# SECURITIES AND
EXCHANGE COMMISSION Washington, D.C. 20549

# FORM 10-KSB

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

# For fiscal year ended
December 31, 2003

# Commission File Number
000-26995

| | HCSB FINANCIAL CORPORATION* | 
| | --------------------------- | 

| | (Exact name of Registrant as specified in its charter) | 
| | ------------------------------------------------------ | 

|South Carolina           |  | 57-1079444                          
|------------------------ |  | ------------------------------------
|(State of Incorporation) |  | (I.R.S. Employer Identification No.)

|5201 Broad Street, Loris, South Carolina |  | 29569
|---------------------------------------- |  | -----

|(Address of principal executive offices) |  | (Zip Code)
|---------------------------------------- |  | ----------

Registrants telephone number, including area code 843/756-6333

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

Securities registered pursuant to Section 12(g) of the Act: Common Stock

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

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

The issuers revenues (net
interest income plus noninterest income) for its most recent fiscal year were $10,699,000.

The aggregate market value (computed
on the basis of the most recent trades of which the issuer was aware) of shares of the
Common Stock held by non-affiliates of the registrant as of March 22, 2004 was
$36,055,675.

The number of shares outstanding of
the issuers classes of common stock as of March 22, 2004, was 1,662,473.

# DOCUMENTS INCORPORATED
BY REFERENCE

Companys Proxy Statement for the 2004 Annual Shareholders Meeting  Part III 2003 Annual
Report  Part II.

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

---

# PART I

# Item 1.  Description of
Business

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

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

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

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

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

| | o | changes occurring in business conditions and inflation;
| | - | -------------------------------------------------------

| | o | changes in technology;
| | - | ----------------------

| | o | the level of allowance for loan loss;
| | - | -------------------------------------

| | o | the rate of delinquencies and amounts of charge-offs;
| | - | -----------------------------------------------------

| | o | the rates of loan growth;
| | - | -------------------------

| | o | adverse changes in asset quality and resulting credit risk-related losses and expenses;
| | - | ---------------------------------------------------------------------------------------

| | o | changes in monetary and tax policies;
| | - | -------------------------------------

| | o | changes in the securities markets; and
| | - | --------------------------------------

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

# General Overview

HCSB
Financial Corporation was incorporated as a South Carolina corporation on June 10, 1999 to
serve as the holding company for Horry County State Bank. The bank is a state-chartered
commercial bank which commenced operations on January 4, 1988. Over the last sixteen years
we have grown from a start-up bank with assets of $2.2 million, one office, and seven
employees to a bank with nearly $270 million in assets, eleven offices, and over 100
employees. We opened two new offices in 2002, giving us a presence in most markets within
Horry County. In 2003, we worked on developing business volume in each of these offices.
In addition, in February 2003, we opened our new permanent office in Windy Hill Beach at
the new entrance to Barefoot Resort. In November 2003, we also relocated our Tabor City
office from its modular facility into a permanent building on the same site on Hwy. 701
Bypass. We also

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introduced our on-line banking
service in 2003 as well, and we began construction of a new 14,000 square foot facility at
1701 N. Oak Street in Myrtle Beach to house our Myrtle Beach branch.

Our
primary goal in 2004 will be to further develop the business volume at each of our present
offices. We offer a full range of deposit services for individuals and businesses. Deposit
products include checking accounts, savings accounts, certificates of deposit, money
market accounts, and IRAs.

