regulation and Supervision--Limitation on
Capital Distributions; and Notes 9 and 16 to the Notes to Consolidated Financial
Statements.

Item 5-A.      Selected Financial Data
--------------------------------------

     Set forth below are selected financial and other data of the Company.

<TABLE>
<CAPTION>
                                                                                       At June 30,
                                                               ----------------------------------------------------------
                                                                   1995        1996         1997         1998      1999
                                                               ------------  --------  --------------  --------  --------
                                                                                     (In Thousands)
<S>                                                            <C>           <C>       <C>             <C>       <C>
Selected Financial Data:

Total assets.............................................      $   43,947    $ 44,172  $  46,598       $ 47,992  $ 45,433
Loans receivable, net....................................          33,047      33,338     35,955         36,007    39,565
Interest-earning deposits................................           2,836       4,171      5,242          8,100     1,407
Investment securities....................................           6,612       5,178      3,781          2,223     3,083
Foreclosed real estate, net..............................             171         156         96             71       121
Deposits.................................................          30,106      31,273     34,024         37,997    35,864
Stockholders equity......................................          13,350      12,309     11,962          9,414     9,037
</TABLE>

                                      21
<PAGE>

<TABLE>
<CAPTION>
                                                                              For the Year Ended June 30,
                                                               -------------------------------------------------------
                                                                  1995       1996         1997       1998       1999
                                                               --------    --------     ---------   -------   --------
                                                                                     (In Thousands)
<S>                                                            <C>         <C>          <C>       <C>         <C>
Selected Operating Data:

Interest income..........................................      $  3,429   $   3,406     $   3,500   $ 3,519   $  3,426
Interest expense on savings accounts and borrowed money..         1,351       1,643         1,635     1,715      1,664
                                                               --------   ---------     ---------   -------   --------
  Net interest income....................................         2,078       1,763         1,865     1,804      1,762

 Provision for loan losses...............................            --          --            --        --         --
                                                               --------   ---------     ---------   -------   --------
  Net interest income after provision for loan losses....         2,078       1,763         1,865     1,804      1,762

Noninterest income.......................................           110          35            88       132        106

Noninterest expense......................................           705         991         1,272     1,266      1,168
                                                               --------   ---------     ---------   -------   --------

Income before income taxes...............................         1,483         807           681       670        700

Income tax expense.......................................           556         319           258       262        277
                                                               --------   ---------     ---------   -------   --------

Net income...............................................      $    927   $     488     $     423   $   408   $    423
                                                               ========   =========     =========   =======   ========
Basic earnings per share.................................      $   1.28   $     .67     $     .62   $   .70   $   0.80
                                                               ========   =========     =========   =======   ========
Diluted earnings per share...............................      $   1.28   $     .67     $     .62   $   .68   $   0.79
                                                               ========   =========     =========   =======   ========
------------------------------

<CAPTION>
                                                                            At or for the Year Ended June 30,
                                                                  ----------------------------------------------------
                                                                     1995      1996       1997      1998       1999
                                                                  ---------  --------   --------  --------   ---------
<S>                                                               <C>        <C>        <C>       <C>        <C>
Selected Financial Ratios and Other Data:

Return on average assets.................................            2.10%     1.11%        .93%     .88%        .92%
Return on average stockholders' equity...................            7.07      3.77        3.46     4.00        4.52
Average equity to average assets.........................           29.80     29.38       26.71    22.06       20.42
Total equity to total assets.............................           30.38     27.87       25.67    19.62       19.89
Operating expenses to average assets.....................            1.60      2.25        2.78     2.74        2.55
Net interest income to operating expenses................          294.75    177.90      146.62   142.50      150.86
Nonperforming loans to total loans /(1)/.................             .80      1.40        1.08     2.25        1.46
Nonperforming assets to total assets /(2)/...............            1.01      1.44        1.06     1.87        1.57
</TABLE>

------------------------------
/(1)/ Nonperforming loans consist of non-accruing loans past due 90 days or more
      and accruing loans past due 90 days or more.
/(2)/ Nonperforming assets consist of nonperforming loans and real estate
      acquired through foreclosure.


Item 6.  Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
         of Operations
         -------------

Forward-Looking Statements

     In addition to historical information, this document contains forward-
looking statements.  The forward looking statements contained in the following
sections are subject to certain risks and uncertainties that could cause actual
results to differ materially from those projected in the forward-looking
statements.  Important factors that might cause such a difference include, but
are not limited to, those discussed.  Readers should not place undue reliance on
these forward-looking statements, as they reflect management's analysis as of
the date of this report.  The Company has no obligation to update or revise
these forward-looking statements to reflect events or circumstances that occur
after the date of this report.  Readers should carefully review the risk factors
described in other

                                      22
<PAGE>

documents the Company files from time to time with the SEC, including quarterly
reports on Form 10-QSB and current reports filed on Form 8-K.

General

     The earnings of the Company depend primarily on its level of net interest
income, which is the difference between interest earned on the Company's
interest-earning assets, consisting primarily of mortgage loans, interest-
bearing deposits at other institutions, and investment securities, and the
interest paid on interest-bearing liabilities consisting primarily of savings
deposits.  Net interest income is a function of the Company's interest rate
spread, which is the difference between the average yield on interest-earning
assets and the average rate paid on interest-bearing liabilities, as well as a
function of the average balance of interest-earning assets as compared to
interest-bearing liabilities.  The Company's earnings also are affected by its
level of noninterest income including loan origination fees, gains on sale of
investment securities, and other noninterest income, and noninterest expense,
including primarily compensation and related costs, occupancy and equipment,
SAIF insurance premiums, data processing and other noninterest expense.
Earnings of the Company also are affected significantly by general economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of regulatory authorities, which events are
beyond the control of the Company.

Financial Condition

     The Company's total consolidated assets decreased by approximately $2.6
million or 5.4% from $48.0 million at June 30, 1998 to $45.4 million at June 30,
1999.

     The composition of the Company's balance sheet has not been materially
affected by market conditions between June 30, 1998 and June 30, 1999.  Net
loans increased $3.5 million or 9.9% as a result of new loan originations
exceeding principal repayments and refinancing payoffs.  The Company has also
increased its commercial lending during fiscal 1999.

     Deposits decreased $2.1 million or 5.5%, from $38.0 million at June 30,
1998 to $35.9 million at June 30, 1999.  The decrease in deposits was primarily
attributable to the withdrawal of a public deposit of $2.4 million offset by new
deposits.

     During fiscal 1999, the Company repurchased 41,428 shares of its Common
Stock at an aggregate cost of approximately $622,000.

                                      23
<PAGE>

Average Balance Sheet

     The following table sets forth certain information relating to the
Company's consolidated statement of financial condition at June 30, 1997, 1998
and 1999, and its consolidated statement of income for the years ended those
dates. It reflects the average yield on assets and the average cost of
liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of related assets or
liabilities for the periods shown. Average loan and savings account balances are
derived from month-end balances as opposed to daily balances; management does
not believe that the use of month-end balances resulted in any material effect
on the information presented. Loan interest includes fees which are considered
yield adjustments; average loan balances include non-accruing loans.

<TABLE>
<CAPTION>
                                                                             Year Ended June 30,
                                           ----------------------------------------------------------------------------------------
                                                       1997                          1998                          1999
                                           ----------------------------  ----------------------------  ----------------------------
                                                               Average                       Average                       Average
                                           Average              Yield/   Average              Yield/   Average              Yield/
                                           Balance   Interest    Cost    Balance   Interest    Cost    Balance   Interest    Cost
                                           --------  --------  --------  --------  --------  --------  --------  --------  --------
                                                                            (Dollars in Thousands)
<S>                                        <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Assets:
 Interest-earning assets:
  Loans receivable and mortgage-backed
   securities............................  $35,254     $2,966     8.41%  $35,874     $2,999     8.36%  $38,053     $3,079     8.09%
  Investment securities..................    4,108        279     6.79     3,821        272     7.12     2,446        177     7.24
  Interest-earning deposits..............    4,935        255     5.17     5,191        248     4.78     3,680        170     4.62
                                           -------     ------            -------     ------            -------     ------
    Total interest-earning assets........   44,297      3,500     7.90    44,886      3,519     7.84    44,179      3,426     7.76
                                                       ------                        ------                        ------
 Noninterest-earning assets..............    1,408                         1,351                         1,639
                                           -------                       -------                       -------
     Total assets........................  $45,705                       $46,237                       $45,818
                                           =======                       =======                       =======

Liabilities and Equity:
 Interest-bearing liabilities:
  Checking accounts......................  $   784         13     1.66   $ 1,231         20     1.62     1,645         20     1.22
  Passbook savings accounts..............    2,675         84     3.14     3,083         88     2.85     3,019         59     1.95
  Certificates and money market savings
   accounts..............................   29,306      1,538     5.25    30,793      1,607     5.22    30,680      1,585     5.17
                                           -------     ------            -------     ------            -------     ------
 Total interest-bearing liabilities......   32,765      1,635     4.99    35,107      1,715     4.89    35,344      1,664     4.71
                                                       ------                        ------                        ------

  Noninterest bearing deposits...........      247                           606                           778
  Noninterest bearing liabilities........      484                           326                           340
                                           -------                       -------                       -------
   Total liabilities.....................   33,496                        36,039                        36,462
                                           -------                       -------                       -------
  Stockholders' Equity...................   12,209                        10,198                         9,356
                                           -------                       -------                       -------
   Total liabilities and stockholders'
    equity earnings......................  $45,705                       $46,237                       $45,818
                                           =======                       =======                       =======
Net interest income......................              $1,865                        $1,804                        $1,762
                                                       ======                        ======                        ======
Net interest rate spread /(1)/...........                         2.91%                         2.95%                         3.05%
                                                                  ====                          ====                          ====
Net interest margin /(2)/................                         4.21%                         4.02%                         3.99%
                                                                  ====                          ====                          ====
Ratio of interest-earning assets to
 interest-bearing liabilities............   135.20%                       127.85%                       125.00%
                                           =======                       =======                       =======
</TABLE>

------------------------------
/(1)/  Interest rate spread represents the difference between the average rate
       on interest-earning assets and the average cost of interest-bearing
       liabilities.
/(2)/  Net interest margin represents net interest income before the provision
       for loan losses divided by total interest-earning assets.

