SOUTHERN BANCSHARES NC INC, 10-K, 1997-03-28

SOUTHERN BANCSHARES NC INC
10-K, 1997-03-28
STATE COMMERCIAL BANKS

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<PAGE>

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended
December 31, 1996. Commission File No. 0-10852

SOUTHERN BANCSHARES (N.C.), INC.
(Exact name of registrant as specified in its charter)

DELAWARE 56-1538087
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

121 East Main Street 28365
Mount Olive, North Carolina (Zip Code)
(Address of Principal Executive offices)

Registrant's Telephone Number,
including Area Code: (919) 658-7000

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

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

Series B non-cumulative preferred stock, no par value

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

Yes _X__ No ___

Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K.

[ X ]

The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 21, 1997: The Registrant's voting stock has no readily
ascertainable market value as of any date within the last sixty days or
otherwise for the reason that such stock is not regularly traded and has no
quoted prices. Therefore, the aggregate market value of the voting stock held
by non-affiliates is not determinable.

The number of shares outstanding of the Registrant's common stock as of
March 21, 1997: Common Stock, $5.00 par value - 119,918 shares

Documents Incorporated by Reference

1. Part II Registrant's Annual Report to Shareholders

2. Part III Registrant's Definitive Proxy Statement dated March 21, 1997

<PAGE>

PART I

ITEM 1 - BUSINESS:

General

Southern BancShares (N.C.), Inc., a Delaware corporation (hereinafter,
with all of its subsidiaries, referred to as the "Registrant" or BancShares"),
is a bank holding company pursuant to the provisions of the Bank Holding
Company Act of 1956, as amended. BancShares is the successor to Southern
BancShares (N.C.), Inc., a North Carolina corporation ("SBS") which was formed
in 1982 to become the parent company of Southern Bank and Trust Company
("Southern"), its principal operating subsidiary, which it acquired in late
1982. BancShares was formed in 1986 in order to effect the reincorporation in
Delaware of the holding company of Southern Bank by the merger of SBS into
BancShares, which was effective on December 28, 1986. All significant
activities of the Registrant and its subsidiary are banking related so that
the Registrant operates within one industry segment. Neither BancShares nor
its subsidiary has any foreign operations.

The operating subsidiary of BancShares is Southern Bank ("Southern"),
which is engaged in commercial banking primarily in eastern North Carolina.
Southern's predecessor bank was organized on January 29, 1901, as the Bank of
Mount Olive. In 1913, it became the First National Bank and remained so until
1936 when it rechartered as the Bank of Mount Olive. In 1967, Southern
acquired its present name. Over the years, Southern's growth has been
generated principally through branching and by merging with four other banks:
Roanoke Chowan Bank, Roxobel, North Carolina in 1969, Merchants' and Farmers'
Bank, Macclesfield, North Carolina in 1973, Tarheel Bank & Trust Co.,
Gatesville, North Carolina in 1986 and Citizens Savings Bank, Rocky Mount,
North Carolina in 1993. Also in 1993, Southern acquired deposits in four
branches of two savings institutions and an office of NationsBank in
Pollocksville, North Carolina. In 1994 Southern acquired deposits in branches
in Scotland Neck, North Carolina and Turkey, North Carolina from First Citizens
Bank. In 1995 Southern acquired deposits in branches in Farmville, North
Carolina; Garland, North Carolina; Kill Devil Hills, North Carolina and
Salemburg, North Carolina from First Union National Bank. In 1995 Southern
also acquired the deposits of a branch in Kill Devil Hills, North Carolina
from First Citizens Bank. In 1996 Southern acquired deposits in a branch in
Windsor, North Carolina from First Citizens Bank, acquired deposits in a branch
in Edenton, North Carolina from United Carolina Bank and sold the deposits of
its branch in Scotland Neck, North Carolina to Triangle Bank. Refer to
"Related Parties" in Note 15 on page 42 of 1996 Annual Report of Southern
BancShares (N.C.), Inc. in Exhibit number 13 for additional information
regarding First Citizens Bank. In terms of total assets, at December 31,
1996, Southern is the twelfth largest bank in North Carolina.
<PAGE>
Business

Southern conducts a general banking business designed to meet the needs of
the people of its market area. These services, all of which are offered at its
40 offices, include, among other items: taking deposits; cashing checks and
providing for individual and commercial cash needs; and providing numerous
checking and savings plans, including automatic transfer services, direct
deposit, and banking by mail.

Southern also makes commercial, consumer and mortgage loans at its 30 full
service offices and provides individual retirement account service, safe
deposit box rental, travelers' check service, and Master Card and Visa credit
card programs.

The Bank has eighteen automatic teller machines; one each in Ahoskie,
Ayden, Belhaven, Bethel, Edenton, Farmville, LaGrange, Mount Olive,
Murfreesboro, Nashville, Plymouth, Roanoke Rapids, Rocky Mount, Warsaw and
Windsor, North Carolina and two in Kill Devil Hills, North Carolina. Southern
has one satellite automatic teller machine at Duplin General Hospital in
Kenansville, North Carolina.

Southern does not operate in the international financing market.

Southern has two wholly-owned subsidiaries: Goshen, Inc., which acts as
agent for credit life and credit accident and health insurance written in
connection with loans made by Southern, and Goshen Properties, Inc., which
manages property foreclosed upon by Southern.

Supervision and Regulation

The business and operations of BancShares and Southern are subject to
extensive federal and state governmental regulation and supervision.

BancShares is a bank holding company registered with the Board of
Governors of the Federal Reserve System (the ``Federal Reserve'') under the
Bank Holding Company Act of 1956 as amended (the ``BHCA''), and is subject to
supervision and examination by and the regulations and reporting requirements
of the Federal Reserve. Under the BHCA, the activities of BancShares are
limited to banking, managing or controlling banks, furnishing services to or
performing services for its subsidiaries or engaging in any other activity
which the Federal Reserve determines to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto.
<PAGE>
The BHCA prohibits BancShares from acquiring direct or indirect control of
more than 5 percent of the outstanding voting stock or substantially all of the
assets of any financial institution, or merging or consolidating with another
bank holding company or savings bank holding company, without prior approval of
the Federal Reserve. Additionally, the BHCA prohibits BancShares from engaging
in, or acquiring ownership or control of more than 5 percent of the outstanding
voting stock of any company engaged in, a nonbanking activity unless such
activity is determined by the Federal Reserve to be so closely related to
banking as to be properly incident thereto. In approving an application by
BancShares to engage in a non-banking activity, the Federal Reserve must
consider whether that activity can reasonably be expected to produce benefits
to the public, such as greater convenience, increased competition or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest or unsound
banking practices.

There are a number of obligations and restrictions imposed by law on a
bank holding company and its insured depository institution subsidiaries that
are designed to minimize potential loss to depositors and the FDIC insurance
funds. For example, if a bank holding company's insured depository
institution subsidiary becomes ``undercapitalized,'' the bank holding company
is required to guarantee (subject to certain limits) the subsidiary's
compliance with the terms of any capital restoration plan filed with its
appropriate federal banking agency. Also, a bank holding company is required
to serve as a source of financial strength to its depository institution
subsidiaries and to commit resources to support such institutions in
circumstances where it might not do so, absent such policy. Under the BHCA,
the Federal Reserve has the authority to require a bank holding company to
terminate any activity or to relinquish control of a nonbank subsidiary upon
the Federal Reserve's determination that such activity or control constitutes
a serious risk to the financial soundness and stability of a depository
institution subsidiary of the bank holding company.
<PAGE>
As a result of its ownership of a North Carolina-chartered commercial
bank, BancShares also is registered with and subject to regulation by the North
Carolina Commissioner of Banks under the state's bank holding company laws.
The Commissioner has asserted authority to examine North Carolina bank holding
companies and their affiliates and is in the process of formulating regulations
in this area.

Southern is a North Carolina commercial bank and its deposits are insured
by the FDIC. It is subject to supervision and examination by and the
regulations and reporting requirements of the North Carolina Commissioner of
Banks (the ``Commissioner'') and the FDIC.

Southern is subject to legal limitations on the amounts of dividends it is
permitted to pay. Prior approval of the Commissioner is required if the total
of all dividends declared by Southern in any calendar year exceeds its net
profits (as defined by statute) for that year combined with its retained net
profits (as defined by statute) for the preceding two calendar years, less any
required transfers to surplus. As an insured depository institution, Southern
also is prohibited from making capital distributions, including the payment of
dividends, if, after making such distribution, it would become
``undercapitalized'' (as such term is defined in the Federal Deposit Insurance
Act).

Under current federal law, certain transactions between a depository
institution and its affiliates are governed by Section 23A and 23B of the
Federal Reserve Act. An affiliate of a depository institution is any company
or entity that controls, is controlled by or is under common control with the
institution, and, in a holding company context, the parent holding company of a
depository institution and any companies which are controlled by such parent
holding company are affiliates of the depository institution. Generally,
Sections 23A and 23B (i) limit the extent to which a depository institution or
its subsidiaries may engage in covered transactions with any one affiliate, and
(ii) require that such transactions be on terms and under circumstances
substantially the same, or at least as favorable, to the institution or the
subsidiary as those provided to a nonaffiliate.

Southern is subject to various other state and federal laws and
regulations, including state usury laws, laws relating to fiduciaries, consumer
credit and equal credit, fair credit reporting laws and laws relating to branch
banking. As an insured institution, Southern is prohibited from engaging as a
principal in activities that are not permitted for national banks unless (i)
the FDIC determines that the activity would pose no significant risk to the
appropriate deposit insurance fund and (ii) the institution is, and continues
to be, in compliance with all applicable capital standards. Insured
institutions also are prohibited from directly acquiring or retaining any
equity investment of a type or in an amount not permitted for national banks.

The Federal Reserve, the FDIC and the Commissioner all have broad powers
to enforce laws and regulations applicable to BancShares and Southern and to
require corrective action of conditions affecting the safety and soundness of
Southern. Among others, these powers include cease and desist orders, the
imposition of civil penalties and the removal of officers and directors.
<PAGE>
Capital Requirements

Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines which require a minimum ratio of total capital to
risk-weighted assets of 8 percent. At least half of the total capital is
required to be Tier I capital. In addition to the risk-based capital
guidelines, the Federal Reserve has adopted a minimum leverage capital ratio
under which a bank holding company must maintain a level of Tier I capital to
average total consolidated assets of at least 3 percent in the case of a bank
holding company which has the highest regulatory examination rating and is not
contemplating significant growth or expansion. All other bank holding
companies are expected to maintain a leverage capital ratio of a least 1
percent to 2 percent above the stated minimum.

Southern is also subject to capital requirements imposed by the FDIC.
Under the FDIC's regulations, insured institutions that receive the highest
rating during the examination process and are not anticipating or experiencing
any significant growth are required to maintain a minimum leverage ratio of 3
percent of Tier I capital to average total consolidated assets. All other
insured institutions are required to maintain a minimum ratio of 1 percent or 2
percent above the stated minimum, with a minimum leverage ratio of not less
than 4 percent. The FDIC also requires Southern to have a ratio of total
capital to risk-weighted assets of at least 8 percent.

