Exhibit 13


                                      HCSB


                             HORRY COUNTY STATE BANK



                           HCSB FINANCIAL CORPORATION


                              Loris, South Carolina

                                  Annual Report

                                      2002





<PAGE>


                           HCSB FINANCIAL CORPORATION



                                    Contents


                                                                           Page

Ten Year History..............................................................2

Message to Shareholders.......................................................3

Selected Financial Data.......................................................4

Description of Company's Business.............................................5

Market for Common Share and Dividends.........................................6

Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................7-23

Independent Auditors' Report.................................................24

Consolidated Balance Sheets..................................................25

Consolidated Statements of Income............................................26

Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income.........................................................27

Consolidated Statements of Cash Flows........................................28

Notes to Consolidated Financial Statements................................29-44

Board of Directors...........................................................45

                                 Headquarters

    5201 Broad Street                                 Mailing Address:
Loris, South Carolina 29569                        Post Office Box 218
    (843) 756-6333                              Loris, South Carolina 29569

Certain statements in this annual report contain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, such
as statements relating to the future plans and expectations, including those
related to the registered offering of our common stock, and are thus
prospective. Such forward-looking statements are subject to risks, uncertainties
and other factors that could cause actual results to differ materially from
future results expressed or implied by such forward-looking statements. Please
see our annual report filed on Form 10-KSB for further discussion of these
risks.

HCSB Financial Corporation will furnish, free of charge, copies of the Annual
Report and the Company's Report to the Securities and Exchange Commission (Form
10-KSB) upon written request to James R. Clarkson, President and C.E.O., HCSB
Financial Corporation, Post Office Box 218, Loris, South Carolina 29569.

This Annual Report serves as the ANNUAL FINANCIAL DISCLOSURE STATEMENT furnished
pursuant to Part 350 of the Federal Deposit Insurance Corporation's Rules and
Regulations. THIS STATEMENT HAS NOT BEEN REVIEWED OR CONFIRMED FOR ACCURACY OR
RELEVANCE BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.




<PAGE>
                           HCSB FINANCIAL CORPORATION

<TABLE>
<CAPTION>
                                Ten Year History
                                  (Omit 000's)

             Year              Assets        Deposits       Loans (net)          Capital          Earnings
         --------------    --------------    ------------      ------------    --------------    --------------
<S>          <C>                <C>               <C>               <C>             <C>               <C>
             1993          $       31,280    $     28,121      $     20,432    $        2,888    $          274

             1994                  38,009          34,109            22,158             3,644               345

             1995                  45,913          41,542            28,959             4,006               202

             1996                  49,405          42,851            35,556             5,495               556

             1997                  72,156          63,885            40,711             7,473               429

             1998                  83,586          69,970            55,061             8,024               511

             1999                 114,326          94,829            74,871             8,341               994

             2000                 143,718         123,500            90,300             9,781             1,037

             2001                 148,651         120,073           116,596            10,895               996

             2002                 211,598         164,161           161,381            19,850             1,161

</TABLE>



                                       2
<PAGE>




                             MESSAGE TO SHAREHOLDERS

In the year 2002, we witnessed a continuation of the declines in interest rates,
the stock market, and the overall American economy. Revelations at Enron,
WorldCom, and others shook consumer confidence in corporate America as well.
Closer to home, the Grand Strand experienced a decline in tourists and golfers
last year, also. In addition, local farmers suffered through an extended drought
early in the year, followed by a period of excessive rainfall, both of which
contributed to poor crop yields, quality, and prices.

Despite these conditions, HCSB Financial Corporation and its subsidiary, Horry
County State Bank, continued to grow and prosper. Total assets increased by
42.3% to $211.6 million as of December 31, 2002, while loans grew by 38.3% to
$162.8 million and deposits grew by 36.7% to $164.1 million during the year,
also. Shareholders' equity increased by 82.2% in 2002 as the result of profits
earned for the year and a very successful secondary offering that we undertook.
Net income for the year was $1,161,000, as compared to $996,000 in the previous
year, or a 16.6% increase.

Our earnings growth was constrained by the expansion of our branch network. We
opened our Windy Hill Beach office on June 3, 2002, and our Myrtle Beach office
on August 5, 2002, both in temporary quarters. As is generally the case with new
offices, it takes a while for them to offset initial personnel costs and
overhead, and thus these new offices suffered losses last year.

As with our other banking offices, however, we have been quite fortunate to
attract quality, experienced employees who are quite familiar with these new
marketplaces. As a result, both of these offices grew nicely during the year,
and we project them both to be profitable in 2003. We shall move into our Windy
Hill office at the intersection of Hwy. 17 and Windy Hill Road Extension in
February and expect to begin construction of our Myrtle Beach office at 1701 N.
Oak Street during the second quarter of this year.

The addition of our two offices, which were opened in 2002, has given us a
presence in most markets within Horry County. At the present year, at the
present time, we are not actively considering any additional branch expansion,
although we shall remain open to any potential opportunity that we believe to be
beneficial to our company and shareholders. Our primary goal in 2003 will be to
further develop the business volume at each of our present offices and thereby
bring our profitability ratios back towards where they were prior to our branch
expansions over the last couple of years.

We have progressed quite well over the last fifteen years as a company. We have
grown from a newborn bank with assets of 2.2 million, one office, and seven
employees to a bank with over $200 million in assets, eleven offices, and over
one hundred employees. While we have been very fortunate to operate in a rapidly
growing marketplace, I continue to attribute our overall success to the quality
of our staff. Banking services are really not that different from bank to bank,
and of course, our primary product, money, is identical everywhere. Our
employees and the attitude that they portray in providing our services is what
makes the principal difference. I thank our employees for their efforts, I
commend our Board of Directors for their oversight and vision, and I sincerely
appreciate the support of our shareholders without whose financial investments
nothing would be possible.

I believe in the adage, "If it ain't broke, don't fix it." Thus, we shall
continue to operate with the attitude of treating our customers as we desire to
be treated and to abide by our motto "It's the little things that make a little
bank...BIG!"

Most respectfully,

/s/ James R. Clarkson
------------------------------
James R. Clarkson
President/CEO


                                       3
<PAGE>

                           HCSB FINANCIAL CORPORATION


                             Selected Financial Data

The following table sets forth certain selected financial data concerning the
Company. The selected financial data has been derived from the financial
statements. This information should be read in conjunction with the financial
statements of the Company, including the accompanying notes, included elsewhere
herein.
<TABLE>
<CAPTION>

  Year Ended December 31,                      2002            2001          2000          1999          1998
                                           ------------    ----------    ----------    ------------- -----------
   (Dollars in thousands, except per share)
   Financial Condition:
<S>                                             <C>             <C>           <C>           <C>           <C>
   Investment securities                   $     18,060    $   17,149    $   20,877    $   23,892    $   19,640
   Allowance for loan losses                      1,452         1,112         1,019           922           880
   Net loans                                    161,381       116,596        90,300        74,871        55,061
   Premises and equipment, net                    7,908         5,539         5,502         4,417         3,504
   Total assets                                 211,598       148,651       143,718       114,326        83,586
   Noninterest-bearing deposits                  16,714         9,475         8,273         7,998         6,358
   Interest-bearing deposits                    147,447       110,598       115,227        86,831        63,612
   Total deposits                               164,161       120,073       123,500        94,829        69,970
   Advances from the Federal Home Loan Bank      26,690        14,600         9,600        10,000         5,000
   Total liabilities                            191,748       137,756       133,937       105,985        75,562
   Total shareholders' equity                    19,850        10,895         9,781         8,341         8,024

  Results of Operations:
   Interest income                         $     12,536    $   11,774    $   10,552    $    7,947    $    6,403
   Interest expense                               5,211         6,217         5,815         3,804         3,257
                                           ------------    ----------    ----------    ----------    ----------
   Net interest income                            7,325         5,557         4,737         4,143         3,146
   Provision for loan losses                        535           348           271           190           100
                                           ------------    ----------    ----------    ----------    ----------
   Net interest income after provision
     for loan losses                              6,790         5,209         4,466         3,953         3,046
   Other income                                   1,475         1,290         1,156           792           666
   Other expense                                  6,487         4,977         4,037         3,227         2,929
                                           ------------    ----------    ----------    ----------    ----------
   Income before income taxes                     1,778         1,522         1,585         1,518           783
   Income tax expense                               617           526           548           524           272
                                           ------------    ----------    ----------    ----------    ----------
   Net income                              $      1,161    $      996    $    1,037    $      994    $      511
                                           ============    ==========    ==========    ==========    ==========

   Per Share Data (1):
   Average shares outstanding                 1,399,623     1,104,055     1,104,055     1,104,055     1,104,055
   Net income                              $       0.83    $     0.90    $     0.94    $     0.90    $     0.46
   Period end book value                   $      14.18    $     9.87    $     8.86    $     7.55    $     7.27

</TABLE>

(1) Adjusted  for the effects of the  two-for-one  share split in the form of a
100% share  dividend  declared in January 2000 and the 5% share dividends
declared in February 2001 and January 1999.




                                       4
<PAGE>


                           HCSB FINANCIAL CORPORATION

                        Description of Company's Business

HCSB Financial Corporation (the Company) was incorporated on June 10, 1999. The
Company's only significant asset is its wholly owned subsidiary, Horry County
State Bank (the Bank). The Bank is a state-chartered bank incorporated on
December 18, 1987 and located at 5009 Broad Street, Loris, South Carolina. The
Company's primary market includes Horry and Marion Counties in South Carolina
and Columbus and Brunswick Counties in North Carolina. From its seven branch
locations, the Company offers a full range of deposit services, including
checking accounts, savings accounts, certificates of deposit, money market
accounts, and IRA's.

The Company is primarily engaged in the business of attracting deposits from the
general public and using these deposits together with other funds to make
agricultural, commercial, consumer, and real estate loans. The Company's
operating results depend to a substantial extent on the difference between
interest and fees earned on loans and investments and the Company's interest
expense, consisting principally of interest paid on deposits. Unlike most
industrial companies, virtually all of the assets and liabilities of financial
institutions are monetary. As a result, interest rates have a greater effect on
the financial institution's performance. In addition to competing with other
traditional financial institutions, the Company also competes for savings
dollars with nontraditional financial intermediaries, such as mutual funds. This
has resulted in a highly competitive market area, which demands the type of
personal service and attention provided by HCSB Financial Corporation.

The operating results of the Company are influenced by the volume of
agricultural lending in the Company's geographic marketplace. The Company makes
seasonal loans to farmers during the first quarter of the year to finance crop
production expenses, and the loans are usually repaid during the third and
fourth quarters. The seasonality of these loans significantly impacts the
Company's asset/liability management and liquidity. Expansion of the Company's
branch network in recent years in non-agricultural markets along the Grand
Strand has served to reduce the impact of this seasonality, however.

In June of 1997, the State Board of Financial Institutions and the Federal
Deposit Insurance Corporation (FDIC) approved the Company's applications to open
three branches in Little River, Tabor City, and Loris. As a condition of
approval, the Company was required to obtain an additional $2,000,000 in
capital. In response, the Company issued 65,805 shares for $1,542,000, net of
expenses, during 1997 and 42,027 shares for $967,000 during 1996. The Loris
branch opened for business on June 9, 1997, and the Tabor City and Little River
branches opened on October 5 and 6, 1997, respectively.

The Company's application to open a branch in Conway, South Carolina was
approved by the State Board of Financial Institutions and the FDIC in December
of 1997. The branch opened for business on February 17, 1998.

The Company's application to open a branch in the Homewood community north of
Conway, South Carolina, was approved by the State Board of Financial
Institutions and the FDIC in September of 1999. The branch opened for business
on August 10, 2000.

The Company's application to open a branch in the Socastee section of Myrtle
Beach, South Carolina, was approved by the State Board of Financial Institutions
and the FDIC in December of 2000. The branch opened for business on February 20,
2001.

The Company's application to open a branch in North Myrtle Beach, South
Carolina, was approved by the State Board of Financial Institutions and the FDIC
in April of 2002. The branch opened for business on June 3, 2002.

The Company's application to open a branch in Myrtle Beach, South Carolina, was
approved by the State Board of Financial Institutions and the FDIC in July of
2002. The branch opened for business on August 5, 2002.




                                       5
<PAGE>


                           HCSB FINANCIAL CORPORATION

                      Market for Common Share and Dividends

As of December 31, 2002, there were 1,469,767 shares of our common stock
outstanding held by approximately 2,250 shareholders of record. In our most
recent offering in March-August 2002, we issued 365,712 shares of our common
stock at a price per share of $22.00. There is currently no established public
trading market in our common stock, and trading and quotations of our common
stock have been limited and sporadic. Because there has not been an established
market for our common stock, we may not be aware of all prices at which our
common stock has been traded. We have not determined whether the trades of which
we are aware were the result of arm's-length negotiations between the parties.
Based on information available to us from a limited number of sellers and
purchasers of common stock who have engaged in privately negotiated transactions
of which we are aware, we believe transactions in our common stock can be fairly
summarized as follows for the periods indicated:
<TABLE>
<CAPTION>

Period                                               Per Share Price                     Number of Trades
------                                               ---------------                     ----------------
<S>                 <C> <C>                          <C>       <C>                                 <C>
Year ended December 31, 1997                         $11.50 to $12.00                              9

Year ended December 31, 1998                         $12.00 to $14.00                             10

Year ended December 31, 1999                         $14.50 to $16.00                             11

Year ended December 31, 2000                         $16.50 to $20.00                              9

Year ended December 31, 2001                         $20.00 to $22.00                             17  1

Year ended December 31, 2002                         $22.00 to $22.50                             32

January 1, 2003 through March 12, 2003               $22.00 to $23.00                             14
</TABLE>

         (1) We are also aware of one trade in which 105 shares of our common
stock were traded for $25.00 each. We have not included this trade in the
summary above because of the small number of shares involved.


All share and per share data has been adjusted to reflect the 5% stock dividend
paid in 2002, the 100% stock dividend paid in March 2000, and the 5% stock
dividend paid in March 1999. The information presented above describes only
those trades of which we are aware.

No cash dividends have ever been declared or paid by the Company; however, the
Board of Directors approved a 10% stock dividend for each of the five years
ending December 31, 1996. The Company also declared a 5% stock dividend on
January 14, 1999 for shareholders of record February 1, 1999 and a two-for-one
stock split in the form of a 100% stock dividend approved on January 27, 2000 to
shareholders of record February 15, 2000. The Company also paid a 5% stock
dividend to shareholders on March 15, 2001, as well as a 5% stock dividend on
March 20, 2002. The Board of Directors has declared a 5% stock dividend payable
March 21, 2003 for shareholders of record February 28, 2003. Management does not
expect the Company to pay cash dividends in the foreseeable future. South
Carolina and Federal banking regulations restrict the amount of cash dividends
that can be paid to HCSB Financial Corporation from the Bank.