# Operating and Growth
Strategy

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

| | o | Personalized Service. We view banking as a service industry in which personal
relationships can provide a competitive advantage. This paradigm is captured in our
marketing tagline Its the little things that make a little bank . . .
BIG! We strive to be BIG (important) to our customers by doing
little things like identifying our customers needs and promoting
products to satisfy them, knowing our customers by name, and providing our products with
superior levels of quality and service. We seek customers who prefer to conduct business
with a locally owned and managed bank that demonstrates an active interest in their
business and personal financial affairs. We believe that by consistently providing high
levels of service to customers who value that service, we develop and strengthen
relationships that provide a competitive advantage.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | o | High Asset Quality. We place a great deal of emphasis on maintaining high asset
quality and believe that the outstanding asset quality experienced to date is principally
due to the closeness of our lenders, senior officers, and directors to our customers and
their significant knowledge of the communities in which they reside.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Internal Growth, Branch Expansion. We have grown significantly over the
last five years. We will continue to focus on acquiring market share, particularly from
large Southeastern regional
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | bank holding companies, by emphasizing
our local management and decision-making and personal services.
| |  | ------------------------------------------------------------------------------------------------------

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

# Location and Service Area

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

# Banking Services

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

# Lending Activities

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

Real Estate Loans. The primary component of our loan portfolio is real estate mortgage
loans, which make up approximately 46.8% of our loan portfolio. These loans are secured
generally by first or second mortgages on residential or commercial property. These loans
consist of commercial real estate loans, construction and development loans, and
residential real estate loans (but exclude home equity loans, which are classified as
consumer loans).

Commercial  Loans.  Approximately  25.3% of our loan portfolio  consists of commercial  loans.  Commercial  loans
consist of secured and  unsecured  loans,  lines of credit,  and  working  capital  loans.  We

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make these loans to various types of
businesses. Included in this category are loans to purchase equipment, finance accounts
receivable or inventory, and loans made for working capital purposes.

Consumer
Loans. Consumer loans make up approximately 14.2% of our loan portfolio. These are
loans made to individuals for personal and household purposes, such as secured and
unsecured installment and term loans, home equity loans and lines of credit, and revolving
lines of credit such as overdraft protection. Automobiles and small recreational vehicles
are pledged as security for their purchase.

Agricultural
Loans.Approximately 3.6% of our loan portfolio consists of agricultural loans. These
are loans made to individuals and businesses for agricultural purposes, including loans to
finance crop production and livestock operating expenses, to purchase farm equipment, and
to store crops. These loans are secured generally by liens on growing crops and farm
equipment. Also included in this category are loans to agri-businesses, which are
substantially similar to commercial loans, as discussed above.

Construction
and Development Loans. The remaining 10.1% of our loan portfolio is composed of
consumer and commercial real estate construction and commercial development loans. These
loans are secured by the real estate for which construction is planned and, in many cases,
by supplementary collateral.

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

| | o | Character  we evaluate whether the borrower has sound character and integrity by
examining the borrowers history.
| | - | -------------------------------------------------------------------------------------------------------------------

| | o | Capital  we evaluate the borrowers overall financial strength, as well as the
equity investment in the asset being financed.
| | - | ------------------------------------------------------------------------------------------------------------------------------

| | o | Collateral  we evaluate whether the collateral is adequate from the standpoint of
quality, marketability, value and income potential.
| | - | --------------------------------------------------------------------------------------------------------------------------------------

| | o | Capacity  we evaluate the borrowers ability to service the debt.
| | - | ------------------------------------------------------------------

| | o | Conditions  we underwrite the credit in light of the effects of external factors,
such as economic conditions and industry trends.
| | - | -----------------------------------------------------------------------------------------------------------------------------------

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

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

Each
real estate loans is sensitive to fluctuations in the value of the real estate that
secures that loan. Certain types of real estate loans have specific risk characteristics
that vary according to the type of collateral that secures the loan, the terms of the
loan, and the repayment sources for the loan. Commercial real estate loans have risk that
the primary source of repayment will be insufficient to service the debt. Construction and
development real estate loans generally carry a higher degree of risk than long term
financing of existing properties. These projects are usually dependent on the completion
of the project on

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schedule and within cost estimates
and on the timely sale of the property. Inferior or improper construction techniques,
changes in economic conditions during the construction and marketing period, and rising
interest rates which may slow the sale of the property are all risks unique to this type
of loan. Residential mortgage loans, in contrast to commercial real estate loans,
generally have longer terms and may have fixed or adjustable interest rates.

