SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                Annual Report Pursuant to Section 13 or 15(d) of
                       The Securities Exchange Act of 1934

                     For fiscal year ended December 31, 2001

                        Commission File Number 000-26995

                           HCSB FINANCIAL CORPORATION*
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             (Exact name of Registrant as specified in its charter)

         South Carolina                                       57-1079444
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(State or other jurisdiction of
incorporation or organization)          (I.R.S. Employer Identification No.)


5201 Broad Street, Loris, South Carolina                            29569
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(Address of principal executive offices)                        (Zip Code)

            Registrant's telephone number, including area code 843/756-6333
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           Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act: None

                     Common Stock, par value $0.01 per share
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                                (Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days. Yes X ___ No__

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

The aggregate market value (computed on the basis of the most recent trades of
which the Registrant was aware) of shares of the Common Stock held by
non-affiliates of the registrant as of March 18, 2002 was $18,496,478. The
market value calculation assumes that all shares beneficially owned by members
of the board of directors of the Registrant are shown owned by "affiliates", a
status which each of the directors individually disclaims.

The number of shares outstanding of the issuer's classes of common stock as of
March 18, 2002, there were 1,002,770 shares of Common Stock.

Transitional Small Business Disclosure Format.  (Check one):  Yes       No   X
                                                                  --         --

                       DOCUMENTS INCORPORATED BY REFERENCE

Company's Proxy Statement for the 2002 Annual Shareholders Meeting - Part III
                         2001 Annual Report - Part II.

*The registrant is a successor issuer, within the meaning of Rule 15d-5 under
the Securities Exchange Act of 1934, to Horry County State Bank, Loris, South
Carolina.

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                                     PART I
Item 1.    Description of Business

         This Report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
the Securities Exchange Act of 1934. These statements are based on many
assumptions and estimates and are not guarantees of future performance. Our
actual results may differ materially from those projected in any forward-looking
statements, as they will depend on many factors about which we are unsure,
including many factors which are beyond our control. The words "may," "would,"
"could," "will," "expect," "anticipate," "believe," "intend," "plan," and
"estimate," as well as similar expressions, are meant to identify such
forward-looking statements. Potential risks and uncertainties include, but are
not limited to:


        o   significant increases in competitive pressure in the banking and
            financial services industries;

        o   changes in the interest rate environment which could reduce
            anticipated or actual margins;

        o   the cost of defending and the risk of loss in connection with
            litigation involving customers of and activities in our trust
            department;

        o   changes in political conditions or the legislative or regulatory
            environment;

        o   general economic conditions, either nationally or regionally
            and especially in primary service area, becoming less favorable than
            expected resulting in, among other things, a deterioration in credit
            quality;

        o   changes occurring in business conditions and inflation;

        o   changes in technology;

        o   changes in monetary and tax policies;

        o   changes in the securities markets; and

        o   other risks and uncertainties detailed from time to time in
            our filings with the Securities and Exchange Commission.

In addition to the other risks identified in this Form 10-KSB and our other SEC
filings from time to time, we face the following risks:

Opening a new branch or establishing a new bank may not result in increased
assets or revenues for us.

         We will use the proceeds of the offering to enhance our capital
 position and to support our proposed growth and expansion, including the
 establishment of two additional branch offices in South Carolina and a new bank
 in North Carolina within the next 18 to 24 months. There is a risk that we will
 not actually experience any further asset growth, open any additional branch
 offices, or establish a new bank; there is also a risk that we will not
 experience any favorable results if such growth or branch expansion occurs or
 if we establish a new bank. We would expect this bank to lose money for at
 least the first one to three years of its existence. Our status as a South
 Carolina corporation may hinder our development of relationships with North
 Carolina customers who are seeking a community bank. Because of the
 significance of our proposed growth and branch expansion, our historical
 results of operations are not necessarily indicative of our future operations.
 The likelihood of our continued success must be considered in light of the
 problems, expenses, complications, and delays frequently


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encountered in connection with the establishment of new branches and new banks
and the competitive environment in which the new branches and new banks will
operate.

We cannot open a new bank or branch for business until we receive regulatory
approvals, and any delay in opening the bank or branch will cause our expenses
to increase.

         We cannot begin to operate a new bank or branch until we receive all
 required regulatory approvals. We filed an application to establish a branch at
 Windy Hill Beach, South Carolina on February 15, 2002. The State Board of
 Financial Institutions approved our application on March 7t,, 2002 and we
 expect to receive FDIC approval in April 2002. We expect to file an application
 to establish a branch in Myrtle Beach and anticipate regulatory approval during
 the second quarter of 2002, although it may take longer. We have not yet filed
 an application to form a new bank in North Carolina, but expect to do so
 provided that we raise at least $9.0 million in this offering. We cannot file
 this application until we have at least $3.0 million of available capital,
 which is one-half of the capital we believe to be sufficient to open the bank.
 Thus, under our current plans, we would have to raise at least $6.5 million in
 this offering before we would file the application. We expect to receive
 permission to operate a North Carolina bank within three months of filing our
 application. If the opening of the bank or branch is delayed, the expenses
 associated with opening that bank or branch will increase and will not be
 offset by any additional operating revenue that would be associated with an
 operational bank or branch.

We cannot form a North Carolina bank until we identify and form an organizing
group and identify an executive to lead the bank.

         Although we are in discussions with prominent members of communities in
 Columbus and Brunswick counties, we have not yet identified members of the
 organizing group for the North Carolina bank that we intend to form. We also
 have not yet identified or hired an executive to lead the bank we intend to
 form. If we fail to assemble an organizing group and hire a suitable executive
 to lead the bank, we will not be able to form the bank.

The loss of or failure to hire additional key personnel could hurt our business.

         Our growth and development to date have been largely the result of the
contributions of certain of our senior executive officers, including James R.
Clarkson, our president and chief executive officer, Glenn R. Bullard, our
executive vice president, and Loretta B. Gerald, our vice president, cashier,
and internal auditor. If we lose the services of Mr. Clarkson, Mr. Bullard, or
Ms. Gerald, our business and development could be materially and adversely
affected. There is a risk we may not find suitable replacements for any of these
officers. In addition, our continued growth will require that we attract and
retain additional personnel with a variety of skills and experience. In our
experience, it can take a significant period of time to identify and hire
personnel with the combination of skills and experience required to carry out
our strategy.

Our common stock may not be worth as much as $22.00 per share.

         The factors that we used to determine the offering price are not
necessarily related to the market value of our common stock. The most
significant factor in our determination of the offering price was the price at
which our stock traded from January 1, 2001 through December 8, 2001 in those
privately negotiated trades of which we are aware. We are aware of only 18
trades involving our common stock during that period. There is a risk that the
prices for these trades do not reflect the value of our common stock. Other
factors that we considered were our stock's historical lack of volatility, our
capital needs, the ratio of the offering price to our book value, and our
offering price to earnings ratio. We estimate that the ratio of the offering
price to our book value per share was approximately 2.13 at December 31, 2001
and that the ratio of our offering price to our earnings per share was between
22.4 and 23.7 at December 31, 2001. We did not consider these factors
separately, but considered all of these factors

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<PAGE>

together as a whole. There is a risk that none of the factors that we considered
may be relevant to, much less determinative of, the present or future market
value of our common stock. Therefore, there is a risk that the market value of
our common stock may be less than $22.00 per share.

We face strong competition for customers, which could prevent us from obtaining
customers and may cause us to pay higher interest rates to attract customers.

         We encounter strong competition from existing banks and other types of
financial institutions operating in Horry County and elsewhere. Some of these
competitors have been in business for a long time and have already established
their customer base and name recognition. Most are larger than we are and have
greater financial and personnel resources than we have. Some are large national
and regional banks, like BB&T, Bank of America, First Union, Wachovia, Carolina
First, and NBSC. These institutions have an advantage in obtaining the latest
developments in technology, and they offer services, such as extensive and
established branch networks, trust services, and internet banking, that we do
not provide. Due to this competition, we may have to pay higher rates of
interest to attract deposits. In addition, competitors that are not depository
institutions are generally not subject to the extensive regulations that apply
to our bank.

An economic downturn, especially one affecting Horry County, South Carolina,
could reduce our customer base, our level of deposits, and the demand for our
financial products such as loans.