Insurance Assessments

Southern is subject to insurance assessments imposed by the FDIC.
Effective January 1, 1993, the FDIC adopted a transitional risk-based
assessment schedule which became fully effective in January 1994 and provided
for annual assessment rates ranging from .23 percent to .31 percent of an
institution's average assessment base. During 1995, the FDIC reduced the Bank
Insurance Fund (``BIF'') assessment rates for the highest rated banks to
.04 percent, but left unchanged the .31 percent rate for the weakest banks;
and, effective January 1, 1996, the FDIC again reduced BIF assessments to a
range of 0 percent to .27 percent. These recent premium reductions do not
affect the deposit premiums paid on Savings Association Insurance Fund
(``SAIF'') insured deposits. The actual assessment to be paid by each insured
institution is based on the institution's assessment risk classification, which
is determined based on whether the institution is considered ``well
capitalized'', ``adequately capitalized'' or``under capitalized'', as such
terms have been defined in applicable federal regulations, and whether the
institution is considered by its supervisory agency to be financially sound or
to have supervisory concerns. The FDIC also is authorized to impose one or
more special assessments in any amount deemed necessary to enable repayment
of amounts borrowed by the FDIC from the United States Treasury Department.
<PAGE>
The Deposit Insurance Funds Act of 1996 (``DIFA96'') required the FDIC to
impose a one-time special assessment on SAIF-assessable deposits, including
those held by BIF-member OAKAR (``OAKAR'') institutions such as Southern to
capitalize the SAIF to its target Designated Reserve Ratio. Southern was
accordingly assessed $569 thousand in September 1996.

The DIFA96 also required that, beginning January 1, 1997, BIF banks and
OAKAR institutions would begin to be charged a separate assessment for the
Financing Corporation (``FICO'') funding requirements. The FICO rate is not
tied to the FDIC risk classification and is subject to change by the FDIC
within certain limitations.

The FICO rate for the first quarter of 1997 was set at an annual rate of
6.48 basis points of OAKAR adjusted deposits as defined by the FDIC and 1.296
basis points of BIF adjusted deposits. At December 31, 1996 the FICO
assessable OAKAR deposit base for Southern was $94 million and the BIF deposit
base was $367 million. If Southern's deposits remained at these levels and the
FDIC maintained the same rates, the expense for the FICO obligation for
Southern would be approximately $109 thousand for 1997.

Change in Control

State and federal law restricts the amount of voting stock of a bank
holding company, or a bank, that a person may acquire without the prior
approval of banking regulators.

Pursuant to North Carolina law, no person may, directly or indirectly,
purchase or acquire voting stock of any bank holding company or bank which
would result in the change of control of that entity unless the Commissioner
first shall have approved that proposed transaction. A person will be deemed
to have acquired ``control'' of a bank holding company or bank if that person,
directly or indirectly, (i) owns, controls or has the power to vote 10 percent
or more of the voting stock of the bank holding company or bank, or (ii)
possesses the power to direct or cause the direction of its management and
policy. Federal law imposes additional restrictions on acquisitions of stock
in bank holding companies and insured banks. Under the federal Change in Bank
Control Act and regulations thereunder, a person or group acting in concert
must give advance notice to the Federal Reserve or the FDIC before directly or
indirectly acquiring the power to direct the management or policies of, or to
vote 25 percent or more of any class of voting securities of, any bank holding
company or insured bank. Upon receipt of such notice, the federal regulator
either may approve or disapprove the acquisition.

Under the Act, a change in control is presumed to occur if, among other
things, a person or group acquires more than 10 percent of any class of voting
stock of a holding company or insured bank and, after such acquisition, the
acquirer will be the largest shareholder.
<PAGE>
Interstate Banking and Branching

Federal law permits adequately capitalized and managed bank holding
companies to acquire control of the assets of banks in any state (the
``Interstate Banking Law ''). Acquisitions will be subject to anti-trust
provisions that cap at 10 percent the portion of the total deposits of insured
depository institutions in the United States that a single bank holding company
may control, and generally cap at 30 percent the portion of the total deposits
of insured depository institutions in a state that a single bank holding
company may control. Under certain circumstances, states have the authority
to increase or decrease the 30 percent cap, and states may set minimum age
requirements of up to five years on target banks within their borders.

Beginning June 1, 1997, and subject to certain conditions, the Interstate
Banking Law also permits interstate branching by allowing a bank to merge with
a bank located in a different state. A state may accelerate the effective date
for interstate mergers by adopting a law authorizing such transactions prior to
June 1,1997, or it can ``opt out'' and thereby prohibit interstate branching by
enacting legislation to that effect prior to that date. The Interstate Banking
Law also permits banks to establish branches in other states, by opening new
branches or acquiring existing branches of other banks, if the laws of those
other states specifically permit that form of interstate branching. North
Carolina has adopted statutes which, subject to conditions contained therein,
specifically authorize out-of-state bank holding companies and banks to acquire
or merge with North Carolina banks and to establish or acquire branches in
North Carolina.

Economic Considerations

As a bank holding company whose primary asset is the capital stock of a
commercial bank, BancShares is directly affected by regulatory measures
affecting the banking industry in general. Additionally, since BancShares'
banking business is centered in eastern North Carolina, the general state of
the economy of eastern North Carolina, especially the agricultural sector, has
a direct effect on its business and profitability.

Among governmental regulators of primary importance is the Federal Reserve
which acts as the nation's central bank and can directly affect money supply
and thereby affect Southern's lending ability by increasing or decreasing its
interest costs and availability of funds. An important function of the Federal
Reserve is to regulate the national supply of bank credit in order to combat
recession and curb inflationary pressures. Among the instruments of monetary
policy used by the Federal Reserve to implement these objectives are open
market operations in U. S. Government securities, changes in the discount rate
and surcharge, if any, on member bank borrowings, and changes in reserve
requirements against bank deposits. These means are used in varying
combinations to influence overall growth of bank loans, investments and
deposits and may also affect interest rates charged on loans or paid for
deposits.

Southern is not a member of the Federal Reserve System, but is subject to
reserve requirements imposed on non-member banks by the Federal Reserve. The
monetary policies of the Federal Reserve have had a significant effect on the
operating results of commercial banks in the past and are expected to continue
to do so in the future.
<PAGE>
Competition

The banking laws of North Carolina allow statewide branching; therefore,
commercial banking in the state is highly competitive. Southern competes
directly in many of its markets with one or more of the largest banking
organizations in North Carolina. Such competitors range in size to over $100
billion in consolidated resources (including resources represented by banking
organizations in other states owned by or which control certain of such
competitors), have broader geographic markets and higher lending limits and
offer more services than Southern, and can, therefore, make more effective use
of media advertising, support services and electronic technology than can
BancShares or Southern.

Employees

At December 31, 1996, Southern employed 257 full-time employees and 26
part-time employees. It is not a party to any collective bargaining agreements
and considers relations with its employees to be good. BancShares, Goshen and
Goshen Properties do not have any separate employees.
<PAGE>

Statistical Information

I. AVERAGE BALANCE SHEET ITEMS AND NET INTEREST DIFFERENTIAL
AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID

<TABLE>
<CAPTION>
(Dollars in thousands, taxable-equivalent)

DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
ASSETS BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans (1) (2) $310,389 $26,878 8.66% $270,563 $24,338 9.00% $242,360 $20,943 8.64%
Taxable investment securities 126,594 7,984 6.31% 105,524 5,382 5.10% 94,772 3,720 3.93%
Nontaxable investment securities (3) 25,914 2,291 8.84% 25,515 3,582 14.03% 32,722 3,317 10.14%
Federal funds sold 6,895 402 5.83% 14,378 810 5.63% 8,812 312 3.54%
_______ ______ ____ _______ _______ ____ _______ ______ _____
Total interest earning assets 469,792 37,555 7.99% 415,980 34,112 8.20% 378,666 28,292 7.47%
______ ______ ______

Non-interest earning assets:
Cash and due from banks 15,726 15,381 12,265
Premises and equipment, net 13,498 10,974 9,561
Other 20,525 14,164 7,062
______ ______ _____
Total assets $519,541 $456,499 $407,554
======= ======= =======

LIABILITIES & EQUITY
Interest bearing liabilities:
Demand deposits $70,443 1,227 1.74% $59,926 1,262 2.11% $56,913 1,193 2.10%
Savings deposits 83,761 2,202 2.63% 79,486 2,238 2.82% 84,006 2,085 2.48%
Time deposits 247,575 13,504 5.45% 217,752 11,910 5.47% 183,405 7,360 4.01%
Short-term borrowed funds 8,160 400 4.90% 6,280 336 5.35% 2,424 86 3.55%
Long-term obligations 2,021 117 5.79% 3,153 309 9.80% 4,356 320 7.35%
_______ ______ ____ _______ ______ ____ _______ _____ ____
Total interest bearing liabilities 411,960 17,450 4.24% 366,597 16,055 4.38% 331,104 11,044 3.34%
______ ______ ______

Non-interest bearing liabilities:
Demand deposits 57,773 50,088 43,294
Other 9,574 5,157 4,711
Shareholders' equity 40,234 34,657 28,445
_______ _______ _______

Total liabilities and equity $519,541 $456,499 $407,554
======= ======= =======

Interest rate spread (4) 3.75% 3.82% 4.13%
Net interest earnings and
Net interest margin (5) $20,105 4.28% $18,057 4.34% $17,248 4.55%

</TABLE>

(1) Includes non-accrual loans
(2) Interest income includes related loan fee amounts which were immaterial.
(3) The average rate on nontaxable investment securities has been adjusted to a
tax equivalent yield using a 34% tax rate.
(4) Interest rate spread is the difference between earning asset yield and
interest bearing liability rate.
(5) Net interest margin is net interest income divided by average earning
assets.

II. AVERAGE BALANCE SHEET ITEMS AND NET INTEREST DIFFERENTIAL
ANALYSIS OF CHANGES IN INTEREST DIFFERENTIAL

(Dollars in thousands) December 31,1996 Increase(Decrease)

AMOUNT AMOUNT AMOUNT
TOTAL ATTRIBUTABLE ATTRIBUTABLE ATTRIBUTABLE
CHANGE TO CHANGE TO CHANGE TO CHANGE IN
1995-1996 IN VOLUME IN RATE RATE/VOLUME
<S> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans, net $2,540 $3,584 ($920) ($124)
Taxable investment securities 2,602 1,075 1,277 250
Non-taxable investment securities (1,291) 56 (1,327) (20)
Federal funds sold (408) (421) 29 (16)
_____ _____ _____ ____
Total interest income 3,443 4,294 (941) 90

LIABILITIES & EQUITY
Interest bearing liabilities:
Demand deposits (35) 222 (222) (35)
Savings deposits (36) 121 (151) (6)
Time deposits 1,594 1,631 (44) 7
Short-term borrowed funds 64 101 (28) (9)
Long-term obligations (192) (111) (126) 45
_____ _____ ____ ___
Total interest expense 1,395 1,964 (571) 2

Net interest income $2,048 $2,330 $(370) $88

December 31, 1995 Increase(Decrease)

AMOUNT AMOUNT AMOUNT
TOTAL ATTRIBUTABLE ATTRIBUTABLE ATTRIBUTABLE
CHANGE TO CHANGE TO CHANGE TO CHANGE IN
1994-1995 IN VOLUME IN RATE RATE/VOLUME
ASSETS
Interest earning assets:
Loans, net $3,395 $2,437 $872 $86
Taxable investment securities 1,662 423 1,109 130
Non-taxable investment securities 265 (731) 1,276 (280)
Federal funds sold 498 197 184 117
_____ _____ _____ ____
Total interest income 5,820 2,326 3,441 53

LIABILITIES & EQUITY
Interest bearing liabilities:
Demand deposits 69 63 6 0
Savings deposits 153 (112) 286 (21)
Time deposits 4,550 1,377 2,678 495
Short-term borrowed funds 250 137 44 69
Long-term obligations (11) (88) 107 (30)
_____ _____ _____ ____
Total interest expense 5,011 1,377 3,121 513

Net interest income $809 $949 $320 ($460)
==== ===== ===== ====

</TABLE>
III. INVESTMENT PORTFOLIO

The following table sets forth the carrying amount of investment securities
(dollars in thousands):

December 31,

1996 1995 1994
<S> <C> <C> <C>
U.S. Treasury and U.S. Government agencies and corporations $108,592 $97,612 $78,513
States and political subdivisions 35,086 33,749 29,528
Other 25,011 17,445 14,111
______ ______ ______

Total $168,689 $148,806 $122,152
======= ======= =======

</TABLE>

The following table sets forth the maturities of investment securities at
December 31, 1996 (dollars in thousands) and the weighted average yields of
such securities. (Note that nontaxable investment securities have not been
adjusted to a tax equivalent basis and unrealized gain (loss) on available for
sale is not included.)
<TABLE>
<CAPTION>

Maturing

After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other
U.S. Government agencies (1) $59,978 6.01% $46,455 5.74% - - $2,125 6.46%
States and political subdivisions 7,999 6.49% 8,359 7.03% 9,271 6.34% 9,181 5.46%
Other (2) 8,712 5.22% - - - - 100 6.75%
______ ____ ______ ____ ______ _____ _____ ____
$76,689 5.97% $54,814 5.94% $9,271 6.34% $11,406 5.65%
====== ====== ===== ======
</TABLE>

(1) Mortgage-backed securities are included in the obligations of U.S.
Government agencies and spread within the columns according to their
anticipated repayment schedules.