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

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

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

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

# Other Banking and
Related Services

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

# Competition

The
banking business is highly competitive. We compete with other commercial banks, savings
and loan associations, credit unions, and money market mutual funds operating in our
service area and elsewhere. As of June 2003, there were 14 commercial banks and four
savings banks operating in Horry County. We believe that our community bank focus, with
our emphasis on service to small businesses,

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individuals, and professional
concerns, gives us an advantage in this market. Nevertheless, a number of these
competitors are well established in our service area. Most of them have substantially
greater resources and lending limits than the bank and offer certain services, such as
extensive and established branch networks and trust services, that we do not provide. As a
result of these competitive factors, we may have to pay higher rates of interest to
attract deposits.

# Employees

As
of March 22, 2004, the bank had 100 full-time and 2 part- time employees. The company does
not have any employees other than its officers. Neither the company nor the bank is a
party to a collective bargaining agreement, and they consider their relations with
employees to be good.

# SUPERVISION AND
REGULATION

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

The
following discussion is not intended to be a complete list of all the activities regulated
by the banking laws or of the impact of such laws and regulations on our operations. It is
intended only to briefly summarize some material provisions.

# USA Patriot Act of 2001

In
October 2001, the USA Patriot Act of 2001 was enacted in response to the terrorist attacks
in New York, Pennsylvania and Washington D.C. which occurred on September 11, 2001. The
Patriot Act is intended to strengthen U.S. law enforcements and the intelligence
communities abilities to work cohesively to combat terrorism on a variety of fronts.
The potential impact of the Patriot Act on financial institutions of all kinds is
significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and
financial transparency laws and imposes various regulations, including standards for
verifying client identification at account opening, and rules to promote cooperation among
financial institutions, regulators and law enforcement entities in identifying parties
that may be involved in terrorism or money laundering.

# Check 21 Language

On
October 28, 2003, President Bush signed into law the Check Clearing for the 21st Century
Act, also known as Check 21. The new law, which is not effective until October 28, 2004,
gives substitute checks, such as a digital image of a check and copies made
from that image, the same legal standing as the original paper check. Some of the major
provisions include:

| | o | Allows check truncation without making it mandatory;
| | - | ----------------------------------------------------

| | o | Demands that every financial institution communicate to accountholders in writing a
description of its substitute check processing program and their rights under the
law;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | o | Legalizes substitutions for and replacements of paper checks without agreement from consumers;
| | - | ----------------------------------------------------------------------------------------------

| | o | Keeps in place the previously mandated electronic collection and return of checks between
financial institutions only when individual agreements are in place;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Cautions that when accountholders request verification, financial institutions must
produce the original check (or a copy that accurately represents the original) and
demonstrate that the account debit was accurate and valid; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Requires recrediting of funds to an individuals account on the next business
day after a consumer proves the financial institution has erred.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------

This
new legislation will likely have a dramatic impact on bank capital spending as many
financial institutions assess whether technological or operational changes are necessary
to stay competitive and take advantage of the new opportunities presented by Check 21.

# HCSB Financial
Corporation

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

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

| | o | banking and managing or controlling banks;
| | - | ------------------------------------------

| | o | furnishing services to or performing services for its subsidiaries; and
| | - | -----------------------------------------------------------------------

| | o | engaging in other activities that the Federal Reserve determines to be so closely related
to banking and managing or controlling banks as to be a proper incident thereto.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | o | acquiring substantially all the assets of any bank;
| | - | ---------------------------------------------------

| | o | acquiring direct or indirect ownership or control of any voting shares of any bank if
after the acquisition it would own or control more than 5% of the voting shares of such
bank (unless it already owns or controls the majority of such shares); or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | merging or consolidating with another bank holding company.
| | - | -----------------------------------------------------------

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

Under
the Bank Holding Company Act, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of more than 5% of the voting shares of any
company