                                       24
<PAGE>

Rate/Volume Analysis

     Net interest income can also be analyzed in terms of the impact of changing
interest rates on interest-earning assets and interest-bearing liabilities and
the changing volume or amount of these assets and liabilities. The following
table represents the extent to which changes in interest rates and changes in
the volume of interest-earning assets and interest-bearing liabilities have
affected the Company's interest income and interest expense during the periods
indicated. Information is provided in each category with respect to (i) changes
attributable to changes in volume (change in volume multiplied by prior rate),
(ii) changes attributable to changes in rate (changes in rate multiplied by
current volume), and (iii) the net change. Changes attributable to the combined
impact of volume and rate have been allocated proportionately to the changes due
to volume and the changes due to rate.

<TABLE>
<CAPTION>
                                                            Year Ending June 30,
                                           -----------------------------------------------------------
                                                    1998 vs. 1997                   1999 vs. 1998
                                           ----------------------------    ---------------------------
                                                 Increase/(Decrease)            Increase/(Decrease)
                                                      Due to                           Due to
                                           -----------------------------    --------------------------
                                             Volume       Rate      Net       Volume      Rate    Net
                                           -----------   ------   ------    ----------  -------  -----
                                                               (In Thousands)
<S>                                        <C>           <C>      <C>       <C>         <C>      <C>
Interest-earning assets:
 Net loans and mortgage-backed
  securities........................        $   52       $  (19)  $   33    $  182      $ (102)  $   80
 Investment securities..............           (19)          12       (7)      (98)          3      (95)
 Interest-earning deposits..........            13          (20)      (7)      (72)         (6)     (78)
                                            ------       ------   ------    ------      ------   ------
  Total interest-earning assets.....        $   46       $  (27)  $   19    $   12      $ (105)  $  (93)
                                            ======       ======   ======    ======      ======   ======

Interest-bearing liabilities:
 Savings accounts...................        $  104       $  (24)  $   80    $   (2)     $  (49)  $  (51)
                                            ------       ------   ------    ------      ------   ------
Total interest-bearing liabilities..        $  104       $  (24)  $   80    $   (2)     $  (49)  $  (51)
                                            ======       ======   ======    ======      ======   ======

Net change in net interest income...        $  (58)      $   (3)  $  (61)   $   14      $  (56)  $  (42)
                                            ======       ======   ======    ======      ======   ======
</TABLE>

------------------------------
/(1)/  All interest-earning assets are disclosed net of loans in process,
       unamortized yield adjustments, and valuation allowances.
/(2)/  FHLB stock and interest-earning deposits in other financial institutions
       are included in investment securities.

Results of Operations

     The earnings of the Company depend primarily on its level of net interest
income, which is the difference between interest earned on interest-earning
assets, consisting primarily of mortgage loans, investment securities, and
interest-bearing deposits at other institutions, and the interest paid on
interest-bearing liabilities, which consist primarily of savings deposits.

     Net Income. Net income increased $15,000 or 3.7% from $408,000 for the year
ended June 30, 1998 to $423,000 for the year ended June 30, 1999. Diluted
earnings per share increased from $.68 in 1998 to $.79 in 1999. The return on
average assets was .88% for 1998 as compared to .92% for 1999.

     Net Interest Income. Net interest income decreased $42,000 or 2.3% from
$1,804,000 for 1998 to $1,762,000 for 1999. The decline in net interest income
primarily reflects a decrease in average interest earning assets of
approximately $707,000 compounded by an increase in average interest bearing

                                       25
<PAGE>

liabilities of approximately $237,000 or 2.6%. Interest earning assets were
utilized to repurchase 41,428 shares of stock in the open market at an aggregate
cost of $622,000. The interest rate spread increased from 2.95% for 1998 to
3.05% for 1999.

     Interest Income. Total interest income decreased $93,000 for 1999 compared
to 1998. Interest on loans increased by $81,000, or 2.7%. Interest on
investments and interest earning deposits decreased in aggregate by $173,000 or
33.3%, as these average portfolios during 1999 were approximately $2.9 million
less than the same period in 1998. Declines in these average interest-earning
assets have funded new loans and the stock repurchase plan.

     Interest Expense. Interest expense decreased $51,000 for the year ended
June 30, 1999 compared to the year ended June 30, 1998. The decrease was the
result of a 18 basis point decrease in the average cost of funds offset by a
$237,000 increase in the average deposits outstanding.

     Provision for Loan Losses. The Company did not record any provision for
loan losses for either 1998 or 1999. Historically, management has emphasized the
Company's loss experience over other factors in establishing provisions for loan
losses. However, management has reviewed the allowance for loan losses in
relation to the Company's composition of its loan portfolio and observations of
the general economic climate and loan loss expectations. The ratio of allowance
to non-performing loans at June 30, 1999 was 49.1% and nonperforming loans to
total loans was 1.46%.

     Management uses a systematic approach in determining the adequacy of its
loan loss allowance and the necessary provision for loan losses, through a
classification of assets program, whereby the loan portfolio is reviewed
generally and delinquent loan accounts are analyzed individually, on a quarterly
basis. Consideration is given to the account status, payment history, ability to
repay and probability of repayment, and loan-to-value percentages. As a result
of this review and analysis, loans are classified in the appropriate categories
applicable to their circumstances. After reviewing current economic conditions,
changes in delinquency status, and actual loan losses incurred, management
establishes an appropriate reserve percentage applicable to each category of
assets, and a provision for loan losses is recorded when necessary to bring the
allowance to a level consistent with this analysis. Historically, the Savings
Bank's ratio of nonperforming loans to total loans has been higher in comparison
to its peers, while the ratio of its allowance for loan losses to nonperforming
loans has been lower in comparison to its peers.

     Non-Interest Income. This income was $132,000 for the year ending June 30,
1998 and $106,000 for the same period in 1999. Management continues to
concentrate on generating additional fee income.

     Non-Interest Expense. Non-interest expense decreased by $98,000 in 1999
compared to 1998. Expenses associated with the expanded bank facilities,
products and general operations have stabilized. Management has continued its
efforts to control operating expenses. Compensation expense and employee
benefits decreased $45,000 or 6.4%, due to the lower expense recognized for ESOP

                                       26
<PAGE>

compensation because of lower average stock prices during 1999 compared to 1998.
Other operating expenses decreased $54,000 in 1999 compared to 1998.

Liquidity and Capital Resources

     The Savings Bank is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which varies from time to time
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The required ratio currently is 4.0%. The
Savings Bank maintains liquidity levels significantly in excess of regulatory
requirements. The Savings Bank adjusts its liquidity levels in order to meet
funding needs of deposit outflows, payment of real estate taxes on mortgage
loans, repayment of borrowings and loan commitments. The Savings Bank also
adjusts liquidity as appropriate to meet its asset and liability management
objectives.

     The Company's sources of funds are the net proceeds retained by it in
connection with the Conversion, and dividends from the Savings Bank. In 1999,
the Savings Bank paid $1,155,000 in dividends to the Company. The Savings Bank's
primary sources of funds are deposits, amortization and prepayment of loans,
maturities of investment securities, and earnings and funds provided from
operations. While scheduled principal repayments on loans are a relatively
predictable source of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions, and competition. The
Savings Bank manages the pricing of its deposits to maintain a desired deposit
balance. In addition, the Savings Bank invests in short-term interest-earning
assets, which provide liquidity to meet lending requirements. At June 30, 1999,
$100,000, or 3.9%, of the Savings Bank's investment portfolio was scheduled to
mature in one year or less, $2.5 million, or 96.1%, was scheduled to mature in
one to five years. For additional information about cash flows from the
Company's operating, financing, and investing activities, see Statements of Cash
Flows included in the Consolidated Financial Statements.

     A major portion of the Savings Bank's liquidity consists of cash and cash
equivalents, which are a product of its operating, investing, and financing
activities. The primary sources of cash are net income, principal repayments on
loans, and increases in deposit accounts. Liquidity management is both a daily
and long-term function of business management. If the Savings Bank requires
funds beyond its ability to generate them internally, borrowing agreements exist
with the FHLB which provide an additional source of funds.

     At June 30, 1999, the Savings Bank had outstanding loan commitments of
approximately $637,000. This amount does not include the unfunded portion of
loans in process and unfunded lines of credit. Savings certificates scheduled to
mature in less than one year at June 30, 1999, totaled $25.7 million. Based on
prior experience, management believes that a significant portion of such
deposits will remain with the Savings Bank.

     At June 30, 1999, there were no material commitments for capital
expenditures.

                                       27
<PAGE>

     Management had no knowledge of any trends, events or uncertainties that
will have or are reasonably likely to have material effects on the liquidity,
capital resources or operations of the Company. Further at June 30, 1999,
management was not aware of any current recommendations by the regulatory
authorities, which, if implemented, would have such an effect.

Impact of Inflation and Changing Prices

     The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchase power of money over time and due
to inflation. The impact of inflation is reflected in the increased cost of the
Company's operations. Unlike most industrial companies, nearly all the assets
and liabilities of the Company are monetary. As a result, interest rates have a
greater impact on the Company's performance than do the effects of general
levels of inflation. Because Community Federal originates only fixed-rate loans,
its net interest income is influenced significantly by the movement of interest
rates in general. Interest rates do not necessarily move in the same direction
or to the same extent as the price of goods and services.