(2) The "Within One Year" column of the "Other" category includes marketable
equity securities held by BancShares. Accordingly, the yield on these
securities represents anticipated dividend income rather than interest
income.

IV. LOAN PORTFOLIO

Analysis of loans by type and maturity

The table below classifies loans by major category (dollars in thousands):

<TABLE>
<CAPTION> December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $70,881 $57,398 $29,267 $23,672 $24,146
Real estate - construction 2,470 1,533 9,374 1,851 1,321
Real estate - mortgage 206,870 189,315 174,694 181,060 93,337
Consumer 35,512 37,548 38,004 30,149 26,397
Lease Financing 2,370 2,410 1,447 - -
_______ _______ ______ ______ ______
318,103 288,204 252,786 236,732 145,201
Less: unearned income (348) (244) (175) - -
_______ _______ _______ _______ _______
$317,755 $287,960 $252,611 $236,732 $145,201
======= ======= ======= ======= =======

</TABLE>

The following table identifies the maturities of all loans as of December 31,
1996 and addresses the sensitivity of these loans to changes in interest
rates.

Within After One Year But After Five Total
One Year Within Five Years Years

_________ ________________ _________ _________
<S> <C> <C> <C> <C>
Commercial and financial $ 33,070 $ 25,344 $ 12,467 $ 70,881
Real estate:
Construction 1,137 1,150 183 2,470
Mortgage 59,694 98,064 49,112 206,870
Consumer 23,964 10,740 808 35,512
Lease Financing 378 1,217 427 2,022
_________ _________ _________ _________
Total $118,243 $ 136,515 $ 62,997 $ 317,755
========= ========= ========= =========
Fixed rate $ 43,508 $ 104,370 $39,175 $187,053
Variable rate 74,735 32,145 23,822 130,702
_________ _________ _________ _________
Total $118,243 $ 136,515 $ 62,997 $ 317,755
========= ========= ========= =========
</TABLE>

Non-accrual, past-due, and restructured loans

The following analysis identifies other real estate owned and loans that were
either non-accruing, past-due or restructured. Loans are placed on a
non-accrual basis when they become 90 days past due and the ability of the
borrower to comply with the present terms is doubtful.

December 31,

1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 147 $ 50 $ 77 $ 44 $ -
Restructured loans 8 - 204 221 240
Accruing loans past-due 90 days or more 343 508 234 190 148
_____ _____ _____ _____ _____
Total non-performing loans $ 498 $ 558 $ 515 $ 455 $ 388
Other real estate owned - 86 1,339 1,020 204
_____ _____ _____ _____ _____
Total non-performing loans and assets $ 498 $ 644 $ 1,854 $ 1,475 $ 592
===== ===== ===== ===== =====

</TABLE>

The amount of interest which would have been recorded in 1996, 1995 and
1994 on non-accrual and restructured loans had they been in accordance with the
original terms throughout the period was immaterial.

V. SUMMARY OF LOAN LOSS EXPERIENCE

Analysis of the allowance for loan losses:

The table presented below summarizes activity in the allowance for loan
losses for the five years ended (dollars in thousands):

December 31,

1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses - beginning of year $ 6,321 $ 6,653 $ 6,717 $ 3,553 $ 3,054

Charge-offs:
Commercial, financial, and agricultural 5 - 90 10 142
Real estate - construction - - - - -
Real estate - mortgage 106 242 26 381 -
Installment 428 220 181 358 242
Lease Financing - - - - -
_____ _____ _____ _____ _____
Total charge-offs 539 462 297 749 384
_____ _____ _____ _____ _____
Recoveries:
Commercial, financial, and agricultural - 54 63 74 19
Real estate - construction 19 - - - -
Real estate - mortgage 131 18 29 56 195
Installment 91 58 141 126 69
Lease Financing - - - - -
_____ _____ _____ _____ _____
Total recoveries 241 130 233 256 283

Net charge-offs (recoveries) 298 332 64 493 101
Additions charged to operations 140 - - 300 600
Addition from Citizens Savings Bank - - - 3,357 -
_____ _____ _____ _____ _____
Allowance for possible loan losses - end of year $ 6,163 $ 6,321 $ 6,653 $ 6,717 $ 3,553

===== ===== ===== ===== =====
Average loans outstanding during the year $310,389 $270,563 $242,360 $191,653 $140,156
======= ======= ======= ======= =======
Ratio of net charge-offs (recoveries) to average loans outstanding 0.10% 0.12% 0.03% 0.26% 0.07%
</TABLE>

The allowances for possible loan losses is increased by charges to the
provision for loan losses and reduced by loans charged off net of recoveries.
Southern's provision is the amount necessary to maintain the allowance at a
level considered adequate to provide for possible loan losses based on
management's and independent external evaluation of the loan portfolio, as well
as prevailing and anticipated economic conditions.

Allocation of the allowance for possible loan losses:

The composition of the allowance by loan category shown in the table below
is based upon management's evaluation of the loan portfolio, past history, and
prevailing economic conditions:
<TABLE>
<CAPTION>

December 31,

1996 1995 1994 1993 1992
% of loans % of loans % of loans % of loans % of loans
in each in each in each in each in each
category to category to category to category to category to
Amount total loans Amount total loans Amount total loans Amount total loans Amount total loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $2,214 22% $1,264 20% $774 12% $672 10% $591 17%
Real estate - construction 76 1% 63 1% 247 4% 53 1% 32 1%
Real estate - mortgage 2,263 65% 3,709 65% 4,611 69% 5,137 76% 2,284 64%
Consumer 1,537 11% 1,222 13% 1,021 15% 855 13% 646 18%
Lease Financing 73 1% 63 1% - - - - - -
_____ ___ _____ ___ _____ ___ _____ ___ _____ ___
6,163 100% $6,321 100% $6,653 100% $6,717 100% $3,553 100%
===== === ===== === ===== === ===== === ===== ===

</TABLE>

VI. DEPOSITS

The average monthly volume of deposits, which is considered representative
of BancShares' operations, and the average rates paid on such deposits are
presented below (dollars in thousands):

1996 1995 1994
Average Average Average Average Average Average
Balances Rates Balances Rates Balances Rates
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand $57,773 - $50,088 - $43,294 -
Interest bearing demand 70,443 1.74% 59,926 2.11% 56,913 2.10%
Savings 83,761 2.63% 79,486 2.82% 84,006 2.48%
Time deposits 247,575 5.45% 217,752 5.47% 183,405 4.01%
_______ _______ ______
Total deposits $459,552 $407,252 $367,618
======= ======= ======
</TABLE>

Maturities of time certificates of deposit of $100,000, or more, at
December 31, 1996 are summarized as follows (dollars in thousands):

Maturity Category
<S> <C>
Three months or less $14,102
Over three through six months 10,123
Over six months through twelve months 13,404
Over one year through five years 7,584
Over five years 353
_______
$45,566
=======

</TABLE>

VII. RETURN ON EQUITY AND ASSETS

The following table presents certain ratios of BancShares:

<TABLE>
<CAPTION> December 31,

1996 1995 1994
<S> <C> <C> <C>
Return on assets (net income divided by average total assets) 0.84% 0.86% 0.90%

Return on equity - including Series C preferred
(net income divided by average total equity) 10.85% 11.29% 12.97%

Dividend payout ratio
(Dividends declared per share divided by net income per share) 13.45% 13.57% 12.80%

Equity to assets ratio - including Series C preferred
(Average equity divided by average total assets) 7.74% 7.59% 6.98%

</TABLE>

VIII. CAPITAL ADEQUACY

The following table presents certain calculations of capital and related
ratios:

December 31,
(Dollars in thousands)
1996 1995 1994
<S> <C> <C> <C>
Total Shareholders' Equity $44,778 $37,163 $30,965
Leverage Capital 27,891 23,369 20,129
Tier I Capital 27,891 23,369 20,129
Total Capital 31,861 26,819 23,021

Leverage Capital Ratio (1) 5.46% 5.60% 5.20%
Tier I Capital Ratio 9.33% 8.92% 9.08%
Total Capital Ratio (2) 10.66% 10.24% 10.39%

</TABLE>

(1) Financial institutions operating at the 3% minimum are expected to have
well diversified risk profiles, including no undue interest rate risk,
excellent asset quality, high liquidity and strong earnings. Financial
institutions not meeting these requirements are expected to maintain a
leverage ratio somewhat higher than the 3% minimum applicable to the
highest rated companies.

(2) The minimum ratio of qualifying total capital to risk weighted assets is
8%, of which 4% must be Tier 1 capital, which is common equity, retained
earnings, and a limited amount of perpetual preferred stock, less certain
intangibles.

IX. RATE OF INTERNAL CAPITAL GENERATION

December 31,

1996 1995 1994
<S> <C> <C> <C>
Return on average assets (based on net income) 0.84% 0.86% 0.90%

Average equity as a percentage of total average assets 7.74% 7.59% 6.98%

Return on average equity 10.85% 11.29% 12.97%
(Return on average assets ratio divided by average
equity ratio)

Earnings retention 86.55% 86.43% 87.20%
(Net income less dividends divided by net income)

Rate of internal capital generation 9.39% 9.76% 11.31%
(Return on average equity ratio times earnings
retention ratio)

</TABLE>

X. INTEREST RATE SENSITIVITY ANALYSIS

(Dollars in Thousands)

December 31, 1996
Non-Rate
1-30 31-90 91-180 181-365 Sensitive
Days Days Days Days & Over
Sensitive Sensitive Sensitive Sensitive 1 Year Total
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans, net of unearned income $81,398 $65,932 $14,646 $29,869 $125,910 $317,755
Investment Securities 31,925 10,515 15,252 41,326 69,671 168,689
Temporary Investments 11,020 - - - - 11,020
_______ ______ ______ ______ _______ _______
Total earning assets $124,343 $76,447 $29,898 $71,195 $195,581 $497,464
======= ====== ====== ====== ======= =======

Interest-Bearing Liabilities:
Savings and core time deposits $187,985 $34,470 $51,216 $55,718 $105,611 $435,000
Time deposits of $100,000 and more 5,492 8,610 10,122 13,405 7,937 45,566
Short-term borrowing 5,064 - - - - 5,064
Long-term obligations 1,400 - - - - 1,400
______ ______ ______ ______ _______ _______
Total interest bearing liabilites $199,941 $43,080 $61,338 $69,123 $113,548 $487,030
======= ====== ====== ====== ======= =======
Other uses - net - - - - 10,434 10,434
Total uses - net $199,941 $43,080 $61,338 $69,123 $123,982 $497,464
======= ====== ====== ====== =======

Interest sensitive Gap (75,598) 33,367 (31,440) 2,072 71,599
Cumulative Interest Sensitive Gap (75,598) (42,231) (73,671) (71,599)

Interest Sensitive Gap To Total Assets 14.14% 6.24% -5.88% 0.39% 13.39%
Cumulative Interest Sensitive Gap To Total Assets -14.14% -7.90% -13.78% -13.39% -

</TABLE>

Interest sensitivity is continually changing. The table above reflects
Bancshares' gap position at December 31, 1996 and does not necessarily
represent its position on any other dates.