          An economic downturn would likely a deterioration in the quality of
our loan portfolio and may reduce the level of deposits in the bank. This would
hurt our business. Interest received on loans represented approximately 83% of
our interest income for the year ended December 31, 2000. If an economic
downturn occurs in the economy as a whole, or in our service area, borrowers may
be less likely to repay their loans as scheduled. Moreover, the value of real
estate or other collateral that may secure our loans could be adversely
affected. It appears to us that the terrorist attacks that occurred in New York
City and Washington, D.C. on September 11, 2001, and the United States'
subsequent response to these events have resulted in a general economic slowdown
that may adversely affect our banking business. This slowdown seems to have
especially affected the tourism and recreation sectors of the economy, which
have particular significance to the economy of Horry County. We intend to
closely monitor the effect of these events upon our business, and make
adjustments to our business strategy as we deem necessary.

Recent legislation will change the way financial institutions conduct their
business, and we cannot predict the effect it will have upon us.

          The Gramm-Leach-Bliley Act was signed into law on November 12, 1999.
Among other things, the Act repeals restrictions on banks affiliating with
securities firms. It also permits bank holding companies that become financial
holding companies to engage in additional financial activities, including
insurance and securities underwriting and agency activities, merchant banking,
and insurance company portfolio investment activities. The Act is intended, in
part, to grant to community banks certain powers as a matter of right that
larger institutions have accumulated on an ad hoc basis. Nevertheless, the Act
may have the result of increasing the competition we face from larger banks and
other companies, especially as we seek to expand our current service area by
opening new branches and establishing a state-chartered bank in North Carolina.
It is not possible to predict the full effect that the Act will have on us. In
addition, we expect other changes to be proposed to laws affecting the banking
industry from time to time, and these changes could have a material effect on
our business and prospects. We cannot predict the nature or the extent of the
effect on our business and earnings of future fiscal or monetary policies,
economic controls, or new federal or state legislation.

Our stock is not traded on an established exchange.

          Prior to this offering, there has been no established or other active
or liquid market for our

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common stock. We do not expect an active trading market for our common stock to
develop for several years, if at all. A public market having depth and liquidity
depends on having enough buyers and sellers at any given time. Because of the
relatively small size of both this offering and our shareholder base, we do not
expect to have enough shareholders or outstanding shares to support an active
trading market. Accordingly, investors should consider the potential lack of
liquidity of an investment in our common stock and be prepared to hold our stock
for an indefinite period of time.

Our stock price may fluctuate and be volatile.

          The prices at which our stock has traded may not be indicative of
future market prices. As a result, the trading price of our common stock could
fluctuate significantly, especially in light of the illiquid market for our
common stock. Volatility in our stock price could also result from the following
factors, among others:


         o    variations in quarterly operating results;
         o    announcements of technological innovations or new services or
              products by us or our competitors;
         o    a large number of shares being bought or sold;
         o    changes in financial estimates by securities analysts;
         o    the operating and stock price performance of other companies in
              our industry; and
         o    general stock market or economic conditions.

          The stock market in recent years has experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of affected companies. We cannot guarantee that investors
will be able to sell their shares at or above our offering price or at all.


General Overview

         HCSB Financial Corporation was incorporated as a South Carolina
corporation on June 10, 1999 to serve as the holding company for Horry County
State Bank. The bank commenced operations on January 4, 1988. The bank is a
state-chartered commercial bank operating from eight offices located in Horry
County and servicing Horry County in South Carolina and Columbus County in North
Carolina. We have added five of our eight offices after 1996. As a result of
this expansion, we have grown from approximately $49.4 million in total assets,
$35.6 million in loans, $42.9 million in deposits, and $5.5 million in
shareholders' equity at December 31, 1996, to approximately $155.6 million in
total assets, $110.9 million in loans, $129.5 million in deposits, and $10.7
million in shareholders' equity at September 30, 2001. We offer a full range of
deposit services for individuals and businesses. Deposit products include
checking accounts, savings accounts, certificates of deposit, money market
accounts, and IRAs.

Operating and Growth Strategy

         Our goal is to be the leading community bank in our market area. We
intend to achieve this goal chiefly by providing personalized service to our
customers. Other strategies that we will use to support our goal are hiring,
developing, and retaining high caliber and motivated employees, focusing each of
our branches on the unique needs and cultures of the community in which it is
located, maintaining high asset quality, increasing asset size through internal
growth and branch expansion, and offering our customers a breadth of products
competitive with those offered by much larger institutions. These goals are
intended to build long-term shareholder value.

         o  Personalized Service. We view banking as a service industry in which
            personal relationships can provide a competitive advantage. This
            paradigm is captured in our marketing tagline "It's the little
            things that make a little bank . . . BIG!" We strive to be "BIG"
            (important) to our


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            customers by doing "little" things like identifying our customers'
            needs and promoting products to satisfy them, knowing our customers
            by name, and providing our products with superior levels of quality
            and service. We seek customers who prefer to conduct business with a
            locally owned and managed bank that demonstrates an active interest
            in their business and personal financial affairs. We believe that by
            consistently providing high levels of service to customers who value
            that service, we develop and strengthen relationships that provide a
            competitive advantage.

         o  Motivated Employees. We believe that the key to our success lies
            with our employees, because it is through our employees that we are
            able to provide our customers with the high level of service and
            attention that they expect and deserve. To this end, we hire people
            who are familiar with their community and are committed to providing
            a superior level of banking service to our customers. By selecting
            only knowledgeable and committed employees, we believe we can
            provide an unsurpassed level of customer service and satisfaction.
            We strive to develop, sustain the motivation of, and retain our
            employees through training, personal attention, recognition, and
            competitive compensation. We encourage and equip each employee to
            focus on the individual needs of our customers and to deliver the
            specific products and services that will best help these customers
            achieve their financial goals.

         o  Community Focus. We approach banking with a community focus,
            particularly at the branch level. We operate each branch as an
            independent business unit and encourage our branch managers to
            promote those products that best meet the need of their customer
            base. This strategy enables our branches to serve diverse
            populations and economies effectively. We support our branches by
            supporting the economic development of our communities and by
            encouraging our employees to be active in community affairs. We have
            located our existing offices, and plan to locate proposed offices,
            in communities in which we believe we can develop strong
            relationships. We favor growth areas and areas in which there are
            opportunities to differentiate ourselves by providing customers with
            superior service.

         o  High Asset Quality. We place a great deal of emphasis on maintaining
            high asset quality and believe that the outstanding asset quality
            experienced to date is principally due to the closeness of our
            lenders, senior officers, and directors to our customers and their
            significant knowledge of the communities in which they reside. Since
            December 31, 1996 through September 30, 2001, we have had an average
            net charge- off ratio of 0.20%. We intend to continue to emphasize
            high asset quality.

         o  Internal Growth, Branch Expansion. We have grown significantly since
            December 31, 1996. We intend to use the proceeds of this offering to
            support our continued growth, including funding additional loans,
            the opening two additional branch offices in our South Carolina
            service area, establishing a new bank in our North Carolina service
            area, or some combination thereof during the next 18 to 24 months.
            Although growth through branch expansion is generally less expensive
            than growth by opening a new bank, North Carolina and federal law
            prohibits us from establishing branches in North Carolina without
            first establishing or acquiring a bank in North Carolina. Therefore,
            in order to grow by enhancing our presence in North Carolina, we
            will need to acquire an existing North Carolina bank or to open a
            new bank. Because we have found no suitable acquisition candidates
            and because we believe we can provide better service to our North
            Carolina customers through a new bank, we currently intend to expand
            into North Carolina by forming rather than acquiring a North
            Carolina bank. Following the offering, we will continue to focus on
            acquiring market share, particularly from large Southeastern
            regional bank holding companies, by emphasizing our local management
            and decision-making and personal services.

         o  Broad Range of Products and Services. We strive to provide our
            customers with the breadth of products and services comparable to a
            regional bank, while maintaining the quick response and personal
            service of a locally owned and managed bank. In addition to offering
            a full range of deposit services and commercial and personal loans,
            we offer products such as mortgage loan originations, accounts
            receivable financing, and investment products and brokerage services
            through a third party arrangement.


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Marketing Strategy

         Most of the banks in Horry County in South Carolina and Brunswick and
Columbus counties in North Carolina are now local branches of large regional
banks. Although size gives the larger banks certain advantages in competing for
business from large corporations, including higher lending limits and the
ability to offer services in other areas of South Carolina and Horry County in
South Carolina and Brunswick and Columbus counties in North Carolina, we believe
that there is a void in the community banking market in Brunswick and Columbus
counties in North Carolina which we can successfully fill by forming a new bank.
We also believe that the Horry County market will continue to grow, particularly
along the Atlantic coast. We intend to continue to expand our branch network to
take advantage of opportunities caused by this growth. We generally do not
attempt to compete for the banking relationships of large corporations, but
concentrate our efforts on small- to medium-sized businesses and on individuals.