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engaged in nonbanking activities
unless the Federal Reserve Board, by order or regulation, has found those activities to be
so closely related to banking or managing or controlling banks as to be a proper incident
thereto. Some of the activities that the Federal Reserve Board has determined by
regulation to be proper incidents to the business of a bank holding company include:

| | o | making or servicing loans and certain types of leases;
| | - | ------------------------------------------------------

| | o | engaging in certain insurance and discount brokerage activities;
| | - | ----------------------------------------------------------------

| | o | performing certain data processing services;
| | - | --------------------------------------------

| | o | acting in certain
circumstances as a fiduciary or investment or financial adviser;
| | - | ----------------------------------------------------------------------------------

| | o | owning savings associations; and
| | - | --------------------------------

| | o | making investments in certain corporations or projects designed
primarily to promote community welfare.
| | - | -------------------------------------------------------------------------------------------------------

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

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

The
Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act, previously known as the Financial
Services Modernization Act of 1999, was signed into law on November 12, 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 permits bank
holding companies that become financial holding companies to engage in a statutorily
provided list of financial activities, including insurance and securities underwriting and
agency activities, merchant banking, and insurance company portfolio investment
activities. The Act also authorizes activities that are complementary to
financial activities.

The
Act is intended, in part, to grant to community banks certain powers as a matter of right
that larger institutions have accumulated on an ad hoc basis. Nevertheless, the Act may
have the result of increasing the amount of competition that we face from larger
institutions and other types of companies. In fact, it is not possible to predict the full
effect that the Act will have on us.

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

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# Horry County State Bank

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

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

| | o | security devices and procedures;
| | - | --------------------------------

| | o | adequacy of capitalization and loss reserves;
| | - | ---------------------------------------------

| | o | loans;
| | - | ------

| | o | investments;
| | - | ------------

| | o | borrowings;
| | - | -----------

| | o | deposits;
| | - | ---------

| | o | mergers;
| | - | --------

| | o | issuances of securities;
| | - | ------------------------

| | o | payment of dividends;
| | - | ---------------------

| | o | interest rates payable on deposits;
| | - | -----------------------------------

| | o | interest rates or fees chargeable on loans;
| | - | -------------------------------------------

| | o | establishment of branches;
| | - | --------------------------

| | o | corporate reorganizations;
| | - | --------------------------

| | o | maintenance of books and records; and
| | - | -------------------------------------

| | o | adequacy of staff training to carry on safe lending and deposit gathering practices.
| | - | ------------------------------------------------------------------------------------

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

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

| | o | internal controls;
| | - | ------------------

| | o | information systems and audit systems;
| | - | --------------------------------------

| | o | loan documentation;
| | - | -------------------

| | o | credit underwriting;
| | - | --------------------

| | o | interest rate risk exposure; and
| | - | --------------------------------

| | o | asset quality.
| | - | --------------

10

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

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

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

The
Federal Reserve Board has recently issued Regulation W, which codifies prior regulations
under Sections 23A and 23B of the Federal Reserve Act and interpretative guidance with
respect to affiliate transactions. Regulation W incorporates the exemption from the
affiliate transaction rules but expands the exemption to cover the purchase of any type of
loan or extension of credit from an affiliate. In addition, under Regulation W:

| | o | a bank and its subsidiaries may not purchase a low-quality asset from an affiliate;
| | - | -----------------------------------------------------------------------------------

| | o | covered transactions and other specified transactions between a bank or its subsidiaries
and an affiliate must be on terms and conditions that are consistent with safe and sound
banking practices; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | with some exceptions, each loan or extension of credit by a bank to an affiliate must be
secured by collateral with a market value ranging from 100% to 130%, depending on the type
of collateral, of the amount of the loan or extension of credit.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Regulation
W generally excludes all non-bank and non-savings association subsidiaries of banks from
treatment as affiliates, except to the extent that the Federal Reserve Board decides to
treat these

11

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subsidiaries as affiliates.
Concurrently with the adoption of Regulation W, the Federal Reserve Board has proposed a
regulation which would further limit the amount of loans that could be purchased by a bank
from an affiliate to not more than 100% of the banks capital and surplus. This
regulation has not yet been adopted.