XII. SHORT-TERM BORROWINGS

(Dollars in Thousands)
1996 1995
Amount Rate Amount Rate
<S> <C> <C> <C> <C>
Repurchase Agreements
At December 31 $3,838 4.22% $1,081 4.37%
Average during year 2,934 4.04% 1,333 4.58%
Maximum month-end balance during year 4,507 1,773

U.S. Treasury tax and loan accounts
At December 31 $1,226 4.77% 388 4.41%
Average during year 1,052 5.09% 1,125 4.12%
Maximum month-end balance during year 1,300 2,888

</TABLE>

ITEM 2 - PROPERTIES

BancShares does not own or lease any real property. Except for five
tracts of land that are leased and upon which are constructed leasehold
improvements for the conduct of its banking business, Southern owns all of the
real property utilized in its operations.

Southern's home office is located at 121 East Main Street, Mount Olive,
North Carolina. At December 31, 1996 there were 40 Southern offices in North
Carolina. These offices are listed in BancShares' 1996 Annual Report.

ITEM 3 - LEGAL PROCEEDINGS:

There are no material legal proceedings to which BancShares or its
subsidiaries are a party or to which any of their property is subject, other
than ordinary, routine litigation incidental to the business of commercial
banking.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS:

None.
<PAGE>

PART II

ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS:

Information is incorporated herein by reference from pages 15 and 16
of the Registrant's 1996 Annual Report.

ITEM 6 - SELECTED FINANCIAL DATA:

Information is incorporated herein by reference from Table 1,
Five-Year Financial Summary, Selected Average Balances and Ratios, on page 3
of Registrant's 1996 Annual Report.

<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:

Information is incorporated herein by reference from pages 3 through
15 of Registrant's 1996 Annual Report.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:

The following financial statements, independent auditors' report and
supplementary data are incorporated herein by reference, from the page numbers
indicated, in Registrant's 1996 Annual Report.

Independent Auditors' Report 17

Consolidated Balance Sheets as of December 31, 1996 and 1995 18

Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 19

Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 20

Consolidated Statements of Changes in Shareholders' Equity
for the years ended 1996, 1995 and 1994 21

Notes To Consolidated Financial Statements 22-42

Supplementary Data 16

The Independent Auditors' Report on the Consolidated Statements of
Income, Cash Flows and Changes in Shareholders' Equity for the
year ended December 31, 1994 is included in exhibit 99.2 and is
incorporated herein by reference.

ITEM 9 - CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES:

Previously reported by Form 8-K, dated January 18, 1995 filed
January 24, 1995, as amended by Form 8-K/A 1 dated January 31, 1995 and Form
8-K/A 2 dated April 6, 1995.

<PAGE>

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:

The information under the captions "PROPOSAL 1: ELECTION OF DIRECTORS"
and ``Executive Officers'' on pages 6 through 7 and page 10 of Registrant's
definitive Proxy Statement dated March 21, 1997, is incorporated herein by
reference.

ITEM 11 - EXECUTIVE COMPENSATION:

The information under the captions "Compensation of Directors",
"Compensation Committee Interlocks and Insider Participation", "Executive
Compensation", "Pension Plan", and "Employment Contracts, Termination of
Employment and Change-in-Control Arrangements" on page 8 and pages 11-12 of
the Registrant's definitive Proxy Statement dated March 21, 1997, is
incorporated herein by reference.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:

The information under the captions "PRINCIPAL HOLDERS OF VOTING
SECURITIES" and "OWNERSHIP OF VOTING SECURITIES BY MANAGEMENT" on pages 2
through 5 of the Registrant's definitive Proxy Statement dated March 21,
1997, is incorporated herein by reference.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

The information contained in "Transactions with Management" on page 14
of the Registrant's definitive Proxy Statement dated March 21, 1997, is
incorporated herein by reference.

PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K:

(a) 1. Financial Statements

The following consolidated financial statements of Southern
BancShares (N.C.), Inc. and subsidiary, and Independent Auditors'
Report theron, are incorporated herein by reference from
Registrant's 1996 Annual Report to Shareholders.

. Independent Auditors' Report

. Consolidated Balance Sheets at December 31, 1996 and 1995

. Consolidated Statements of Income for the years ended December
31, 1996, 1995 and 1994

. Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994

. Consolidated Statements of Changes in Shareholders' equity for
the years ended December 31, 1996, 1995 and 1994

. Notes to Consolidated Financial Statements

The Independent Auditors' Report on the Consolidated Statements of
Income, Cash Flows and Changes in Shareholders' Equity for the
year ended December 31, 1994 is included in Exhibit 99.2 and is
incorporated herein by reference.

2. Financial statement schedules are omitted because of the absence
of conditions under which they are required or because the
required information is contained in the consolidated financial
statements or related notes thereto which are incorporated herein
by reference from Registrant's 1996 Annual Report to Shareholders.

3. Exhibits

The following exhibits are filed or incorporated herewith as part
of this report on Form 10-K:

Exhibit Description of Exhibits
Number

3.1 Certificate of Incorporation and Certificate of
Amendment to the Certificate of Incorporation of the
Registrant (filed as exhibits 3.1, and 3.2 respectively,
to Amendment No. 1 to the Registrant's Registration
Statement on Form S-4 (No. 33-8581) filed October 20,
1986 and incorporated herein by reference)

3.2 Registrant's Bylaws (filed as Exhibit 3. to the
Registrant's 1992 Annual Report on Form 10-K and
incorporated herein by reference)

4 Southern Bank and Trust Company Indenture dated February
27, 1971 (filed as exhibit 4 to the Registrant's
Registration Statement on Form S-14 (No. 2-78327) filed
July 7, 1982 and incorporated herein by reference)

10.1* Non-Competition and Consulting Agreement between R. S.
Williams and Southern Bank and Trust Company (filed as
exhibit 10.1 to the Registrant's 1989 Annual Report on
Form 10-K and incorporated herein by reference)

10.2* Seventh Amendment to Noncompetition and Consulting
Agreement between R. S. Williams and Southern Bank and
Trust Company (filed herewith)

10.3* Assignment and Assumption Agreement and First Amendment
of Noncompetition and Consultation Agreement between
First-Citizens Bank & Trust Company, Southern Bank and
Trust Company and M. J. McSorley (filed as exhibit 10.3
to the Registrant's 1989 Annual Report on Form 10-K and
incorporated herein by reference)

13 Registrant's 1996 Annual Report to Shareholders (filed
herewith)

22 Subsidiaries of the Registrant (filed herewith)

99.1** Registrant's definitive Proxy Statement dated March 21,
1997 for the 1997 Annual Shareholders' Meeting

99.2 Independent Auditors' Report of Price Waterhouse LLP
(filed herewith)

(b) Reports on Form 8-K

No reports on Form 8-K were filed for the fourth quarter of the
year ended December 31, 1996.

* Denotes a Management Contract or compensatory plan or arrangement in
which an executive officer or director of the Company participates

** Not being refiled

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.

DATED: MARCH 21, 1997 SOUTHERN BANCSHARES (N.C.), INC.

/s/ R. S. Williams
By: ____________________________________________________
R. S. Williams, President and Chairman of the Board

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

Signature Title Date

/s/R. S. Williams Chairman of the Board of March 21, 1997
R. S. Williams Directors and President

/s/David A. Bean Treasurer (principal March 21, 1997
David A. Bean financial and accounting
officer)

Director
Bynum R. Brown

/s/William H. Bryan Director March 21, 1997
William H. Bryan

/s/D. Hugh Carlton Director March 27, 1997
D. Hugh Carlton

/s/Robert J. Carroll Director March 25, 1997
Robert J. Carroll

/s/Hope H. Connell Director March 24, 1997
Hope H. Connell

/s/J. Edwin Drew Director March 26, 1997
J. Edwin Drew

/s/Moses B. Gillam, Jr Director March 25, 1997
Moses B. Gillam, Jr.

/s/Leroy C. Hand, Jr. Director March 26, 1997
LeRoy C. Hand, Jr.

/s/Frank B. Holding Director March 21, 1997
Frank B. Holding

/s/M. J. McSorley Director March 21, 1997
M. J. McSorley

/s/W. B. Midyette, Jr. Director March 27, 1997
W. B. Midyette, Jr.

/s/W. Hunter Morgan Director March 25, 1997
W. Hunter Morgan

/s/Charles I. Pierce Director March 25, 1997
Charles I. Pierce, Sr.

/s/W. A. Potts Director March 21, 1997
W. A. Potts

/s/Charles L. Revelle, Jr. Director March 28, 1997
Charles L. Revelle, Jr.

/s/ Charles O. Sykes Director March 21, 1997
Charles O. Sykes

/s/John N. Walker Director March 21, 1997
John N. Walker

STATE OF NORTH CAROLINA
COUNTY OF WAYNE

SEVENTH AMENDMENT TO NONCOMPETITION AND CONSULTING AGREEMENT

THIS SEVENTH AMENDMENT TO NONCOMPETITION AND CONSULTING AGREEMENT
``(Seventh Amendment''), made and entered into as of the 31st day of December,
1996, by and between SOUTHERN BANK AND TRUST COMPANY, A North Carolina banking
corporation with its principal place of business in Mount Olive, Wayne County,
North Carolina (hereinafter referred to as ``Southern'') and Robert S.
Williams, a resident of Wayne County, North Carolina (hereinafter referred to
as `` Consultant'');

W I T N E S E T H:

WHEREAS, by a Noncompetition and Consulting Agreement and Release, made
and entered into as of the 31st day of December, 1989, by and between the
parties hereto (the "Agreement"), Southern agreed to pay to Consultant
$3,033.33 per month for a noncompetition arrangement and $300.00 per month for
his advisory and consulting services, as well as various other benefits and
compensation, and to make available to Consultant office space, secretarial
assistance and other equipment and facilities, plus reimbursement for his
out-of-pocket expenses incurred in carrying out his consulting obligations
pursuant to the Agreement, which Agreement was to be effective from January
1, 1990 through December 31, 1990 and which was subsequently extended on the
28th day of December 1990 for a term of one (1) year or until December 31,
1991; and which was subsequently extended on the 31st day of December 1991 for
a term of one (1) year or until December 31, 1992; and which was subsequently
extended on the 31st day of December 1992 for a term of one (1) year or until
December 31, 1993; and which was subsequently extended on the 31st day of
December 1993 for a term of one (1) year or until December 31, 1994; and which
was subsequently extended on the 31st day of December 1994 for a term of one
(1) year or until December 31, 1995; and which was subsequently extended on the
31st day of December 1995 for a term of one (1) year or until December 31,
1996:

WHEREAS, Southern and Consultant desire to extend the Agreement for an
additional calendar year, now enter into this Seventh Amendment to evidence
their understanding of said extension and amendment.

NOW, THEREFORE, for and in consideration of the mutual promises between
the parties made and other good and valuable considerations, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby do agree as
follows:

1. The Agreement made and entered into as of the 31st day of December,
1989, by and between Southern and Consultant, is hereby amended to continue in
effect for an additional term of one year, to be effective from January 1, 1997
through December 31, 1997.

2. Paragraph 5 of the Agreement, ``Covenant Not To Compete,'' is hereby
amended to provide that the monthly consideration for such Covenant shall be
$2,533.33, with the first such payment to be made on or before January 30,
1996, and each successive monthly payment thereafter to be made on or before
the 30th day of each month through and including December 30, 1996. And
continue each month through and including December 30, 1997.

3. All of the other terms and conditions of said Agreement shall remain in
full force and effect.

IN TESTIMONY WHEREOF, Southern has caused this seventh Amendment to be
executed in its corporate name by its President, attested by its Secretary and
its corporate seal to be hereto affixed, all within the authority duly given by
its Board of Directors, and Consultant has hereunto set his hand and adopted as
his seal the typewritten word ``SEAL'' appearing beside his name, all as of the
day and year first above written.