Banking Services

         We offer a full range of deposit services that are typically available
in most banks and savings and loan associations, including checking accounts,
NOW accounts, savings accounts, and other time deposits of various types,
ranging from daily money market accounts to longer-term certificates of deposit.
The transaction accounts and time certificates are tailored to our principal
market area at rates competitive to those offered in our market area. In
addition, we offer certain retirement account services, such as Individual
Retirement Accounts (IRAs). All deposit accounts are insured by the FDIC up to
the maximum amount allowed by law (generally, $100,000 per depositor, subject to
aggregation rules). We solicit these accounts from individuals, businesses,
associations and organizations, and governmental authorities.

Lending Activities

         General. We emphasize a range of lending services, including real
estate, commercial, agricultural and consumer loans, to individuals and small to
medium-sized businesses and professional concerns that are located in or conduct
a substantial portion of their business in our market area. The characteristics
of our loan portfolio and our underwriting procedures, collateral types, risks,
approval process and lending limits are discussed below.

          Real Estate Loans. The primary component of our loan portfolio is real
estate mortgage loans, which make up approximately 35.68% of our loan portfolio.
These loans are secured generally by first or second mortgages on residential or
commercial property. These loans consist of commercial real estate loans,
construction and development loans, and residential real estate loans (but
exclude home equity loans, which are classified as consumer loans).

         Commercial Loans. Approximately 33.49% of our loan portfolio consists
of commercial loans. Commercial loans consist of secured and unsecured loans,
lines of credit, and working capital loans. We make these loans to various types
of businesses. Included in this category are loans to purchase equipment,
finance accounts receivable or inventory, and loans made for working capital
purposes.

         Consumer Loans. Consumer loans make up approximately 18.24% of our loan
portfolio. These are loans made to individuals for personal and household
purposes, such as secured and unsecured installment and term loans, home equity
loans and lines of credit, and revolving lines of credit such as overdraft
protection. Automobiles and small recreational vehicles are pledged as security
for their purchase.

         Agricultural Loans. Approximately 6.82% of our loan portfolio consists
of agricultural loans. These are loans made to individuals and businesses for
agricultural purposes, including loans to finance crop production and livestock
operating expenses, to purchase farm equipment, and to store crops. These


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loans are secured generally by liens on growing crops and farm equipment. Also
included in this category are loans to agri-businesses, which are substantially
similar to commercial loans, as discussed above.

         Construction and Development Loans. The remaining 5.77% of our loan
portfolio is composed of consumer and commercial real estate construction and
commercial development loans. These loans are secured by the real estate for
which construction is planned and, in many cases, by supplementary collateral.

         Underwriting Procedures, Collateral, and Risk. We use our established
credit policies and procedures when underwriting each type of loan. Although
there are minor variances in the characteristics and criteria for each loan
type, which may require additional underwriting procedures, we generally
evaluate borrowers using the following defined criteria:

     o   Character - we evaluate whether the borrower has sound character
         and integrity by examining the borrower's history.
     o   Capital - we evaluate the borrower's overall financial strength, as
         well as the equity investment in the asset being financed.
     o   Collateral - we evaluate whether the collateral is adequate
         from the standpoint of quality, marketability, value and income
         potential.
     o   Capacity - we evaluate the borrower's ability to service the debt.
     o   Conditions - we underwrite the credit in light of the effects of
         external factors, such as economic conditions and industry trends.

         It is our practice to obtain collateral for most loans to help mitigate
the risk associated with lending. We generally limit our loan-to-value ratio to
80%. For example, we obtain a security interest in real estate for loans secured
by real estate, including construction and development loans, and other
commercial loans. For commercial loans, we typically obtain security interests
in equipment and other company assets. For agricultural loans, we typically
obtain a security interest in growing crops, farm equipment, or real estate. For
consumer loans used to purchase vehicles, we obtain appropriate title
documentation. For secured loans that are not associated with real estate, or
for which the mortgaged real estate does not provide an acceptable loan-to-value
ratio, we typically obtain other available collateral such as stocks or savings
accounts.

          Every loan carries a credit risk, simply defined as the potential that
the borrower will not be willing or able to repay the debt. While this risk is
common to all loan types, each type of loan may carry risks that distinguish it
from other loan types. The following paragraphs discuss certain risks that are
associated with each of our loan types.

         Each real estate loans is sensitive to fluctuations in the value of the
real estate that secures that loan. Certain types of real estate loans have
specific risk characteristics that vary according to the type of collateral that
secures the loan, the terms of the loan, and the repayment sources for the loan.
Commercial real estate loans have risk that the primary source of repayment will
be insufficient to service the debt. Construction and development real estate
loans generally carry a higher degree of risk than long term financing of
existing properties. These projects are usually dependent on the completion of
the project on schedule and within cost estimates and on the timely sale of the
property. Inferior or improper construction techniques, changes in economic
conditions during the construction and marketing period, and rising interest
rates which may slow the sale of the property are all risks unique to this type
of loan. Residential mortgage loans, in contrast to commercial real estate
loans, generally have longer terms and may have fixed or adjustable interest
rates.

         Commercial loans primarily have risk that the primary source of
repayment will be insufficient to service the debt. Often this occurs as the
result of changes in economic conditions in the location or industry in which
the borrower operates which impact cash flow or collateral value. Consumer
loans, other than home equity loan products, are generally considered to have
more risk than loans to individuals secured by first or second mortgages on real
estate due to dependence on the borrower's employment status


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as the sole source of repayment. Agricultural loans carry the risk of crop
failure, which adversely impacts both the borrower's ability to repay the loan
and the value of the collateral.

         By following defined underwriting criteria as noted above, we can help
to reduce these risks. Additionally we help to reduce the risk that the
underlying collateral may not be sufficient to pay the outstanding balance by
using appraisals or taking other steps to determine that the value of the
collateral is adequate, and lending amounts based upon lower loan-to-value
ratios. We also control risks by reducing concentration of our loan portfolio in
any one type of loan.

         Loan Approval and Review. Our loan approval policies provide for
various levels of officer lending authority. When the amount of aggregate loans
to a single borrower exceeds that individual officer's lending authority, the
loan request is considered by an officer with a higher lending limit. Any loan
in excess of this lending limit is approved by the directors' loan committee. We
do not make any loans to any of our directors or executive officers unless the
loan is approved by a three-fourth's vote of the board of directors of the bank
and is made on terms not more favorable to such person than would be available
to a person not affiliated with us. Aggregate credit in excess of 10% of the
bank's aggregate capital, surplus, retained earnings, and reserve for loan
losses must be approved by a three-fourth's vote of our bank's board of
directors.

         Lending Limits. Our lending activities are subject to a variety of
lending limits imposed by federal law. While differing limits apply to certain
loan types or borrowers, in general we are subject to a loan-to-one-borrower
limit. These limits increase or decrease as our capital increases or decreases.
Unless we sell participations in loans to other financial institutions, we are
not able to meet all of the lending needs of loan customers requiring aggregate
extensions of credit above these limits.

Other Banking and Related Services

         Other bank services which are in place or planned include cash
management services, safe deposit boxes, travelers checks, direct deposit of
payroll and social security checks, and automatic drafts for various accounts.
We are associated with a shared network of automated teller machines that may be
used by our customers throughout South Carolina and other regions. One of our
non-executive officers is a registered representative of UVEST and effects
transactions in securities and other non-deposit investment products. We also
offer MasterCard and VISA credit card services through a correspondent bank as
an agent for the bank. We continue to seek and evaluate opportunities to offer
additional financial services to our customers.

Location and Service Area

         We engage in a general commercial and retail banking business,
emphasizing the needs of small- to medium-sized businesses, professional
concerns, farmers, and individuals. Our primary service area presently
encompasses the northern portion of Horry County, South Carolina, the Conway
area and the Socastee area of Myrtle Beach, South Carolina as well as the
southern portion of Columbus County, North Carolina, most notably including the
Town of Tabor City and surrounding areas. We have offices located in the
following South Carolina communities: Conway, Green Sea, Little River, Loris,
and Myrtle Beach.