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

Branching.
          Under current South Carolina law, we may open bank branch offices throughout
          South Carolina with the prior approval of the South Carolina Board of Financial
          Institutions. In addition, with prior regulatory approval, the bank may acquire
          existing banking operations in South Carolina. Furthermore, federal legislation
          generally permits interstate branching by authorizing out-of-state acquisitions
          by bank holding companies, interstate branching by banks if allowed by state
          law, interstate merging by banks, and de novo branching by banks if allowed by
          state law. However, North Carolina does not permit de novo branching by South
          Carolina banks.

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

The
Gramm-Leach-Bliley Act. Under the Gramm-Leach-Bliley Act, subject to certain
conditions imposed by their respective banking regulators, national and state-chartered
banks are permitted to form financial subsidiaries that may conduct financial
or incidental activities, thereby permitting bank subsidiaries to engage in certain
activities that previously were impermissible. The Gramm-Leach-Bliley Act imposes several
safeguards and restrictions on financial subsidiaries, including that the parent
banks equity investment in the financial subsidiary be deducted from the banks
assets and tangible equity for purposes of calculating the banks capital adequacy.
In addition, the Gramm-Leach-Bliley Act imposes new restrictions on transactions between a
bank and its financial subsidiaries similar to restrictions applicable to transactions
between banks and nonbank affiliates.

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

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

| | o | the federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
| | - | ----------------------------------------------------------------------------------------------

12

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| | o | the Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide
information to enable the public and public officials to determine whether a financial
institution is fulfilling its obligation to help meet the housing needs of the community
it serves;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed
or other prohibited factors in extending credit;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

| | o | the Fair Credit  Reporting  Act of 1978,  governing  the use and  provision of  information  to credit  reporting
agencies;
| | - | ---------------------------------------------------------------------------------------------------------------------------

| | o | the Fair Debt  Collection  Act,  governing  the manner in which  consumer  debts may be collected  by  collection
         agencies; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| | o | the rules and regulations of the various federal agencies charged with the responsibility
of implementing such federal laws.
| | - | ----------------------------------------------------------------------------------------------------------------------------

| | The deposit operations of the bank also are subject to: | 
| | ------------------------------------------------------- | 

| | o | the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of
consumer financial records and prescribes procedures for complying with administrative
subpoenas of financial records; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to
implement that act, which governs automatic deposits to and withdrawals from deposit
accounts and customers rights and liabilities arising from the use of automated
teller machines and other electronic banking services.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

13

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

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

| | o | submit a capital restoration plan;
| | - | ----------------------------------

| | o | raise additional capital;
| | - | -------------------------

| | o | restrict their growth, deposit interest rates, and other activities;
| | - | --------------------------------------------------------------------

| | o | improve their management;
| | - | -------------------------

| | o | eliminate management fees; or
| | - | -----------------------------

| | o | divest themselves of all or a part of their operations.
| | - | -------------------------------------------------------

A bank that is not well
capitalized is also subject to certain limitations relating to so-called
brokered deposits. Bank holding companies controlling financial institutions
can be called upon to boost the institutions capital and to partially guarantee the
institutions performance under their capital restoration plans.

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

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

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

Enforcement
Powers. The Financial Institution Report Recovery and Enforcement Act expanded and
increased civil and criminal penalties available for use by the federal regulatory
agencies against depository institutions and certain institution-affiliated
parties. Institution-affiliated parties primarily include management, employees, and
agents of a financial institution, as well as independent contractors and consultants such
as attorneys and accountants and others who participate in the conduct of the financial

14

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institutions affairs. These
practices can include the failure of an institution to timely file required reports or the
filing of false or misleading information or the submission of inaccurate reports. Civil
penalties may be as high as $1,000,000 a day for such violations. Criminal penalties for
some financial institution crimes have been increased to 20 years. In addition, regulators
are provided with greater flexibility to commence enforcement actions against institutions
and institution-affiliated parties. Possible enforcement actions include the termination
of deposit insurance. Furthermore, banking agencies power to issue cease-and-desist
orders were expanded. Such orders may, among other things, require affirmative action to
correct any harm resulting from a violation or practice, including restitution,
reimbursement, indemnification or guarantees against loss. A financial institution may
also be ordered to restrict its growth, dispose of certain assets, rescind agreements or
contracts, or take other actions as determined by the ordering agency to be appropriate.