SOUTHERN BANK AND TRUST COMPANY

By:/s/Marion J. McSorley
_____________________________
Marion J. McSorley, President

Attest:

/s/ David Alan Bean, Secretary
__________________________
David A. Bean, Secretary

/s/ Robert S. Williams (SEAL)
____________________________
Robert S. Williams

SOUTHERN BANCSHARES (N.C.), INC.
1996 ANNUAL REPORT

<PAGE>

BUSINESS:

Southern BancShares (N.C.), Inc., a Delaware corporation (hereinafter, with
all of its subsidiaries, referred to as "BancShares"), is a bank holding
company pursuant to the provisions of the Bank Holding Company Act of 1956, as
amended. BancShares is the successor to Southern BancShares (N.C.), Inc., a
North Carolina corporation ("SBS") which was formed in 1982 to become the
parent company of Southern Bank and Trust Company ("Southern"), its principal
operating subsidiary, which it acquired in late 1982. BancShares was formed in
1986 in order to effect the reincorporation in Delaware of the holding company
of Southern by the merger of SBS into BancShares, which was effective on
December 28, 1986. All significant activities of the Registrant and its
subsidiary are banking related so that the Registrant operates within one
industry segment. Neither BancShares nor its subsidiary has any foreign
operations.

Southern conducts a general banking business designed to meet the needs of
the people of its market area. These services, all of which are offered at its
39 offices, include, among other items: taking deposits; cashing checks and
providing for individual and commercial cash needs; and providing numerous
checking and savings plans, including automatic transfer services, direct
deposit, and banking by mail.

Southern also makes commercial, consumer and mortgage loans at its 30
full service offices and provides individual retirement account service, safe
deposit box rental, travelers' check service, and MasterCard and Visa credit
card programs.

Southern has eighteen automatic teller machines; one each in Ahoskie,
Ayden, Belhaven, Bethel, Edenton, Farmville, LaGrange, Mount Olive,
Murfreesboro, Nashville, Plymouth, Roanoke Rapids, Rocky Mount, Warsaw and
Windsor, North Carolina and two in Kill Devil Hills, North Carolina. Southern
has one satellite automatic teller machine at Duplin General Hospital in
Kenansville, North Carolina.

Southern does not operate in the international financing market.

Southern has two wholly-owned subsidiaries: Goshen, Inc., which acts as
agent for credit life and credit accident and health insurance written in
connection with loans made by Southern Bank, and Goshen Properties, Inc.,
which manages property foreclosed upon by Southern.

FORM 10-K

Copies of BancShares' Annual Report on Form 10-K are available upon
written request to David A. Bean, Secretary, Southern BancShares (N.C.), Inc.,
Post Office Box 729, Mount Olive, North Carolina 28365-0729. A copy of
BancShares' Annual Report on Form 10-K for 1996, including Financial
Statements and Schedules thereto will be provided without charge to the
shareholder making such request.

2
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:

INTRODUCTION

This discussion provides information concerning changes in the consolidated
financial condition and results of operations of Southern BancShares (N.C.),
Inc. ("BancShares") and its subsidiary, Southern Bank and Trust Company
("Southern"), for 1996, 1995 and 1994. The comments are intended to supplement
and should be reviewed in conjunction with the consolidated financial
statements, related notes and selected financial data presented elsewhere
herein.

<TABLE>
<CAPTION>
Table 1
Five-Year Financial Summary, Selected Average Balances and Ratios

(Dollars in thousands, except share data and ratios)

December 31,
------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS

Interest income ................................................. $ 36,776 32,894 27,164 22,418 19,975
Interest expense ................................................ 17,450 16,055 11,044 8,803 8,416
------ ------ ------ ----- -----
Net interest income ............................................. 19,326 16,839 16,120 13,615 11,559
Provision for loan losses ....................................... 140 -- -- 300 600
------ ------ ------ ----- -----
Net interest income
after provision for loan losses ............................. 19,186 16,839 16,120 13,315 10,959
Non-interest income ............................................. 4,508 4,028 2,888 3,197 2,301
Non-interest expense ............................................ 18,203 15,661 13,918 10,978 8,765
------ ------ ------ ----- -----
Income before income taxes ...................................... 5,491 5,206 5,090 5,534 4,495
Income taxes .................................................... 1,127 1,293 1,402 1,741 1,120
------ ------ ------ ----- -----
Net income ...................................................... $ 4,364 3,913 3,688 3,793 3,375
======== ===== ===== ===== =====

Selected Average Balances

Total assets .................................................... $519,541 456,499 407,554 326,030 260,718
Investment securities and federal funds sold .................... 157,779 145,417 136,306 114,027 104,034
Loans ........................................................... 310,389 270,563 242,360 191,653 140,156

Interest earning assets ......................................... 469,792 415,980 378,666 305,680 244,190
Deposits ........................................................ 459,552 407,252 367,618 294,264 233,931

Interest bearing liabilities .................................... 411,960 366,597 331,104 263,132 207,159
Shareholders' equity ............................................ 40,234 34,657 28,445 23,126 20,193
Common shares outstanding ....................................... 119,918 121,226 123,521 130,312 131,701
------- ------- ------- ------- -------

PROFITABILITY RATIOS (AVERAGES)

Return on average total assets .................................. 0.84% 0.86 0.90 1.16 1.29
Return on average shareholders' equity .......................... 10.85 11.29 12.97 16.40 16.71
Dividend payout ratio (1) ....................................... 13.45 13.57 12.80 11.65 12.56
------ ------ ------ ----- -----

LIQUIDITY AND CAPITAL RATIOS (AVERAGES)

Loans to deposits ............................................... 67.54% 66.44 65.93 65.13 59.91
Shareholder's equity to total assets ............................ 7.74 7.59 6.98 7.09 7.75
------ ------ ------ ----- -----

PER SHARE OF COMMON STOCK

Net income (2) .................................................. $ 33.00 28.90 27.04 26.72 23.58
Cash dividends .................................................. 1.50 1.00 1.00 1.00 1.00
Book value (3) .................................................. 373.41 309.90 254.30 189.57 163.52
------ ------ ------ ----- -----
</TABLE>

(1) Total common and preferred dividends paid for the year ended December 31
divided by the net income for the year ended December 31

(2) Net income less preferred dividends paid for the year ended December 31
divided by the average number of common shares outstanding for the year
ended December 31

(3) Shareholders' equity at December 31 divided by the number of common
shares outstanding at December 31

<PAGE>

ACQUISITIONS

In June, 1996 BancShares acquired the Windsor, North Carolina office of
First-Citizens Bank & Trust Company and sold its Scotland Neck office to
Triangle Bank. In August, 1996 BancShares acquired the Edenton, North Carolina
office of United Carolina Bank. These acquisitions were accounted for as
purchases, and, therefore, the results of operations prior to purchase of the
financial institutions are not included in the consolidated financial
statements. The acquisitions were as follows:

<TABLE>
<CAPTION>
Table 2

Branch Transactions Loans Deposits
(dollars in thousands) Transaction Acquired Acquired
Date (Sold) (Sold)
----------- -------- ---------
<S> <C> <C> <C>
First Citizens Bank & Trust - Windsor, NC ......... June, 1996 $ 83 $ 7,348

Triangle Bank - Scotland Neck, NC .................. June, 1996 (42) (4,037)

United Carolina Bank - Edenton, NC ................. August, 1996 5,304 6,085
------- -------
Net 1996 acquisition totals ................... $ 5,345 $ 9,396
======= =======

</TABLE>

In June of 1995, BancShares acquired four offices of First Union
National Bank and one office of First-Citizens Bank & Trust Company. These
acquisitions were accounted for as purchases, and, therefore, the results of
operations of the financial institutions acquired prior to their acquisition
dates are not included in the consolidated financial statements. The 1995
acquisitions contributed significantly to the growth and the results of
operations of BancShares in the last half of 1995 and throughout 1996. As of
the dates of the 1995 acquisitions, $2.5 million of loans and $50.9 million of
deposits were added to BancShares.

RESULTS OF OPERATIONS

Earnings

For 1996 net income of $4.36 million represented a 12 percent increase
from 1995 net income of $3.91 million. Net income for 1994 was $3.7 million.
The increase in 1996 net income was principally the result of increased net
interest income resulting from the 1996 full year impact of the June 1995
acquisitions. The increase in 1995 net income was principally the result of a
favorable one time $410 thousand settlement of a lawsuit. Net income per
average share of common stock increased to $33.00 in 1996, from $28.90 in 1995
due to increased earnings and a decrease in the average shares outstanding for
1996. Net income per share for 1994 was $27.04.

Net Interest Income

The greatest portion of BancShares' earnings is from net interest income,
which is the difference between interest income on interest earning assets and
interest paid on deposits and other interest bearing liabilities. The primary
factors affecting net interest income are changes in the volume and yields of
earning assets and interest bearing liabilities, and the ability to respond to
changes in interest rates through asset/liability management. In 1996 net
interest income was $19.3 million as compared to $16.8 million in 1995, an
increase of $2.5 million or 15 percent. Net interest income was $16.1 million
in 1994. The 1996 increase was primarily attributable to increased loan revenue
from a 15 percent increase in average loan balances outstanding from $270.6
million in 1995 to $310.4 million in 1996. The yields received on average loans
for 1996 decreased to 8.66 percent from 9.00 percent for 1995. The rates paid
on interest bearing liabilities decreased 14 basis points during 1996 and the
average interest bearing deposits increased 12 percent between 1995 and 1996
resulting in a 9 percent increase in total interest expense.

<PAGE>

Loans produced the largest component of interest income, amounting to
$26.88 million in 1996, $24.34 million in 1995 and $20.9 million in 1994. This
represented an increase in 1996 of 10 percent. For the year ended December 31,
1995, interest income on loans increased 16 percent. During 1996 average loans
outstanding increased $40 million or 15 percent. This average increase was
primarily due to loan growth in the existing branch network and the impact of
the 1996 branch acquisitions as set forth in Table 2. The 1995 increase in
interest income was primarily due to growth in earning assets from the 1995
branch acquisitions. In 1996, the average yield on loans decreased to 8.7
percent from 9.0 percent in 1995. This decrease was the result of the trend of
overall lower market competition interest rates on loans during most of 1996.
The 1994 average yield was 8.6 percent.

Earnings from investments and federal funds sold provided the balance of
interest income, contributing $9.9 million in 1996, $8.6 million in 1995, and
$6.2 million in 1994. In 1996, BancShares realized both higher yields on
investment securities and federal funds sold and larger average balances. In
1995, BancShares also realized both higher yields on investment securities and
federal funds sold and larger average balances. Average investment securities
and federal funds sold was $158 million in 1996, an increase from $145 million
in 1995. The 1996 average increase was principally the result of the
acquisitions made in June 1995 and June and August 1996.

Total 1996 interest expense for BancShares increased 9 percent after
increasing in 1995 by 45 percent. The principal component of BancShares'
interest expense, interest paid on deposits, totaled $16.9 million in 1996,
$15.4 million in 1995 and $10.6 million in 1994. BancShares' deposit base
increased 7 percent in 1996, primarily as a result of deposit growth within the
branch network excluding the 1996 acquisitions. The cost of interest bearing
deposits also increased in 1996 principally as a result of deposit growth
within the branch network excluding the 1996 acquisitions. The cost of
interest bearing deposits increased significantly in 1995 as a result of the
almost seven months costs for the deposits acquired in June 1995 and a general
trend of higher market deposit costs directed by the Federal Reserve for most
of 1995. The average effective rates paid on interest bearing liabilities were
4.2 percent, 4.4 percent, and 3.3 percent in 1996, 1995, and 1994 respectively.
In 1993, BancShares borrowed $5.5 million to purchase a savings bank. Interest
on this debt, to be repaid at $100 thousand a month plus interest, was $117
thousand in 1996 and $309 thousand in 1995. This debt at December 31, 1996 was
$1.4 million.