Cash flow from stock offering during 2002:

Proceeds from stock offering:       $8,045,000
Stock issuance costs:               $324,000
Transfer of capital to bank:        $6,404,000


                                       6
<PAGE>



                           HCSB FINANCIAL CORPORATION

                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations


This discussion and analysis is intended to assist the reader in understanding
the financial condition and results of operations of HCSB Financial Corporation.
This commentary should be read in conjunction with the financial statements,
related notes, and other statistical information in this report.

The Company continued to grow in 2002, despite the general economic downturn and
declining interest rate environment. Total assets increased by $62,947,000, or
42.35 %, and net loans increased by $44,785,000, or 38.41%. Much of this growth
occurred due to the opening of two new branch offices. As discussed in the
section entitled "Capital Resources", the Company has concluded a registered
offering of common stock to fund the opening of these two branches.

The Company's growth began to reap its rewards in 2002. Net income increased by
16.57%, from $996,000 in 2000 to $1,161,000 in 2002, primarily as a result of
increased income from loans and related fees. The growth of the loan portfolio
resulted in a loan to deposit ratio of 99.19% and a $12,090,000 increase in
borrowings with correspondent banks and the Federal Home Loan Bank. The Company
will need to attract additional deposits, borrow more money, or a combination of
the two to continue expansion of the loan portfolio. A more detailed discussion
of the factors contributing to growth and challenges is presented below.

                              RESULTS OF OPERATIONS
2002 compared to 2001
Because of the declining interest rate environment, total interest expense
decreased $1,006,000, or 16.18%, from $6,217,000 for the year ended December 31,
2001, to $5,211,000 for the year ended December 31, 2002. Also, the Company
experienced an increase of 1,696,000, or 17.72%, in interest income on loans and
related fees. Although net interest income increased significantly during 2002
when compared to 2001, the Company also experienced a significant increase in
noninterest expense during 2002. The primary factor contributing to the increase
of noninterest expense was salaries and employee benefits, which increased
$878,000, or 30.61%, from $2,868,000 for the year ended December 31, 2001, to
$3,746,000 for the year ended December 31, 2002. The increase was related
primarily to the extra staff required for the new Windy Hill and Myrtle Beach
branches. Overall, the Company experienced net income for the year ended
December 31, 2002 of $1,161,000, compared to $996,000 for the year ended
December 31, 2001. This represents an increase in net income of $165,000, or
16.57%.

2001 compared to 2000
Although net interest income increased significantly during 2001 when compared
to 2000, the Company also experienced a significant increase in noninterest
expense during 2001. The primary factor contributing to the increase of
noninterest expense was salaries and employee benefits, which increased $621,000
or 27.64% from $2,247,000 for the year ended December 31, 2000 to $2,868,000 for
the year ended December 31, 2001. This increase was related primarily to the
extra staff required for the new Socastee and Homewood branches and brokerage
department. The Company also realized a $37,000 net loss on the sale of premises
and equipment for the year ended December 31, 2001 compared to a $215,000 net
gain for the year ended December 31, 2000. The combination of the above factors
resulted in net income for the year ended December 31, 2001 of $996,000, or
$0.95 per share compared to $1,037,000, or $0.99 per share for 2000. This
represents a decrease in net income of $41,000, or 3.95%.



                                      7
<PAGE>



                           HCSB FINANCIAL CORPORATION

                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations

                  ASSETS, LIABILITIES, AND SHAREHOLDERS' EQUITY

During the twelve months ended December 31, 2002, total assets increased
$62,947,000, or 42.35%, when compared to December 31, 2001. The primary reason
for the increase in total assets was an increase in net loans of $44,785,000, or
38.41% during 2002 from $116,596,000 at December 31, 2001, to $161,381,000 at
December 31, 2002. Total deposits increased $44,088,000, or 36.72%, from the
December 31, 2001, amount of $120,073,000. Within the deposit area,
interest-bearing deposits increased $36,849,000, or 33.32%, and
noninterest-bearing deposits increased $7,239,000, or 76.40%, during 2002. The
increase in deposits was primarily due to the opening of two new branches. In
order to better match maturities of liabilities with the loan portfolio, the
Company has chosen to increase its borrowings with the Federal Home Loan Bank
rather than to concentrate on increasing deposits. This also allows the Company
to lock in low rates for a longer period of time. As a result, borrowings with
the Federal Home Loan Bank have increased by $12,090,000, or 82.81%, from
$14,600,000 at December 31, 2001, to $26,690,000 at December 31, 2002.

During the twelve months ended December 31, 2001, total assets increased
$4,933,000, or 3.43%, when compared to December 31, 2000. The primary reason for
the increase in total assets was an increase in net loans of $26,296,000, or
29.12% during 2001 from $90,300,000 at December 31, 2000 to $116,596,000 at
December 31, 2001. Total deposits decreased $3,427,000, or 2.77%, from the
December 31, 2000 amount of $123,500,000. Within the deposit area,
interest-bearing deposits decreased $4,629,000, or 4.02%, and
noninterest-bearing deposits increased $1,202,000, or 14.53%, during 2001. The
decrease in deposits was primarily due to expected withdrawals by some
governmental entities and due to the low interest rate environment. In order to
better match maturities of liabilities with the loan portfolio, the Company has
chosen to increase its borrowings with the Federal Home loan Bank rather than to
concentrate on increasing deposits. This also allows the Company to lock in low
rates for a longer period of time. As a result, borrowings with the Federal Home
Loan Bank have increased by $5,000,000, or 52.08%, from $9,600,000 at December
31, 2000 to $14,600,000 at December 31, 2001.



                                       8
<PAGE>



                           HCSB FINANCIAL CORPORATION

                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations

          DISTRIBUTION OF ASSETS, LIABILITIES, AND SHAREHOLDERS' EQUITY

The Company has sought to maintain a conservative approach in determining the
distribution of its assets and liabilities. The following table presents the
percentage relationships of significant components of the Company's average
balance sheets for the last three fiscal years.

Balance Sheet Categories as a Percent of Average Total Assets
<TABLE>
<CAPTION>
                                                                     2002             2001              2000
                                                             --------------    --------------    --------------
  Assets:
     Interest earning assets:
<S>                                                                   <C>               <C>               <C>
         Federal funds sold                                           5.40%             6.27%             4.45%
         Time deposits with other banks                               0.03              0.12              0.00
         Investment securities                                        8.67             14.78             18.00
         Loans                                                       78.47             71.05             69.04
                                                             -------------     -------------     -------------
             Total interest earning assets                           92.57             92.22             91.49

     Cash and due from banks                                          2.73              2.65              2.74
     Allowance for loan losses                                       (0.69)            (0.71)            (0.79)
     Premises and equipment                                           3.74              3.71              3.93
     Other assets                                                     1.65              2.13              2.63
                                                             -------------     -------------     -------------

             Total assets                                           100.00%           100.00%           100.00%
                                                             =============     =============     =============
</TABLE>

<TABLE>
<CAPTION>

  Liabilities and shareholders' equity:
     Interest-bearing liabilities:
<S>                                                                  <C>               <C>               <C>
     Interest-bearing deposits                                       68.77%            76.97%            75.63%
     Federal funds purchased                                          0.01              0.03              0.60
     Advances from the Federal Home Loan Bank                        12.10              9.02              9.43
                                                             -------------     -------------     -------------
             Total interest-bearing liabilities                      80.88             86.02             85.66

     Noninterest-bearing deposits                                    10.64              6.30              6.58
     Accrued interest and other liabilities                           0.69              0.74              0.83
                                                             -------------     -------------     -------------
             Total liabilities                                       92.21             93.06             93.07

  Shareholders' equity                                                7.79              6.94              6.93
                                                             -------------     -------------     -------------

             Total liabilities and shareholders' equity             100.00%           100.00%           100.00%
                                                             =============     =============     =============
</TABLE>



                                       9
<PAGE>


                           HCSB FINANCIAL CORPORATION

                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations


                               NET INTEREST INCOME

Earnings are dependent to a large degree on net interest income. It represents
the difference between gross interest earned on earning assets, primarily loans
and investment securities, and interest paid on deposits and borrowed funds. Net
interest income is affected by the interest rates earned or paid and by volume
changes in loans, investment securities, deposits, and borrowed funds. The
interest rate spread and the net yield on earning assets are two significant
elements in analyzing the Company's net interest income. The interest rate
spread is the difference between the yield on average earning assets and the
rate on average interest bearing liabilities. The net yield on earning assets is
computed by dividing net interest income by the average earning assets.

2002 compared to 2001

For the year ended December 31, 2002, net interest income was $7,325,000, an
increase of $1,768,000, or 31.82%, over net interest income of $5,557,000 in
2001. Interest income from loans, including fees, was $11,670,000, an increase
of $1,696,000, or 17.00% from 2001 to 2002 as demand for loans in the Company's
marketplace continued to grow. Interest expense for the year ended December 31,
2002 was $5,211,000, compared to $6,217,000 for 2001. This represents a decrease
of $1,006,000, or 16.18% compared to the prior year. The interest rate spread
and net yield on earning assets were positively impacted when compared to the
previous year. The net yield realized on earning assets was 4.30% for 2002,
compared to 4.30% in 2001. The interest rate spread was 4.01% and 3.71% in 2002
and 2001, respectively.

2001 compared to 2000

For the year ended December 31, 2001, net interest income was $5,557,000, an
increase of $820,000, or 17.31%, over net interest income of $4,737,000 in 2000.
Interest income from loans, including fees, was $9,974,000, an increase of
$1,236,000, or 14.14%, from 2000 to 2001 as demand for loans in the Company's
marketplace continued to grow. Other sources of interest income remained
essentially the same, declining only $14,000 from 2000 to 2001. Interest expense
for the year ended December 31, 2001, was $6,217,000, compared to $5,815,000 for
2000. This represents an increase of $402,000, or 6.91%, compared to the prior
year. The interest rate spread and net yield on earning assets were negatively
affected primarily due to the 58 basis point drop in the yield realized on
earning assets from 2000 to 2001. The net yield realized on earning assets was
4.03% for 2001, as compared to 4.10% for 2000. The interest rate spread was
3.71% and 3.75% in 2001 and 2000, respectively.


                                       10
<PAGE>


                           HCSB FINANCIAL CORPORATION

                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations


                         NET INTEREST INCOME (continued)

The following table sets forth, for the periods indicated, the weighted-average
yields earned, the weighted-average yields paid, the interest rate spread, and
the net yield on earning assets. The table also indicates the average daily
balance and the interest income or expense by specific categories.

<TABLE>
<CAPTION>

Year ended December 31,               2002                           2001                           2000
                           ----------------------------  -----------------------------  -----------------------------
                           Average    Income/    Yield/   Average    Income/   Yield/    Average    Income/   Yield/
(Dollars in thousands)     Balance    Expense     Rate    Balance    Expense    Rate     Balance    Expense    Rate
                           --------   --------   ------  ---------  ---------  -------  ---------  ---------  -------
Assets:
 Earning Assets:

<S>                         <C>           <C>     <C>       <C>        <C>       <C>     <C>        <C>         <C>
 Securities, taxable     $  11,222       $496    4.42%  $  17,826  $   1,200     6.73% $  18,304  $   1,243     6.79%
 Securities, nontaxable      3,538        158     4.47      3,454        153     4.43      3,718        165     4.44
  Loans (1)                144,266     11,670     8.09    106,130      9,974     9.40     87,180      8,738    10.02
 Federal funds sold          9,930        155     1.56      9,361        388     4.14      5,614        357     6.36
 Time deposits with
  other banks                   60          2     3.34        184          5     2.72          -          -        -
 Nonmarketable equity
    securities               1,172         55     4.70        790         54     6.84        705         49     6.95
                          --------   --------           ---------  ---------           ---------  ---------
 Total earning assets      170,188     12,536     7.37    137,745     11,774     8.55    115,521     10,552     9.13
                                     --------                      ---------                      ---------
 Cash and due from banks     5,012                          3,952                          3,465
 Allowance for loan losses  (1,261)                        (1,063)                          (992)
 Premises and equipment      6,881                          5,536                          4,961
 Other assets                3,034                          3,201                          3,312
                           --------                      ---------                       ---------
   Total assets          $ 183,854                      $ 149,371                      $ 126,267
                           ========                      =========                      =========
Liabilities:
Interest-Bearing
Liabilities:
Interest-bearing         $ 126,442     4,056     3.21%  $ 114,967     5,421     4.72%  $  95,490     5,099     5.34%
deposits
Other borrowings           22,254      1,155     5.19      13,521       796     5.89      12,673       716     5.65
                          --------   --------           ---------  ---------           ---------  ---------
Total interest-bearing
 liabilities              148,696      5,211     3.40     128,488     6,217     4.84     108,163     5,815     5.38
                                     --------                      ---------                      ---------
Noninterest-bearing        19,568                           9,413                          8,308
 deposits
Accrued interest and other
liabilities                 1,260                           1,104                          1,046
Shareholders' equity       14,330                          10,366                          8,750
                          --------                      ---------                      ---------
Total liabilities and
shareholders' equity    $ 183,854                      $  149,371                     $  126,267
                          ===========                  ==========                     ==========
Net interest income/spread         $   7,325     3.97%             $  5,557     3.71%           $    4,737     3.75%
                                     =========                      ========                       ==========
Net interest margin                              4.30%                          4.03%                          4.10%

</TABLE>

 (1) The effects of loans in nonaccrual status and fees collected are not
significant to the computations. Average loans are stated net of unearned
income.