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

# ITEM 2. DESCRIPTION OF
PROPERTIES

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

In
1994 the bank purchased a lot in fee simple at 5264 Hwy. 9, Green Sea, South Carolina and
opened a full-service branch bank on this site in March 1995 in a modular building. The
bank subsequently constructed a 2,300 square foot building on this site and relocated its
branch operations into this permanent facility in February 1998. The bank still owns the
modular building, which is presently unoccupied.

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

The
bank purchased a lot and building at East 5th Street, Tabor City, North Carolina in July,
1997, in anticipation of filing an Application to Establish a Branch Banking Facility at
this location based on the fact that the Reigle-Neal Act would authorize interstate
branching into North Carolina effective June 1, 1997. Late in May 1997, however the North
Carolina legislature rescinded its earlier position on interstate branching and extended
its moratorium on such branching into North Carolina until June 1, 1999. Since that time,
this moratorium has been extended permanently. The bank still owns this property in fee
simple.

Having
been thwarted by the North Carolina banking statute change, the bank entered into a
long-term lease agreement to lease a lot at 3201 Hwy. 701 North, Loris, South Carolina
which borders the South Carolina-North Carolina boundary. The lease included an initial
5-year term with four renewal

15

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options of five years each. The bank
opened a full-service branch operation in a modular facility on this site in October 1997.
The bank expects to build a permanent facility on this site in the future.

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

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

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

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

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

In
March 2002, the bank purchased a lot at 4400 Hwy 17 South, North Myrtle Beach, South
Carolina. The bank constructed a 3,300 square foot banking facility on this property which
opened for business in February 2003.

In
March 2002, the bank entered into an agreement to lease a building at 2713 Hwy 17 South,
North Myrtle Beach, South Carolina. The lease is for one year with two three month renewal
options. The bank opened this office in June 2002 and operated there during the
construction of the permanent building at 4400 Hwy 17 South, North Myrtle Beach, South
Carolina. The bank moved into this permanent facility in February 2003 and terminated the
lease of the temporary facility.

In
March 2002, the bank entered into an agreement to lease an office building at 1601 North
Oak Street, Suite 103, Myrtle Beach, South Carolina. The lease is for one year with twelve
one month renewal options. The bank purchased a lot at 1701 North Oak Street in Myrtle
Beach, SC in October 2002 on which to build a permanent branch facility and received
approval of its application to establish the proposed branch in July 2002. The bank opened
for business in the temporary location in August 2003. The bank began construction of its
permanent facility during the fourth quarter of 2003 and expects to occupy the facility
during the second quarter of 2004.

16

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# ITEM 3.  LEGAL PROCEEDINGS

In
the ordinary course of operations, we are a party to various legal proceedings. Our
management does not believe that there is any pending or threatened proceeding against us
which, if determined adversely, would have a material effect on our business, results of
operations, or financial position during the year ended December 31, 2003.

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

No
matters were submitted during the fourth quarter of the fiscal year ended December 31,
2003 to a vote of security holders, through the solicitation of proxies or otherwise.

# PART II

# ITEM 5.  MARKET FOR
COMMON SHARE AND DIVIDENDS

In
response to this Item, the information contained on page 6 of the companys Annual
Report to Shareholders for the year ended December 31, 2003 is incorporated herein by
reference.

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

In
response to this Item, the information contained on pages 7 through 23 of the
companys Annual Report to Shareholders for the year ended December 31, 2003 is
incorporated herein by reference.