Year 2000 Compliance

     The Company has formulated a Year 2000 Compliance Plan to address the Year
2000 issue. The phases identified under the plan are awareness, assessment,
renovation, validation and implementation. The purpose of the plan is to outline
the procedures necessary for assuring that the Company is in a state of
readiness for the century date change. Substantially all of the Company's
material data processing functions are provided by a third party service bureau.
The service bureau has advised the Company in writing that it is Year 2000
compliant. The Company has received certifications of compliance from
approximately 90% of its other software vendors. Company personnel have
completed testing on all computer hardware and software with minimal failures
being detected. The Company is making written and oral inquiries of customers,
suppliers and non-information technology providers as to their 2000 readiness.
Testing to date indicates very little hard cost of remediation in management's
opinion, with the primary cost of the Company's Year 2000 compliance being staff
time during the assessment, testing and implementation stages. As of June 30,
1999, the Company has incurred approximately $15,000 in expenses toward
remediating the Year 2000 issue.

     Based on the results of further system testing and results of written and
oral inquiries, the Company will continue to develop its contingency plan to
provide solutions to the Year 2000 issue. This contingency plan will be designed
to prepare an operating alternative in the event that systems do not perform as
planned either before or after the century date change. The Company has a
reasonable basis to conclude that the Year 2000 issue will not materially affect
future financial results, or cause reported financial information not to be
necessarily indicative of future operating result of future financial condition.
Successful implementation of this plan is expected to mitigate any extraordinary
expenses related to the Year 2000 issue. However, no assurance can be given that
the Year 2000 compliance plan will be completed successfully by the Year 2000.

                                       28
<PAGE>

     Successful and timely completion of the Year 2000 project is based on
management's best estimates derived from various assumptions of future events.
These events are inherently uncertain, including the progress and results of
vendors, suppliers and customers Year 2000 readiness.

Impact of New Accounting Standards

     Accounting for Derivative Instruments and Hedging Activities. In June 1998,
the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and reporting standards for
derivative instruments and requires that all derivatives be recognized as either
assets or liabilities in the statement of financial position. Under this
standard, all derivative instruments should be measured at fair value. At the
date of initial application, an entity may transfer any held-to-maturity
securities into the available-for-sale category or the trading category,
although the Company has no intention of doing so. An entity will then be able
in the future to designate a security transferred into the available-for-sale
category as a hedged item. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. Because the Company and the Savings
Bank do not invest in derivative instruments or enter into hedging transactions,
adoption of this statement is not anticipated to have a significant effect on
the Company's financial position or results of operations.

Item 7.   Financial Statements
------------------------------

     The following audited financial statements and related documents are
presented herein on the following pages:

     (a)  Independent Auditors' Report..............................  30
     (b)  South Carolina Community Bancshares, Inc. and Subsidiary:
          (i)   Consolidated Balance Sheets.........................  31
          (ii)  Consolidated Statements of Income...................  32
          (iii) Consolidated Statements of Stockholders' Equity.....  33
          (iv)  Consolidated Statements of Cash Flows...............  34
          (v)   Notes to Consolidated Financial Statements..........  36

                                       29
<PAGE>

LOGO          [LETTERHEAD OF CRISP HUGHES EVANS LLP APPEARS HERE]


                         Independent Auditors' Report
                         ----------------------------


To the Board of Directors
South Carolina Community Bancshares, Inc.


We have audited the accompanying consolidated balance sheets of South Carolina
Community Bancshares, Inc. and Subsidiary (the "Company") as of June 30, 1998
and 1999, and the related consolidated statements of income, stockholders'
equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
June 30, 1998 and 1999, and the results of their operations and their cash flows
for the years then ended, in conformity with generally accepted accounting
principles.


Asheville, North Carolina                 /s/ Crisp Hughes Evans LLP
July 23, 1999

                                       30
<PAGE>

                   SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
                                AND SUBSIDIARY

                          Consolidated Balance Sheets
                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                  June 30,
                                                                      ---------------------------------
           Assets                                                          1998                1999
           ------                                                          ----                ----
<S>                                                                   <C>                   <C>
Cash and due from banks                                                    $   578             $   297
Interest earning deposits                                                    8,100               1,407
Investment securities, held to maturity                                      1,855               2,687
Investment securities, available for sale                                       47                  66
Loans receivable, net                                                       36,007              39,565
Mortgage-backed securities, held to maturity                                    35                  24
Premises and equipment, net                                                    547                 501
Federal Home Loan Bank stock                                                   321                 330
Interest receivable                                                            301                 338
Real estate                                                                     71                 121
Prepaid expenses and other assets                                              130                  97
                                                                           -------             -------

     Total assets                                                          $47,992             $45,433
                                                                           =======             =======

     Liabilities and Stockholders' Equity
     ------------------------------------

Deposits                                                                   $37,997             $35,864
Advance payments for taxes and insurance                                        38                  41
Accrued expenses and other liabilities                                         361                 306
Income taxes:
 Current                                                                        58                  95
 Deferred                                                                      124                  90
                                                                           -------             -------
     Total liabilities                                                      38,578              36,396
                                                                           -------             -------
Stockholders' equity:
 Preferred stock ($.01 par value, 200,000 shares authorized;
  none outstanding)                                                              -                   -
 Common stock ($.01 par value, 1,400,000 shares authorized;
  780,275 shares issued; 579,664 outstanding at June 30, 1998
  and 538,716 at June 30, 1999)                                                  8                   8
 Paid in capital                                                             7,389               7,416
 Retained earnings, substantially restricted                                 6,865               6,934
 Accumulated other comprehensive income                                          -                   5
 Treasury stock at cost (200,611 shares at June 30, 1998
  and 241,559 shares at June 30, 1999)                                      (4,185)             (4,797)
 Unearned compensation:
  Employee Stock Ownership Plan                                               (392)               (337)
  Management Recognition Plan                                                 (271)               (192)
                                                                           -------             -------
     Total stockholders' equity                                              9,414               9,037
                                                                           -------             -------

     Total liabilities and stockholders' equity                            $47,992             $45,433
                                                                           =======             =======
</TABLE>

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

                                       31
<PAGE>

                   SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
                                 AND SUBSIDIARY

                       Consolidated Statements of Income
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                              Years Ended
                                                                                June 30,
                                                                    -----------------------------------
                                                                        1998                1999
                                                                        ----                ----
<S>                                                                 <C>                   <C>
Interest income:
 Loans                                                                       $2,996              $3,077
 Mortgage-backed securities                                                       3                   2
 Investments                                                                    272                 177
 Interest earning deposits                                                      248                 170
                                                                             ------              ------
     Total interest income                                                    3,519               3,426

Interest expense:
 Deposits                                                                     1,715               1,664
                                                                             ------              ------
     Net interest income                                                      1,804               1,762

Provision for loan losses                                                         -                   -
                                                                             ------              ------
     Net interest income after provision for loan losses                      1,804               1,762
                                                                             ------              ------

Non-interest income:
 Loan fees and services                                                          50                  51
 Other                                                                           82                  55
                                                                             ------              ------
     Total non-interest income                                                  132                 106
                                                                             ------              ------

Non-interest expenses:
 Compensation and employee benefits                                             701                 656
 Net occupancy expense                                                           92                 102
 Deposit insurance premiums                                                      21                  22
 Data processing                                                                 82                  72
 Other                                                                          370                 316
                                                                             ------              ------
     Total non-interest expenses                                              1,266               1,168
                                                                             ------              ------

     Income before income taxes                                                 670                 700

Income tax expense                                                              262                 277
                                                                             ------              ------
     Net income                                                              $  408              $  423
                                                                             ======              ======
Net income per common share:
 Basic                                                                       $  .70              $  .80
 Diluted                                                                        .68                 .79
                                                                             ======              ======
Weighted-average shares:
 Basic                                                                          581                 531
 Diluted                                                                        599                 537
                                                                             ======              ======
</TABLE>

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

                                       32
<PAGE>

                   SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
                                 AND SUBSIDIARY

                Consolidated Statements of Stockholders' Equity
                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                Accumulated
                                                                                   Other                 Unearned Compensation
                                                                                                        ---------------------------
                                                    Common  Paid-In   Retained  Comprehensive Treasury
                                                    Stock   Capital   Earnings     Income      Stock    for ESOP   for MRP  Total
                                                    -----   -------   --------     ------      -----    --------   -------  -----
<S>                                                 <C>     <C>       <C>       <C>           <C>       <C>        <C>      <C>
Balance at June 30, 1997                              $8    $7,321     $6,801   $       -     $(1,352)   $(452)    $(364)   $11,962

Comprehensive income:
 Net income                                            -         -        408           -           -        -         -        408

Cash dividends declared ($.64 per share)               -         -       (344)          -           -        -         -       (344)

ESOP and MRP compensation earned                       -        70          -           -           -       60        93        223

Exercise of stock options (360 shares)                 -        (2)         -           -           7        -         -          5

Treasury stock purchased (120,429 shares)              -         -          -           -      (2,840)       -         -     (2,840)
                                                     ---    ------     ------   ---------     -------   ------   -------    -------

Balance at June 30, 1998                               8     7,389      6,865           -      (4,185)    (392)     (271)     9,414

Comprehensive income:
 Net income                                            -         -        423           -           -        -         -        423
 Other comprehensive income:
  Unrealized gain on securities available
   for sale, net of taxes of $3                        -         -          -           5           -        -         -          5
                                                                                                                            -------
     Total comprehensive income                                                                                                 428

Cash dividends declared ($.68 per share)               -         -       (354)          -           -        -         -       (354)

ESOP and MRP compensation earned                       -        31          -           -           -       55        79        165

Exercise of stock options (480 shares)                 -        (4)         -           -          10        -         -          6

Treasury stock purchased (41,428 shares)               -         -          -           -        (622)       -         -       (622)
                                                     ---    ------     ------   ---------     ------- --------   -------    -------
Balance at June 30, 1999                              $8    $7,416     $6,934   $       5     $(4,797)   $(337)    $(192)   $ 9,037
                                                     ===    ======     ======   =========     ======= ========   =======    =======
</TABLE>

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

                                       33
<PAGE>

                   SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
                                AND SUBSIDIARY

                     Consolidated Statements of Cash Flows
                                (in thousands)