BancShares' interest rate spread was 3.8 percent, 3.8 percent and 4.1
percent on a tax equivalent basis in 1996, 1995 and 1994, respectively.
BancShares' ability to maintain a favorable spread between interest income and
interest expense is a major factor in generating earnings; therefore, it is
necessary to effectively manage earning assets and interest bearing
liabilities.

Noninterest Income

Noninterest income consists primarily of service charges, commissions,
fees and gains on sales of loans increased $480 thousand in 1996. Total other
income was $4.5 million in 1996, as compared to $4.0 million in 1995 and $2.9
million in 1994. Non-interest income for 1996 includes a securities gain of
$459 thousand related to the establishment of a charitable foundation of
BancShares funded by the contribution of available-for-sale equity securities.
Service charges on deposit accounts increased $317 thousand, or 14 percent, in
1996 to $2.7 million, from $2.3 million in 1995. This increase was primarily
attributable to the full year impact of the accounts subject to service charges
acquired in June, 1995 and the June and August acquisitions of 1996. Service
charges on deposit accounts increased $127 thousand, or 6%, in 1995, from $2.22
million in 1994 to $2.3 million for 1995. This increase was primarily
attributable to the impact of the accounts subject to service charge acquired
in June, 1995.

BancShares had an increase in 1996 in other service charges and fees of
$135 thousand. BancShares had a decrease in 1995 in other service charges and
fees of $47 thousand.

The remaining noninterest income decreased $431 thousand from $1.0 million
in 1995 to $604 thousand in 1996. This decrease was primarily attributable to a
favorable one time $410 thousand settlement of a law suit in 1995. The
remaining noninterest income increased $1.1 million from a negative $25
thousand in 1994 to $1.0 million in 1995. This increase was primarily
attributable to a one time $410 thousand settlement of a law suit, a $233
thousand increase in gains on sales of loans from a negative $192 thousand for
1994 to $41 thousand for 1995, $148 thousand in non-recurring income related
to a prior acquisition, a $77 thousand increase in credit card merchant income
and non-recurring gains of $76 thousand on other real estate sales.

<PAGE>

Traditionally, BancShares has maintained a larger investment portfolio
than its peers. BancShares traditionally has carried unrealized gains on
investments significantly greater than the average of its peers in North
Carolina primarily due to its investments in marketable equity securities. At
the end of 1996 and 1995, BancShares' subsidiary, Southern, had one of the
highest ratios of Market Value to Book Value in its investment securities in
the state of North Carolina.

Effective January 1, 1994 BancShares adopted Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), Accounting for Certain Investments
in Debt and Equity Securities, which requires that investments in debt and
equity securities be classified in three categories and accounted for as
follows: debt securities that BancShares has the positive intent and ability
to hold to maturity are classified as held-to-maturity and reported at
amortized cost; debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as
trading securities and reported at fair value, with unrealized gains and
losses included in earnings; debt and equity securities not classified as
either held-to-maturity securities or trading securities are classified as
available-for-sale securities and reported at fair value, with unrealized
gains and losses excluded from earnings and reported as a separate component
of shareholders' equity.

In connection with the adoption of SFAS 115, approximately $8.3 million of
BancShares' investment portfolio was initially designated as available-for-sale
effective January 1, 1994. At December 31, 1994 carrying values of
available-for-sale securities were increased by $6.0 million in order to state
these securities at their fair values, deferred taxes were increased by $2.0
million and shareholders' equity was increased by $4.0 million. At December 31,
1995 the fair value of available-for-sale securities exceeded the carrying
value by $10.7 million, deferred taxes related to these available-for-sale
securities were $3.7 million and shareholders' equity included $7.0 million
for the unrealized gain, net of taxes, related to these available-for-sale
securities. At December 31, 1996 the fair value of available-for-sale
securities exceeded the carrying value by $16.5 million, deferred taxes
related to these available-for-sale securities were $5.6 million and
shareholders' equity included $10.9 million for the unrealized gain related to
these available-for-sale securities.

Noninterest expense

Control of noninterest expense is an important aspect in managing net
income. The 1994, 1995 and 1996 acquisitions should enhance the future
operating results of BancShares. However, for the following ten years,
earnings will be reduced as BancShares amortizes intangibles resulting from
assets acquired. Noninterest expense also includes personnel, data
processing, occupancy, furniture and equipment, Federal Deposit Insurance
Corporation ("FDIC") assessments, printing, supplies, legal, professional
fees, postage and other miscellaneous operating expenses. Noninterest expense
was $18.2 million in 1996 compared to $15.7 million in 1995 and $13.9 million
in 1994. The most significant element of BancShares' noninterest expense is
personnel costs. In 1996, salaries and benefits represented $8.0 million, or
44 percent, of total noninterest expense. The personnel costs of 1996 include
the impact of a full year of the costs related to the acquisitions made in
June 1995 and a partial year of costs for the acquisitions made in June and
August, 1996. In 1995, salaries and benefits represented $6.9 million, or 44
percent, of total noninterest expense. The personnel costs of 1995 included
the impact of a full year of the costs related to the acquisitions made in the
last quarter of 1994 and the partial year costs for the acquisitions made in
June, 1995. In 1994, salaries and benefits represented $6.1 million, or 44
percent, of total noninterest expense. The personnel costs of 1994 included
the full year impact of acquisitions made in the last half of 1993 and
partial year costs for the acquisitions made in the last quarter of 1994.

The 1996 noninterest expense, other than personnel, was $10.23 million, an
increase of $1.46 million, or 17 percent, from $8.77 million in 1995. Occupancy
expenses increased from $900 thousand in 1994 to $941 thousand in 1995 to $1.2
million in 1996. These increases of 5 percent and 28 percent respectively, are
principally the result of additional expenditures incurred as a result of the
1994, 1995 and 1996 acquisitions. Furniture and fixture expenses increased from
$914 thousand in 1994 to $1.1 million in 1995 and to $1.3 million in 1996. These
increases of 22 percent and 18 percent, respectively, reflect the additional
equipment expenses incurred as a result of the acquisitions in 1994, 1995 and
1996.

Data processing costs represent charges by vendors that perform data
processing services for Southern. Southern has contracts with four such
companies. Data processing fees are primarily based upon per item or per
account charges. Data processing costs in 1996 were $1.4 million, an increase
of 8 percent, over 1995 data processing expenses of $1.3 million. This increase
was the result of the 1995 and 1996 acquisitions and volume increases in the
existing branch system. Data processing costs in 1995 were $1.33 million, an
increase of 10 percent, over 1994 data processing expenses of $1.21 million.
This increase was the result of the 1994 and 1995 acquisitions and volume
increases in the existing branch system.

6
<PAGE>

Intangibles amortization in 1996 was $1.64 million a 20 percent increase
over the 1995 intangibles amortization of $1.36 million. Intangibles
amortization in 1995 was $1.36 million, an 81 percent increase over the 1994
intangibles amortization of $752 thousand. The 1994 amortization included a
full year's amortization for the 1993 acquisitions and partial year
amortizations for the acquisitions made in the last quarter of 1994. The 1995
amortization included a full year's amortization for the 1994 acquisitions and
partial year amortizations for the acquisitions made in June, 1995. In 1995
BancShares changed its intangibles amortization from the straight-line method
to an accelerated method to better match the amortization with the period
benefited. The 1996 amortization included a full year's amortization for the
1995 acquisitions and partial year amortizations for the acquisitions made in
June and August, 1996.

BancShares has deposits insured under both of the FDIC's insurance funds,
the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund
("SAIF"). In July 1995, the FDIC and other regulatory agencies proposed a plan
to recapitalize the SAIF, and Congress mandated a one-time assessment for all
SAIF insured deposits on September 30, 1996. Congress required that 80% of
BancShares' SAIF insured deposits as reported on BancShares' March 31, 1995
call report and 100% of SAIF insured deposits purchased by BancShares after
March 31, 1995 be assessed at .657 percent. On September 30, 1996 BancShares
had approximately $87 million of SAIF-insured deposits based on the above
formula and recorded $569 thousand on September 30, 1996 as a one-time FDIC
SAIF insurance expense. The increase in 1996 and the decrease in 1995 FDIC
assessment expenses of $121 thousand and $93 thousand, respectively, for FDIC
premiums, resulted primarily from the 1996 one-time assessment discussed above
and the 1995 reduction in deposit premiums for Bank deposits for all Banks
combined with the full year assessment for the deposit growth from the 1994
and 1995 acquisitions respectively and the partial year assessment for the
1996 acquisitions.

At December 31, 1996, BancShares had approximately $98 million of
SAIF-insured deposits. BancShares expects that under current FDIC assessment
guidelines that it will not incur any FDIC deposit insurance assessments for
1997. However, beginning in 1997 the FDIC is required to collect from all banks
an assessment for Financing Corporation ("FICO") funding requirements.
Accordingly, BancShares expects a 1997 FDIC FICO assessment expense of
approximately $109 thousand, based on the FDIC FICO assessment rates in effect
for the first quarter of 1997.

Charitable contributions increased $416 thousand to $589 thousand in 1996
from $173 thousand in 1995 after decreasing $57 thousand from $230 thousand in
1994. Charitable contributions expense for 1996 includes $536 thousand related
to the establishment of a charitable foundation by Southern, funded by the
contribution of available-for-sale securities.

Other miscellaneous noninterest operating expenses were $3.3 million, $3.2
million and $3.0 million for 1996, 1995 and 1994 respectively. BancShares
incurred a non-credit loss of $176 thousand related to an external credit card
fraud in 1996 which is included in other noninterest expenses.

In 1996, 1995, and 1994, BancShares had taxable income for book purposes
that resulted in income tax expense of $1.1 million, $1.3 million and $1.4
million respectively. Decreases in these expenses are primarily the result of
an increase in tax-exempt income for 1996 and 1995.

FINANCIAL CONDITION

Earning and Nonearning Assets

Earning assets consist of loans, investment securities, and short-term
investments that earn interest. Average earning assets during 1996 were $470
million, an increase of 13 percent from the 1995 average of $416 million. This
increase was due primarily to the 1996 full year average impact of the June,
1995 acquisitions and the partial year average impact of the June 1996 and
August 1996 acquisitions. The cash received in the acquisitions was ultimately
invested primarily in loans and short-term investments including federal funds.
Average non-interest earning assets during 1996 were $49.7 million, an increase
of 23 percent from the 1995 average of $40.5 million. This increase was also
due primarily to the 1996 full year average impact of the June, 1995
acquisitions and the partial year average impact of the June 1996 and August
1996 acquisitions. Average earning assets during 1995 were $416 million, an
increase of 10 percent from the 1994 average of $379 million. This increase was
due primarily to the June, 1995 acquisitions. The cash received in the 1995
acquisitions was also ultimately invested primarily in loans and short-term
investments including federal funds. Average non-interest earning assets during
1995 were $40.5 million, an increase of 40 percent from the 1994 average of
$28.9 million. This increase was also due primarily to the June, 1995
acquisitions.

7
<PAGE>

The principal nonearning asset for BancShares is cash and due from banks.
Cash and due from banks averaged $16 million in 1996, $15 million in 1995 and
$12 million in 1994. Return on total average assets was .84 percent in 1996 as
compared to .86 percent in 1995 and .90 percent in 1994. The decreases in 1996
and 1995 were principally the result of increased average assets.

Interest Bearing and Noninterest Bearing Liabilities

Interest bearing liabilities consists of deposits, short term borrowed
funds and notes payable. Average interest bearing liabilities during 1996 were
$412 million, an increase of 12 percent from the 1995 average of $367 million.
This increase was due primarily to the 1996 full year impact of the June, 1995
acquisitions and the partial year 1996 impact of the June and August, 1996
acquisitions. The principal interest bearing liabilities of BancShares are
interest bearing deposits. Average noninterest bearing liabilities during 1996
were $67 million, an increase of 22 percent from the 1995 average of $55
million. Noninterest bearing demand deposits are the principal noninterest
bearing liability. This increase was also due primarily to the 1996 full year
impact of the June, 1995 acquisitions and the partial year 1996 impact of the
June and August, 1996 acquisitions. The cost of total interest bearing
liabilities was 4.24 percent in 1996 as compared to 4.38 percent in 1995 and
3.34 percent in 1994. The decrease in 1996 was principally the result of a
generally lower deposit interest rate market in 1996.