                                       11
<PAGE>


                           HCSB FINANCIAL CORPORATION

                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations


                              RATE/VOLUME ANALYSIS

Net interest income can also be analyzed in terms of the impact of changing
rates and changing volume. The following table describes the extent to which
changes in interest rates and changes in the volume of earning assets and
interest-bearing liabilities have affected the Company's interest income and
interest expense during the periods indicated. Information on changes in each
category attributable to (i) changes due to volume (change in volume multiplied
by prior period rate), (ii) changes due to rates (changes in rates multiplied by
prior period volume) and (iii) changes in rate and volume (change in rate
multiplied by the change in volume) is provided as follows:
<TABLE>
<CAPTION>

                                                                         2002 compared to 2001
                                                                      Due to increase (decrease) in
(Dollars in thousands)                                     Volume (1)       Rate (1)  Volume/Rate           Total
                                                         ------------  ------------  --------------  ------------
  Interest income:
<S>                                                            <C>           <C>           <C>             <C>
     Taxable securities                                  $       (444) $       (411) $          151  $       (704)
     Nontaxable securities                                          4             1               0             5
     Loans                                                      3,581        (1,329)           (556)        1,696
     Federal funds sold                                            24          (242)            (15)         (233)
     Time deposits with other banks                                (3)            1              (1)           (3)
     Nonmarketable equity securities                               26           (17)             (8)            1
                                                         ------------  ------------- --------------- ------------
         Total interest income                                  3,188        (1,997)           (360)          762
                                                         ------------  ------------- --------------- ------------
  Interest expense:
     Interest-bearing deposits                                    541         (1728)           (178)       (1,365)
     Other borrowings                                             514           (94)            (61)          359
                                                         ------------  ------------- --------------- ------------
         Total interest expense                                 1,055        (1,822)           (239)       (1,006)
                                                         ------------  ------------- --------------- -------------
             Net interest income                         $      2,133  $       (175) $         (121) $      1,768
                                                         ============  ============= =============== ============
</TABLE>

<TABLE>
<CAPTION>

                                                                         2001 compared to 2000
                                                                     Due to increase (decrease) in
(Dollars in thousands)                                    Volume (1)       Rate (1)  Volume/Rate           Total
                                                         ------------  ------------  --------------  ------------
  Interest income:
<S>                                                            <C>           <C>           <C>             <C>
     Taxable securities                                  $        (32) $        (11) $            -  $        (43)
     Nontaxable securities                                        (12)            -               -           (12)
     Loans                                                      1,899          (541)           (122)        1,236
     Federal funds sold                                           238          (125)            (82)           31
     Time deposits with other banks                                 -             -               5             5
     Nonmarketable equity securities                                6            (1)              -             5
                                                         ------------  ------------  --------------  ------------
         Total interest income                                  2,099          (678)           (199)        1,222
                                                         ------------  ------------  --------------  ------------
  Interest expense:
     Interest-bearing deposits                                  1,097          (708)            (67)          322
     Other borrowings                                              43             6              31            80
                                                         ------------  ------------  --------------  ------------
         Total interest expense                                 1,140          (702)            (36)          402
                                                         ------------  ------------  --------------  ------------
             Net interest income                         $        959  $         24  $         (163) $        820
                                                         ============  ============  ==============  ============
</TABLE>





                                       12
<PAGE>


                           HCSB FINANCIAL CORPORATION

                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations


                                RATE SENSITIVITY

Interest rates paid on deposits and borrowed funds and interest rates earned on
loans and investments have generally followed the fluctuations in market rates
in 2002, 2001, and 2000. However, fluctuations in market interest rates do not
necessarily have a significant impact on net interest income, depending on the
Company's interest rate sensitivity position. A rate-sensitive asset or
liability is one that can be repriced either up or down in interest rate within
a certain time interval. When a proper balance exists between rate-sensitive
assets and rate-sensitive liabilities, market interest rate fluctuations should
not have a significant impact on liquidity and earnings. The larger the
imbalance, the greater the interest rate risk assumed and the greater the
positive or negative impact of interest fluctuations on liquidity and earnings.

Interest rate sensitivity management is concerned with the management of both
the timing and the magnitude of repricing characteristics of interest-earning
assets and interest-bearing liabilities and is an important part of
asset/liability management. The objectives of interest rate sensitivity
management are to ensure the adequacy of net interest income and to control the
risks to net interest income associated with movements in interest rates. The
following table, "Interest Rate Sensitivity Analysis," indicates that, on a
cumulative basis through twelve months, rate-sensitive liabilities exceeded
rate-sensitive assets, resulting in a twelve month liability sensitive position
at the end of 2002 of $43,791. For a bank with a twelve month
liability-sensitive position, or negative gap, falling interest rates would
generally be expected to have a positive effect on net interest income, and
rising interest rates would generally be expected to have the opposite effect.
The following table presents the Company's rate sensitivity at each of the time
intervals indicated as of December 31, 2002 and may not be indicative of the
Company's rate-sensitivity position at other points in time.

Interest Rate Sensitivity Analysis
<TABLE>
<CAPTION>
                                                        After one   After Three               Greater
                                                        Through     Through                  Than One
December 31, 2002                        Within One       Three      Twelve  Within one    Year or Non-
(Dollars in thousands)                      Month        Months      Months       Year       Sensitive    Total
                                       ------------  ------------  ----------  ----------  ------------  --------
Assets
Interest-earning assets
<S>                                          <C>           <C>           <C>         <C>         <C>           <C>
     Federal fund sold                 $     11,350  $          -  $        -  $   11,350  $          -  $   11,350
     Loans (1)                               73,887         6,412      15,710      96,009        65,181     161,190
     Securities                               1,394           351         117       1,862        17,592      19,454
                                       ------------  ------------  ----------  ----------  ------------  ----------
              Total earning assets           86,631         6,763      15,827     109,221        82,773     191,994
                                       ------------  ------------  ----------  ----------  ------------  ----------

Liabilities
Interest-bearing liabilities:
     Interest-bearing deposits:
         Demand deposits                     58,329             -           -      58,329             -      58,329
         Savings deposits                    22,332             -           -      22,332             -      22,332
         Time deposits                        5,006         4,701      49,900      59,607         7,179      66,786
                                       ------------  ------------  ----------  ----------  ------------  ----------
              Total interest-bearing
                deposits                     85,667         4,701      49,900     140,268         7,179     147,447
     Federal Home Loan Bank advances              -             -           -           -        26,690      26,690
                                       ------------  ------------  ----------  ----------  ------------  ----------
              Total interest-bearing
                liabilities                  85,667         4,701      49,900     140,268        33,869     174,137
                                       ------------  ------------  ----------  ----------  ------------  ----------
Period gap                             $        964  $      2,062  $  (34,073) $  (31,047) $     48,904
                                       ============  ============  ==========  ==========  ============
Cumulative gap                         $        964  $      3,026  $  (31,047) $  (31,047) $     17,857
                                       ============  ============  ==========  ==========  ============
Ratio of cumulative gap to total
  earning assets                              0.50%         1.58%    (16.17)%    (16.17)%       9.30%
</TABLE>

(1) Excludes nonaccrual loans.



                                       13
<PAGE>



                           HCSB FINANCIAL CORPORATION

                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations

                            PROVISION FOR LOAN LOSSES

The provision for loan losses is charged to earnings based upon management's
evaluation of specific loans in its portfolio and general economic conditions
and trends in the marketplace. The 2002, 2001, and 2000 provisions for loan
losses and their related effect of increasing the allowance for loan losses are
related to growth in the loan portfolio. Please refer to the section "Loan
Portfolio" for a discussion of management's evaluation of the adequacy of the
allowances for loan losses. In 2002, 2001, and 2000, the provisions for loan
losses were $535,000, $348,000, and $271,000, respectively.

                                  OTHER INCOME

Other income was $1,475,000 for the year ended December 31, 2002, an increase of
$185,000, or 14.34%, when compared with the year ended December 31, 2001. The
increase is primarily a result of an increase of $225,000, or 25.51%, in service
charges on deposit accounts from $882,000 for 2001 to $1,107,000 for 2002, which
corresponds to an increase in average demand deposits and savings accounts to
$64,926,000 during 2002 as compared to $41,716,000 during 2001.

Other income was $1,290,000 for the year ended December 31, 2001, an increase of
$134,000, or 11.59%, when compared with the year ended December 31, 2000. The
increase is primarily a result of an increase in service charges on deposit
accounts from $690,000 for 2000 to $882,000 for 2001, which corresponds to an
increase in average demand deposit and savings accounts to $41,716,000 during
2001 as compared to $39,059,000 during 2000. Other fees and commissions also
increased $147,000 or 163.33% to $237,000 for the year ended December 31, 2001.
Of this total, $100,000 was attributable to commissions from brokerage services
that the Bank began offering in January 2001. These increases were offset by the
$215,000 gain on the sale of land in Little River that was recognized in 2000.

                                 OTHER EXPENSES

All categories of other expenses increased during 2002 due to continued growth
of the Company. Salaries and employee benefits increased $878,000, or 30.61%,
due to an increase in staffing for the new branches at Windy Hill and Myrtle
Beach and to normal salary increases among existing employees. Net occupancy and
furniture and fixtures and equipment expenses also increase $171,000 due mainly
to an increase in depreciation expense and the cost of equipment maintenance
attributable to the opening of the new branches. Other operating expenses were
$1,670,000 for the year ended December 31, 2002 compared to $1,209,000 for the
year ended December 31, 2002.

All categories of other expenses increased during 2001 due to continued growth
of the Company. Salaries and employee benefits increased $621,000, or 27.64%,
due to an increase in staffing for the new branches and brokerage department, in
addition to normal salary increases among existing employees. Net occupancy and
furniture and equipment expense also increased $158,000 due mainly to an
increase in depreciation expense and the cost of equipment maintenance
attributable to the opening of the new branches. Other operating expenses were
$1,209,000 for the year ended December 31, 2001 compared to $1,048,000 for the
year ended December 31, 2000.

                                  INCOME TAXES

The Company's income tax expense for 2002 was $617,000, an increase of $25,000
from the 2001 expense of $526,000. The increase in the expense results primarily
from increased income before taxes. The Company's effective tax rates for the
years ended December 31, 2002 and 2001 were 34.70% and 34.56%, respectively.

The Company's income tax expense for 2001 was $526,000, a decrease of $22,000
from the 2000 expense of $548,000. The decrease in the expense results primarily
from decreased income before taxes. The Company's effective tax rates for the
years ended December 31, 2001 and 2000 were 34.56% and 34.57%, respectively.



                                       14
<PAGE>


                           HCSB FINANCIAL CORPORATION

                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations


                                    LIQUIDITY

Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of additional
liabilities. HCSB Financial Corporation manages both assets and liabilities to
achieve appropriate levels of liquidity. Cash and federal funds sold are the
Company's primary sources of asset liquidity. These funds provide a cushion
against short-term fluctuations in cash flow from both deposits and loans. The
investment securities portfolio is the Company's principal source of secondary
asset liquidity. However, the availability of this source of funds is influenced
by market conditions. Individual and commercial deposits are the Company's
primary source of funds for credit activities. Although not historically used as
principal sources of liquidity, federal funds purchased from correspondent banks
and advances from the Federal Home Loan Bank are other options available to
management.

As of December 31, 2002, the Company had unused lines of credit to purchase
federal funds from unrelated banks totaling $5,800,000. These lines of credit
are available on a one to fourteen day basis for general corporate purposes. The
lenders have reserved the right not to renew their respective lines. The Company
had no federal funds purchased as of December 31, 2002, as compared to a balance
of $2,310,000 outstanding on December 31, 2001.The Company may also borrow an
additional $15,754,000 from the Federal Home Loan Bank based on a predetermined
formula. Securities available-for-sale, which totaled $18,060,000 at December
31, 2002, also serve as a ready source of liquidity. Management believes that
the Company's liquidity sources are adequate to meet its operating needs. The
level of liquidity is measured by the loans-to-total borrowed funds ratio, which
was at 85.32% and 85.93% at December 31, 2002 and 2001, respectively.

                     IMPACT OF OFF-BALANCE-SHEET INSTRUMENTS

The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments consist of commitments to extend credit and standby
letters of credit. Commitments to extend credit are legally binding agreements
to lend to a customer at predetermined interest rates as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. A commitment involves, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance sheets. The
Company's exposure to credit loss in the event of nonperformance by the other
party to the instrument is represented by the contractual notional amount of the
instrument. Since certain commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. Letters of credit are conditional commitments issued to guarantee
a customer's performance to a third party and have essentially the same credit
risk as other lending facilities. Standby letters of credit often expire without
being used. Management believes that through various sources of liquidity, the
Company has the necessary resources to meet obligations arising from these
financial instruments.

The Company uses the same credit underwriting procedures for commitments to
extend credit and standby letters of credit as for on-balance-sheet instruments.
The credit worthiness of each borrower is evaluated and the amount of
collateral, if deemed necessary, is based on the credit evaluation. Collateral
held for commitments to extend credit and standby letters of credit varies but
may include accounts receivable, inventory, property, plant, equipment, and
income-producing commercial properties.

The Company is not involved in off-balance sheet contractual relationships,
other than those disclosed in this report, that could result in liquidity needs
or other commitments or that could significantly impact earnings.

As of December 31, 2002, commitments to extend credit totaled $10,452,000 and
standby letters of credit totaled $443,000. Approximately $9,588,000 of these
commitments to extend credit had variable rates.

                                       15
<PAGE>


                           HCSB FINANCIAL CORPORATION

                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations


               IMPACT OF OFF-BALANCE-SHEET INSTRUMENTS (continued)

The following table sets forth the length of time until maturity for unused
commitments to extend credit and standby letters of credit at December 31, 2002.
<TABLE>
<CAPTION>

                                                     After One   After Three
                                                      Through      Through                    Greater
                                        Within One     Three       Twelve      Within One       Than
(Dollars in thousands)                    Month        Months      Months         Year        One Year        Total
                                      -------------  -----------  -----------  ------------- ---------  -----------
<S>                                        <C>         <C>            <C>           <C>         <C>         <C>
Unused commitments to extend credit        $  190      $  339     $   6,868     $   7,397   $   3,055   $    10,452
Standby letters of credit                      11           -           393           404          39           443
                                    -------------  -----------  -----------  -------------   --------   -----------

  Totals                            $         201      $  339     $   7,261     $   7,801   $   3,094   $    10,895
                                    =============  ===========  ===========  =============   ========   ===========
</TABLE>

                     IMPACT OF INFLATION AND CHANGING PRICES

The financial statements and related financial data presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in relative purchasing power over
time due to inflation. Unlike most industrial companies, virtually all of the
assets and liabilities of a financial institution are monetary in nature. As a
result, interest rates generally have a more significant impact on a financial
institution's performance than does the effect of inflation.

While the effect of inflation on a bank is normally not as significant as its
influence on those businesses that have large investments in plant and
inventories, it does have an effect. Interest rates generally increase as the
rate of inflation increases, but the magnitude of the change in rates may not be
the same. While interest rates have traditionally moved with inflation, the
effect on income is diminished because both interest earned on assets and
interest paid on liabilities vary directly with each other unless the Company is
in a high liability sensitive position. Also, general increases in the price of
goods and services will result in increased operating expenses.

                                CAPITAL RESOURCES

The Company uses several indicators of capital strength. The most commonly used
measure is average common equity to average assets which was 7.80% in 2002
compared to 6.94% in 2001. This ratio changed very little as income was realized
proportionately to the increase in assets.

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



                                       16
<PAGE>


                           HCSB FINANCIAL CORPORATION

                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations


                          CAPITAL RESOURCES (continued)

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum ratios of Tier 1 and total
capital as a percentage of assets and off-balance-sheet exposures, adjusted for
risk weights ranging from 0% to 100%. Tier 1 capital consists of common
shareholders' equity, excluding the unrealized gain or loss on securities
available-for-sale, minus certain intangible assets. Tier 2 capital consists of
the allowance for loan losses subject to certain limitations. Total capital for
purposes of computing the capital ratios consists of the sum of Tier 1 and Tier
2 capital. The regulatory minimum requirements are 4% for Tier 1 and 8% for
total risk-based capital.

The Company and the Bank are also required to maintain capital at a minimum
level based on quarterly average assets, which is known as the leverage ratio.
Only the strongest banks are allowed to maintain capital at the minimum
requirement of 3%. All others are subject to maintaining ratios 1% to 2% above
the minimum.

As of December 31, 2002, the most recent notifications from the Bank's primary
regulator categorized the Bank as well-capitalized under the regulatory
framework for prompt corrective action. There are no conditions or events that
management believes have changed the Bank's category.