# ITEM 7.  FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA

In
response to this Item, the information contained on pages 24 through 44 of the
companys Annual Report to Shareholders for the year ended December 31, 2003 is
incorporated herein by reference.

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

Tourville,
Simpson and Caskey, LLP (TSC), which served as the principal independent accountant for
the company since December 1987, resigned from such position effective January 2, 2003 as
it has ceased its auditing services for all of its clients. TSCs report on the
financial statements of the company for each of the years ended December 31, 2000 and
December 31, 2001 did not contain an adverse opinion or a disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope or accounting principles.

There
were no disagreements between the company and TSC on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of TSC, would have caused it to make
reference to the subject matter of the disagreements in connection with its report.

The
disclosures required by Item 304 (a) (1) (iv) (B) of Regulation S-B are not applicable.

Elliott
Davis, LLC, certified public accountants, was engaged by the company on January 2, 2003,
to audit the financial statements for the year ending December 31, 2002. The company did
not consult Elliott Davis regarding any of the matters set forth in Item 304 (a) (2) (i)
or (ii) of Regulation S-B.

17

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# ITEM 8A.  CONTROLS AND
PROCEDURES

As
of the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as defined in Exchange Act Rule 13a-15(e). Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that our current
disclosure controls and procedures are effective as of December 31, 2003.

The
design of any system of controls and procedures is based in part upon certain assumptions
about the likelihood of future events. There can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions, regardless of
how remote.

# PART III

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

18

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# ITEM 9.  DIRECTORS AND
EXECUTIVE OFFICERS OF THE COMPANY

# Code of Ethics

We
expect all of our employees to conduct themselves honestly and ethically, particularly in
handling actual and apparent conflicts of interest and providing full, accurate, and
timely disclosure to the public. Although we have not adopted a formal code of ethics that
applies to our senior executive officers, we are developing a code that we expect will be
approved by our board of directors in the near future.

In
response to this Item 9, additional information is contained on pages 3 through 6 of the
companys Proxy Statement for the Annual Meeting of Shareholders to be held on April
22, 2004 incorporated herein by reference.

# ITEM 10.  EXECUTIVE
COMPENSATION

In
response to this Item 10, the information contained on page 10 of our Proxy Statement for
the Annual Meeting of Shareholders to be held on April 22, 2004 is incorporated herein by
reference.

# ITEM 11.  SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

In
response to this Item 11, the information contained on page 11 of our Proxy Statement for
the Annual Meeting of Shareholders to be held on April 22, 2004 is incorporated herein by
reference.

# ITEM 12.  CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS

In
response to this Item 12, the information contained on page 15 of our Proxy Statement for
the Annual Meeting of Shareholders to be held on April 22, 2004 is incorporated herein by
reference.

# ITEM 13.  EXHIBITS, LIST
AND REPORTS ON FORM 8-K

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

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

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

|10.1 | HCSB Financial Corp. Omnibus Stock Ownership and Long Term Incentive Plan
|---- | -------------------------------------------------------------------------

|13 | The Companys 2003 Annual Report
|-- | --------------------------------

|21 | Subsidiaries of Registrant
|-- | --------------------------

|24 | Power of Attorney (contained on signature pages herewith)
|-- | ---------------------------------------------------------

|31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------

|31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------

|32 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. This exhibit is not filed for purposes
of Section 18 of the Securities Exchange Act of 1934 but is instead furnished as provided
by applicable rules of the Securities and Exchange Commission.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19

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(b)    
          Reports on Form 8-K

The following reports on Form 8-K
were filed during the fourth quarter ended December 31, 2003.

None.

# ITEM 14.  PRINCIPAL
ACCOUNTANT FEES AND SERVICES

In
response to this Item 14, the information contained on page 14 of our Proxy Statement for
the Annual Meeting of Shareholders to be held on April 22, 2004 is incorporated herein by
reference under the heading Audit Fees.