Average interest bearing liabilities during 1995 were $367 million, an
increase of 11 percent from the 1994 average of $331 million. This increase was
due primarily to the June, 1995 acquisitions. Average noninterest bearing
liabilities during 1995 were $55 million, an increase of 15 percent from the
1994 average of $48 million. This increase was also due primarily to the June,
1995 acquisitions. The cost of interest bearing liabilities was 4.38 percent in
1995 as compared to 3.34 percent in 1994. The increase in 1995 was principally
the result of a rising interest market that began in the last half of 1994 and
which did not begin to decrease materially until the last quarter of 1995.

Loans

As of December 31, 1996, loans, net of allowance for loan losses, totaled
$312 million compared to $282 million at year-end 1995. This increase is
primarily due to growth in real estate mortgage and commercial loans. Average
loans for 1996 were $310.4 million, up 15 percent from the 1995 average of
$270.6 million.

Rate sensitivity and liquidity in the loan portfolio are achieved by
making loans with adjustable interest rates and shorter maturities. This allows
Southern to adjust its pricing structure with changes in interest rates. At the
end of 1996, 60 percent of the loan portfolio was due to mature or be available
for repricing of interest rates during 1997.

Investments

Management's asset/liability strategies include maintaining an investment
securities portfolio with appropriate maturities to preclude the necessity of
selling investment securities for purposes of liquidity.

Effective January 1, 1994 BancShares adopted Statement of Financial
Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in
Debt and Equity Securities," which requires that investments in debt and equity
securities be classified in three categories and accounted for as follows: debt
securities that BancShares has the positive intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost;
debt and equity securities that are bought and held principally for the purpose
of selling them in the near term are classified as trading securities and
reported at fair value, with unrealized gains and losses included in earnings;
debt and equity securities not classified as either held-to-maturity securities
or trading securities are classified as available-for-sale securities and
reported at fair value, with unrealized gains and losses excluded from earnings
and reported as a separate component of shareholders' equity.

8
<PAGE>

In connection with adoption of SFAS 115 approximately $8.3 million of
BancShares' investment portfolio was initially designated as available-for-sale
effective January 1, 1994. At December 31, 1994 carrying values of
available-for-sale securities were increased by $6.0 million in order to state
these securities at their fair values, deferred taxes were increased by $2.0
million and shareholders' equity was increased by $4.0 million. At December 31,
1995 the fair value of available-for-sale securities exceeded the carrying
value by $10.7 million, deferred taxes related to these available-for-sale
securities were $3.6 million and shareholders' equity included $7.0 million for
the unrealized gain related to these available-for-sale securities. At December
31, 1996 the fair value of available-for-sale securities exceeded the carrying
value by $16.5 million, deferred taxes related to these available-for-sale
securities were $5.6 million and shareholders' equity included $10.9 million
for the unrealized gain related to these available-for-sale securities.
BancShares does not maintain a trading account.

On December 17, 1996, the board of directors of Southern Bank and Trust
Company approved the contribution of 7,500 shares of marketable equity
securities to the Southern Bank Foundation. These investments had an average
cost basis of $78 thousand and, on December 17, 1996, a fair value of $536
thousand. Southern recorded a securities gain of $458 thousand and charitable
contribution expense of $536 thousand related to this transaction.

ASSET QUALITY

Provision and allowance for loan losses

Because the loan portfolio represents BancShares' largest earning asset,
BancShares continually monitors the quality of its loan portfolio. Southern
operates in an area dominated by agriculture and, accordingly, many loans are
made to commercial enterprises or to consumers who are directly or indirectly
supported by the region's agricultural economy. In 1996, BancShares charged-off
loans net of recoveries of $298 thousand. This represents a decrease of $34
thousand from 1995 net charge-offs of $332 thousand. This decrease is primarily
the result of increased recoveries of loans previously charged off. The
percentage of charge-offs (net of recoveries) to average outstanding loans was
.10 percent in 1996, .12 percent in 1995 and .03 percent in 1994.

The decrease in the ratio of total non-performing loans to total loans,
from 0.19 percent at year-end 1995 to 0.16 percent at December 31,1996, was
principally due to increases in loans, as total non-performing loans
(nonaccrual, restructured, and accruing loans greater than 90 days past due)
remained essentially unchanged at $498 thousand at December 31, 1996, compared
to $558 thousand at December 31, 1995. The ratio of non-performing loans and
assets to total assets decreased to 0.09 percent at December 31, 1996 from 0.13
percent a year before. This decrease was primarily the result of the sales of
other real estate during 1996. At December 31, 1995 BancShares had $86 thousand
of assets classified as other real estate. At December 31, 1996 BancShares had
no assets classified as other real estate.

The allowance for loan losses to non-performing loans represented 1,238
percent of non-performing loans at December 31, 1996. This was an increase of
105 basis points from the 1,133 percent ratio at December 31, 1995. This
increase is principally the result of a decrease in non-performing loans. The
allowance for loan losses represented 1.94 percent and 2.20 percent of loans
outstanding at year end 1996 and 1995, respectively. Southern's provision for
loan losses charged against earnings was $140 thousand in 1996, $0 in 1995 and
$0 in 1994.

Accrual of interest is discontinued on a loan when management believes
the borrower's financial condition is such that collection of principal or
interest is doubtful. Loans are returned to the accrual status when the factors
indicating doubtful collectibility cease to exist.

Management considers a loan to be impaired when based on current
information or events, it is probable that a borrower will be unable to pay all
amounts due according to contractual terms of the loan agreement. Impaired
loans are valued using either the discounted expected cash flow method or the
collateral or the collateral value. When the ultimate collectibility of the
impaired loan's principal is doubtful, all cash receipts are applied to
principal. Once the recorded principal balance has been reduced to zero, future
cash receipts are applied to interest income, to the extent that any interest
has been foregone. Future cash receipts are recorded as recoveries of any
amounts previously charged-off.

9
<PAGE>

There are certain loans classified for regulatory purposes as substandard
or special mention that have not been disclosed in the nonperforming asset
amounts above. Such loans do not represent or result from trends or
uncertainties which management reasonably expects will materially impact future
operating results, liquidity, or capital resources. Such loans also do not
represent material credits about which management is aware of any information
which causes management to have serious doubts as to the ability of such
borrowers to comply with the loan repayment terms.

At December 31, 1996 and 1995, Southern had nonaccrual loans of $147 and
$50, respectively. At December 31, 1996 and 1995, Southern had restructured
loans of $8 and $0, respectively. At December 31, 1996 and 1995, Southern had
accruing loans past due 90 days or more totaling $343 and $508, respectively.
The amount of foregone interest on nonaccrual and restructured loans at
December 31, 1996 and 1995, was not material for the periods presented. At
December 31, 1996 and 1995, Southern's impaired loans, as determined under
SFAS No. 114, were less than the nonaccrual and restructured loan amounts
presented above.

Management considers the December 31, 1996 allowance for loan losses
adequate to cover the losses inherent in the loan portfolio. As the loan
portfolio changes, management will continue to assess the inherent risks and
appropriately adjust the level of the allowance as needed.

LIQUIDITY AND INTEREST SENSITIVITY

Liquidity refers to the ability of BancShares to generate sufficient funds
to meet its financial obligations and commitments at a reasonable cost. One of
BancShares' objectives is to maintain a high level of liquidity, and this goal
continues to be met. Maintaining liquidity ensures that funds will be available
for reserve requirements, customer demand for loans, withdrawal of deposit
balances and maturities of other deposits and liabilities. These events may
take place daily or at other intervals in the normal operation of the business.
Past experiences helps management anticipate cyclical demands and amounts of
cash required. These obligations can be met by existing cash reserves or funds
from maturing loans and investments, but in the normal course of business are
met by deposit growth.

In assessing liquidity, many relevant factors are considered, including:
stability of deposits, quality of assets, economy of the markets served,
business concentrations, competition and BancShares' overall financial
condition. BancShares' liquid assets include investment securities, federal
funds sold, and cash and due from banks. These assets represented 42 percent of
total deposits at December 31, 1996, a decrease from 43 percent at December 31,
1995.

Southern's liquidity ratio, which is defined as net cash plus short term
and marketable securities divided by net deposits and short term liabilities,
was 27 percent at December 31, 1996, compared to 39 percent and 27 percent at
year-end 1995 and 1994 respectively. The increase in 1995 is attributable to
the higher volume of cash and due from banks at December 31, 1995.

BancShares has traditionally maintained a high level of liquidity,
characteristic of the high ratio of investment securities to total assets
and/or total deposits that BancShares maintains. Although loans increased with
the 1994, 1995 and 1996 acquisitions, BancShares' ability to manage its
liquidity was enhanced with the addition of a mortgage loan department
acquired in 1993. With this acquisition, BancShares has the ability to sell
mortgage loans held for sale, if needed, for liquidity or other asset/liability
management requirements.

Any maturing investments whose funds are not immediately necessary to
sustain BancShares' liquidity, will be invested in similar instruments or used
to fund any increased loan demand. Investments scheduled to mature within the
one year time frame represented 49 percent, 41 percent and 42 percent of the
total investment securities portfolio at December 31, 1996, 1995 and 1994,
respectively.

Within the investments shown as maturing within one year are the
investments in equity securities made by BancShares representing $8.6 million,
$6.5 million and $4.6 million in 1996, 1995 and 1994, respectively. Although
these investments do not "mature" in the next twelve months, they are
available-for-sale and could be sold at management's discretion.

Since the volume of investments actually maturing during 1997 is
comparable to the volumes that matured during 1996 and 1995, the effect on net
interest margin and operating results for 1997 should also be similar to
effects realized in 1996 and 1995.

10
<PAGE>

The consolidated statements of cash flows disclose the principal sources
and uses of cash from operating, investing and financing activities for 1996,
1995, and 1994. In 1996, operating activities of BancShares provided cash flows
of $7.4 million. Net income of $4.4 million, adjusted for non-cash operating
activities, provided the majority of cash generated from operations. Decreases
in other assets of $1.7 million and increases in other liabilities of $2.3
million, increased the contribution of net income to BancShares' cash flow.
Investing activities, including lending, utilized $41.8 million of BancShares'
cash flow. Loans originated, net of principal collected, used $24.7 million.
BancShares received $3.4 million in cash in connection with the branches
purchased from other financial institutions in 1996.

Net additional cash inflows of $24.0 million resulted from financing
activities. Net deposit inflows of $22.2 million were improved by an increase
in short term borrowed funds of $3.6 million and reduced by the $1.2 million
repayment of long term obligations, payments for cash dividends and retirements
of stock totaling $587 thousand.

In 1995, operating activities of BancShares provided cash flows of $9.6
million. Net income of $3.9 million, adjusted for non-cash operating
activities, provided the majority of cash generated from operations. Increases
in other assets of $114 thousand and increases in other liabilities of $2.2
million, increased the contribution of net income to BancShares' cash flow.
Investing activities, including lending, utilized $12.0 million of BancShares'
cash flow. Loans originated, net of principal collected, used $33.1 million.
BancShares received $46.1 million in cash in connection with the branches
purchased from other financial institutions in 1995.