         We intend to continue to expand in Horry County because we believe that
its economy will continue to grow and provide us with a favorable business
climate. Horry County is located on the Atlantic coast of the state of South
Carolina. Loris, South Carolina is located within Horry County. According to
1999 U.S. Census data, the population of Horry County increased by nearly 24%,
from 144,053 in 1990 to an estimated 178,550 in 1999, and is projected to reach
202,500 in 2005 and 225,800 in 2010. According to the 1998 South Carolina
Statistical Abstract, Horry County's per capita income rose 17.6% from $19,626
in 1995 to $23,088 in 1998, while median family income rose 14.8% from $32,500
to $37,300 for


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the same period. The principal component of the economy of Horry County is
vacation, sport, and entertainment tourism, with vital agricultural, small
business, professional services, and industrial sectors. In recent years, both
The Wall Street Journal and Money magazine rated the Grand Strand, which largely
consists of the eastern coastline of Horry County, as one of the nation's top
retirement locations.

         We intend to look for opportunities to branch further in North Myrtle
Beach, Myrtle Beach and the South Strand areas of Surfside Beach, Garden City
Beach and Murrell's Inlet as well as in Carolina Forest. With the additional new
roads in these areas, such as S.C. Hwy. 22 (Conway Bypass) and the Carolina Bays
Parkway, and the construction of several bridges across the Intracoastal
Waterway, these areas are all projected to experience continued growth in
population.

         We intend to expand our market area into Brunswick County, North
Carolina and further develop our market in Columbus County, North Carolina by
forming a North Carolina bank and locating offices in Shalotte and Tabor City.
We believe that the extension of our market into North Carolina is a logical
step for us because of the geographical proximity of Columbus and Brunswick
counties to our current service area, the economic similarities between Columbus
and Brunswick counties and Horry County, and our perception of an opportunity
for a strong community oriented bank with the flexibility to adapt its services
and policies to reflect the needs of the local communities.

         Columbus and Brunswick counties form the northeastern border of Horry
County, which is also the border between North Carolina and South Carolina, from
the Atlantic coastline to the Little Pee Dee River. Through our North Carolina
bank, we would continue to be an avid supporter of the credit services needs of
farmers and agribusiness entities. We would also provide an alternative for
deposit, credit and nondeposit services to small to medium-sized businesses and
families that are often not the primary target market of the large regional and
national banks.

         We have been preparing to expand into North Carolina since 1997, when
we purchased a lot in Tabor City in anticipation of establishing a branch office
as authorized by federal interstate branching legislation (the Reigle-Neal Act)
and action by the North Carolina legislature. The North Carolina legislature
rescinded its action that permitted interstate branching after we had committed
to purchase the lot, which we purchased and continue to own. In addition to
holding the lot, we have continued to maintain our ties to Columbus County
through relationships that we formed and through our branch office located along
the state line adjacent to the corporate limits of Tabor City.

         After 1999, when the North Carolina legislature again failed to permit
interstate branching, we began planning to form or acquire a bank in North
Carolina. We have not been able to locate a suitable bank to acquire. Therefore,
we have held discussions with community leaders in Columbus and Brunswick
counties and North Carolina banking officials regarding the formation of a bank
chartered in North Carolina. North Carolina will not act on our application to
form a state-chartered bank until we have raised at least $3.0 million, which
represents one-half of the capital we believe to be sufficient for its
formation. We intend to form a North Carolina bank upon receiving
approximately $9.0 million in net proceeds from this offering, of which
approximately $6.0 million will be used to capitalize the bank.

         Like that of our current market area, the economy of Brunswick and
Columbus counties consists of a blend of tourism, agriculture, small business,
professional services and industry. Brunswick County, the southernmost county in
North Carolina, is also one of North Carolina's fastest growing areas. Brunswick
County's population is expected to double between 1990 and 2010; having already
grown 43.5% from 1990 to 2000, to 73,143, while North Carolina's population as a
whole grew 21.4%. A vast majority of this increase is due to retirees taking up
residence in Brunswick County. International Paper has unveiled plans for a new
Brunswick County development, Brunswick Forest, which will include 8,035
single-family homes, 1,280 condominiums, and 800 assisted living units.

         As is the case with the Grand Strand area of South Carolina to its
south, tourism and recreation is important to the economy of Brunswick County.
Between 1998 and 1999, spending by out-of-state tourists grew 10.8%. In addition
to tranquil beach communities, Brunswick County also boasts 21 championship


                                       10

<PAGE>

golf courses, including Rivers Edge which was featured in the May 2000 issue of
Golf Magazine. Rivers Edge was also rated one of the top 30 communities in the
South in a recent issue of Living Southern Style Magazine. Fishing is also a
popular past time with six area piers available. Area museums include Coastal
Museum of North Carolina in Ocean Isle Beach and the North Carolina Aquarium.
Another town in Brunswick County, Calabash, the "Seafood Capital of the World,"
has over 22 seafood restaurants and hosts more than one million dinners per
year. Shalotte, where we intend to locate the main office of the North Carolina
bank, is the commercial hub of the South Brunswick Islands area.

         There are approximately 1,700 business establishments in Brunswick
County. The workforce is 24% retail, 19% service, 18% government, and 12%
manufacturing. Some of the largest manufacturers include DuPont, Archer Daniels
Midland Co, and SL Outer Banks.

         Columbus County is North Carolina's third largest county in land area.
As is the case with the inland portions of Horry County, agriculture is the
primary industry in Columbus County. Tobacco, sweet potatoes, corn, soybeans,
and pork are important to the local economy. There are approximately 1,200
nonfarm business establishments in Columbus County, the most significant segment
of which is retail stores. Columbus County also supports paper manufacturing,
with International Paper, which employs approximately 1,100 people, being the
largest industrial operation and employer in the county.

         Despite its agricultural, industrial and retail economy, Columbus
County's rank for economic development has continued to increase. Most recently,
Columbus County ranked the highest of all southeastern North Carolina counties
in a composite made up of factors such as ability to create jobs, ability to
earn adequate income, ability to keep the local labor force employed, ability to
attract income from other regions, and an ability to increase the standard of
living of its residents.

Competition

         The banking business is highly competitive. We compete with other
commercial banks, savings and loan associations, credit unions, and money market
mutual funds operating in our service area and elsewhere. As of June 2001, there
were seventeen commercial banks and three savings banks operating in Horry
County. We believe that our community bank focus, with our emphasis on service
to small businesses, individuals, and professional concerns, gives us an
advantage in this market. Nevertheless, a number of these competitors are well
established in our service area. Most of them have substantially greater
resources and lending limits than the bank and offer certain services, such as
extensive and established branch networks and trust services, that we do not
provide. As a result of these competitive factors, we may have to pay higher
rates of interest to attract deposits.

Employees

As of March 18, 2002, the bank had ninety full-time and two part- time
employees. The company does not have any employees. Neither the company nor the
bank is a party to a collective bargaining agreement, and they consider their
relations with employees to be good.

Competition and Market Area

The bank conducts business in terms substantially the same as a typical
commercial bank, offering a full range of banking services, with the exception
of trust services. Our capitalization allows us to compete effectively in
market. Correspondent banks are used to meet customer credit needs that exceed
the bank's lending limits.

The bank competes in a very competitive market for deposits and loans against
commercial banks, savings and loan and credit unions. Several of the bank's
competitors are headquartered in Horry County. The bank prides itself in
providing prompt, efficient, courteous service and subscribes to the theory that
funds resulting from local depositors should be reinvested in the depositor's
community.


                                       11

<PAGE>

The bank strongly feels that decisions regarding credit and services of a bank
can best be made at a local level and that stability and continuity of
management within a bank without frequent transfers is important to the
financial well-being of its customers.


                           SUPERVISION AND REGULATION

         Both our company and our bank are subject to extensive state and
federal banking laws and regulations which impose specific requirements or
restrictions on and provide for general regulatory oversight of virtually all
aspects of operations. These laws and regulations are generally intended to
protect depositors, not shareholders. The following summary is qualified by
reference to the statutory and regulatory provisions discussed below.
Significant changes to the regulatory structure of the financial services
industry were enacted in 1999 and additional changes have been proposed. From
time to time other changes are proposed to laws and the policies of various
regulatory authorities affecting the Banking industry, and these changes could
have a material effect on our operations, business, and prospects. We cannot
predict the effect that fiscal or monetary policies, economic control, or new
federal or state legislation may have on our business and earnings in the
future.