The Company and the Bank are required to maintain certain risk-based and
leverage ratios. The Company and the Bank exceeded these regulatory capital
ratios at December 31, 2002 and 2001 as set forth in the following tables.
<TABLE>
<CAPTION>

December 31,                                                                          2002             2001
                                                                                ---------------  ---------------
(Dollars in thousands)
The Company
<S>  <C>                                                                             <C>             <C>
Tier 1 capital                                                                  $    19,728     $     10,867
Tier 2 capital                                                                        1,452            1,112
                                                                                ---------------  ---------------
     Total qualifying capital                                                   $    21,180     $     11,979
                                                                                =============    =============

Risk-adjusted total assets (including off-balance-sheet exposures)              $   168,808     $    123,413
                                                                                =============    =============

     Tier 1 risk-based capital ratio                                                 11.69%           8.81%
     Total risk-based capital ratio                                                  12.55%           9.71%
     Tier 1 leverage ratio                                                           10.74%           7.12%

December 31,                                                                          2002             2001
                                                                                ---------------   --------------
(Dollars in thousands)
The Bank
Tier 1 capital                                                                  $     18,331    $     10,849
Tier 2 capital                                                                         1,452           1,112
                                                                                ---------------   --------------
     Total qualifying capital                                                   $     19,783    $     11,961
                                                                                =============    =============

Risk-adjusted total assets (including off-balance-sheet exposures)              $    169,176    $    123,422
                                                                                =============    =============

     Tier 1 risk-based capital ratio                                                  10.83%           8.79%
     Total risk-based capital ratio                                                   11.68%           9.69%
     Tier 1 leverage ratio                                                             8.67%           7.13%
</TABLE>

Management does not expect to pay cash dividends to shareholders during 2003.



                                       17
<PAGE>


                           HCSB FINANCIAL CORPORATION

                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations


                              INVESTMENT PORTFOLIO

Management classifies investment securities as either held-to-maturity or
available-for-sale based on their intentions and the Company's ability to hold
them until maturity. In determining such classifications, securities that
management has the positive intent and the Company has the ability to hold until
maturity are classified as held-to-maturity and carried at amortized cost. All
other securities are designated as available-for-sale and carried at estimated
fair value with unrealized gains and losses included in shareholders' equity on
an after-tax basis. As of December 31, 2002 and 2001, all securities were
classified as available-for-sale.

The following tables summarize the carrying value of investment securities as of
the indicated dates and the weighted-average yields of those securities at
December 31, 2002.

Investment Securities Portfolio Composition
<TABLE>
<CAPTION>

  December 31,                                                                        2002             2001
                                                                               --------------    --------------
  (Dollars in thousands)
<S>                                                                                 <C>               <C>
  Securities of U.S. government agencies and corporations                      $        6,612    $        6,529
  Obligations of state and local governments                                            3,735             3,509
  Commercial paper                                                                          -             3,002
  Mortgage-backed securities                                                            7,713             4,109
  Nonmarketable equity securities                                                       1,394               790
                                                                               --------------    --------------

     Total securities                                                          $       19,454    $       17,939
                                                                               ==============    ==============

Investment Securities Portfolio Maturity Schedule
                                                                                       Available-for-Sale
                                                                                -------------------------------
December 31, 2002                                                                  Carrying
(Dollars in thousands)                                                              Amount        Yield (1)
                                                                               --------------     ---------
Securities of U.S. Government agencies and corporations due:
     After one year but within five years                                      $        6,256     2.69%
     After ten years                                                                      356     2.17
                                                                               --------------
                                                                                        6,612
Obligations of states and local governments due:
     In less than one year                                                                469     6.05
     After one year but within five years                                                 381     5.35
     After five years but within ten years                                              2,110     6.35
     After ten years                                                                      775     7.05
                                                                               --------------
                                                                                        3,735

Mortgage-backed securities                                                              7,713     5.20
                                                                               --------------

Total                                                                          $       18,060     4.50%
                                                                               ==============
</TABLE>

(1) For tax-exempt securities, the tax equivalent yield has been calculated
using an incremental rate of 34%.



                                       18
<PAGE>


                           HCSB FINANCIAL CORPORATION

                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations




                                 LOAN PORTFOLIO

Management believes the loan portfolio is adequately diversified. There are no
foreign loans, and agricultural loans as of December 31, 2002 are limited. There
are no significant concentrations of loans in any particular individuals or
industry or group of related individuals or industries.

The Company has experienced continued growth of its loan portfolio throughout
2002 and 2001, resulting in increases of $45,125,000 and $26,380,000,
respectively. Management has concentrated on maintaining quality in the loan
portfolio. The loan-to-deposit ratio is used to monitor a financial
institution's potential profitability and efficiency of asset distribution and
utilization. Generally, a higher loan-to-deposit ratio is indicative of higher
interest income since loans yield a higher return than other interest-earning
assets. The loan-to-deposit ratios were 99.19% and 98.03% at December 31, 2002
and 2001, respectively. The loans-to-total borrowed funds ratio was 85.32% and
85.93% at December 31, 2002 and 2001, respectively. Management intends to deploy
available funds to loans in order to maximize earnings and achieve its targeted
ratio of loans to deposits; however, there can be no assurance that management
will be able to execute its strategy or that loan demand will continue to
support growth.



<TABLE>
<CAPTION>
                                                                                     2002             2001
  Loan Portfolio Composition
  December 31,                                                                  --------------    --------------
  (Dollars in thousands)
<S>                                                                                  <C>               <C>
  Real estate - construction and land development                              $       17,032    $        8,058
  Real estate - other                                                                  65,245            43,168
  Agricultural                                                                          5,496             4,921
  Commercial and industrial                                                            48,403            40,608
  Consumer                                                                             25,020            20,825
  All other loans (including overdrafts)                                                1,637               128
                                                                               --------------    --------------

     Total gross loans                                                         $      162,833    $      117,708
                                                                               ==============    ==============
</TABLE>

Credit Risk Management
Credit risk entails both general risk, which is inherent in the process of
lending, and risk that is specific to individual borrowers. The management of
credit risk involves the processes of loan underwriting and loan administration.
The Company manages credit risk through a strategy of making loans within the
Company's primary marketplace and within the Company's limits of expertise.
Although management seeks to avoid concentrations of credit by loan type or
industry through diversification, a substantial portion of the borrowers'
ability to honor the terms of their loans is dependent on the business and
economic conditions in Horry and Marion Counties in South Carolina and Columbus
and Brunswick Counties in North Carolina. Additionally, since real estate is
considered by the Company as the most desirable nonmonetary collateral, a
significant portion of the Company's loans are collateralized by real estate;
however, the cash flow of the borrower or the business enterprise is generally
considered as the primary source of repayment. Generally, the value of real
estate is not considered by the Company as the primary source of repayment for
performing loans. The Company also seeks to limit total exposure to individual
and affiliated borrowers. The Company manages risk specific to individual
borrowers through the loan underwriting process and through an ongoing analysis
of the borrower's ability to service the debt as well as the value of the
pledged collateral.

The Company's loan officers and loan administration staff are charged with
monitoring the Company's loan portfolio and identifying changes in the economy
or in a borrower's circumstances which may affect the ability to repay the debt
or the value of the pledged collateral. In order to assess and monitor the
degree of risk in the Company's loan portfolio, several credit risk
identification and monitoring processes are utilized. The Company assesses
credit risk initially through the assignment of a risk grade to each loan based
upon an assessment of the borrower's financial capacity to service the debt and
the presence and value of any collateral.



                                       19
<PAGE>


                           HCSB FINANCIAL CORPORATION

                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations


                           LOAN PORTFOLIO (continued)

Credit grading is adjusted during the life of the loan to reflect economic and
individual changes having an impact on the borrowers' ability to honor the terms
of their commitments. Management uses the risk grades as a tool for identifying
known and inherent losses in the loan portfolio and for determining the adequacy
of the allowance for loan losses.

Maturities and Sensitivity of Loans to Changes in Interest Rates:
The following table summarizes the loan maturity distribution, by type, at
December 31, 2002 and related interest rate characteristics:
<TABLE>
<CAPTION>

                                                               Over One Year
December 31, 2002                              One Year or       Through          Over Five
(Dollars in thousands)                             Less         Five Years           Years            Total
                                            --------------    -------------     -------------    -------------
Real estate - construction
<S>                                               <C>               <C>               <C>              <C>
  and land development                      $       12,049    $       4,571     $         412    $      17,032
Real estate - other                                 18,099           37,567             9,579           65,245
Agricultural                                         2,622            2,150               724            5,496
Commercial and industrial                           19,966           23,488             4,949           48,403
Consumer                                             6,944           17,327               749           25,020
All other loans (including overdrafts)               1,068              290               279            1,637
                                            --------------    -------------     -------------    -------------
                                            $       60,748    $      85,393     $      16,692    $     162,833
                                            ==============    =============     =============    =============

Loans maturing after one year with:
     Fixed interest rates                                                                        $      98,869
     Floating interest rates                                                                             3,216
                                                                                                 -------------
                                                                                                 $     102,085
                                                                                                 =============
</TABLE>
Risk Elements
Loans are defined as impaired when it is probable that a creditor will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. Impairment of a loan is based on the present value of the expected
future cash flows discounted at the loan's effective interest rate or at the
fair value of the collateral if the loan is collateral dependent.

Loans on the Company's problem loan watch list are considered potentially
impaired loans. These loans are evaluated in determining whether all outstanding
principal and interest are expected to be collected. Loans are not considered
impaired if a minimal delay occurs and all amounts due, including accrued
interest at the contractual interest rate for the period of delay, are expected
to be collected.

As of December 31, 2002 and 2001, the Company had nonaccrual loans of
approximately $915,000 and $574,000, respectively, and loans that were past due
90 days or more and still accruing interest of approximately $381,000 and
$176,000, respectively, for which impairment had not been recognized. The
additional interest income, which would have been recognized into earnings if
the Company's nonaccrual loans had been current in accordance with their
original terms, is immaterial for all years presented. The amount of both
nonaccrual loans and loans past due 90 days or more were considered in computing
the allowance for loan losses as of December 31, 2002.




                                       20
<PAGE>

                           HCSB FINANCIAL CORPORATION

                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations



                           LOAN PORTFOLIO (continued)
<TABLE>
<CAPTION>

Summary of Loan Loss Experience
  (Dollars in thousands)                                                              2002              2001
                                                                               --------------    --------------
<S>                                                                                 <C>               <C>
  Total loans outstanding at end of period                                     $      162,833    $      117,708
                                                                               ==============    ==============
  Average loans outstanding                                                    $      144,266    $      106,130
                                                                               ==============    ==============
  Balance of allowance for loan losses at beginning of period                  $        1,112    $        1,019
                                                                               --------------    --------------
  Loans losses:
     Real estate                                                                            4                 1
     Commercial                                                                           145                57
     Consumer and credit card                                                              89               220
                                                                               --------------    --------------
         Total loan losses                                                                238               278
  Recoveries of loans previous charged-off                                                 43                23
                                                                               --------------    --------------
         Net charge-offs                                                                  195               255
                                                                               --------------    --------------
  Provision charged to operations                                                         535               348
                                                                               --------------    --------------
  Balance of allowance for loan losses at end of period                        $        1,452    $        1,112
                                                                               ==============    ==============

  Ratios:
  Net charge-offs to average loans outstanding                                           0.14%             0.24%
  Net charge-offs to loans at end of year                                                0.12%             0.22%
  Allowance for loan losses to average loans                                             1.01%             1.05%
  Allowance for loan losses to loans at end of year                                      0.89%             0.94%
  Net charge-offs to allowance for loan losses                                          13.43%            22.93%
  Net charge-offs to provisions for loan losses                                         36.45%            73.28%
</TABLE>

Management has established an allowance for loan losses through a provision for
loan losses charged to expense. The allowance represents an amount which
management believes will be adequate to absorb probable losses on existing loans
that may become uncollectible. Management does not allocate specific percentages
of our allowance for loan losses to the various categories of loans but
evaluates the adequacy on an overall portfolio basis utilizing several factors.
The primary factor considered is the credit risk grading system, which is
applied to each loan. The amount of both nonaccrual loans and loans past due 90
days or more is also considered. The historical loan loss experience, the size
of our lending portfolio, and current and anticipated economic conditions is
also considered in determining the provision for loan losses. The amount of the
allowance is adjusted periodically based on changing circumstances. Recognized
losses are charged to the allowance for loan losses, while subsequent recoveries
are added to the allowance.

Management regularly monitors past due and classified loans. However, it should
be noted that no assurances can be made that future charges to the allowance for
loan losses or provisions for loan losses may not be significant to a particular
accounting period. At December 31, 2002 and 2001, management considers the
allowances for loan losses adequate based on their judgments, evaluations, and
analysis of the loan portfolio.




                                       21
<PAGE>


                           HCSB FINANCIAL CORPORATION

                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations


                             AVERAGE DAILY DEPOSITS

The following table summarizes the Company's average daily deposits during the
years ended December 31, 2002 and 2001. These totals include certificates of
deposit $100,000 and over, which at December 31, 2002 totaled $21,272,000. Of
this total, scheduled maturities within three months were $3,138,000; within
three to six months $5,562,000; within six to twelve months $10,680,000; and
$1,892,000 maturing thereafter.
<TABLE>
<CAPTION>

  December 31,                                           2002                               2001
                                             ------------------------------    ------------------------------
                                                Average      Average Rate        Average          Average Rate
  (Dollars in thousands)                        Amount           Paid            Amount              Paid
                                             ------------    --------------    --------------    ------------
<S>                                            <C>                 <C>            <C>                  <C>
  Noninterest-bearing demand                 $     19,568             0.00%    $        9,413           0.00%
  Interest-bearing transaction accounts            24,978             2.52             11,375           0.78
  Money market savings account                     16,999             1.82             18,259           3.29
  Other savings accounts                            3,381             0.63              2,669           1.54
  Certificates of deposit                          81,084             3.82             82,664           5.67
                                             ------------                      --------------
     Total deposits                          $    146,010                      $      124,380
                                             ============                      ==============
</TABLE>

                           RETURN ON EQUITY AND ASSETS

The following table shows the return on average assets (net income divided by
average total assets), return on average equity (net income divided by average
daily equity), and equity to assets ratio (average daily equity divided by
average total assets) for the period indicated. Since its inception, the Company
has not paid cash dividends.
<TABLE>
<CAPTION>

                                                                                      2002              2001
                                                                               --------------    --------------
<S>                                                                                     <C>               <C>
Return on average assets                                                                0.63%             0.67%
Return on average equity                                                                8.10%             9.61%
Equity to assets ratio                                                                  7.80%             6.94%
</TABLE>

                    ACCOUNTING AND FINANCIAL REPORTING ISSUES

In October 2002, the FASB issued SFAS No. 147,  Accounting for Certain Financial
Institutions - an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation  No. 9, which  brings all  business  combinations  involving
financial  institutions,  except  mutual financial  institutions, into the
scope of SFAS No. 141,  Business  Combinations.  This statement  requires that
all acquisitions of financial  institutions  that meet the definition of a
business,  including  acquisitions of part of a financial  institution that meet
the  definition  of a business,  must be accounted  for in accordance with SFAS
No. 141 and the related  intangibles  accounted for in accordance  with
SFAS No.  142.  SFAS No.  147  removes  such  acquisitions  from the scope of
SFAS No.  72,  Accounting  for  Certain Acquisitions  of Banking or Thrift
Institutions.  SFAS No. 147 also  amends  SFAS No. 144 to include in its scope
long-term customer relationship  intangibles  of financial  institutions.
SFAS No. 147 was  effective  upon  issuance and had no impact on the  Company's
financial statements.