<TABLE>
<CAPTION>
                                                                           Years Ended
                                                                            June 30,
                                                         ----------------------------------------------
                                                                  1998                    1999
                                                                  ----                    ----
<S>                                                      <C>                       <C>
Operating activities:
 Net income                                                $          408          $          423
 Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation                                                         54                      62
  Gain on sale of real estate owned                                    (6)                      -
  Deferred income taxes (benefit)                                       6                     (17)
  Amortization of deposit premium                                      27                      27
  Amortization of premiums (discounts) on investment
   securities, net                                                     (4)                      1
  Amortization of unearned compensation                               223                     165
  Net increase (decrease) in deferred loan fees                       (24)                      5
  (Increase) decrease in accrued interest receivable                   39                     (37)
  Decrease in prepaid expenses and other assets                        19                      33
  Increase (decrease) in income taxes payable                         (20)                     17
  Increase (decrease) in accrued expenses and
   other liabilities                                                   11                     (53)
                                                           --------------          --------------
     Net cash provided by operating activities                        733                     626
                                                           --------------          --------------

Investing activities:
 Net increase in loans                                                (68)                 (3,610)
 Capitalized costs on real estate owned                                (1)                     (3)
 Proceeds from sale of real estate owned                               72                       -
 Proceeds from maturities of investment securities                  2,200                   1,300
 Proceeds from sale of FHLB stock                                     108                       -
 Purchases of investment securities                                  (746)                 (2,144)
 Purchase of FHLB stock                                                 -                      (9)
 Principal payments on mortgage-backed securities                      13                      11
 Purchases of premises and equipment                                  (50)                    (16)
                                                           --------------          --------------
     Net cash provided (used) by investing activities               1,528                  (4,471)
                                                           --------------          --------------
</TABLE>

                                                                     (continued)

                                       34
<PAGE>

                   SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
                                AND SUBSIDIARY

                     Consolidated Statements of Cash Flows
                                (in thousands)

<TABLE>
<CAPTION>
                                                                                       Years Ended
                                                                                         June 30,
                                                                       --------------------------------------------
                                                                               1998                   1999
                                                                               ----                   ----
<S>                                                                    <C>                      <C>
Financing activities:
 Net increase (decrease) in deposits                                     $        3,946         $       (2,160)
 Acquisition of treasury stock                                                   (2,840)                  (622)
 Increase (decrease) in advance payments for taxes
  and insurance                                                                      (4)                     3
 Proceeds from stock options exercised                                                5                      6
 Dividends paid                                                                    (368)                  (356)
                                                                         --------------         --------------
     Net cash provided (used) by financing activities                               739                 (3,129)
                                                                         --------------         --------------

Net increase (decrease) in cash and cash equivalents                              3,000                 (6,974)

Cash and cash equivalents at beginning of year                                    5,678                  8,678
                                                                         --------------         --------------

Cash and cash equivalents at end of year                                 $        8,678         $        1,704
                                                                         ==============         ==============

Supplemental disclosures of cash flow information
-------------------------------------------------
 Cash paid during the year for:
  Interest                                                               $        1,714         $        1,708
  Income taxes, net of refunds                                                      278                    276
                                                                         ==============         ==============

 Non-cash investing and financing activities:
  Real estate acquired in satisfaction of
   mortgage loans                                                        $           40         $           47
  Decrease in accrued dividend payable                                               24                      2
  Net unrealized gains on available for sale securities,
   net of deferred taxes                                                              -                      5
                                                                         ==============         ==============
</TABLE>

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

                                       35
<PAGE>

                   SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
                                AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                            June 30, 1998 and 1999
                        (Tabular amounts in thousands)

1. Summary of Significant Accounting Policies
   ------------------------------------------

   South Carolina Community Bancshares, Inc. (the "Holding Company") was formed
   in March 1994, as the holding company for Community Federal Savings Bank (the
   "Bank").

   The accounting and reporting policies of the Holding Company and the Bank
   (collectively referred to as the "Company") conform, in all material
   respects, to generally accepted accounting principles and to general
   practices within the thrift industry. The following summarize the more
   significant of these policies and practices.

   Nature of Operations - The Holding Company's only endeavor is its investment
   --------------------
   in the Bank, a federally chartered stock savings bank. The Bank's principal
   line of business is originating residential and non-residential first
   mortgage loans. The loans are primarily with individuals.

   Estimates - The preparation of financial statements in conformity with
   ---------
   generally accepted accounting principles requires management to make
   estimates and assumptions that affect the reported amounts of assets and
   liabilities and disclosure of contingent assets and liabilities at the date
   of the financial statements and the reported amounts of revenues and expenses
   during the reporting period. Actual results could differ from those
   estimates.

   Principles of Consolidation - The consolidated financial statements include
   ---------------------------
   the accounts of the Holding Company and its subsidiary, the Bank.
   Intercompany balances and transactions have been eliminated.

   Loans Receivable - Loans receivable are carried at their unpaid principal
   ----------------
   balance less, where applicable, deferred loan origination fees and allowances
   for losses. Additions to the allowance for loan losses are based on
   management's evaluation of the loan portfolio under current economic
   conditions and such other factors which, in management's judgment, deserve
   recognition in estimating loan losses. Interest accrual is discontinued when
   a loan becomes 90 days delinquent or impaired unless, in management's
   opinion, the loan is well secured and in process of collection. Interest
   income is subsequently recognized only to the extent cash payments are
   received until such time that, in management's opinion, the borrower will be
   able to meet payments as they become due.

   The Company's policy on first mortgage loans is to lend within its primary
   market area which is defined as Fairfield County and the surrounding counties
   in South Carolina. It is the Company's normal policy to limit an individual
   single-family mortgage loan to 80% of the

                                       36
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY             Notes to Consolidated Financial Statements, Continued
--------------------------------------------------------------------------------


   appraised value of the property securing the loan. The Company normally
   requires the borrower to obtain private mortgage insurance for loans in
   excess of 80% of the appraised value of the property.

   The Company's multi-family and non-residential real estate loans consist of
   properties located in its primary market. The Company's policy is to limit
   loans on multi-family residential complexes and non-residential loans to 75%
   of the appraised value of the property securing the loan, and land loans to
   70% of the appraised value.

   The Company's policy requires that consumer and other installment loans be
   supported primarily by the borrower's ability to repay the loan and
   secondarily by the value of the collateral securing the loan, if any.

   Management of the Company believes the allowance for loan losses is adequate.
   However, the estimates used by management in determining the adequacy of such
   allowance are susceptible to significant changes due primarily to unforeseen
   changes in economic and market conditions. In addition, various regulatory
   agencies periodically review the Company's allowance for loan losses as an
   integral part of their examination. Such agencies may require the Company to
   recognize additions to the allowance based on their judgments of information
   available to them at the time of their examination.

   Loan Fees - Loan fees result from the Bank originating mortgage loans. Such
   ---------
   fees and certain direct incremental costs related to origination of such
   loans are deferred ("net deferred loan fees") and reflected as a reduction of
   the carrying value of mortgage loans. The net deferred fees (or costs) are
   amortized using the interest method over the contractual lives of the loans
   as adjusted for prepayments.

   Investment and Mortgage-Backed Securities - Investment securities and
   -----------------------------------------
   mortgage-backed securities held to maturity are stated at amortized cost
   since the Company has both the ability and intent to hold such securities to
   maturity. Premiums and discounts on the investment and mortgage-backed
   securities are amortized or accreted into income over the contractual terms
   of the securities using a level yield interest method. Gains and losses on
   the sale of these securities are calculated based on the specific
   identification method.

   Investment securities available for sale are carried at fair value. The
   Company has identified their holdings in certain equity securities as
   available for sale. The unrealized holding gains or losses on securities
   available for sale are reported, net of related income tax effects, as
   accumulated other comprehensive income, which is a separate component of
   stockholders' equity until realized. Gains or losses on sales of securities
   available for sale are based on the specific identification method.

                                       37
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY             Notes to Consolidated Financial Statements, Continued
--------------------------------------------------------------------------------

   Premises and Equipment - Land is carried at cost. Premises and equipment are
   ----------------------
   carried at cost less accumulated depreciation. Depreciation is computed on
   the straight-line method over the estimated useful lives of the assets
   ranging from 5 to 30 years. The cost of maintenance and repairs is charged to
   expense as incurred while expenditures which materially increase property
   lives are capitalized.

   Federal Home Loan Bank Stock - Investment in stock of the Federal Home Loan
   ----------------------------
   Bank is required by law of every federally insured savings and loan or
   savings bank. The investment is carried at cost. No ready market exists for
   the stock and it has no quoted market value.

   Real Estate - Real estate acquired through, or in lieu of, loan foreclosure
   -----------
   is initially recorded at fair value at the date of foreclosure or in-
   substance foreclosure. Subsequent to foreclosure, real estate is recorded at
   the lower of initial fair value or existing fair value less estimated cost to
   sell (net realizable value). Costs relating to development and improvement of
   property are capitalized, whereas costs relating to the holding of property
   are expensed.

   Valuations are periodically performed by management, and an allowance for
   losses is established by a charge to income if the carrying value of a
   property exceeds its estimated net realizable value.

   Income Taxes -   The Company utilizes the liability method of computing
   ------------
   income taxes. Under the liability method, deferred tax liabilities and assets
   are established for future tax return effects of temporary differences
   between the stated value of assets and liabilities for financial reporting
   purposes and their tax bases. The focus is on accruing the appropriate
   balance sheet deferred tax amount, with the statement of income effect being
   the result of changes in balance sheet amounts from period to period. Current
   income tax expense is provided based upon the actual tax liability incurred
   for tax return purposes.

   Accumulated Other Comprehensive Income - Accumulated other comprehensive
   --------------------------------------
   income consists of changes in equity from non-owner sources. These non-owner
   changes consist of unrealized holding gains on certain equity securities
   investments available for sale.

   Income Per Share - For the years ended June 30, 1998 and 1999, net income
   ----------------
   available to the common stockholders in both the basic and diluted
   computations was equal to net income. The weighted average common shares
   outstanding used in the basic earnings per share were 580,724 and 531,345 for
   the years ended June 30, 1998 and 1999, respectively. For purposes of the
   diluted income per share calculation, outstanding shares were adjusted for
   potentially dilutive securities using the treasury stock method. For the
   stock option plan, 18,342 and 5,888 were included as weighted average common
   shares outstanding for the years ended June 30, 1998 and 1999, respectively.