Gramm-Leach-Bliley Act

          In November 1999, the Gramm-Leach-Bliley Act, previously known as the
Financial Services Modernization Act of 1999, was signed into law. Among other
things, the Act repeals the restrictions on banks affiliating with securities
firms contained in sections 20 and 32 of the Glass-Steagall Act. The Act also
permits bank holding companies to engage in a statutorily provided list of
financial activities, including insurance and securities underwriting and agency
activities, merchant banking, and insurance company portfolio investment
activities. The Act also authorizes activities that are "complementary" to
financial activities. The Act is intended, in part, to grant to community banks
certain powers as a matter of right that larger institutions have accumulated on
an ad hoc basis. Nevertheless, the Act may have the result of increasing the
amount of competition that we face from larger institutions and other types of
companies. In fact, it is not possible to predict the full effect that the Act
will have on us.

         The Gramm-Leach-Bliley Act also contains provisions regarding consumer
privacy. These provisions require financial institutions to disclose their
policy for collecting and protecting confidential information. Customers
generally may prevent financial institutions from sharing personal financial
information with nonaffiliated third parties except for third parties that
market an institution's own products and services. Additionally, financial
institutions generally may not disclose consumer account numbers to any
nonaffiliated third party for use in telemarketing, direct mail marketing, or
other marketing to the consumer.

HCSB Financial Corporation

         Because it owns the outstanding capital stock of our bank, our holding
company is a bank holding company under the federal Bank Holding Company Act of
1956 and the South Carolina Banking and Branching Efficiency Act.

         The Bank Holding Company Act. Under the Bank Holding Company Act, the
company is subject to periodic examination by the Federal Reserve and required
to file periodic reports of its operations and any additional information that
the Federal Reserve may require. Our activities at the bank and holding company
level are limited to:

         o  banking and managing or controlling banks;
         o  furnishing services to or performing services for its subsidiaries;
            and
         o  engaging in other activities that the Federal Reserve determines to
            be so closely related to banking and managing or controlling banks
            as to be a proper incident thereto.


                                       12
<PAGE>


         Investments, Control, and Activities. With certain limited exceptions,
the Bank Holding Company Act requires every bank holding company to obtain the
prior approval of the Federal Reserve before:

         o  acquiring substantially all the assets of any bank;
         o  acquiring direct or indirect ownership or control of any voting
            shares of any bank if after the acquisition it would own or control
            more than 5% of the voting shares of such bank (unless it already
            owns or controls the majority of such shares); or
         o  merging or consolidating with another bank holding company.

         In addition, and subject to certain exceptions, the Bank Holding
Company Act and the Change in Bank Control Act, together with regulations
thereunder, require Federal Reserve approval prior to any person or company
acquiring "control" of a bank holding company. Control is conclusively presumed
to exist if an individual or company acquires 25% or more of any class of voting
securities of a bank holding company. Control is rebuttably presumed to exist if
a person acquires 10% or more, but less than 25%, of any class of voting
securities and either the company has registered securities under Section 12 of
the Securities Exchange Act of 1934 or no other person owns a greater percentage
of that class of voting securities immediately after the transaction. The
company's common stock is registered under the Securities Exchange Act of 1934.
The regulations provide a procedure for challenge of the rebuttable control
presumption.

         Under the Bank Holding Company Act, a bank holding company is generally
prohibited from engaging in, or acquiring direct or indirect control of more
than 5% of the voting shares of any company engaged in nonbanking activities
unless the Federal Reserve Board, by order or regulation, has found those
activities to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Some of the activities that the Federal
Reserve Board has determined by regulation to be proper incidents to the
business of a bank holding company include:

o  making or servicing loans and certain types of leases;
o  engaging in certain insurance and discount brokerage activities;
o  performing certain data processing services;
o  acting in certain circumstances as a fiduciary or investment or financial
   adviser;
o  owning savings associations; and
o  making investments in certain corporations or projects designed primarily to
   promote community welfare.

         The Federal Reserve Board imposes certain capital requirements on the
company under the Bank Holding Company Act, including a minimum leverage ratio
and a minimum ratio of "qualifying" capital to risk-weighted assets. These
requirements are described below under "Capital Regulations." Subject to its
capital requirements and certain other restrictions, the company is able to
borrow money to make a capital contribution to the bank, and these loans may be
repaid from dividends paid from the bank to the company. Our ability to pay
dividends is subject to regulatory restrictions as described below in "Horry
County State Bank - Dividends." The company is also able to raise capital for
contribution to the bank by issuing securities without having to receive
regulatory approval, subject to compliance with federal and state securities
laws.

         Source of Strength; Cross-Guarantee. In accordance with Federal Reserve
Board policy, the company is expected to act as a source of financial strength
to the bank and to commit resources to support the bank in circumstances in
which the company might not otherwise do so. Under the Bank Holding Company Act,
the Federal Reserve Board may require a bank holding company to terminate any
activity or relinquish control of a nonbank subsidiary, other than a nonbank
subsidiary of a bank, upon the Federal Reserve Board's determination that such
activity or control constitutes a serious risk to the financial soundness or
stability of any subsidiary depository institution of the bank's holding
company. Further, federal bank regulatory authorities have additional discretion
to require a bank holding company to divest itself of any bank or nonbank
subsidiary if the agency determines that divestiture may aid the depository
institution's financial condition.


                                       13
<PAGE>


         South Carolina State Regulation. As a bank holding company registered
under the South Carolina Banking and Branching Efficiency Act, we are subject to
limitations on sale or merger and to regulation by the South Carolina Board of
Financial Institutions. We must receive the Board's approval prior to engaging
in the acquisition of banking or nonbanking institutions or assets, and we must
file periodic reports with respect to our financial condition and operations,
management, and intercompany relationships between the company and its
subsidiaries.

Horry County State Bank

          The bank operates as a South Carolina state chartered bank and is
subject to examination by the South Carolina Board of Financial Institutions.
Deposits in the bank are insured by the FDIC up to a maximum amount, which is
generally $100,000 per depositor subject to aggregation rules.

         The South Carolina Board of Financial Institutions and the FDIC
regulate or monitor virtually all areas of the bank's operations, including:

o        security devices and procedures;
o        adequacy of capitalization and loss reserves;
o        loans;
o        investments;
o        borrowings;
o        deposits;
o        mergers;
o        issuances of securities;
o        payment of dividends;
o        interest rates payable on deposits;
o        interest rates or fees chargeable on loans;
o        establishment of branches;
o        corporate reorganizations;
o        maintenance of books and records; and
o        adequacy of staff training to carry on safe lending and deposit
         gathering practices.

         The South Carolina Board of Financial Institutions requires the bank to
maintain specified capital ratios and imposes limitations on the bank's
aggregate investment in real estate, bank premises, and furniture and fixtures.
The FDIC requires the bank to prepare quarterly reports on the bank's financial
condition and to conduct an annual audit of its financial affairs in compliance
with its minimum standards and procedures.

         Under the FDIC Improvement Act, all insured institutions must undergo
regular on site examinations by their appropriate banking agency. The cost of
examinations of insured depository institutions and any affiliates may be
assessed by the appropriate agency against each institution or affiliate as it
deems necessary or appropriate. Insured institutions are required to submit
annual reports to the FDIC, their federal regulatory agency, and their state
supervisor when applicable. The FDIC Improvement Act directs the FDIC to develop
a method for insured depository institutions to provide supplemental disclosure
of the estimated fair market value of assets and liabilities, to the extent
feasible and practicable, in any balance sheet, financial statement, report of
condition or any other report of any insured depository institution. The FDIC
Improvement Act also requires the federal banking regulatory agencies to
prescribe, by regulation, standards for all insured depository institutions and
depository institution holding companies relating, among other things, to the
following:

o        internal controls;
o        information systems and audit systems;
o        loan documentation;
o        credit underwriting;


                                       14
<PAGE>

o        interest rate risk exposure; and
o        asset quality.

         Deposit Insurance. The FDIC establishes rates for the payment of
premiums by federally insured banks and thrifts for deposit insurance. A
separate Bank Insurance Fund and Savings Association Insurance Fund are
maintained for commercial banks and savings associations with insurance premiums
from the industry used to offset losses from insurance payouts when banks and
thrifts fail. In 1993, the FDIC adopted a rule which establishes a risk-based
deposit insurance premium system for all insured depository institutions. Under
this system, until mid-1995 depository institutions paid to Bank Insurance Fund
or Savings Association Insurance Fund from $0.23 to $0.31 per $100 of insured
deposits depending on its capital levels and risk profile, as determined by its
primary federal regulator on a semiannual basis. Once the Bank Insurance Fund
reached its legally mandated reserve ratio in mid-1995, the FDIC lowered
premiums for well-capitalized banks, eventually eliminating premiums for
well-capitalized banks, with a minimum semiannual assessment of $1,000. However,
in 1996 Congress enacted the Deposit Insurance Funds Act of 1996, which
eliminated even this minimum assessment. It also separated the Financial
Corporation assessment to service the interest on its bond obligations. The
amount assessed on individual institutions by the Financial Corporation
assessment is in addition to the amount paid for deposit insurance according to
the risk-related assessment rate schedule. Increases in deposit insurance
premiums or changes in risk classification will increase the bank's cost of
funds, and we may not be able to pass these costs on to our customers.