In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based
Compensation--Transition and Disclosure--an amendment of FASB Statement No. 123.
This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
adopted this standard effective December 31, 2002 and has included the required
disclosures in the footnotes to the financials. The Company has not elected the
fair value treatment of stock-based compensation and the adoption of this
standard had no impact on its financial position.



                                       22
<PAGE>


                           HCSB FINANCIAL CORPORATION

                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations


              ACCOUNTING AND FINANCIAL REPORTING ISSUES (continued)

Other accounting standards that have been issued or proposed by the FASB or
other standards-setting bodies that do not require adoption until a future date
are not expected to have a material impact on the consolidated financial
statements upon adoption.

                              INDUSTRY DEVELOPMENTS

On November 4, 1999, the U.S. Senate and House of Representatives each passed
the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. The Act was signed into law by President Clinton in
November 1999. 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 creates a new "financial holding company" under
the Bank Holding Company Act, which will permit 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 the Company faces 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 the Company.

From time to time, various bills are introduced in the United States Congress
with respect to the regulation of financial institutions. Certain of these
proposals, if adopted, could significantly change the regulation of banks and
the financial services industry. The Company cannot predict whether any of these
proposals will be adopted or, if adopted, how these proposals would affect the
Company.

                              CHANGE OF ACCOUNTANTS

Legislation and Securities Exchange Commission rules adopted in 2002 have
significantly increased, and will continue to increase, the regulatory burdens
on audit firms that audit the financial statements of companies that are subject
to the reporting requirements of the Securities Exchange Act of 1934.
Consequently, many smaller audit firms are deciding to limit their audit
practice to companies that are not subject to the 1934 Act. Tourville, Simpson &
Caskey, L.L.P., which served as the Company's principal independent accountant
since the Company's inception, is one such firm. Accordingly, effective January
2, 2003, Tourville, Simpson & Caskey resigned as the Company's principal
independent public accountant. Elliott Davis, LLC was engaged by the Company on
January 2, 2003 to audit the Company's financial statements for the year ended
December 31, 2002, and has also been selected to audit the Company's financial
statements for the year ending December 31, 2003.

Tourville, Simpson & Caskey, L.L.P.'s reports on the Company's financial
statements for each of the years ended December 31, 2001 and 2000 neither
contained an adverse opinion or disclaimer of opinion, nor was modified as to
uncertainty, audit scope, or accounting principles. There were no disagreements
with Tourville, Simpson & Caskey, L.L.P. on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to Tourville, Simpson & Caskey, L.L.P.'s satisfaction,
would have caused it to make reference to the subject matter of the disagreement
in its reports.



                                       23
<PAGE>










                          INDEPENDENT AUDITORS' REPORT








The Board of Directors
HCSB Financial Corporation
Loris, South Carolina

We have audited the accompanying consolidated balance sheet of HCSB Financial
Corporation and its subsidiary as of December 31, 2002, and the related
consolidated statement of income, changes in shareholders' equity and
comprehensive income, and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of HSCB Financial Corporation and its
subsidiary as of and for the period ended December 31, 2001, were audited by
other auditors, whose report dated February 21, 2002, expressed an unqualified
opinion on those statements.

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

In our opinion, the financial statements present fairly, in all material
respects, the consolidated financial position of HCSB Financial Corporation and
its subsidiary as of December 31, 2002, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.



/s/ Elliott Davis, LLC
------------------------
Elliott Davis, LLC
Columbia, South Carolina
February 13, 2003



                                       24
<PAGE>



                           HCSB FINANCIAL CORPORATION
The accompanying notes are an integral part of the consolidated financial
statements.

<TABLE>
<CAPTION>


                           Consolidated Balance Sheets

                                                                                            December 31,
                                                                                       ---------------------
(Dollars in thousands)                                                               2002                2001
                                                                               --------------      --------------
  Assets:
   Cash and cash equivalents:
<S>                                                                                     <C>                 <C>
     Cash and due from banks                                                   $        8,243      $        4,986
     Federal funds sold                                                                11,350                   -
                                                                               --------------      --------------
       Total cash and cash equivalents                                                 19,593               4,986
                                                                               --------------      --------------
   Time deposits with other banks                                                           -                 699
                                                                               --------------      --------------
   Investment securities:
     Securities available-for-sale                                                     18,060              17,149
     Nonmarketable equity securities                                                    1,394                 790
                                                                               --------------      --------------
       Total investment securities                                                     19,454              17,939
                                                                               --------------      --------------
   Loans receivable                                                                   162,833             117,708
     Less allowance for loan losses                                                    (1,452)             (1,112)
                                                                               --------------      --------------
       Loans, net                                                                     161,381             116,596
   Premises, furniture, and equipment, net                                              7,908               5,539
   Accrued interest receivable                                                          1,585               1,462
   Other assets                                                                         1,677               1,430
                                                                               --------------      --------------
       Total assets                                                            $      211,598      $      148,651
                                                                               ==============      ==============
  Liabilities:
   Deposits:
     Noninterest-bearing transaction accounts                                  $       16,714      $        9,475
     Interest-bearing transaction accounts                                             58,329              12,798
     Money market savings accounts                                                     18,798              16,357
     Other savings accounts                                                             3,534               2,800
     Certificates of deposit $100 and over                                             21,172              26,883
     Other time deposits                                                               45,614              51,760
                                                                               --------------      --------------
       Total deposits                                                                 164,161             120,073
   Federal funds purchased                                                                  -               2,310
   Advances from the Federal Home Loan Bank                                            26,690              14,600
   Accrued interest payable                                                               314                 220
   Other liabilities                                                                      583                 553
                                                                               --------------      --------------
       Total liabilities                                                              191,748             137,756
                                                                               --------------      --------------
  Commitments and Contingencies (Notes 4, 9 and 10)
  Shareholders' Equity:
   Common stock, $0.01 par value, 10,000,000 shares authorized; 1,469,767 and
     1,052,175 shares issued and outstanding
     in 2002 and 2001, respectively                                                        15                  11
   Capital surplus                                                                     17,652               8,793
   Retained earnings                                                                    2,067               2,063
   Accumulated other comprehensive income                                                 122                  28
   Treasury stock, at cost                                                                 (6)                  -
                                                                               --------------      --------------
     Total shareholders' equity                                                        19,850              10,895
                                                                               --------------      --------------
     Total liabilities and shareholders' equity                                $      211,598      $      148,651
                                                                               ==============      ==============
</TABLE>





                                       25
<PAGE>




                        Consolidated Statements of Income

<TABLE>
<CAPTION>
                                                                                  Years ended December 31,
                                                                  -----------------------------------------------

(Dollars in thousands)                                                2002              2001              2000
                                                                  -----------       -----------      ------------
  Interest income:
<S>                                                                     <C>               <C>              <C>
   Loans, including fees                                          $    11,670       $     9,974      $      8,738
   Investment securities:
     Taxable                                                              496             1,200             1,243
     Tax-exempt                                                           158               153               165
     Nonmarketable equity securities                                       55                54                49
   Federal funds sold                                                     155               388               357
   Time deposits with other banks                                           2                 5                 -
                                                                  -----------       -----------      ------------
       Total                                                           12,536            11,774            10,552
                                                                  -----------       -----------      ------------
  Interest expense:
   Deposits                                                             4,056             5,421             5,099
   Advances from the Federal Home Loan Bank                             1,155               795               668
   Federal funds purchased                                                  -                 1                48
                                                                  -----------       -----------      ------------
       Total                                                            5,211             6,217             5,815
                                                                  -----------       -----------      ------------
  Net interest income                                                   7,325             5,557             4,737
  Provision for loan losses                                               535               348               271
                                                                  -----------       -----------      ------------
  Net interest income after provision for loan losses                   6,790             5,209             4,466
                                                                  -----------       -----------      ------------
  Noninterest income:
   Service charges on deposit accounts                                  1,107               882               690
   Credit life insurance commissions                                      135               155               141
   Other fees and commissions                                             239               237                90
   Net gain (loss) on sale of premises and equipment                      (63)              (37)              215
   Net gain (loss) on sale of securities available-for-sale                 8                 6               (32)
   Other                                                                   49                47                52
                                                                  -----------       -----------      ------------
       Total                                                            1,475             1,290             1,156
                                                                  -----------       -----------      ------------
  Noninterest expenses:
   Salaries and employee benefits                                       3,746             2,868             2,247
   Net occupancy                                                          426               341               271
   Furniture and equipment                                                645               559               471
   Other operating                                                      1,670             1,209             1,048
                                                                  -----------       -----------      ------------
       Total                                                            6,487             4,977             4,037
                                                                  -----------       -----------      ------------
  Income before income taxes                                            1,778             1,522             1,585
  Income tax provision                                                    617               526               548
                                                                  -----------       -----------      ------------
  Net income                                                      $     1,161       $       996      $      1,037
                                                                  ===========       ===========      ============
  Earnings per share
   Weighted-average common shares outstanding                       1,326,135         1,104,055         1,104,055
                                                                  ===========       ===========      ============
   Net income - basic                                             $      0.88       $      0.90      $       0.94
                                                                  ===========       ===========      ============

</TABLE>





                                       26
<PAGE>




  Consolidated Statements of Changes in Shareholders' Equity and Comprehensive
              Income Years ended December 31, 2002, 2001, and 2000
<TABLE>
<CAPTION>


                                                                                     Accumulated
                                                                                         other
                                                                                        compre-
                                         Common Stock       Capital      Retained      hensive     Treasury
(Dollars in thousands,            Shares       Amount       surplus      earnings       income      stock        Total
                               ----------  -----------   -----------   -----------  ----------- ----------- -----------
except share amounts)
<S>               <C> <C>             <C>        <C>           <C>         <C>           <C>         <C>         <C>
Balance, December 31, 1999        501,385    $        5    $  7,878    $    1,037    $     (579) $        -  $    8,341
                                                                                                             ----------
Net income                                                                  1,037                                 1,037
Other comprehensive income,
  net of tax expense of $236                                                                403                     403
                                                                                                             ----------
Comprehensive income                                                                                              1,440
Two for one stock split           501,385             5                        (5)                                    -
                               ----------    ----------    --------    ----------    ----------  ----------  ----------
Balance, December 31, 2000      1,002,770            10       7,878         2,069          (176)          -       9,781
                                                                                                             ----------
Net income                                                                    996                                   996
Other comprehensive income,
  net of tax expense of $120                                                                204                     204
                                                                                                             ----------
Comprehensive income                                                                                              1,200
Payment for fractional shares                                                 (14)                                  (14)
Issuance of 5% stock dividend      49,405             1         987          (988)
Stock issuance costs                                            (72)                                                (72)
                               ----------    ----------    --------    ----------    ----------  ----------  ----------
Balance, December 31, 2001      1,052,175            11       8,793         2,063            28           -      10,895
                                                                                                             ----------
Net income                                                                  1,161                                 1,161
Other comprehensive income,
  net of tax expense of $55                                                                  94                      94
                                                                                                             ----------
Comprehensive income                                                                                              1,255
Payment for fractional shares                                                 (16)                                  (16)
Issuance of 5% stock dividend      51,880             1       1,141        (1,141)                                    1
Issuance of stock                 365,712             3       8,042                                               8,045
Stock issuance costs                                           (324)                                               (324)
Purchase of treasury stock
  (277 shares)                                                                                           (6)         (6)
                               ----------    ----------    --------    ----------    ----------  ----------  ----------
Balance, December 31, 2002      1,469,767    $       15    $ 17,652    $    2,067    $      122  $       (6) $   19,850
                               ==========    ==========    ========    ==========    ==========  ==========  ==========

</TABLE>





                                       27
<PAGE>




                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                                  Years ended December 31,
                                                                            ----------------------------------
                                                                       2002              2001             2000
                                                                   -----------       -----------       ----------
  Cash flows from operating activities:
   <S>                                                                   <C>               <C>               <C>
   Net income                                                     $     1,161       $       996       $    1,037
   Adjustments to reconcile net income to
     net cash provided by operating activities:
       Provision for loan losses                                          535               348              271
       Deferred income tax provision                                       46                 4               75
       Depreciation and amortization expense                              425               436              325
       Premium amortization less discount accretion                        39                (9)               6
       Amortization of net deferred loan costs                             27                23              120
       Net (gain) loss on sale of securities available-for-sale            (8)               (6)              32
       Loss (gain) on sale of other real estate owned                      (3)               (5)               -
       Loss (gain) on disposal of premises and equipment                   63                37             (215)
       Increase in interest receivable                                   (123)              (47)            (211)
       Increase (decrease) in interest payable                             94               (90)             (93)
       Increase in other assets                                          (227)             (117)            (148)
       Increase (decrease) in other liabilities                            43                26             (226)
                                                                  -----------       -----------       ----------
         Net cash provided by operating activities                      2,072             1,596              973
                                                                  -----------       -----------       ----------
  Cash flows from investing activities:
   Purchases of securities available-for-sale                         (32,545)          (16,956)            (800)
   Maturities of securities available-for-sale                         29,459            19,017            2,954
   Proceeds from sales of securities available-for-sale                 2,208             2,006            1,463
   Net increase in loans to customers                                 (45,744)          (26,818)         (15,930)
   Purchase of premises, furniture and equipment                       (2,902)             (481)          (1,617)
   Proceeds from sale of premises, furniture and equipment                 45                15              422
   Proceeds from sale of other real estate owned                          351               105                -
   Decrease (increase) in time deposits with other banks                  699              (699)               -
   Purchase of nonmarketable equity securities                           (604)                -             (230)
                                                                  -----------       -----------       ----------
         Net cash used by investing activities                        (49,033)          (23,811)         (13,738)
                                                                  -----------       -----------       ----------
  Cash flows from financing activities:
   Net increase in demand deposits, interest-bearing
     transaction accounts and savings accounts                         55,945               853            5,509
   Net increase (decrease) in time deposits                           (11,857)           (4,280)          23,162
   Net increase (decrease) in federal funds purchased                  (2,310)            2,310                -
   Advances from the Federal Home Loan Bank                            12,090             5,000            9,600
   Repayments of advances from the Federal Home Loan Bank                   -                 -          (10,000)
   Proceeds from stock issuance                                         8,046                 -                -
   Purchase of treasury stock                                              (6)                -                -
   Stock issuance costs                                                  (324)              (72)               -
   Cash paid for fractional shares                                        (16)              (14)               -
                                                                  -----------       -----------       ----------
         Net cash provided by financing activities                     61,568             3,797           28,271
                                                                  -----------       -----------       ----------
  Net increase (decrease) in cash and cash equivalents                 14,607           (18,418)          15,506
  Cash and cash equivalents, beginning of year                          4,986            23,404            7,898
                                                                  -----------       -----------       ----------
  Cash and cash equivalents, end of year                          $    19,593       $     4,986       $   23,404
                                                                  ===========       ===========       ==========

</TABLE>





                                       28
<PAGE>




                           HCSB FINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements



NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation - The accompanying consolidated
financial statements include the accounts of HCSB Financial Corporation (the
Company) and its wholly owned subsidiary, Horry County State Bank (the Bank).
The Company was incorporated on June 10, 1999. The Bank was incorporated on
December 18, 1987, and opened for operations on January 4, 1988. The principal
business activity of the Company is to provide commercial banking services in
Horry and Marion Counties, South Carolina, and in Columbus and Brunswick
Counties, North Carolina. The Bank is a state-chartered bank, and its deposits
are insured by the Federal Deposit Insurance Corporation.