                                       38
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY             Notes to Consolidated Financial Statements, Continued
--------------------------------------------------------------------------------

   Cash Flow Information - As presented in the consolidated statements of cash
   ---------------------
   flows, cash and cash equivalents include cash on hand and interest-earning
   deposits in other banks. The Company considers all highly liquid instruments
   with original maturities of three months or less to be cash equivalents.
   Approximately $130,000 of cash is pledged against certain deposits at June
   30, 1999.

2. Investment Securities
   ---------------------

   The amortized cost and estimated market values of investments are summarized
   as follows:

<TABLE>
<CAPTION>
                                                                       Gross             Gross           Estimated
                                                   Amortized         Unrealized        Unrealized          Market
                                                      Cost             Gains             Losses            Value
                                                      ----             -----             ------            -----
<S>                                                <C>               <C>               <C>               <C>
Held to maturity:
 June 30, 1998:
  U.S. government and
    agency obligations                             $   1,755         $       16        $        -        $   1,771
  Certificate of deposit                                 100                  -                 -              100
                                                   ---------         ----------        ----------        ---------

                                                   $   1,855         $       16        $        -        $   1,871
                                                   =========         ==========        ==========        =========
 June 30, 1999:
  U.S. government and
    agency obligations                             $   2,583         $        6        $       30        $   2,559
  Certificate of deposit                                 104                  -                 -              104
                                                   ---------         ----------        ----------        ---------

                                                   $   2,687         $        6        $       30        $   2,663
                                                   =========         ==========        ==========        =========
Available for sale:
 June 30, 1998:
  Equity securities                                $      47         $        -        $        -        $      47
                                                   =========         ==========        ==========        =========

 June 30, 1999:
  Equity securities                                $      58         $        8        $        -        $      66
                                                   =========         ==========        ==========        =========
</TABLE>

                                       39
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY            Notes to Consolidated Financial Statements, Continued
-------------------------------------------------------------------------------

      The amortized cost and estimated market values of debt securities by
      contractual maturity are as follows:

<TABLE>
<CAPTION>
                                                                                                   Estimated
                                                           Amortized Cost                         Market Value
                                                  --------------------------------      --------------------------------
                                                        1998             1999                 1998             1999
                                                        ----             ----                 ----             ----
<S>                                               <C>              <C>                  <C>              <C>
        Held to maturity:
         Due in one year or less                  $           800  $           100      $           803  $           101
         Due in one year through
          five years                                          955            2,483                  968            2,458
                                                  ---------------  ---------------      ---------------  ---------------

                                                  $         1,755  $         2,583      $         1,771  $         2,559
                                                  ===============  ===============      ===============  ===============
</TABLE>

     The Company had no investment securities pledged at June 30, 1998 and 1999.
     There were no investment securities sold during the fiscal years 1998 and
     1999.

3.   Loans Receivable
     ----------------

     Loans receivable are summarized as follows:

<TABLE>
<CAPTION>
                                                                               June 30,
                                                              -------------------------------------------
                                                                      1998                  1999
                                                                      ----                  ----
<S>                                                           <C>                   <C>
        Real estate mortgage loans:
         One to four family                                   $             32,212  $              34,046
         Construction                                                          414                    507
         Commercial real estate                                              2,187                  3,847
         Other real estate                                                   1,014                    928
                                                              --------------------  ---------------------
            Total real estate loans                                         35,827                 39,328
                                                              --------------------  ---------------------

        Consumer loans:
         Savings account loans                                                 284                    292
         Home equity lines of credit                                           158                    255
         Other                                                                 509                    643
                                                              --------------------  ---------------------
                                                                               951                  1,190
                                                              --------------------  ---------------------
            Total loans                                                     36,778                 40,518
                                                              --------------------  ---------------------

        Less:
         Undisbursed portion of loans in process                               246                    425
         Net deferred loan fees                                                232                    237
         Allowance for loan losses                                             293                    291
                                                              --------------------  ---------------------
                                                                               771                    953
                                                              --------------------  ---------------------

                                                              $             36,007  $              39,565
                                                              ====================  =====================
</TABLE>

                                       40
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY            Notes to Consolidated Financial Statements, Continued
-------------------------------------------------------------------------------

      The change in the allowance for loan losses is summarized as follows:

<TABLE>
<CAPTION>
                                                                                        Years Ending June 30,
                                                                             -------------------------------------------
                                                                                     1998                   1999
                                                                                     ----                   ----
          <S>                                                                <C>                       <C>
          Beginning balance                                                  $                293      $             293
          Provision charged to income                                                           -                      -
          Charge-offs                                                                           -                     (2)
                                                                             --------------------      -----------------

          Ending balance                                                     $                293      $             291
                                                                             ====================      =================
</TABLE>
      In accordance with SFAS No. 114, Accounting by Creditors for Impairment of
      a Loan, no loans in non-homogenous groups were determined to be impaired
      for the year ended or as of June 30, 1998 and 1999. Commercial and other
      real estate loans are included in the non-homogenous group.

      The loans in homogeneous groups, which are contractually past due ninety
      days or more, and are in non-accrual status, total approximately $827,000
      at June 30, 1998 and $593,000 at June 30, 1999. The amount the Bank will
      ultimately realize from these loans could differ materially from their
      carrying value because of unanticipated future developments affecting the
      underlying collateral or the borrower's ability to repay the loans. If
      collection efforts are unsuccessful, these loans will be subject to
      foreclosure proceedings in the ordinary course of business. Management
      believes that the Bank has adequate collateral on these loans and that the
      Bank will not incur material losses in the event of foreclosure.
      Approximately $74,000 and $86,000 of interest is reserved on these loans
      at June 30, 1998 and 1999, respectively.

4.    Mortgage-Backed Securities
      --------------------------

      The summary of mortgage-backed securities is as follows:

<TABLE>
<CAPTION>
                                                                                             Amortized
                                                                                                Cost
                                                                                                ----
<S>                                                                                          <C>
       Held to maturity:
        June 30, 1998:
          FHLMC Certificates                                                                 $        24
          GNMA Certificates                                                                           11
                                                                                             -----------

                                                                                             $        35
                                                                                             ===========
</TABLE>

                                                                     (continued)

                                       41
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY            Notes to Consolidated Financial Statements, Continued
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                  Amortized
                                                                                                     Cost
                                                                                                     ----
<S>                                                                                          <C>
       Held to maturity:
        June 30, 1999:
          FHLMC Certificates                                                                 $           17
          GNMA Certificates                                                                               7
                                                                                             --------------

                                                                                             $           24
                                                                                             ==============
</TABLE>

      At June 30, 1998 and 1999, the amortized cost approximates estimated
      market value.

      Although mortgage-backed securities are initially issued with a stated
      maturity date, the underlying mortgage collateral may be prepaid by the
      mortgagee and, therefore, such securities may not reach their maturity
      date.

      The Company had no sales of mortgage-backed securities during the fiscal
      years 1998 and 1999. Mortgage-backed securities were not pledged at June
      30, 1998 and 1999.

5.    Real Estate
      -----------

      Real estate is summarized as follows:

<TABLE>
<CAPTION>
                                                                                    June 30,
                                                                      --------------------------------------
                                                                            1998                   1999
                                                                            ----                   ----
<S>                                                                   <C>                    <C>
          Real estate acquired in settlement of loans                 $            71        $           121
                                                                      ===============        ===============
</TABLE>

6.    Interest Receivable
      -------------------

      Interest receivable is summarized as follows:

<TABLE>
<CAPTION>
                                                                                    June 30,
                                                                        --------------------------------
                                                                            1998                1999
                                                                            ----                ----
<S>                                                                     <C>                <C>
          Loans receivable                                              $        345       $         374
          Investment securities                                                   25                  49
          Interest earning deposits                                                5                   1
          Allowance for uncollected interest                                     (74)                (86)
                                                                        ------------       -------------

                                                                        $        301       $         338
                                                                        ============       =============
</TABLE>

                                       42
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY            Notes to Consolidated Financial Statements, Continued
-------------------------------------------------------------------------------
7.    Premises and Equipment
      ----------------------

      Premises and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                                                   June 30,
                                                                      --------------------------------
                                                                           1998              1999
                                                                           ----              ----
<S>                                                                   <C>               <C>
        Land                                                          $          53     $           53
        Building and improvements                                               423                425
        Furniture, fixtures and equipment                                       345                359
                                                                      -------------     --------------
                                                                                821                837
        Less accumulated depreciation                                           274                336
                                                                      -------------     --------------

                                                                      $         547     $          501
                                                                      =============     ==============
</TABLE>

      Depreciation expense for 1998 and 1999 was $54,000 and $62,000,
      respectively.

8.    Deposits
      --------

      Deposit account balances are summarized as follows:

<TABLE>
<CAPTION>
                                                                                             Weighted Average
                                                            June 30,                          Interest Rates
                                              -----------------------------------       --------------------------
                                                    1998               1999                   1998          1999
                                                    ----               ----                   ----          ----
<S>                                           <C>                <C>                    <C>                 <C>
          Non-interest bearing                $            863   $            451                  -%            -%
          NOW accounts                                   1,043                958               1.43%         1.05%
          Money market accounts                          3,282              3,288               2.75%         2.30%
          Passbook accounts                              3,248              3,146               2.16%         1.71%
          Certificates of deposit                       29,739             28,172               5.51%         5.04%
          Deposit premium                                 (178)              (151)                 -%            -%
                                              ----------------   ----------------

                                              $         37,997   $         35,864               4.75%         4.33%
                                              ================   ================
</TABLE>

      The aggregate amount of deposits with a minimum denomination of $100,000
      is approximately $12,647,000 and $11,533,000 at June 30, 1998 and 1999,
      respectively.