20

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# SIGNATURES

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

|                      |  | HCSB FINANCIAL CORPORATION         
|--------------------- |  | -----------------------------------
|                      |  |                                    
|Date:  March 25, 2004 |  | By:   /s/  James R. Clarkson       
|                      |  | James R. Clarkson                  
|                      |  | President & Chief Executive Officer

KNOW
ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints James R. Clarkson, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that attorney-in-fact and agent,
or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

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

|By:  /s/ Johnny C. Allen
        Johnny C. Allen, Director | Date:  March 25, 2004 | 
|---------------------------------------------------------- | --------------------- | 

|By:  /s/ Clay D. Brittain
        Clay D. Brittain, Director | Date:  March 25, 2004 | 
|------------------------------------------------------------ | --------------------- | 

|By:  /s/ Russell R. Burgess, Jr.
        Russell R. Burgess, Jr., Director | Date:  March 25, 2004 | 
|-------------------------------------------------------------------------- | --------------------- | 

|By:  /s/ D. Singleton Bailey
        D. Singleton Bailey, Director | Date:  March 25, 2004 | 
|------------------------------------------------------------------ | --------------------- | 

|By:  /s/ Franklin C. Blanton
        Franklin C. Blanton, Director | Date:  March 25, 2004 | 
|------------------------------------------------------------------ | --------------------- | 

|By:  /s/ William H. Caines
        William H. Caines, Director | Date:  March 25, 2004 | 
|-------------------------------------------------------------- | --------------------- | 

|By:  /s/ James R. Clarkson
         James R. Clarkson, Director, President & CEO | Date:  March 25, 2004 | 
|-------------------------------------------------------------------------------- | --------------------- | 

|By:  /s/ J. Lavelle Coleman
        J. Lavelle Coleman, Director | Date:  March 25, 2004 | 
|---------------------------------------------------------------- | --------------------- | 

21

---

|By:  /s/ Larry G. Floyd
        Larry G. Floyd, Director | Date:  March 25, 2004 | 
|-------------------------------------------------------- | --------------------- | 

|By:  /s/ Boyd R. Ford, Jr.
        Boyd R. Ford, Jr., Director | Date:  March 25, 2004 | 
|-------------------------------------------------------------- | --------------------- | 

|By:  /s/ Tommie W. Grainger
        Tommie W. Grainger, Director | Date:  March 25, 2004 | 
|---------------------------------------------------------------- | --------------------- | 

|By:  /s/ Randy B. Hardee
        Randy B. Hardee, Director | Date:  March 25, 2004 | 
|---------------------------------------------------------- | --------------------- | 

|By:  /s/ Michael W. Hambrick
        Michael W. Hambrick, Vice President and
        Chief Financial Officer (Principal
        Accounting Officer) | Date:  March 25, 2004 | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | 

|By:  /s/ Gwyn G. McCutchen
        Gwyn G. McCutchen, Director | Date:  March 25, 2004 | 
|-------------------------------------------------------------- | --------------------- | 

|By:  /s/ T. Freddie Moore
        T. Freddie Moore, Director | Date:  March 25, 2004 | 
|------------------------------------------------------------ | --------------------- | 

|By:  /s/ Carroll D. Padgett, Jr.
        Carroll D. Padgett, Jr., Director | Date:  March 25, 2004 | 
|-------------------------------------------------------------------------- | --------------------- | 

22

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# EXHIBIT INDEX

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

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

|10.1 | HCSB Financial Corp. Omnibus Stock Ownership and Long Term Incentive Plan
|---- | -------------------------------------------------------------------------

|13 | The Companys 2003 Annual Report
|-- | --------------------------------

|21 | Subsidiaries of Registrant
|-- | --------------------------

|24 | Power of Attorney (contained on signature pages herewith)
|-- | ---------------------------------------------------------

|31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------

|31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------

|32 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. This exhibit is not filed for purposes
of Section 18 of the Securities Exchange Act of 1934 but is instead furnished as provided
by applicable rules of the Securities and Exchange Commission.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23