         Transactions with Affiliates and Insiders. The bank is subject to the
provisions of Section 23A of the Federal Reserve Act, which places limits on the
amount of loans or extensions of credit to, or investments in, or certain other
transactions with, affiliates and on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. The aggregate of
all covered transactions is limited in amount, as to any one affiliate, to 10%
of the bank's capital and surplus and, as to all affiliates combined, to 20% of
the bank's capital and surplus. Furthermore, within the foregoing limitations as
to amount, each covered transaction must meet specified collateral requirements.
Compliance is also required with certain provisions designed to avoid the taking
of low quality assets.

         The bank is also subject to the provisions of Section 23B of the
Federal Reserve Act which, among other things, prohibits an institution from
engaging in certain transactions with certain affiliates unless the transactions
are on terms substantially the same, or at least as favorable to such
institution or its subsidiaries, as those prevailing at the time for comparable
transactions with nonaffiliated companies. The bank is subject to certain
restrictions on extensions of credit to executive officers, directors, certain
principal shareholders, and their related interests. Such extensions of credit
(i) must be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
third parties and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features.

         Dividends. The bank is subject to regulatory restrictions on the
payment of dividends, including a prohibition of payment of dividends from its
capital. All dividends must be paid out of the undivided profits then on hand,
after deducting expenses, including losses and bad debts. The bank is authorized
to pay cash dividends up to 100% of net income in any calendar year without
obtaining the prior approval of the South Carolina Board of Financial
Institutions provided that the bank received a composite rating of one or two at
the last federal or state regulatory examination. The bank must obtain approval
from the South Carolina Board of Financial Institutions prior to the payment of
any other cash dividends. In addition, under the FDIC Improvement Act, the bank
may not pay a dividend if, after paying the dividend, the bank would be
undercapitalized. See "Capital Regulations" below.

         Branching. Under current South Carolina law, we may open bank branch
offices throughout South Carolina with the prior approval of the South Carolina
Board of Financial Institutions. In addition, with prior regulatory approval,
the bank may acquire existing banking operations in South Carolina. Furthermore,
federal legislation generally permits interstate branching by authorizing
out-of-state acquisitions by bank holding companies, interstate

                                       15

<PAGE>

branching by banks if allowed by state law, interstate merging by banks, and de
novo branching by banks if allowed by state law. However, North Carolina does
not permit de novo branching by South Carolina banks.

         Community Reinvestment Act. The Community Reinvestment Act requires
that, in connection with examinations of financial institutions within their
respective jurisdictions, a financial institution's primary federal regulator
(this is the FDIC for our bank) shall evaluate the record of each financial
institution in meeting the credit needs of its local community, including low
and moderate income neighborhoods. These factors are also considered in
evaluating mergers, acquisitions, and applications to open a branch or facility.
Failure to adequately meet these criteria could impose additional requirements
and limitations on the bank.

         Other Regulations. Interest and other charges collected or contracted
for by the bank are subject to state usury laws and federal laws concerning
interest rates. The bank's loan operations are also subject to federal laws
applicable to credit transactions, such as:

     o   the federal Truth-In-Lending Act, governing disclosures of credit terms
         to consumer borrowers;
     o   the Home Mortgage Disclosure Act of 1975, requiring financial
         institutions to provide information to enable the public and public
         officials to determine whether a financial institution is fulfilling
         its obligation to help meet the housing needs of the community it
         serves;
     o   the Equal Credit Opportunity Act, prohibiting discrimination on the
         basis of race, creed or other prohibited factors in extending credit;
     o   the Fair Credit Reporting Act of 1978, governing the use and provision
         of information to credit reporting agencies;
     o   the Fair Debt Collection Act, governing the manner in which consumer
         debts may be collected by collection agencies; and
     o   the rules and regulations of the various federal agencies charged with
         the responsibility of implementing such federal laws.

The deposit operations of the bank also are subject to:

     o   the Right to Financial Privacy Act, which imposes a duty to maintain
         confidentiality of consumer financial records and prescribes procedures
         for complying with administrative subpoenas of financial records; and
     o   the Electronic Funds Transfer Act and Regulation E issued by the
         Federal Reserve Board to implement that act, which governs automatic
         deposits to and withdrawals from deposit accounts and customers' rights
         and liabilities arising from the use of automated teller machines and
         other electronic banking services.

         Capital Regulations. The federal bank regulatory authorities have
adopted risk-based capital guidelines for banks and bank holding companies that
are designed to make regulatory capital requirements more sensitive to
differences in risk profiles among banks and bank holding companies and account
for off-balance sheet items. The guidelines are minimums, and the federal
regulators have noted that banks and bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their
capital ratios and should maintain ratios in excess of the minimums. We have not
received any notice indicating that either the company or the bank is subject to
higher capital requirements. The current guidelines require all bank holding
companies and federally-regulated banks to maintain a minimum risk-based total
capital ratio equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1
capital includes common shareholders' equity, qualifying perpetual preferred
stock, and minority interests in equity accounts of consolidated subsidiaries,
but excludes goodwill and most other intangibles and excludes the allowance for
loan and lease losses. Tier 2 capital includes the excess of any preferred stock
not included in Tier 1 capital, mandatory convertible securities, hybrid capital
instruments, subordinated debt and intermediate term-preferred stock, and
general reserves for loan and lease losses up to 1.25% of risk-weighted assets.


                                       16
<PAGE>

         Under these guidelines, banks' and bank holding companies' assets are
given risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight applies. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction
loans, both of which carry a 50% rating. Most investment securities are assigned
to the 20% category, except for municipal or state revenue bonds, which have a
50% rating, and direct obligations of or obligations guaranteed by the United
States Treasury or United States Government agencies, which have a 0% rating.

         The federal bank regulatory authorities have also implemented a
leverage ratio, which is equal to Tier 1 capital as a percentage of average
total assets less intangibles, to be used as a supplement to the risk-based
guidelines. The principal objective of the leverage ratio is to place a
constraint on the maximum degree to which a bank holding company may leverage
its equity capital base. The minimum required leverage ratio for top-rated
institutions is 3%, but most institutions are required to maintain an additional
cushion of at least 100 to 200 basis points.

          The FDIC Improvement Act established a new capital-based regulatory
scheme designed to promote early intervention for troubled banks which requires
the FDIC to choose the least expensive resolution of bank failures. The new
capital-based regulatory framework contains five categories of compliance with
regulatory capital requirements, including "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." To qualify as a "well capitalized" institution, a
bank must have a leverage ratio of no less than 5%, a Tier 1 risk-based ratio of
no less than 6%, and a total risk-based capital ratio of no less than 10%, and
the bank must not be under any order or directive from the appropriate
regulatory agency to meet and maintain a specific capital level. Currently, we
qualify as "well capitalized."

         Under the FDIC Improvement Act regulations, the applicable agency can
treat an institution as if it were in the next lower category if the agency
determines (after notice and an opportunity for hearing) that the institution is
in an unsafe or unsound condition or is engaging in an unsafe or unsound
practice. The degree of regulatory scrutiny of a financial institution
increases, and the permissible activities of the institution decreases, as it
moves downward through the capital categories. Institutions that fall into one
of the three undercapitalized categories may be required to do some or all of
the following:

o        submit a capital restoration plan;
o        raise additional capital;
o        restrict their growth, deposit interest rates, and other activities;
o        improve their management; o eliminate management fees; or
o        divest themselves of all or a part of their operations.

Bank holding companies controlling financial institutions can be called upon to
boost the institutions' capital and to partially guarantee the institutions'
performance under their capital restoration plans.

         These capital guidelines can affect us in several ways. If we grow at a
rapid pace, our capital may be depleted too quickly, and a capital infusion from
the holding company may be necessary which could impact our ability to pay
dividends. Our capital levels currently are adequate; however, rapid growth,
poor loan portfolio performance, poor earnings performance, or a combination of
these factors could change our capital position in a relatively short period of
time.