                                       43
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY            Notes to consolidated Financial Statements, Continued
-------------------------------------------------------------------------------

   Contractual maturities of certificate accounts are summarized as follows:

<TABLE>
<CAPTION>
                                                                                         June 30,
                                                                        --------------------------------------
                                                                                1998                 1999
                                                                                ----                 ----
<S>                                                                     <C>                   <C>
 12 months or less                                                      $         25,384      $         25,737
 1-2 years                                                                         3,812                 1,948
 2-3 years                                                                           543                   387
 3-4 years                                                                             -                   100
                                                                        ----------------      ----------------

                                                                        $         29,739      $         28,172
                                                                        ================      ================

   Interest expense on deposits is summarized as follows:

                                                                                         June 30,
                                                                        --------------------------------------
                                                                                1998                 1999
                                                                                ----                 ----

 Passbook savings                                                       $             65      $             63
 Money market and NOW                                                                108                    95
 Certificates of deposit                                                           1,515                 1,479
 Amortization of deposit premium                                                      27                    27
                                                                        ----------------      ----------------

                                                                        $          1,715      $          1,664
                                                                        ================      ================
</TABLE>

9. Income Taxes
   ------------

   The components of income tax expense are summarized as follows:

<TABLE>
<CAPTION>
                                                                     Federal             State              Total
                                                                ----------------   ----------------   ----------------
<S>                                                             <C>                <C>                <C>
     1998
     ----
       Current                                                  $            239   $             17   $            256
       Deferred                                                                5                  1                  6
                                                                ----------------   ----------------   ----------------

                                                                $            244   $             18   $            262
                                                                ================   ================   ================
     1999
     ----
       Current                                                  $            260   $             34   $            294
       Deferred                                                              (14)                (3)               (17)
                                                                ----------------   ----------------   ----------------

                                                                $            246   $             31   $            277
                                                                ================   ================   ================
</TABLE>

                                       44
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY             Notes to Consolidated Financial Statements, Continued
--------------------------------------------------------------------------------

   The differences between actual income tax expense and the amount computed by
   applying the federal statutory income tax rate of 34% to income before income
   taxes are reconciled as follows:

<TABLE>
<CAPTION>
                                                            Years Ending June 30,
                                                         -------------------------
                                                              1998        1999
                                                              ----        ----
 <S>                                                     <C>          <C>
 Computed income tax expense                             $     228    $     238
 Increase (decrease) resulting from:
  State income tax, net of
   federal benefit                                              12           21
  Non-deductible expenses                                       25           16
  Other                                                         (3)           2
                                                         ---------    ---------

     Actual income tax expense                           $     262    $     277
                                                         =========    =========
</TABLE>

   The components of the net deferred tax liability are as follows:

<TABLE>
<CAPTION>
                                                                      June 30,
                                                         --------------------------------
                                                             1998                  1999
                                                             ----                  ----
 <S>                                                     <C>                    <C>
 Deferred tax liabilities:
  Accrued income                                         $     127              $     137
  FHLB stock dividends                                          67                     67
  Section 481(a) adjustment - bad debt reserve                  34                     17
  Unrealized gain on equity securities                           -                      3
  Other                                                         64                     36
                                                         ---------              ---------
                                                               292                    260
                                                         ---------              ---------
 Deferred tax assets:
  Bad debt reserves                                            113                    112
  Loan origination fees                                         51                     53
  Other                                                          4                      5
                                                         ---------              ---------
                                                               168                    170
                                                         ---------              ---------

     Net deferred tax liability                          $     124              $      90
                                                         =========              =========
</TABLE>

   The Bank's annual addition to its reserves for bad debts allowed under the
   Internal Revenue Code may differ significantly from the bad debt experience
   used for financial statement purposes. Such bad debt deductions for income
   tax purposes are included in taxable income of later years only if the bad
   debt reserves are used for purposes other than to absorb bad debt losses.
   Since the Bank does not intend to use the reserves for purposes other than to
   absorb losses, no deferred income taxes have been provided on the amount of
   bad debt reserves for tax purposes that arose in tax years beginning before
   December 31, 1987, in accordance with SFAS No. 109. Therefore, retained
   earnings at June 30, 1998 and 1999, includes

                                      45
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY             Notes to Consolidated Financial Statements, Continued
--------------------------------------------------------------------------------

    approximately $842,000, representing such bad debt deductions for which no
    deferred income taxes have been provided.

    In 1997, the Bank began to recapture into taxable income its post-1987
    excess thrift bad debt reserves over a six year period. The remaining amount
    of the post-1987 excess is approximately $66,000. Since the tax effect of
    this excess had been previously recorded as deferred income taxes, the Bank
    will have no material impact on its results of operations as a result of the
    recapture of the excess reserves.

10. Profit Sharing and Employee Savings Plan
    ----------------------------------------

    The Company has established a qualifying non-contributory profit sharing
    plan covering substantially all employees who have completed six months of
    service and have attained the age of twenty-one. All employer contributions,
    as determined by the Board of Directors, are irrevocable and the Company has
    reserved the right of amendment and termination of the Plan. Contributions
    to the Plan were approximately $21,000 and $20,000 for the years ended 1998
    and 1999, respectively.

    The Company also sponsors an employee savings plan under Section 401(k) of
    the Internal Revenue Code. This plan covers substantially all full-time
    employees who have completed six months of service and have attained the age
    of twenty-one. Employees may contribute a percentage of their annual gross
    salary as limited by the federal tax laws. The Company can match employee
    contributions based on the plan guidelines. No contributions were made by
    the Company for the years ended June 30, 1998 and 1999.

11. Regulatory Matters
    ------------------

    The Bank is subject to various regulatory capital requirements administered
    by the Office of Thrift Supervision (OTS). Failure to meet minimum capital
    requirements can initiate certain mandatory, and possibly additional
    discretionary, actions by regulators that, if undertaken, could have a
    direct material effect on the 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 Tier I and total capital (as defined in the regulations) to
    adjusted total or risk-weighted assets (as defined). Management believes, as
    of June 30, 1999, that the Bank meets all capital adequacy

                                      46
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY             Notes to Consolidated Financial Statements, Continued
--------------------------------------------------------------------------------

   requirements to which it is subject. As of June 30, 1999, the most recent
   notification from the OTS categorized the Bank as well capitalized under the
   regulatory framework for prompt corrective action. To be categorized as well
   capitalized the Bank must maintain minimum Tier I and total ratios as set
   forth in the table. There are no conditions or events since that notification
   that management believes have changed the institution's category.

   The Bank's actual capital amounts (in thousands) and ratios are also
   presented in the table. No adjustments to capital for interest-rate risk have
   been required.

<TABLE>
<CAPTION>
                                                                                  To Be Well
                                                                              Capitalized Under
                                                           For Capital        Prompt Corrective
                                         Actual         Adequacy Purposes     Action Provisions
                                     ---------------    -----------------     -----------------
                                     Amount   Ratio      Amount     Ratio      Amount     Ratio
                                     ------   -----     -------    ------      ------     -----
<S>                                  <C>      <C>       <C>        <C>        <C>         <C>
 As of June 30, 1998:
  Tier I Capital (to
   adjusted total assets)             $8,277   17.5%       $1,891    *4.0%       $2,364    *5.0%

  Tier I Capital (to risk-
   weighted assets)                   $8,277   35.8%       $  924    *4.0%       $1,386    *6.0%

  Total Capital (to risk-
   weighted assets)                   $8,562   37.1%       $1,849    *8.0%       $2,311   *10.0%

 As of June 30, 1999:
  Tier I Capital (to
   adjusted total assets)             $8,004   18.0%       $1,783    *4.0%       $2,228    *5.0%

  Tier I Capital (to risk-
   weighted assets)                   $8,004   32.6%       $  982    *4.0%       $1,474    *6.0%

  Total Capital (to risk-
   weighted assets)                   $8,294   33.8%       $1,965    *8.0%       $2,456   *10.0%

</TABLE>

* more than or equal to

12. Financial Instruments with Off-Balance-Sheet Risk
    -------------------------------------------------

    The Company is a party to financial instruments with off-balance-sheet risk
    in the normal course of business to meet the financing needs of its
    customers and to reduce its own exposure to fluctuations in interest rates.
    These financial instruments include commitments to extend credit and lines
    of credit. Those instruments involve, to varying degrees, elements of credit
    and interest-rate risk in excess of the amount recognized in the balance
    sheet. The contract or notional amounts of those instruments reflect the
    extent of the Company's involvement in particular classes of financial
    instruments.

    The Company's exposure to credit loss in the event of non-performance by the
    other party to the financial instrument for commitments to extend credit and
    lines of credit is represented by the contractual notional amount of those
    instruments. The Company uses the same credit policies in making commitments
    and conditional obligations as it does for on-balance-sheet instruments.

                                      47
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY             Notes to Consolidated Financial Statements, Continued
--------------------------------------------------------------------------------

   Financial instruments, the contract amounts of which represent credit risk
   for lines of credit, the balances outstanding, and amounts available for use
   at June 30, 1999, were approximately as follows (in thousands):

<TABLE>
<CAPTION>
                                   Financial          Balance       Available
                                  Instruments       Outstanding      For Use
                                  -----------       -----------     ---------
 <S>                              <C>               <C>             <C>
 Home equity and other lines      $      737        $      258      $     479
                                  ===========       ===========      ========
</TABLE>

    Commitments to extend credit are agreements to lend to a customer as long as
    there is no violation of any condition established in the contract.
    Commitments generally have fixed expiration dates or other termination
    clauses and may require payment of a fee. Since many of the commitments are
    expected to expire without being drawn upon, the total commitment amounts do
    not necessarily represent future cash requirements. The Company evaluates
    each customer's creditworthiness. The amount of collateral obtained, if it
    is deemed necessary by the Company upon extension of credit, is based on
    management's credit evaluation of the counterparty. Collateral may include
    one to four family residences and non-residential properties. The Company
    does not expect any significant losses as a result of the transactions.