Management's Estimates - In preparing the consolidated financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the balance sheet date and
income and expenses for the period. Actual results could differ significantly
from those estimates.

Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses, including
valuation allowances for impaired loans, and the carrying amount of real estate
acquired in connection with foreclosures or in satisfaction of loans. Management
must also make estimates in determining the estimated useful lives and methods
for depreciating premises and equipment.

While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowance may be necessary based
on changes in local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the Company's
allowances for losses on loans and foreclosed real estate. Such agencies may
require the Company to recognize additions to the allowances based on their
judgments about information available to them at the time of their examination.
Because of these factors, it is reasonably possible that the allowances for
losses on loans and foreclosed real estate may change materially in the near
term.

Significant Group Concentrations of Credit Risk - Most of the Company's
activities are with customers located within Horry and Marion Counties in South
Carolina and Columbus and Brunswick Counties in North Carolina. The types of
securities in which the Company invests are discussed in Note 3. The types of
lending that the Company engages in are discussed in Note 4. The Company does
not have any significant concentrations to any one industry or customer.

Investment Securities - Investment securities available-for-sale by the Company
are carried at amortized cost and adjusted to their estimated fair value. The
unrealized gain or loss is recorded in shareholders' equity net of the deferred
tax effects. Management does not actively trade securities classified as
available-for-sale but intends to hold these securities for an indefinite period
of time and may sell them prior to maturity to achieve certain objectives.
Reductions in fair value considered by management to be other than temporary are
reported as a realized loss and a reduction in the cost basis in the security.
The adjusted cost basis of securities available-for-sale is determined by
specific identification and is used in computing the realized gain or loss from
a sales transaction.

Nonmarketable Equity Securities - Nonmarketable equity securities include the
Company's investments in the stock of the Federal Home Loan Bank and Community
Financial Services. The stocks are carried at cost because they have no quoted
market value and no ready market exists. Investment in Federal Home Loan Bank
stock is a condition of borrowing from the Federal Home Loan Bank, and the stock
is pledged to collateralize the borrowings. Dividends received on Federal Home
Loan Bank stock and Community Financial Services stock are included as a
separate component in interest income.

At December 31, 2002 and 2001, the investment in Federal Home Loan Bank stock
was $1,334,000 and $730,000, respectively, and the investment in Community
Financial Services stock was $60,000.





                                       29
<PAGE>





NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
---------------------------------------------------------

Loans receivable - Loans receivable are stated at their unpaid principal
balance. Interest income on loans is computed based upon the unpaid principal
balance. Interest income is recorded in the period earned.

The accrual of interest income is generally discontinued when a loan becomes 90
days past due as to principal or interest. Management may elect to continue the
accrual of interest when the estimated net realizable value of collateral
exceeds the principal balance and accrued interest.

Loan origination and commitment fees and certain direct loan origination costs
(principally salaries and employee benefits) are being deferred and amortized to
income over the contractual life of the related loans or commitments, adjusted
for prepayments, using the straight-line method.

Under Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by
Creditors for the Impairment of a Loan, and SFAS No. 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures, loans
are defined as impaired when it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. All loans are subject to this criteria except for "smaller balance
homogeneous loans that are collectively evaluated for impairment" and loans
"measured at fair value or at the lower of cost or fair value." The Company
considers its consumer installment portfolio, credit card loans, and home equity
lines as such exceptions. Therefore, the real estate and commercial loan
portfolios are primarily affected by these statements.

Impairment of a loan is measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or the fair value of
the collateral if the loan is collateral dependent. When management determines
that a loan is impaired, the difference between the Company's investment in the
related loan and the present value of the expected future cash flows, or the
fair value of the collateral, is charged to bad debt expense with a
corresponding entry to the allowance for loan losses. The accrual of interest is
discontinued on an impaired loan when management determines the borrower may be
unable to meet payments as they become due.

Allowance for Loan Losses - An allowance for loan losses is maintained at a
level deemed appropriate by management to provide adequately for known and
inherent risks in the loan portfolio. The allowance is based upon a continuing
review of past loan loss experience, current economic conditions which may
affect the borrowers' ability to pay, and the underlying collateral value of the
loans. Loans deemed uncollectible are charged off and deducted from the
allowance. The provision for loan losses, including provisions for loan
impairment, and recoveries on loans previously charged off, are added to the
allowance.

Premises, Furniture and Equipment - Premises, furniture and equipment are stated
at cost less accumulated depreciation. The provision for depreciation is
computed by the straight-line method. Rates of depreciation are generally based
on the following estimated useful lives: buildings - 40 years; furniture and
equipment - 3 to 25 years. The cost of assets sold or otherwise disposed of and
the related accumulated depreciation is eliminated from the accounts, and the
resulting gains or losses are reflected in the income statement.

Maintenance and repairs are charged to current expense as incurred, and the
costs of major renewals and improvements are capitalized.





                                       30
<PAGE>





NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
---------------------------------------------------------

Other Real Estate Owned - Other real estate owned includes real estate acquired
through foreclosure. Other real estate owned is initially recorded at the lower
of cost (principal balance of the former loan plus costs of improvements) or
fair value, less estimated costs to sell.

Any write-downs at the dates of acquisition are charged to the allowance for
loan losses. Expenses to maintain such assets, subsequent write-downs, and gains
and losses on disposal are included in other expenses.

Income and Expense Recognition - The accrual method of accounting is used for
all significant categories of income and expense. Immaterial amounts of
insurance commissions and other miscellaneous fees are reported when received.

Income Taxes - Amounts provided for income taxes are based on income reported
for financial statement purposes. Deferred income taxes are provided for the
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Management has determined that it is more likely than not that the entire
deferred tax asset at December 31, 2002, will be realized, and accordingly, has
not established a valuation allowance. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.

Net Income Per Share - Net income per share is calculated by dividing net income
by the weighted-average number of shares outstanding during the year.
Retroactive recognition has been given for the effects of all stock dividends in
computing the weighted-average number of shares. The Company has no instruments
which are considered common stock equivalents and therefore, diluted earnings
per share is not presented.

Comprehensive Income - Accounting principles generally require recognized
income, expenses, gains, and losses to be included in net income. Although
certain changes in assets and liabilities, such as unrealized gains and losses
on available-for-sale securities, are reported as a separate component of the
equity section of the balance sheet, such items, along with net income, are
components of comprehensive income.

The components of other comprehensive income and related tax effects are as
follows:
<TABLE>
<CAPTION>

                                                                               Years Ended December 31,
                                                                            ---------------------------

  (Dollars in thousands)                                                2002              2001              2000
                                                                  -----------       -----------       -----------
  Unrealized gains on
      <S>                                                               <C>               <C>               <C>
   securities available-for-sale                                  $       157       $       330       $       607
  Reclassification adjustment for (gains) losses
   realized in net income                                                  (8)               (6)               32
                                                                  -----------       -----------       -----------
  Net unrealized gains on securities                                      149               324               639
  Tax effect                                                              (55)             (120)             (236)
                                                                  -----------       -----------       -----------
  Net-of-tax amount                                               $        94       $       204       $       403
                                                                  ===========       ===========       ===========

</TABLE>







                                       31
<PAGE>





NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
---------------------------------------------------------

Statements of Cash Flows - For purposes of reporting cash flows, the Company
considers certain highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents. Cash equivalents include amounts
due from banks and federal funds sold.

The following summarizes supplemental cash flow information:

<TABLE>
<CAPTION>
                                                                                  Years ended December 31,
                                                                             ---------------------------------

                                                                          2002            2001            2000
                                                                       ----------      ----------      ----------
<S>                                                                         <C>             <C>             <C>
  Cash paid for interest                                               $    5,117      $    6,307      $    5,908
  Cash paid for income taxes                                                  682             489             472
  Supplemental noncash investing and financing activities:
    Foreclosures on loans                                                     397             151             110
</TABLE>

Off-Balance-Sheet Financial Instruments - In the ordinary course of business,
the Company enters into off-balance-sheet financial instruments consisting of
commitments to extend credit and letters of credit. These financial instruments
are recorded in the financial statements when they become payable by the
customer.

Recent Accounting Pronouncements - In October 2002, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
147, Accounting for Certain Financial Institutions - an amendment of FASB
Statements No. 72 and 144 and FASB Interpretation No. 9, which brings all
business combinations involving financial institutions, except mutual financial
institutions, into the scope of SFAS No. 141, Business Combinations. This
statement requires that all acquisitions of financial institutions that meet the
definition of a business, including acquisitions of part of a financial
institution that meet the definition of a business, must be accounted for in
accordance with SFAS No. 141 and the related intangibles accounted for in
accordance with SFAS No. 142. SFAS No. 147 removes such acquisitions from the
scope of SFAS No. 72, Accounting for Certain Acquisitions of Banking or Thrift
Institutions. SFAS No. 147 also amends SFAS No. 144 to include in its scope
long-term customer relationship intangibles of financial institutions. SFAS No.
147 was effective upon issuance and had no impact on the Company's financial
statements.

Other accounting standards that have been issued or proposed by the FASB or
other standards-setting bodies that do not require adoption until a future date
are not expected to have a material impact on the consolidated financial
statements upon adoption.

Reclassifications - Certain captions and amounts in the 2001 and 2000 financial
statements were reclassified to conform with the 2002 presentation.


NOTE 2 - CASH AND DUE FROM BANKS

The Bank is required by regulation to maintain an average cash reserve balance
based on a percentage of deposits. At December 31, 2002 and 2001, the
requirements were satisfied by vault cash.





                                       32
<PAGE>





NOTE 3 - INVESTMENT SECURITIES

Securities available-for-sale consisted of the following:
<TABLE>
<CAPTION>

                                                        Amortized               Gross Unrealized        Estimated
  (Dollars in thousands)                                    Cost           Gains          Losses       Fair Value
  December 31, 2002
   Securities of U.S. government agencies
      <S>                                                   <C>             <C>             <C>            <C>
     and corporations                                 $     6,580     $        32     $         -    $      6,612
   Mortgage-backed securities                               7,647              67               1           7,713
   Obligations of state and local governments               3,639             108              12           3,735
                                                      -----------     -----------     -----------    ------------
       Total                                          $    17,866     $       207     $        13    $     18,060
                                                      ===========     ===========     ===========    ============
  December 31, 2001
   Securities of U.S. government agencies
     and corporations                                 $     6,500     $        30     $         1    $      6,529
   Mortgage-backed securities                               4,065              44               -           4,109
   Obligations of state and local governments               3,531              23              45           3,509
   Commercial paper                                         3,008               -               6           3,002
                                                      -----------     -----------     -----------    ------------
       Total                                          $    17,104     $        97     $        52    $     17,149
                                                      ===========     ===========     ===========    ============
</TABLE>

The following is a summary of maturities of securities available-for-sale as of
December 31, 2002. The amortized cost and estimated fair values are based on the
contractual maturity dates. Actual maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalty.
<TABLE>
<CAPTION>

                                                                                               Securities
                                                                                          Available-For-Sale
                                                                                     ----------------------------
                                                                                        Amortized     Estimated
  (Dollars in thousands)                                                                  Cost        Fair Value
                                                                                      -----------    ------------
<S>                                                                                          <C>            <C>
  Due in less than one year                                                           $       466    $        469
  Due after one year but within five years                                                  6,595           6,637
  Due after five years but within ten years                                                 2,374           2,466
  Due after ten years                                                                         784             775
                                                                                      -----------    ------------
                                                                                           10,219          10,347
  Mortgage-backed securities                                                                7,647           7,713
                                                                                      -----------    ------------
    Total                                                                             $    17,866    $     18,060
                                                                                      ===========    ============
</TABLE>
At December 31, 2002, and 2001, investment securities with a book value of
$3,113,000 and $6,684,000, respectively, and a market value of $3,199,000 and
$6,711,000, respectively, were pledged as collateral to secure public deposits.

Gross realized gains on sales of available-for-sale securities were $8,000,
$6,000 and $3,000 in 2002, 2001 and 2000, respectively. There were no gross
realized losses on sales of available-for-sale securities in 2002 and 2001, and
$35,000 in 2000. Proceeds from the sale of securities totaled $2,208,000 and
$2,006,000 in 2002 and 2001, respectively.





                                       33
<PAGE>





NOTE 4 - LOANS RECEIVABLE

Loans consisted of the following:
<TABLE>
<CAPTION>

                                                                                           December 31,
                                                                                         ---------------

  (Dollars in thousands)                                                              2002               2001
                                                                                -------------      -------------
<S>                                                                                   <C>                <C>
  Real estate - construction and land development                               $      17,032      $       8,058
  Real estate - other                                                                  65,245             43,168
  Agricultural                                                                          5,496              4,921
  Commercial and industrial                                                            48,403             40,608
  Consumer                                                                             25,020             20,825
  All other loans (including overdrafts)                                                1,637                128
                                                                                -------------      -------------
    Total gross loans                                                           $     162,833      $     117,708
                                                                                =============      =============
</TABLE>

Certain parties (principally certain directors and officers of the Company,
their immediate families, and business interests) were loan customers and had
other transactions in the normal course of business with the Company. Related
party loans are made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
unrelated persons and do not involve more than normal risk of collectibility.
The aggregate dollar amounts of loans to related parties were $993,560 and
$1,152,560 at December 31, 2002 and 2001, respectively. During 2002, $1,649,000
of new loans were made to related parties, and repayments totaled $1,808,000.