         Failure to meet these capital requirements would mean that a bank would
be required to develop and file a plan with its primary federal banking
regulator describing the means and a schedule for achieving the minimum capital
requirements. In addition, such a bank would generally not receive regulatory
approval of any application that requires the consideration of capital adequacy,
such as a branch or merger



                                       17
<PAGE>

application, unless the bank could demonstrate a reasonable plan to meet the
capital requirement within a reasonable period of time.

         Securities Regulation. One non-executive officer of the bank is
licensed with the National Association of Securities Dealers, Inc. (NASD), and
with the State of North Carolina as a registered representative of UVEST, an
NASD-member firm. This officer is subject to the rules and policies of the NASD.
The networking and brokerage affiliate arrangements between UVEST and the bank
are governed by a written agreement. Representatives of UVEST, the North
Carolina Securities Division, the NASD, and the Securities and Exchange
Commission may inspect the bank's records regarding securities transactions.

         Enforcement Powers. The Financial Institution Report Recovery and
Enforcement Act expanded and increased civil and criminal penalties available
for use by the federal regulatory agencies against depository institutions and
certain "institution-affiliated parties." Institution-affiliated parties
primarily include management, employees, and agents of a financial institution,
as well as independent contractors and consultants such as attorneys and
accountants and others who participate in the conduct of the financial
institution's affairs. These practices can include the failure of an institution
to timely file required reports or the filing of false or misleading information
or the submission of inaccurate reports. Civil penalties may be as high as
$1,000,000 a day for such violations. Criminal penalties for some financial
institution crimes have been increased to 20 years. In addition, regulators are
provided with greater flexibility to commence enforcement actions against
institutions and institution-affiliated parties. Possible enforcement actions
include the termination of deposit insurance. Furthermore, banking agencies'
power to issue cease-and-desist orders were expanded. Such orders may, among
other things, require affirmative action to correct any harm resulting from a
violation or practice, including restitution, reimbursement, indemnification or
guarantees against loss. A financial institution may also be ordered to restrict
its growth, dispose of certain assets, rescind agreements or contracts, or take
other actions as determined by the ordering agency to be appropriate.

         Effect of Governmental Monetary Policies. Our earnings are affected by
domestic economic conditions and the monetary and fiscal policies of the United
States government and its agencies. The Federal Reserve Bank's monetary policies
have had, and are likely to continue to have, an important impact on the
operating results of commercial banks through its power to implement national
monetary policy in order, among other things, to curb inflation or combat a
recession. The monetary policies of the Federal Reserve Board have major effects
upon the levels of bank loans, investments and deposits through its open market
operations in United States government securities and through its regulation of
the discount rate on borrowings of member banks and the reserve requirements
against member bank deposits. It is not possible to predict the nature or impact
of future changes in monetary and fiscal policies.

Regulation of our proposed North Carolina Bank

         General. Our proposed bank will operate as a North Carolina state
chartered bank and is subject to examination by the North Carolina Commissioner
of Banks, under the direction and supervision of the North Carolina State
Banking Commission. Deposits in the bank will be insured by the FDIC up to a
maximum amount, which is generally $100,000 per depositor subject to aggregation
rules. The North Carolina Commissioner of Banks, under the direction and
supervision of the North Carolina State Banking Commission, and the FDIC will
regulate or monitor virtually all areas of the bank's operations, including:


                                       18
<PAGE>

o        security devices and procedures;
o        adequacy of capitalization and loss reserves;
o        loans;
o        investments;
o        borrowings;
o        deposits;
o        mergers;
o        issuances of securities;
o        payment of dividends;
o        interest rates payable on deposits;
o        interest rates or fees chargeable on loans;
o        establishment of branches;
o        corporate reorganizations;
o        maintenance of books and records; and
o        adequacy of staff training to carry on safe lending and deposit
         gathering practices.

         Regulation of the bank that we propose to charter in North Carolina
will, in many ways, be similar to the regulation of Horry County State Bank.
Like Horry County State Bank, the proposed bank will be subject to federal
legislation and regulation regarding deposit insurance, transactions with
affiliates and insiders, capital regulation, the enforcement powers of federal
regulators, federal monetary policy, the Community Reinvestment Act and other
federal legislation and regulations. See "Deposit Insurance," "Transactions with
Affiliates and Insiders," "Capital Regulations," "Enforcement Powers,"
"Community Reinvestment Act," "Effect of Federal Monetary Policy," and "Other
Regulations" above.

         Dividends. The bank will be subject to regulatory restrictions on the
payment of dividends, including a prohibition of payment of dividends from its
capital. All dividends must be paid out of the undivided profits then on hand,
after deducting expenses, including losses and bad debts. The bank must also
reserve a portion of its undivided profits until its reserves reach certain
ratios mandated by North Carolina statute. In addition, under the FDIC
Improvement Act, the bank may not pay a dividend if, after paying the dividend,
the bank would be undercapitalized. See "Capital Regulations" above.

         Branching. Under current North Carolina law, we may open bank branch
offices throughout North Carolina with the prior approval of the North Carolina
Commissioner of Banks. In addition, with prior regulatory approval, the bank may
acquire existing banking operations in North Carolina and may be acquired by
out-of-state financial service companies. Furthermore, federal
legislation generally permits interstate branching by authorizing out-of-state
acquisitions by bank holding companies, interstate branching by banks if allowed
by state law, interstate merging by banks, and de novo branching by banks if
allowed by state law. North Carolina permits de novo branching by North Carolina
banks with the prior approval of the North Carolina Commissioner of Banks.


ITEM 2.           DESCRIPTION OF PROPERTIES

         The organizers of Horry County State Bank purchased a lot at 5009 Broad
Street, Loris, South Carolina in 1987, and the bank initially opened for
business in January, 1988 in a modular facility on this site. The bank
subsequently built a permanent building on this same site, moved its entire
operation into this facility in April, 1999 and sold the modular building. The
permanent building was enlarged several years later to accommodate the bank's
growth and need to expand its support operations area. Today this building
houses the bank's main branch bank in Loris, the bank's Residential Mortgage
Loan Department and the bank's Investment Services Department. The bank owns
this property in fee simple title.

         In 1994 the bank purchased a lot in fee simple at 5264 Hwy. 9, Green
Sea, South Carolina and opened a full-service branch bank on this site in March,
1995 in a modular building. The bank subsequently constructed a 2,300 square
foot building on this site and relocated its branch operations into

                                       19

<PAGE>

this permanent facility in February, 1998. The bank still owns the modular
building, which is presently unoccupied.

         In January, 1997, the bank purchased a commercial lot and former
banking office at 4011 Meeting Street, Loris, South Carolina, and renovated this
building to accommodate a second branch facility in Loris as well as the bank's
central credit operations department. The bank opened this facility in May,
1997. It presently serves solely as a branch banking facility. The bank owns
this property in fee simple.

         The bank purchased a lot and building at East 5th Street, Tabor City,
North Carolina in July, 1997, in anticipation of filing an Application to
Establish a Branch Banking Facility at this location based on the fact that the
Reigle-Neal Act would authorize interstate branching into North Carolina
effective June 1, 1997. Late in May, 1997, however the North Carolina
legislature rescinded its earlier position on interstate branching and extended
its moratorium on such branching into North Carolina until June 1, 1999. Since
that time, this moratorium has been extended permanently. The bank still owns
this property in fee simple. HCSB Financial Corporation is considering
establishing a state, non-member bank in North Carolina and locating an office
at this location, but no decision has yet been rendered in this regard.

         Having been thwarted by the North Carolina banking statute change, the
bank entered into a long-term lease agreement to lease a lot at 3201 Hwy. 701
North, Loris, South Carolina which borders the South Carolina-North Carolina
boundary. The lease included an initial (5)-year term with four (4), five
(5)-year renewal options. The bank opened a full-service branch operation in a
modular facility on this site in October, 1997. The bank expects to build a
permanent facility on this site in the future, unless the Company's plans to
charter a new North Carolina bank materialize.

         In March, 1996 the bank purchased in fee simple a 2.82 acre tract on
Hwy. 9, Little River, South Carolina and subsequently purchased a modular
banking facility for location on this site. The bank opened this branch bank in
October, 1997, at 3189 Hwy. 9, Little River, South Carolina. In November, 1999,
the bank completed and moved this branch banking operation into a new 3,300
square foot permanent building on this same property, although the physical
address changed to 3187 Hwy. 9, Little River, South Carolina. In March, 2000,
the bank sold the modular building and subsequently sold a 1.18 acre portion of
this tract.

         In November, 1997, the bank entered into an agreement to lease a
commercial lot and former bank building at 1627-A Church Street, Conway, South
Carolina. The bank opened a full-service branch operation at this location in
February, 1998, and subsequently purchased this property in April, 1998. The
bank now owns this property in fee simple. The bank completed a renovation of
the building and an addition thereto during the first quarter of 2002.