    The Company had outstanding commitments to originate mortgage loans of
    approximately $42,000 and $637,000 at June 30, 1998 and 1999, respectively.
    The commitments to originate mortgage loans at June 30, 1998, were composed
    of fixed rate loans having interest rates ranging from 6.875% to 7.25% and
    terms ranging from five to 30 years. The commitments to originate mortgage
    loans at June 30, 1999, were composed of fixed rate loans having interest
    rates ranging from 6.50% to 9.00% and terms ranging from three to 30 years.

13. Employee Stock Ownership Plan (ESOP)
    ------------------------------------

    The Bank has established for eligible employees an Employee Stock Ownership
    Plan ("ESOP"). The Bank is expected to make scheduled cash contributions to
    the ESOP sufficient to service the amount borrowed from the Holding Company.
    The unpaid balance of the ESOP loan has been eliminated in consolidation and
    the unamortized balance of unearned compensation is shown as a reduction of
    stockholders' equity. For the years ending June 30, 1998 and 1999, the total
    contributions to the ESOP were used to fund principal and interest payments
    on the ESOP debt and totaled approximately $90,000 and $80,000,
    respectively.

    For the years ending June 30, 1998 and 1999, compensation from the ESOP of
    approximately $130,000 and $86,000 was expensed, respectively. Compensation
    is recognized at the average fair value of the ratably released shares
    during the accounting period as the employees performed services. At June
    30, 1999, the ESOP had approximately 29,400 allocated shares and 33,000
    unallocated shares. The fair value of the unallocated shares at June 30,
    1999, was approximately $470,000.

                                      48
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY             Notes to Consolidated Financial Statements, Continued
--------------------------------------------------------------------------------

    The ESOP plan states that dividends on unallocated shares will be used for
    debt service and dividends on allocated shares will be distributed to the
    Plan participants.

14. Management Recognition and Retention Plan
    -----------------------------------------

    The Company's 1994 management recognition and retention plan ("MRP")
    reserved 31,211 shares of common stock for issuance. The shares were
    reserved for certain employees, officers, and directors of the Company and
    the initial grants began vesting on December 13, 1995, and will be fully
    vested by December 13, 1999. The number of shares granted to directors under
    the Plan is currently 7,803, and to certain officers and employees is
    14,594. Compensation expense in the amount of the fair value of the common
    stock at the date of grant will be recognized during the periods the
    participants become vested. The unamortized balance of unearned compensation
    is reflected as a reduction of stockholders' equity. For the years ended
    June 30, 1998 and 1999, approximately $93,000 and $79,000 has been
    recognized as compensation expense, respectively.

15. Stock Option Plans
    ------------------

    The Company's 1994 stock option plan provided for incentive options for
    officers and employees and non-incentive options for directors. The option
    exercise price cannot be less than the fair value of the underlying common
    stock as the date of the option grant, and the maximum option term cannot
    exceed ten years.

    A summary of the status of the Company's stock option plans as of June 30,
    1998 and 1999, and changes during the years then ended is presented below:

<TABLE>
<CAPTION>
                                                 1998                                1999
                                       -----------------------------      --------------------------------
                                                         Weighted                            Weighted
                                                          Average                             Average
                                                         Exercise                            Exercise
                                       Shares              Price          Shares               Price
                                       ------              -----          ------               -----
<S>                                    <C>               <C>              <C>                <C>
 Outstanding at
  beginning of year                      52,113            13.61            51,753              $13.61
 Granted                                      -                -                 -              $    -
 Exercised                                 (360)           13.50              (480)             $13.50
 Forfeited/cancelled                          -                -              (120)             $13.50
                                         ------                             ------
 Options outstanding at
  end of year                            51,753            13.61            51,153              $13.61
                                         ======                             ======

 Options exercisable at
  end of year                            29,347            13.54            39,170              $13.56
</TABLE>

                                      49
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY             Notes to Consolidated Financial Statements, Continued
--------------------------------------------------------------------------------

    At June 30, 1999, the outstanding options had a remaining weighted average
    contractual life of 5.6 years. The exercise price of outstanding options
    ranges from $13.50 to $15.00.

    Upon adoption of Statement of Financial Accounting Standards No. 123,
    "Accounting for Stock-Based Compensation" (SFAS No. 123), the Bank elected
    to continue measuring compensation cost using APB Opinion No. 25,
    "Accounting for Stock Issued to Employees." The Bank made no grants of stock
    options during the years ended June 30, 1998 and 1999, and therefore no
    proforma disclosures are required as prescribed by SFAS No. 123.

16. Stockholders' Equity
    --------------------

    At the time of its conversion to a stock savings bank, the Bank established
    a liquidation account in an amount equal to its total retained earnings as
    of June 30, 1994. The liquidation account will be maintained for the benefit
    of eligible account holders who continue to maintain their accounts at the
    Bank after the conversion. The liquidation account will be reduced annually
    to the extent that eligible account holders reduce their qualifying
    deposits. Subsequent increases will not restore an eligible account holder's
    interest in the liquidation account. In the event of a complete liquidation,
    each eligible account holder will be entitled to receive a distribution from
    the liquidation account in an amount proportionate to the current adjusted
    qualified balances for accounts then held.

    Subsequent to the conversion, the Bank may not declare or pay cash dividends
    on or repurchase any of its shares of common stock, if the effect would
    cause stockholders' equity to be reduced below the amount required for the
    liquidation account, applicable regulatory capital maintenance requirements,
    or if such declaration and payment would otherwise violate regulatory
    requirements.

    Unlike the Bank, the Holding Company is not subject to these regulatory
    restrictions on payment of dividends to its stockholders. However, the
    source of future dividends may be dependent upon dividends from the Bank.

                                      50
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY             Notes to Consolidated Financial Statements, Continued
--------------------------------------------------------------------------------

17. Financial Instruments
    ---------------------

   The approximate stated and estimated fair value of financial instruments are
   summarized below (in thousands):

<TABLE>
<CAPTION>
                                                                                June 30
                                                 -------------------------------------------------------------------
                                                              1998                                1999
                                                 -------------------------------        ----------------------------
                                                     Stated         Estimated              Stated       Estimated
                                                     Amount         Fair Value             Amount       Fair Value
                                                     ------         ----------             ------       ----------
<S>                                              <C>                <C>                 <C>             <C>
Financial assets:
  Cash and interest earning deposits             $     8,678        $   8,678           $    1,704       $    1,704
  Investment securities                                1,902            1,918                2,753            2,729
  Loans receivable, net                               36,007           36,595               39,565           38,989
  Mortgage-backed securities                              35               35                   24               24
  Federal Home Loan Bank stock                           321              321                  330              330
  Interest receivable                                    301              301                  338              338
                                                 -----------        ---------           ----------       ----------

                                                 $    47,244        $  47,848           $   44,714       $   44,114
                                                 ===========        =========           ==========       ==========
 Financial liabilities:
  Deposits                                       $   $37,997        $  37,658           $   35,864       $   35,808
  Other liabilities                                      399              399                  347              347
                                                 -----------        ---------           ----------       ----------

                                                 $    38,396        $  38,057           $   36,211       $   36,155
                                                 ===========        =========           ==========       ==========
</TABLE>

   The Company had off-balance sheet financial commitments, which include
   approximately $1.1 million of commitments to originate and fund loans and
   lines of credit. Since these commitments are based on current market rates,
   the commitment amount is considered to be a reasonable estimate of fair
   market value.

   Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
   Value of Financial Instruments" (SFAS 107), requires disclosure of fair value
   information about financial instruments, whether or not recognized in the
   balance sheet, for which it is practicable to estimate that value. The
   following methods and assumptions were used by the Company in estimating its
   fair value disclosures for financial instruments:

   Cash - The carrying amount of such instruments is deemed to be a reasonable
   ----
   estimate of fair value.

   Loans - Fair values for loans held for investment are estimated by
   -----
   segregating the portfolio by type of loan and discounting scheduled cash
   flows using interest rates currently being offered for loans with similar
   terms, reduced by an estimate of credit losses inherent in the portfolio. A
   prepayment assumption is used as an estimate of the portion of loans that
   will be repaid prior to their scheduled maturity.

                                      51
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY             Notes to Consolidated Financial Statements, Continued
--------------------------------------------------------------------------------

    Federal Home Loan Bank Stock - No ready market exists for this stock and it
    ----------------------------
    has no quoted market value. However, redemption of this stock has
    historically been at par value. Accordingly, the carrying amount is deemed
    to be a reasonable estimate of fair value.

    Deposits - The fair values disclosed for demand deposits are, as required by
    --------
    SFAS 107, equal to the amounts payable on demand at the reporting date
    (i.e., their stated amounts). The fair value of certificates of deposit are
    estimated by discounting the amounts payable at the certificate rates using
    the rates currently offered for deposits of similar remaining maturities.

    Other Assets and Other Liabilities - Other assets represent accrued interest
    ----------------------------------
    receivable; other liabilities represent advances from borrowers for taxes
    and insurance and accrued interest payable. Since these financial
    instruments will typically be received or paid within three months, the
    carrying amounts of such instruments are deemed to be a reasonable estimate
    of fair value.

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

    Fair value estimates are based on existing on and off-balance sheet
    financial instruments without attempting to estimate the value of
    anticipated future business and the value of assets and liabilities that are
    not considered financial instruments. For example, the Company has
    significant assets and liabilities that are not considered financial assets
    or liabilities including deposit franchise value, real estate, deferred tax
    liabilities, and premises and equipment.

18. Employment and Severance Agreements
    -----------------------------------

    The Bank and the Holding Company entered into employment and severance
    agreements with certain key officers. The employment and severance
    agreements provide for up to three-year terms. Commencing on the first
    anniversary date and continuing each anniversary date thereafter, the
    respective boards of directors may extend the agreements for an additional
    year so that the remaining terms shall be up to three years. The agreements
    provide for severance

                                      52
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY             Notes to Consolidated Financial Statements, Continued
--------------------------------------------------------------------------------

    payments and other benefits in the event of involuntary termination of
    employment in connection with any change in control of the employers.
    Severance payments also will be provided on a similar basis in connection
    with voluntary termination of employment where, subsequent to a change in
    control, officers are assigned duties inconsistent with their positions,
    duties, responsibilities and status immediately prior to such change in
    control. The severance payments will equal up to 2.99 times the executive
    officer's average annual compensation during the preceding three to five
    years for certain officers. The employment agreement provides for
    termination by the Bank or the Holding Company for just cause at any time.
    At June 30, 1998 and 1999, the Company has not accrued any benefits for
    these post-employment agreements.