Transactions in the allowance for loan losses are summarized below:

<TABLE>
<CAPTION>
                                                                                 Years ended December 31,
                                                                  ----------------------------------------------
  (Dollars in thousands)                                                2002              2001             2000
                                                                  -----------       -----------      -----------
<S>                                                                  <C>               <C>              <C>
  Balance, beginning of year                                      $     1,112       $     1,019      $       922
  Provision charged to operations                                         535               348              271
  Recoveries on loans previously charged off                               43                23               16
  Loans charged off                                                      (238)             (278)            (190)
                                                                  -----------       -----------      -----------
    Balance, end of year                                          $     1,452       $     1,112      $     1,019
                                                                  ===========       ===========      ===========
</TABLE>


Loans on the Company's problem loan watch list are considered potentially
impaired loans. These loans are evaluated in determining whether all outstanding
principal and interest are expected to be collected. Loans are not considered
impaired if a minimal delay occurs and all amounts due, including accrued
interest at the contractual interest rate for the period of the delay, are
expected to be collected.

As of December 31, 2002 and 2001, the Company had nonaccrual loans of
approximately $915,000 and $574,000, respectively, and loans that were past due
90 days or more of approximately $381,000 and $176,000, respectively, for which
impairment had not been recognized. The additional interest income which would
have been recognized into earnings if the Company's nonaccrual loans had been
current in accordance with their original terms is immaterial for all years
presented.

The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the balance
sheets.






                                       34
<PAGE>





NOTE 4 - LOANS RECEIVABLE (continued)
-------------------------

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

Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the counter-party.

Collateral held for commitments to extend credit and standby letters of credit
varies but may include accounts receivable, inventory, property, plant,
equipment, and income-producing commercial properties. The following table
summarizes the Company's off-balance-sheet financial instruments whose contract
amounts represent credit risk:

<TABLE>
<CAPTION>

                                                                                              December 31,
                                                                                    -----------------------------

  (Dollars in thousands)                                                                  2002              2001
                                                                                    -----------       -----------
<S>                                                                                      <C>               <C>
  Commitments to extend credit                                                      $    10,452       $    11,842
  Standby letters of credit                                                                 443               298
</TABLE>


NOTE 5 - PREMISES, FURNITURE AND EQUIPMENT

Premises, furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                    -----------------------------
  (Dollars in thousands)                                                                  2002              2001
                                                                                    -----------       -----------
<S>                                                                                 <C>               <C>
  Land                                                                              $     3,199       $     1,254
  Buildings and land improvements                                                         3,597             3,419
  Furniture and equipment                                                                 2,778             2,361
  Construction in progress                                                                  360               144
                                                                                    -----------       -----------
                                                                                          9,934             7,178
  Less accumulated depreciation                                                          (2,026)           (1,639)
                                                                                    -----------       -----------
   Premises and equipment, net                                                      $     7,908       $     5,539
                                                                                    ===========       ===========

</TABLE>
Depreciation expense for the years ended December 31, 2002, 2001, and 2000, was
$425,000, $436,000, and $325,000, respectively.

In 2002, 2001, and 2000, the Company capitalized $2,000, $22,000, and $13,000,
respectively, of interest during the construction and renovation of new branches
and the operations center.






                                       35
<PAGE>






NOTE 6 - OTHER ASSETS

Other assets consisted of the following:
<TABLE>
<CAPTION>

                                                                                               December 31,
                                                                                      ---------------------------
  (Dollars in thousands)                                                                    2002            2001
                                                                                      -----------     -----------
<S>                                                                                       <C>             <C>
  Cash value of life insurance                                                        $       800     $       763
  Other real estate owned                                                                     210             161
  Prepaid expenses                                                                            125             138
  Unamortized software                                                                        285             116
  Net deferred tax asset                                                                      123             132
  Other                                                                                       124             120
                                                                                      -----------     -----------
  Total                                                                               $     1,677     $     1,430
                                                                                      ===========     ===========

</TABLE>

NOTE 7 - DEPOSITS

  At December 31, 2002, the scheduled maturities of time deposits were as
follows:
<TABLE>
<CAPTION>

  Maturing In                                                                                             Amount
  -----------                                                                                         -----------
<S> <C>                                                                                               <C>
    2003                                                                                              $    59,607
    2004                                                                                                    5,769
    2005                                                                                                      992
    2006                                                                                                      204
    2007 and thereafter                                                                                       214
                                                                                                      -----------
      Total                                                                                           $    66,786
                                                                                                      ===========
</TABLE>

Overdrawn transaction accounts in the amount of $119,000 and $25,000 were
classified as loans as of December 31, 2002 and 2001, respectively.


NOTE 8 - ADVANCES FROM THE FEDERAL HOME LOAN BANK

Advances from the Federal Home Loan Bank consisted of the following:
<TABLE>
<CAPTION>

  (Dollars in thousands)                                             Interest                   December 31,
                                                                                    -----------------------------
  Ten year convertible advances maturing on:                            Rate              2002              2001
                                                                  -----------       -----------       -----------
<S>      <C>                                                            <C>         <C>               <C>
   March 1, 2010                                                        5.92%       $     5,000       $     5,000
   May 24, 2010                                                         6.49%             4,600             4,600
   March 22, 2011                                                       5.05%             5,000             5,000
   January, 17, 2012                                                   3.875%             5,000                 -
   July 23, 2012                                                        3.81%             5,000                 -
   August 4, 2012                                                       3.56%             2,090                 -
                                                                                    -----------       -----------
     Total                                                                          $    26,690       $    14,600
                                                                                    ===========       ===========
</TABLE>

Interest is payable quarterly. Initially all advances bear interest at a fixed
rate; however, the rate can be converted to a floating rate after a certain
period. As of December 31, 2002, all advances were bearing fixed rates of
interest.

As of December 31, 2002, there are no scheduled principal reductions through
December 31, 2007.





                                       36
<PAGE>





NOTE 8 - ADVANCES FROM THE FEDERAL HOME LOAN BANK (continued)
-------------------------------------------------

As collateral, the Company has pledged its portfolio of first mortgage loans of
one to four family residential loans aggregating $30,276,000 at December 31,
2002, and its investment in Federal Home Loan Bank stock having a carrying value
of $1,334,000.


NOTE 9 - LEASE COMMITMENTS

On May 15, 1997, the Company entered into a lease agreement for land on which to
operate its Tabor City branch. The lease had an initial five-year term that
expired June 5, 2002, and the Company chose to exercise its option for a
five-year renewal of the lease at that time. In December 2002, the Company and
the property owners chose to negotiate a new lease that began January 5, 2003
and ends January 5, 2008 with the Company having an option for nine additional
five-year renewal periods. During the first five years of the lease, the Company
will pay $642 per month. Beginning with the first renewal period, the rental
amount will be subject to change on a basis stated in the lease. The lease gives
the Company the first right of refusal to purchase the property at an unimproved
value if the owners decide to sell. The Company also pays applicable property
taxes on the property.

On March 11, 2002, the Company entered into a lease agreement to operate its
Windy Hill branch in a temporary location. The lease expires on March 10, 2003
and will terminate since the branch will occupy its permanent location at 4400
Highway 17 South, North Myrtle Beach, S.C. beginning in February, 2003.

On February 4, 2002, the Company entered into an annual lease agreement to
operate its Myrtle Beach branch in a temporary location. This annual lease has
an option for twelve additional renewal terms of one month each. The Company
expects to have these one-month renewals in force during 2003 and will pay a
lease payment of $3,500 per month.

Future minimum lease payments over the next five years for these long-term
operating leases are as follows:
<TABLE>
<CAPTION>

  (Dollars in thousands)                                                                                  Amount
                                                                                                      -----------
<S> <C>                                                                                               <C>
    2003                                                                                              $        50
    2004                                                                                                        8
    2005                                                                                                        8
    2006                                                                                                        8
    2007                                                                                                        8
                                                                                                      -----------
      Total                                                                                           $        82
                                                                                                      ===========
</TABLE>


NOTE 10 - COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Company may, from time to time, become a
party to legal claims and disputes. At December 31, 2002, management was not
aware of any pending or threatened litigation or unasserted claims that could
result in losses, if any, that would be material to the financial statements.





                                       37
<PAGE>





NOTE 11 - SHAREHOLDERS' EQUITY

Stock Dividends - The Board of Directors has declared a 5% stock dividend
payable on March 21, 2003, to shareholders of record at February 28, 2003.

Restrictions on Dividends - South Carolina banking regulations restrict the
amount of dividends that can be paid to shareholders. All of the Bank's
dividends to HCSB Financial Corporation are payable only from the undivided
profits of the Bank. At December 31, 2002, the Bank's undivided profits were
$4,153,129. 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
Commissioner of Banking provided that the Bank received a composite rating of
one or two at the last Federal or State regulatory examination. Under Federal
Reserve Board regulations, the amounts of loans or advances from the Bank to the
parent company are also restricted.

Stock offering - The Company completed a stock offering during the fourth
quarter of 2002 whereby 365,712 shares of the Company's common stock were
issued. The offering price was $22.00 per share, resulting in proceeds of
$8,045,664. These proceeds were offset by costs to issue the stock, which
totaled $324,000. At December 31, 2002, the Company had $173,558 remaining in
its escrow account for the stock offering, and planned to issue the shares
related to this escrow early in 2003. The Company plans to use the proceeds to
continue its expansion throughout Horry County.


NOTE 12 - CAPITAL REQUIREMENTS

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

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum ratios (set forth in the table below) of
Tier 1 and total capital as a percentage of assets and off-balance-sheet
exposures, adjusted for risk-weights ranging from 0% to 100%. Tier 1 capital of
the Bank consists of common shareholders' equity, excluding the unrealized gain
or loss on securities available for sale, minus certain intangible assets. Tier
2 capital consists of the allowance for loan losses subject to certain
limitations. Total capital for purposes of computing the capital ratios consists
of the sum of Tier 1 and Tier 2 capital.

The Bank is also required to maintain capital at a minimum level based on
quarterly average assets (as defined), which is known as the leverage ratio.
Only the strongest institutions are allowed to maintain capital at the minimum
requirement of 3%. All others are subject to maintaining ratios 1% to 2% above
the minimum.

As of the most recent regulatory examination, the Bank was deemed well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table below. There
are no conditions or events that management believes have changed the Bank's
categories.







                                       38
<PAGE>








NOTE 12 - CAPITAL REQUIREMENTS (continued)
------------------------------

The following table summarizes the capital ratios and the regulatory minimum
requirements of the Bank.
<TABLE>
<CAPTION>

                                                                                                      To Be Well-
                                                                                                Capitalized Under
                                                                               For Capital      Prompt Corrective
                                                          Actual         Adequacy Purposes      Action Provisions
  (Dollars in thousands)                     Amount        Ratio       Amount        Ratio      Amount      Ratio
                                           ---------     --------    ---------     --------   ---------   --------
  December 31, 2002
    <S>                                        <C>             <C>       <C>           <C>        <C>        <C>
   Total capital (to risk-weighted assets) $  19,783       11.68%    $  13,534        8.00%   $  16,918     10.00%
   Tier 1 capital (to risk-weighted assets)   18,331       10.83         6,767        4.00       10,151      6.00
   Tier 1 capital (to average assets)         18,331        8.67         8,452        4.00       10,565      5.00
  December 31, 2001
   Total capital (to risk-weighted assets) $  11,961        9.69%    $   9,874        8.00%   $  12,342     10.00%
   Tier 1 capital (to risk-weighted assets)   10,849        8.79         4,937        4.00        7,405      6.00
   Tier 1 capital (to average assets)         10,849        7.13         6,104        4.00        7,630      5.00
</TABLE>


NOTE 13 - RETIREMENT AND BENEFITS

Employee Profit Sharing Plan - The Bank has a noncontributory profit-sharing
plan, which provides retirement and other benefits to substantially all officers
and employees who meet certain age and service requirements. Contributions are
determined annually by the Board of Directors but cannot exceed 15% of total
annual compensation of eligible employees. The Company charged $87,000, $76,000,
and $55,000 to earnings for the employee profit sharing plan in 2002, 2001 and
2000, respectively.

Trusteed Retirement Savings Plan - The Bank also has a trustee retirement
savings plan, which provides retirement benefits to substantially all officers
and employees who meet certain age and service requirements. The plan includes a
"salary reduction" feature pursuant to Section 401(k) of the Internal Revenue
Code. Under the plan and present policies, participants are permitted to
contribute up to 15% of their annual compensation. At its discretion, the
Company can make matching contributions up to 4% of the participants'
compensation. The Company charged $93,000, $70,000, and $60,000 to earnings for
the retirement savings plan in 2002, 2001 and 2000, respectively.

Directors Deferred Compensation Plan - The Company has a deferred compensation
plan whereby directors may elect to defer the payment of their fees. Under the
terms of the plan, the Company accrues an expense equal to the amount deferred
plus an interest component based on the prime rate of interest at the beginning
of each year. The Company has also purchased life insurance contracts on each of
the participating directors. At December 31, 2002, 2001, and 2000, $273,000,
$202,000, and $142,000, respectively, of directors' fees were deferred and
included in other liabilities.







                                       39
<PAGE>






NOTE 14 - OTHER EXPENSES
<TABLE>
<CAPTION>

Other expenses are summarized as follows:
                                                                                Years Ended December 31,
                                                                   ------------------------------------------------
  (Dollars in thousands)                                                  2002             2001              2000
                                                                   ------------       -----------      ------------
<S>                                                                        <C>               <C>              <C>
  Advertising and promotion                                         $       361       $       166      $        142
  Stationery, printing, and postage                                         301               242               233
  Telephone                                                                 114                68                50
  Director and advisory fees                                                 97                71                73
  Insurance                                                                  90                53                46
  ATM services                                                               71                70                55
  Courier services                                                           63                55                44
  Other                                                                     573               484               405
                                                                    -----------       -----------      ------------
   Total                                                            $     1,670       $     1,209      $      1,048
                                                                    ===========       ===========      ============
</TABLE>


NOTE 15 - INCOME TAXES

Income tax expense is summarized as follows:
<TABLE>
<CAPTION>

                                                                             Years Ended December 31,
                                                                 ------------------------------------------------
  (Dollars in thousands)                                                2002              2001              2000
                                                                 ------------       -----------      ------------
  Currently payable:
   <S>                                                                 <C>                <C>              <C>
   Federal                                                       $        607       $       474      $        426
   State                                                                   56                48                46
                                                                 ------------       -----------      ------------
     Total current                                                        663               522               472
                                                                 ------------       -----------      ------------
  Change in deferred income taxes:
   Federal                                                                 (9)              108               287
   State                                                                   18                16                25
                                                                 ------------       -----------      ------------
     Total deferred                                                         9               124               312
                                                                 ------------       -----------      ------------
     Income tax expense                                          $        672       $       646      $        784
                                                                 ============       ===========      ============
  Income tax expense is allocated as follows:
   To continuing operations                                      $        617       $       526      $        548
   To shareholders' equity                                                 55               120               236
                                                                 ------------       -----------      ------------
     Total                                                       $        672       $       646      $        784
                                                                 ============       ===========      ============
</TABLE>








                                       40
<PAGE>






NOTE 15 - INCOME TAXES (continued)
----------------------

The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>

                                                                                             December 31,
                                                                                    -----------------------------
  (Dollars in thousands)                                                                2002              2001
                                                                                    -----------      ------------
  Deferred tax assets:
    <S>                                                                                   <C>              <C>
   Allowance for loan losses                                                        $       386      $        304
   Net capitalized loan costs                                                                38                31
   State net operating loss                                                                   9                 6
   Deferred directors' fees                                                                  93                73
   Organizational costs                                                                       5                 8
   Nonaccruing interest                                                                      25                12
                                                                                    -----------      ------------
     Total deferred tax assets                                                              556               434
                                                                                    -----------      ------------
  Deferred tax liabilities:
   Accumulated depreciation                                                                 256               188
   Gain on sale of real estate                                                               73                77
   Software amortization                                                                     32                20
   Net unrealized gain on securities available-for-sale                                      72                17
                                                                                    -----------      ------------
     Total deferred tax liabilities                                                         433               302
                                                                                    -----------      ------------
     Net deferred tax asset                                                         $       123      $        132
                                                                                    ===========      ============
</TABLE>

Deferred tax assets represent the future tax benefit of future deductible
differences and, if it is more likely than not that a tax asset will not be
realized, a valuation allowance is required to reduce the recorded deferred tax
assets to net realizable value. Management has determined that it is more likely
than not that the entire deferred tax asset at December 31, 2002 and 2001 will
be realized and, accordingly, has not established a valuation allowance.
Deferred tax assets are included in other assets.