         In January, 1998, the bank purchased a commercial lot and building at
5201 Broad Street, Loris, South Carolina, which is adjacent to the bank's main
branch office in Loris. After remodeling and adding on to this building, the
bank in March, 2000, relocated Executive Offices, Audit Department, Central
Deposit Operations, Central Credit Operations and Computer Operations into this
10,000 square foot facility.

         In August, 1999, the bank purchased a 0.84 acre commercial lot at 3201
Hwy. 701 North, Conway, South Carolina. In conjunction with this purchase the
bank also acquired three (3) lifetime easements on adjoining properties totaling
0.19 acre. The bank opened a 3,300 square foot full service branch operation on
this site in August, 2000.

         In November, 2000, the bank purchased a lot and former full service
banking facility at 4600 Hwy. 17 By-pass South, Myrtle Beach, South Carolina.
After remodeling this facility, the bank opened for business in February, 2001.


                                       20
<PAGE>


         In March 2002, the bank purchased a lot at 4400 Hwy 17 South, North
Myrtle Beach, South Carolina. The bank expects to begin construction of a
banking facility on this property during the second quarter of 2002 pending
approval of an application to establish this branch by the FDIC.

         In March 2002, the bank entered into an agreement to lease a building
at 2713 Hwy 17 South, North Myrtle Beach, South Carolina. The bank expects to
utilize this location as a temporary branch office pending approval of the FDIC.
The lease is for one year with two three month renewal options. The bank expects
to open this office during the second quarter of 2002 and operate here during
the construction of the permanent building at 4400 Hwy 17 South, North Myrtle
Beach, South Carolina.

         In March 2002, the bank entered into an agreement to lease an office
building at 1601 North Oak Street, Suite 103, Myrtle Beach, South Carolina. The
lease is for one year with twelve one month renewal options. The bank expects to
secure a lot in Myrtle Beach, SC during the second quarter of 2002 on which to
build a permanent branch facility and will then file an application with the
applicable regulatory agencies for approval of this proposed branch. The bank
expects to receive this regulatory approval during the second quarter of 2002
and open a temporary office in the leased facility during the second quarter of
2002.

ITEM 3.  LEGAL PROCEEDINGS

         In the ordinary course of operations, we are a party to various legal
proceedings. Our management does not believe that there is any pending or
threatened proceeding against us which, if determined adversely, would have a
material effect on our business, results of operations, or financial position
during the quarter ended December 31, 2001.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted during the fourth quarter of the fiscal year
ended December 31, 2001 to a vote of security holders, through the solicitation
of proxies or otherwise.

                                     PART II

ITEM 5.           MARKET FOR COMMON SHARE AND DIVIDENDS

         In response to this Item, the information contained on page 6 of the
company's Annual Report to Shareholders for the year ended December 31, 2001 is
incorporated herein by reference.


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         In response to this Item, the information contained on pages 7 through
23 of the company's Annual Report to Shareholders for the year ended December
31, 2001 is incorporated herein by reference.


ITEM 7.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         In response to this Item, the information contained on pages 24 through
44 of the company's Annual Report to Shareholders for the year ended December
31, 2001 is incorporated herein by reference.


ITEM 8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                     AND FINANCIAL DISCLOSURE

         Not applicable.


                                       21
<PAGE>


                                    PART III

         Information called for by Part III on this Report on Form 10-KSB have
been omitted as we have filed a definitive Proxy Statement pursuant to
Regulation 14A promulgated under the Securities and Exchange Act of 1934 which
includes this information.

ITEM 9.    DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

         In response to this Item 9, the information contained on pages 4
through 6 of our Proxy Statement for the Annual Meeting of Shareholders to be
held on April 18, 2002 is incorporated herein by reference.


ITEM 10.    EXECUTIVE COMPENSATION

         In response to this Item 9, the information contained on page 6 of our
Proxy Statement for the Annual Meeting of Shareholders to be held on April 18,
2002 is incorporated herein by reference.


ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         In response to this Item 9, the information contained on page 7 of our
Proxy Statement for the Annual Meeting of Shareholders to be held on April 18,
2002 is incorporated herein by reference.

                                       22

<PAGE>



ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In response to this Item 9, the information contained on page 9 of our
Proxy Statement for the Annual Meeting of Shareholders to be held on April 18,
2002 is incorporated herein by reference.


ITEM 13.    Exhibits,  List And Reports On Form  8-K


(a)            The following documents are filed as a part of this report:

1.1      Selling Agent Placement Agreement dated September 5, 2001 by and
         between UVEST Investment Services, Inc. and the Company (Incorporated
         by reference to Exhibit 1.1 to the Company's Registration Statement
         filed on January 22, 2002 and declared effective on Form S-2, File No.
         333-69492).

3.1      Articles of Incorporation (incorporated by reference to Exhibit 3.1 to
         the Company's Form 10-K for the fiscal year ended December 31, 1999).

3.2      Bylaws (incorporated by reference to Exhibit 3.2 to the Company's Form
         10-K for the fiscal year ended December 31, 1999).

5.1      Opinion of Nelson Mullins Riley & Scarborough, L.L.P. Regarding
         Legality (Incorporated by reference to Exhibit 1.1 to the Company's
         Registration Statement filed on January 22, 2002 and declared effective
         on Form S-2, File No. 333-69492).

23.1     Consent of Independent Auditor (Incorporated by reference to Exhibit
         1.1 to the Company's Registration Statement filed on January 22, 2002
         and declared effective on Form S-2, File No. 333-69492).

23.2     Consent of Nelson Mullins Riley & Scarborough, L.L.P. (Incorporated by
         reference to Exhibit 1.1 to the Company's Registration Statement filed
         on January 22, 2002 and declared effective on Form S-2, File No.
         333-69492).

13       The Company's 2001 Annual Report

21       Subsidiaries of Registrant


(b) Reports on Form 8-K

There were no reports on Form 8-K filed during the fourth quarter ended December
31, 2001.

                                       23

<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.

                                       HCSB FINANCIAL CORPORATION

Date:  March 25, 2002               By:   /s/ James R. Clarkson
                                        --------------------------------------
                                              James R. Clarkson, President
                                             & Chief Executive Officer

Date:  March 25, 2002               By:  /s/ Michael W. Hambrick
                                        ---------------------------------------
                                             Michael W. Hambrick, Vice President
                                            & Chief Financial Officer
                                           (Principal Accounting Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated:


By:  /s/ D. Singleton Bailey                            Date:  March 25, 2002
   --------------------------------------------
        D. Singleton Bailey, Director


By:    /s/ Franklin C. Blanton                          Date:  March 25, 2002
     ------------------------------------------
        Franklin C. Blanton, Director


By:    /s/ Russell R. Burgess, Jr.                      Date:  March 25, 2002
     ------------------------------------------
        Russell R. Burgess, Jr., Director


By:    /s/ William H. Caines                            Date:  March 25, 2002
     ------------------------------------------
        William H. Caines, Director


By:    /s/ James R. Clarkson                            Date:  March 25, 2002
     ------------------------------------------
        James R. Clarkson, Director, President
                            & CEO


By:    /s/ J. Lavelle Coleman                           Date:  March 25, 2002
     ------------------------------------------
        J. Lavelle Coleman, Director


By:    /s/ Boyd R. Ford, Jr.                            Date:  March 25, 2002
     ------------------------------------------
        Boyd R. Ford, Jr., Director


By:    /s/ Tommie W. Grainger                           Date:  March 25, 2002
     ------------------------------------------
        Tommie W. Grainger, Director


By:    /s/ Randy B. Hardee                              Date:  March 25, 2002
     ------------------------------------------
        Randy B. Hardee, Director


                                       24

<PAGE>



By:  /s/ Gwyn G. McCutchen                              Date:  March 25, 2002
   -----------------------------------------
        Gwyn G. McCutchen, Director

By:    /s/ T. Freddie Moore                             Date:  March 25, 2002
     ------------------------------------------
        T. Freddie Moore, Director

By:    /s/ Carroll D. Padgett, Jr.                      Date:  March 25, 2002
     ------------------------------------------
        Carroll D. Padgett, Jr., Director

By:    /s/ Bill G. Page                                 Date:  March 25, 2002
     ------------------------------------------
        Bill G. Page, Director



                                       25
<PAGE>


Exhibit 13

                   2001 Annual Report of HCSB Financial Corp.