19. Condensed Parent Company Only Financial Statements
    --------------------------------------------------

    The following condensed balance sheets as of June 30, 1998 and 1999, and
    condensed statements of income and cash flows for the years ending June 30,
    1998 and 1999 for the Holding Company should be read in conjunction with the
    consolidated financial statements and the notes thereto.

<TABLE>
<CAPTION>
      Parent Company Only                                                      June 30,
                                                                    -----------------------------
      Balance Sheets (in thousands)                                  1998                    1999
      ----------------------------                                   ----                    ----
      <S>                                                           <C>                      <C>
      Assets:
       Interest earning deposits                                      $  190                 $  241
       Investment securities (market value of $448 in
        1998 and $563 in 1999)                                           447                    570
       Loans receivable from ESOP                                        393                    335
       Equity in wholly owned subsidiary                               8,559                  8,043
       Other                                                              18                     39
                                                                      ------                 ------

         Total assets                                                 $9,607                 $9,228
                                                                      ======                 ======

      Liabilities:
       Accrued dividends                                              $  186                 $  184
       Accrued expenses                                                    7                      4
       Deferred income taxes                                               -                      3
                                                                      ------                 ------
         Total liabilities                                               193                    191
                                                                      ------                 ------

      Stockholders' equity                                             9,414                  9,037
                                                                      ------                 ------

         Total liabilities and stockholders' equity                   $9,607                 $9,228
                                                                      ======                 ======
</TABLE>

                                      53
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY             Notes to Consolidated Financial Statements, Continued
--------------------------------------------------------------------------------

  The bank subsidiary paid the parent company cash dividends of $2,550,000 and
  $1,155,000 during the year ended June 30, 1998 and 1999, respectively.

<TABLE>
<CAPTION>
    Parent Company Only                                             Years Ending June 30,
                                                                ----------------------------------
    Statements of Income (in thousands)                            1998                    1999
    -----------------------------------                            ----                    ----
    <S>                                                         <C>                        <C>
     Dividends from bank subsidiary                                $ 2,550                  $1,155
     Interest income                                                    53                      35
     Other                                                               9                       1
                                                                   -------                  ------
         Total interest and dividends                                2,612                   1,191

     Non-interest expenses                                             (72)                   (105)
                                                                   -------                  ------

     Income before income taxes and equity in
      undistributed net income of bank subsidiary                    2,540                   1,086

     Dividends from bank subsidiary in excess of
      current year net income                                       (2,136)                   (680)
     Income tax benefit                                                  4                      17
                                                                   -------                  ------

         Net income                                                $   408                  $  423
                                                                   =======                  ======

    <CAPTION>
    Parent Company Only                                                 Years Ending June 30,
                                                                ----------------------------------
    Statements of Cash Flows (in thousands)                        1998                    1999
    ---------------------------------------                        ----                    ----
    <S>                                                         <C>                        <C>
    Operating activities:
      Net income                                                   $   408                 $   423
      Distributed equity earnings of Bank subsidiary                 1,421                       1
      Accretion of discounts on investment securities                   (1)                      -
      (Increase) decrease in prepaid expenses and
        other assets                                                    15                     (21)
      Increase (decrease) in accrued expenses                            7                      (3)
                                                                   -------                 -------
         Net cash provided by operating activities                   1,850                     400
                                                                   -------                 -------

     Investing activities:
      Proceeds from maturities of investment securities                700                     400
      Purchases of investment securities                              (347)                   (515)
      Repayments of ESOP loan                                           59                      58
      Return of capital from Bank                                      717                     680
                                                                   -------                 -------
         Net cash provided by investing activities                   1,129                     623
                                                                   -------                 -------
</TABLE>


                                                                     (continued)

                                      54
<PAGE>

SOUTH CAROLINA
COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY             Notes to Consolidated Financial Statements, Continued
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
      Parent Company Only                                                    Years Ending June 30,
                                                                      -------------------------------------
      Statements of Cash Flows (in thousands)                            1998                    1999
      ---------------------------------------                            ----                    ----
      <S>                                                             <C>                      <C>
      Financing activities:
        Dividends paid                                                $    (368)               $   (356)
        Proceeds from stock options exercised                                 5                       6
        Acquisition of treasury stock                                    (2,840)                   (622)
                                                                      ---------                --------
           Net cash used by financing activities                         (3,203)                   (972)
                                                                      ---------                --------

      Net increase (decrease) in cash                                      (224)                     51
      Cash at beginning of year                                             414                     190
                                                                      ---------                --------

      Cash at end of year                                             $     190                $    241
                                                                      =========                ========

      Non-cash investing and financing activities:
        Decrease in accrued dividend payable                          $      24                $      2
        Net unrealized gains on available for sale securities,
         net of deferred income taxes                                         -                       5
                                                                      =========                ========
</TABLE>

20. Contingencies and Uncertainties
    -------------------------------

    The Year 2000 issue relates to limitations in computer systems and
    applications that may prevent proper recognition of the Year 2000. The
    potential effect of the Year 2000 issue on the Company and its business
    partners will not be fully determinable until the Year 2000 and thereafter.
    If Year 2000 modifications are not properly completed either by the Company
    or entities with which the Company conducts business, the Company's income
    and financial condition could be adversely impacted.

21. Subsequent Event
    ----------------

    The Company announced on July 1, 1999, its signing of a definitive agreement
    by which the Company will merge with a savings bank. The completion of the
    transaction is subject to regulatory and shareholder approval of the
    reorganization agreement.

    The pending change in control, when approved and consummated, would result
    in the payment of certain employee severance benefits, the payment of
    employment contract settlements, and the acceleration of certain benefit
    payments from nonqualified retirement plans. At June 30, 1999, the Company
    has not accrued any liabilities with regard to these potential benefit
    payments that would only result upon approval and completion of the merger.

                                      55
<PAGE>

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

     Not applicable.

                                   PART III

Item 9.  Directors and Officers of the Registrant
-------------------------------------------------

     Information included in South Carolina Community Bancshares, Inc.'s Proxy
Statement for its 1999 Annual Meeting of Shareholders is incorporated herein by
reference. Information concerning executive officers of the Company during
fiscal year 1999, who were not also directors of the Company, is provided below.

     Terri C. Robinson, age 40, has been employed by the Savings Bank since 1984
in various capacities, most recently as Bookkeeper, Secretary-Treasurer and
since December 1993, as Chief Financial Officer.

Item 10. Executive Compensation
-------------------------------

     Information included in South Carolina Community Bancshares, Inc.'s Proxy
Statement for its 1999 Annual Meeting of Shareholders is incorporated herein by
reference.

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

     Information included in South Carolina Community Bancshares, Inc.'s Proxy
Statement for its 1999 Annual Meeting of Shareholders is incorporated herein by
reference.

Item 12. Certain Relationships and Related Transactions
-------------------------------------------------------

     Information included in South Carolina Community Bancshares, Inc.'s Proxy
Statement for its 1999 Annual Meeting of Shareholders is incorporated herein by
reference.

                                    PART IV

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

        (a)    The following exhibits are filed as part of this report.

     3.1       Certificate of Incorporation of South Carolina Community
               Bancshares, Inc.*
     3.2       Bylaws of South Carolina Community Bancshares, Inc.*
     4.0       Stock Certificate of South Carolina Community Bancshares, Inc.*

                                       56
<PAGE>

     10.0       Community Federal Savings and Loan Association Employee Stock
                Ownership Plan*
     10.1       South Carolina Community Bancshares, Inc. 1994 Stock Option
                Plan**
     10.2       South Carolina Community Bancshares, Inc. 1994 Recognition and
                Retention Plan**
     10.3       Employment Agreement between the Savings Bank and Alan W.
                Pullen*
     23.0       Consent of Crisp Hughes Evans LLP
     27.0       EDGAR Financial Data Schedule

         (b)    Reports on Form 8-K

                None

*        Incorporated herein by reference into this document from the Exhibits
to Form S-1 Registration Statement, initially filed on March 18, 1994,
Registration No. 33-76676.

**       Incorporated by reference to the Appendix to the Company's Proxy
Statement dated November 8, 1994.

                                       57
<PAGE>

                                  SIGNATURES
                                  ----------

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                      SOUTH CAROLINA COMMUNITY BANCSHARES, INC.


Date:    September 21, 1999           By:   /s/ Alan W. Pullen
                                            -----------------------------------
                                            Alan W. Pullen, President and
                                             Chief Executive Officer


     Pursuant to the requirements of the Securities Exchange of 1934, 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>
<S>                                              <C>
By:  /s/ Alan W. Pullen                          By: /s/ Terri C. Robinson
     ------------------------------------            --------------------------------------------
     Alan W. Pullen, President, Chief                Terri C. Robinson, Secretary-Controller and
      Executive Officer and Director                  Chief Financial Officer
     (Principal Executive Officer)                   (Principal Financial and Accounting Officer)

Date: September 21, 1999                         Date: September 21, 1999


By:  /s/ Quay W. McMaster                        By: /s/ Richard H. Burton
     ------------------------------------            --------------------------------------------
     Quay W. McMaster, Chairman of the Board         Richard H. Burton, Vice Chairman of
                                                      the Board

Date: September 21, 1999                         Date: September 21, 1999


By:  /s/ George R. Lauderdale                    By: /s/ John S. McMeekin
     ------------------------------------            --------------------------------------------
     George R. Lauderdale, Jr., Director             John S. McMeekin, Director

Date: September 21, 1999                         Date: September 21, 1999


By:  /s/ Phillip C. Wilkins
     ------------------------------------
     Phillip C. Wilkins, Director

Date: September 21, 1999
</TABLE>

                                       58