A reconciliation between the income tax expense and the amount computed by
applying the Federal statutory rates of 34% to income before income taxes
follows:
<TABLE>
<CAPTION>
                                                                          Years ended December 31,
                                                           ------------------------------------------------------
  (Dollars in thousands)                                         2002                2001                2000
                                                           --------------      --------------      --------------
    <S>                                                            <C>                 <C>                 <C>
  Tax expense at statutory rate                            $          604      $          518      $          539
  State income tax, net of federal income tax benefit                  44                  35                  46
  Tax-exempt interest income                                           55                  53                  58
  Other                                                               (86)                (80)                (95)
                                                           --------------      --------------      --------------
     Income tax provision                                  $          617      $          526      $          548
                                                           ==============      ==============      ==============
</TABLE>



NOTE 16 - UNUSED LINES OF CREDIT

As of December 31, 2002, the Company had unused lines of credit to purchase
federal funds from unrelated banks totaling $5,800,000. These lines of credit
are available on a one to fourteen day basis for general corporate purposes. The
lenders have reserved the right not to renew their respective lines. The Company
may also borrow an additional $15,754,000 from the Federal Home Loan Bank based
on a predetermined formula. Advances are subject to approval by the Federal Home
Loan Bank and may require the Company to pledge additional collateral.








                                       41
<PAGE>






NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the amount at which the asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Fair value estimates are made at a
specific point in time based on relevant market information and information
about the financial instruments. Because no market value exists for a
significant portion of the financial instruments, fair value estimates are based
on judgments regarding future expected loss, current economic conditions, risk
characteristics of various financial instruments, and other factors.

The following methods and assumptions were used to estimate the fair value of
significant financial instruments:

Cash and Due from Banks - The carrying amount is a reasonable estimate of fair
value.

Federal Funds Sold and Purchased- Federal funds sold and purchased are for a
term of one day and the carrying amount approximates the fair value.

Time Deposits with Other Banks - The fair value of time deposits with other
banks is estimated using a discounted cash flow analysis based on current rates
for similar types of deposits.

Investment Securities Available-for-Sale - For securities available-for-sale,
fair value equals the carrying amount which is the quoted market price. If
quoted market prices are not available, fair values are based on quoted market
prices of comparable securities.

Nonmarketable Equity Securities - The carrying amount is a reasonable estimate
of fair value since no ready market exists for these securities.

Loans receivable - For certain categories of loans, such as variable rate loans
which are repriced frequently and have no significant change in credit risk and
credit card receivables, fair values are based on the carrying amounts. The fair
value of other types of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to the borrowers
with similar credit ratings and for the same remaining maturities.

Deposits - The fair value of demand deposits, savings, and money market accounts
is the amount payable on demand at the reporting date. The fair values of
certificates of deposit are estimated using a discounted cash flow calculation
that applies current interest rates to a schedule of aggregated expected
maturities.

Advances from the Federal Home Loan Bank - For the portion of borrowings
immediately callable, fair value is based on the carrying amount. The fair value
of the portion maturing at a later date is estimated using a discounted cash
flow calculation that applies the interest rate of the immediately callable
portion to the portion maturing at the future date.

Accrued Interest Receivable and Payable - The carrying value of these
instruments is a reasonable estimate of fair value.

Off-balance-sheet Financial Instruments - The contractual amount is a reasonable
estimate of fair value for the instruments because commitments to extend credit
and standby letters of credit are issued on a short-term or floating rate basis.







                                       42
<PAGE>






NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
---------------------------------------------

The carrying values and estimated fair values of the Company's financial
instruments were as follows:
<TABLE>
<CAPTION>

                                                               December 31,
                                            -----------------------------------------------------------------------
  (Dollars in thousands)                                  2002                                2001
                                            -------------------------------    ------------------------------------
                                               Carrying      Estimated Fair       Carrying          Estimated Fair
                                                Amount               Value         Amount              Value
  Financial Assets:                          -------------   --------------    ----------------    ----------------
        <S>                                         <C>               <C>              <C>               <C>
     Cash and due from banks                $        8,243    $       8,243    $       4,986     $       4,986
     Federal funds sold                             11,350           11,350                -                 -
     Time deposits with other banks                      -                -              699               699
     Investment securities available-for-sale       18,060           18,060           17,149            17,149
     Nonmarketable equity securities                 1,394            1,394              790               790
     Loans receivable                              162,833          164,521          117,708           120,361
     Accrued interest receivable                     1,585            1,585            1,462             1,462

  Financial Liabilities:
     Demand deposit, interest-bearing
       transaction, and savings accounts    $       97,375    $      97,375    $      41,430     $      41,430
     Certificates of deposit                        66,786           67,026           78,643            79,663
     Federal funds purchased                             -                -            2,310             2,310
     Advances from the Federal Home
       Loan Bank                                    26,690           26,690           14,600            14,600
     Accrued interest payable                          314              314              220               220

                                                   Notional        Estimated Fair     Notional      Estimated Fair
                                                    Amount            Value            Amount            Value
                                                ------------       -------------   ------------    ---------------
Off-Balance Sheet Financial Instruments:
     Commitments to extend credit           $       10,452    $      10,452    $      11,842     $      11,842
     Standby letters of credit                         443              443              298               298

</TABLE>







                                       43
<PAGE>






NOTE 18 - HCSB FINANCIAL CORPORATION (PARENT COMPANY ONLY)

Presented below are the condensed financial statements for HCSB Financial
Corporation (Parent Company Only).
<TABLE>
<CAPTION>

                            Condensed Balance Sheets

                                                                                         December 31,
                                                                             ----------------------------------
  (Dollars in thousands)                                                              2002                2001
                                                                             --------------      --------------
  Assets
<S>                                                                                  <C>                 <C>
     Cash                                                                    $        1,126      $           27
     Investment in banking subsidiary                                                18,562              10,877
     Premises                                                                            92                   -
     Other assets                                                                        70                  54
                                                                             --------------      --------------
       Total assets                                                          $       19,850      $       10,958
                                                                             ==============      ==============

  Liabilities and shareholders' equity
     Due to banking subsidiary                                               $            -      $           63

     Shareholders' equity                                                            19,850              10,895
                                                                             --------------      --------------
                                                                             $       19,850      $       10,958
                                                                             ==============      ==============

</TABLE>

                         Condensed Statements of Income

<TABLE>
<CAPTION>
                                                                             Years ended December 31,
                                                         ------------------------------------------------------
  (Dollars in thousands)                                       2002                2001                2000
                                                         --------------      --------------      --------------
  Income
<S>                                                              <C>                 <C>                 <C>
     Dividends from banking subsidiary                   $            2      $           78      $           65
                                                         --------------      --------------      --------------

  Expenses
     Other expenses                                                  42                  32                  68
                                                         --------------      --------------      --------------
  Income (loss) before income taxes and equity in
    undistributed earnings of banking subsidiary                    (40)                 46                  (3)

  Income tax benefit                                                (14)                (13)                (25)

  Equity in undistributed earnings of banking subsidiary          1,187                 937               1,015
                                                         --------------      --------------      --------------

       Net income                                        $        1,161      $          996      $        1,037
                                                         ==============      ==============      ==============

</TABLE>







                                       44
<PAGE>






NOTE 18 - HCSB FINANCIAL CORPORATION (PARENT COMPANY ONLY) (continued)
----------------------------------------------------------

                       Condensed Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                          Years ended December 31,
                                                              ------------------------------------------------
  (Dollars in thousands)                                            2002              2001              2000
                                                              -------------    --------------    -------------
  Cash flows from operating activities:
    <S>                                                               <C>              <C>               <C>
    Net income                                                $       1,161    $          996    $       1,037
    Adjustments to reconcile net income to net cash provided by
      operating activities:
       Equity in undistributed earnings of banking subsidiary        (1,187)             (937)          (1,015)
       Increase in other assets                                         (15)              (13)             (20)
       Increase (decrease) in other liabilities                         (63)               63               (2)
                                                              -------------    --------------    -------------
          Net cash provided (used) by operating activities             (104)              109                -
                                                              -------------    --------------    -------------

  Cash flows from investing activities:
    Purchase of land and building                                       (92)                -                -
                                                              -------------    --------------    -------------

  Cash flows from financing activities:
    Proceeds from stock issuance                                      8,045                 -                -
    Transfer of capital to bank                                      (6,404)                -                -
    Stock issuance costs                                               (324)              (72)               -
    Purchase of treasury stock                                           (6)                -                -
    Cash paid for fractional shares                                     (16)              (14)               -
                                                              -------------    --------------    -------------
          Net cash provided (used) by financing activities            1,295               (86)               -
                                                              -------------    --------------    -------------

  Increase in cash                                                    1,099                23                -

  Cash and cash equivalents, beginning of year                           27                 4                4
                                                              -------------    --------------    -------------

  Cash and cash equivalents, end of year                      $       1,126    $           27    $           4
                                                              =============    ==============    =============
</TABLE>









                                       45
<PAGE>





                           HCSB FINANCIAL CORPORATION

                               BOARD OF DIRECTORS

Johnny C. Allen.........................Horry County Treasure

D. Singleton Bailey.....................President, Loris Drug Store, Inc.
                                        President, Noah and Friends, Inc.

Franklin C. Blanton.....................President, Blanton Supplies, Inc.

Clay D. Brittain, III...................Attorney, Thompson & Henry, P.A.

Russell R. Burgess, Jr..................Owner, Aladdin Realty Company
                                        Owner and Broker-In-Charge
                                        Burgess Realty & Appraisal Service

William H. Caines.......... ............President, Caines Realty &
                                        Appraisals, Inc.

James R. Clarkson...................... President and CEO, HCSB Financial
                                        Corporation and Horry County
                                        State Bank

J. Lavelle Coleman......................President, Tabor City Oil, Inc.

Larry G. Floyd..........................President, Floyd's Insulation, Inc.
                                        President, Cherry Grove Sales, Inc.

Boyd R. Ford, Jr........................Retired, Ford's Fuel Services, Inc.
                                         & Ford's Propane Gas, Inc.

Tommie W. Grainger......................President, Coastal Timber, Inc.

Randy B. Hardee.........................President, Hardee Business Services,P.C.

Gwyn G. McCutchen.......................Dentist

T. Freddie Moore........................President, Gateway Drug Store, Inc.

Carroll D. Padgett, Jr..................Attorney, Carroll D. Padgett, Jr., P.A.


                       OFFICERS OF THE BOARD OF DIRECTORS


    Russell R. Burgess, Jr.                           Randy B. Hardee
         Chairman                                Vice Chairman & Secretary


                                James R. Clarkson
                                President and CEO








                                       46
<PAGE>



                          HCSB FINANCIAL CORPORATION


                        HORRY COUNTY STATE BANK EMPLOYEES

                        James R. Clarkson, President/CEO
                   Glenn R. Bullard, Executive Vice President
                  Michael W. Hambrick, Chief Financial Officer
                     Loretta Gerald, Vice President/Cashier
               Margaret Fowler, Vice President/Operations Officer

Loris Office                  Mt. Olive                  Little River
------------                  ---------                  --------------

Jimmy Nealey                  Bernice Hammond            T.W. Hill, Jr.
Clay Harrelson                Judy Rowell                Michael Leviner
Amy Cannon                    Tammy Huggins              Donna Gwyn
Debra Todd                    Martha Cannon              Stephanie Long
Crystal Gerald                Dianne Hewitt              Rosemary Forrister
Lou Sherry Grissett                                      Alison Cantrell
Stephanie Greenwood                                      Theresa Cox
Luise Boyd                                               Lara Lavery
Jessica Durant                                           Judy McCall
Shea Johnson                                             Tracy Bellamy

Tabor City                   Meeting Street              Conway
-------------                --------------              ------

Walter Williamson            L.D. Coats                  Frankie Lewis
Phyllis Coleman              Sheila Caines               John Naughton
Whitney Hughes               Amanda Stanley              Christy Trichell
Jill Clemons                 Rachel Bullard              Marie Maslich
Gina Fogle                   Gina Rabon                  Diane Todd
Lynn Cox.                                                Tina Martin
Amantha Blackstock                                       Shawnna Dew
Amanda Grainger                                          Petrina Hemingway
                                                         Hannah Rogers

Homewood                     Socastee                    Myrtle Beach
---------                    --------                    ------------

Joey Richardson              Cameron Jackson             Ron Paige
Lori Pharr                   Josh Wise                   Debbie Guyette
Brenda Hill                  Judy Monroe-Taylor          Cindi Campbell
Amy Branton                  Ronni Burgunder             Jane Cannon
                             Shannon Wise                Tara Gause








                                       47
<PAGE>




                           HCSB FINANCIAL CORPORATION

                        HORRY COUNTY STATE BANK EMPLOYEES

Windy Hill              Operations                   Executive
----------              ----------                   ----------
Charles Sprinkle        Brett Roth                   Denise Floyd
Diana Elliott           Alissa Gibson                Terry Stevens
Robin Stocks            Rebecca Zyla                 Heather Elliott
Dawnna Ward             Delores Godwin               Connie Graham
Jocelyn Sjol            Melissa Holmes               Sandy McGougan
Margie Livingston       Lila Tyler                   Jay Wilson
                        Gloria Woodbury
                        Shelby Elliott
                        Carol Reichert
                        Saundra Stevens
                        Jolene Hamilton
                        Verna Ford
                        Ruthmary Tadlock
                        Gail Holmes
                        Joe Jones
                        Frances Anderson
                        April Hardwick
                        Lorene Wright
                        Jennifer Spencer
                        Stephanie Brown
                        JoAnn Floyd
                        Crystal Mincey
                        Loria Barton

Residential Mortgage                                 HCSB Financial Services
--------------------                                 -----------------------
Michael Edwards, Sr.                                 Mark Buckner
Greta Todd                                           Carolyn Jordan
Renee Ward



                               48