Net additional cash inflows of $28.1 million resulted from financing
activities. Net deposit inflows of $30.6 million were reduced by the $1.2
million repayment of long term obligations, a decrease in short term borrowed
funds of $497 thousand and payments for cash dividends and retirements of stock
totaling $784 thousand. In 1994, operating activities of BancShares provided
cash flows of $1.7 million. Net income of $3.7 million, adjusted for non-cash
operating activities, provided the majority of cash generated from operations.
Decreases in other assets of $1.4 million and decreases in other liabilities of
$1.6 million, reduced the contribution of net income to BancShares' cash flow.
Investing activities, including lending, utilized $15.1 million of BancShares'
cash flow. Loans originated, net of principal collected, used $15.9 million.

In 1994, net additional cash outflows of $11.1 million resulted from
financing activities. Net deposit declines accounted for $7.5 million of the
decrease. The $1.2 million repayment of long term obligations also contributed
to the cash outflows. A decrease in short term borrowed funds of $1.0 million,
less payments for cash dividends and retirement of stock totaling $1.4 million,
accounted for the remainder of net cash outflows from financing activities.

Southern has no brokered deposits. Jumbo CD's (certificates of deposit)
are considered to include all CD's of $100 thousand or more. Southern does not
and has never aggressively bid on these deposits. Southern does not seek nor
does it accept deposits from outside of its general trade area. Almost all of
Southern's Jumbo CD customers have other relationships with Southern, including
savings, demand and other time deposits, and in some cases, loans. At December
31, 1996 and 1995, Jumbo CD's represented 9.0 percent of total deposits.

In the judgment of management, BancShares has the ability to generate
sufficient amounts of cash to cover normal requirements and any additional
needs which may arise, within realistic limitations, and management is not
aware of any known demands, commitments or uncertainties that will affect
liquidity in a material way.

Interest Sensitivity

Deregulation of interest rates and short-term, interest bearing deposits
which are more volatile, have created a need for shorter maturities of earning
assets. As a result, an increasing percentage of commercial, installment and
mortgage loans are being made with variable rates or shorter maturities to
increase liquidity and interest rate sensitivity.

The difference between interest sensitive asset and interest sensitive
liability repricing within time periods is referred to as the interest rate
sensitivity gap. Gaps are identified as either positive (interest sensitive
assets in excess of interest sensitive liabilities) or negative (interest
sensitive liabilities in excess of interest sensitive assets).

11
<PAGE>

As of December 31, 1996, BancShares had a negative one year cumulative gap
position of 13%. BancShares has interest earning assets of $301 million
maturing or repricing within one year and interest bearing liabilities of $373
million repricing or maturing within one year. This is primarily the result of
stable core deposits being used to fund longer term interest earning assets,
such as loans and investment securities. A negative gap position implies that
interest bearing liabilities (deposits) will reprice at a faster rate than
interest earning assets (loans and investments). In a falling rate environment,
this position will generally have a positive effect on earnings, while in a
rising rate environment this position will generally have a negative effect on
earnings.

BancShares' savings and core time deposits of $435 million, include
interest bearing checking accounts of $67 million. These deposits are shown as
repricing in the earliest period because the rate can be changed weekly.
However, history has shown that the decreases in the interest rates paid on
these deposits have little, if any, effect on their movement out of Southern.
Therefore, in reality, they are not sensitive to changes in market rates and
could be shown in the Non-Rate Sensitive column. If this change were made,
BancShares' rate sensitive assets and rate sensitive liabilities would be more
closely matched at the end of the one year period.

Inflation

The effect of inflation on financial institutions differs from the impact
on other types of businesses. Since assets and liabilities of banks are
primarily monetary in nature, they are more affected by changes in interest
rates than by the rate of inflation.

Inflation generates increased credit demand and fluctuation in interest
rates. Although credit demand and interest rates are not directly tied to
inflation, each can significantly impact net interest income. As in any
business or industry, expenses such as salaries, equipment, occupancy, and
other operating expenses are also subject to the upward pressures created by
inflation.

Since the rate of inflation has been relatively stable during the last
several years, the impact of inflation on the earnings presented in this report
is insignificant.

CAPITAL RESOURCES

Shareholders' Equity and Capital Adequacy

Sufficient levels of capital are necessary to sustain growth and absorb
losses. To this end, the Federal Reserve Board ("FRB"), which regulates
BancShares and the FDIC, which regulates Southern, has established capital
adequacy guidelines. These guidelines relate to a company's Leverage Capital,
and Tier 1 and Total Risk Based Capital ("RBC"). In 1996, BancShares
experienced an increase in all of its regulatory capital ratios with the
exception of the Leverage Capital ratio.

For BancShares, Leverage Capital consists of total equity less intangible
assets. When Leverage Capital is divided by the average total consolidated
assets of the previous quarter, the Leverage Ratio is the result. As of
December 31, 1996, BancShares' Leverage Ratio was 5.46 percent, down from 5.60
percent at year end 1995 and up from 5.20 percent in 1994. For regulatory
purposes, a 5.00 percent Tier 1 Leverage Ratio represents a well capitalized
financial institution.

Within the RBC calculations, BancShares' assets, including commitments to
lend and other off-balance sheet items, are weighted according to Federal
regulatory guidelines for the risk considered inherent in the assets.
BancShares' Tier 1 RBC ratio as of December 31, 1996 was 9.33 percent which is,
along with a ratio of 8.91 percent and 9.08 percent for 1995 and 1994,
respectively, representative of a well-capitalized institution. The calculation
of the Total RBC ratio allows, in BancShares' circumstances, the inclusion of
BancShares' allowance for loan losses in capital, but only to a maximum of 1.25
percent of risk weighted assets. As of December 31, 1996 BancShares' Total RBC
ratio was 10.66 percent, which is representative of a well-capitalized
institution. The Total RBC ratio for 1995 and 1994 were 10.22 percent and 10.39
percent, respectively, both of which are also representative of an adequately
capitalized financial institution.

12
<PAGE>

These ratios will only improve if BancShares' capital increases at a rate
faster than liabilities. Management is aware that growth must be controlled.
The projected 1997 acquisitions of the three additional branch offices
discussed below may appear to be contrary to this policy but management is
also aware that the process of expanding market share by normal business
development processes can be very difficult and expensive. Management believes
that improvement in its overall market share within an existing trade area is
valuable in the long run and should be incorporated into BancShares, when it
can be done prudently.

BancShares' primary source of new capital is earnings. In 1996, equity
capital increased through retention of earnings by $3.8 million, by $3.4
million in 1995 and by $3.2 million in 1994. BancShares' internal capital
generation rate was 9.39 percent in 1996, 9.76 percent in 1995, and 11.24
percent in 1994. As of December 31, 1996, shareholders' equity totaled $45
million compared to $37 million in 1995. The shareholders' equity for 1996 and
1995 included, as discussed above, $11 million and $7 million respectively, as
a result of BancShares' adoption of SFAS 115.

The ratio of average shareholders' equity, to average total assets was
7.74 percent in 1996 and 7.59 percent in 1995. The 1996 increase was the result
of the partial year impact of the June and August, 1996 acquisitions, combined
with the substantial increase in unrealized gain on available-for-sale
securities. The 1995 increase was the result of the partial year impact of the
June, 1995 acquisitions, combined with the substantial increase in unrealized
gain on available-for-sale securities. The ratio of average shareholders'
equity to average total assets was 6.98 percent in 1994.

Retention of sufficient earnings to maintain an adequate capital position
that provides BancShares with expansion capabilities is an important factor in
determining dividends. During 1996, BancShares paid $587 thousand in dividends,
versus $531 thousand in 1995 and $472 thousand in 1994. As a percentage of net
income, dividends were 13.45 percent in 1996, 13.57 percent in 1995 and 12.80
percent in 1994. The 1996 percentage increase was principally the result of an
increased dividend rate for the common stock. The 1995 percentage increase was
principally the result of increased dividend rates for both classes of
preferred stock.

Growth

BancShares' growth is dependent upon increases in deposits and retained
earnings. In 1996, total assets increased $44 million, or 9 percent, while
total liabilities increased $36 million, or 8 percent, principally due to
growth within the existing branch network at December 31, 1995. The June and
August, 1996 acquisitions increased total assets and total liabilities by only
$10 million. Also in 1996, equity capital increased $7.6 million or 20 percent.
This increase was principally due to net income and an after tax increase of
$3.9 million for the unrealized gain related to the SFAS 115 available-for-sale
securities as discussed above.

Deposits

In 1996 deposits increased 7 percent from $449 million at year-end 1995 to
$481 million at year-end 1996. This increase was principally due to growth
within the existing branch network at December 31, 1995. The June and August,
1996 acquisitions increased total deposits by only $9 million.

Noninterest bearing deposits increased 14 percent, from $56 million at
December 31, 1995 to $64 million at December 31, 1996, an increase of $8
million, principally due to growth within the existing branch network at
December 31, 1995. The June and August, 1996 acquisitions increased noninterest
bearing deposits by only $1 million.

Interest bearing demand and savings deposits increased $24 million or 6
percent in 1996. This increase was principally due to growth within the
existing branch network at December 31, 1995. The June and August, 1996
acquisitions increased interest bearing demand deposits by only $8 million.

Interest paid on deposits in 1996 totaled $16.9 million, resulting in a
4.21 percent cost on average interest bearing deposits of $401.8 million. In
1995, interest of $15.4 million was paid at a cost of 4.31 percent on average
interest bearing deposits of $357.2 million.

13
<PAGE>

Economy of Eastern North Carolina

BancShares is headquartered and operates primarily in rural eastern North
Carolina. Management is concerned about the economy of the region that it
serves. Economic information from state and national sources indicates that the
seventeen counties served by Southern lag the median figures of North Carolina
in the areas of per capita income, family income, and population growth rates.
Between 1980 and 1990, Southern's market counties experienced a negative net
migration of the population (population growth was 1.9%, while births less
deaths increased 4.7%, yielding -2.8%). Only in the area of unemployment is
Southern's market area in slightly better shape than the rest of eastern North
Carolina, but this may be related to the negative growth during the same period
and the agricultural nature of the area.

On a positive note, the most recent annual economic projections for North
Carolina prepared and published by North Carolina State University, indicate an
improving economy in most of the regions of the state served by Southern. The
analysis includes data covering retail sales, construction and employment.

From the ratios and other information discussed above, the management of
BancShares recognizes that future growth in BancShares will not come from
people moving into the markets served by BancShares. Southern must win
customers from other institutions or purchase customers in existing markets,
as it did in 1994, 1995 and 1996, or expand into new markets as it did in 1994,
1995 and 1996.

BancShares does anticipate some offices of other institutions becoming
available in the near future, and presently plans three acquisitions, a $16
million deposit branch in Aurora, North Carolina; a $9 million deposit branch
in Aulander, North Carolina; and a $5 million deposit branch in Hamilton, North
Carolina. These acquisitions are projected to be completed in the second
quarter of 1997.

Agriculture

One of management's concerns for the economy within its market is the
on-going pressure placed on the tobacco industry. Tobacco contributes
significantly to the economy of eastern North Carolina and especially in the
seventeen eastern North Carolina counties where BancShares operates.

For several decades tobacco has come under increasing criticism for
potential health risks. Because of the these criticisms, many businesses and
municipalities have instituted "Smoke Free" policies, increasing the
possibility of reduced tobacco production, sales and usage. Recent lawsuits by
certain states, have targeted the tobacco industry with responsibility for the
costs of ongoing medical treatment for smoking-related illnesses of citizens of
those states. Should the courts find in favor of the states, the tobacco
farmers in our market area would ultimately be affected.

ACCOUNTING, REGULATORY MATTERS AND OTHER EVENTS

In September 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," ("SFAS
No.125") which establishes accounting standards for determining when a
liability should be considered extinguished through the transfer of assets to a
creditor or the setting aside of assets dedicated to eventually settling a
liability. The statement provides conditions for determining if a transferor
has surrendered control over transferred financial assets and requirements for
derecognizing a liability when it is extinguished. The statement also requires
the recognition of either a servicing asset or a servicing liability when an
entity undertakes an obligation to service financial assets. Such servicing
assets or liabilities shall be amortized in proportion to and over the period
of the estimated net servicing income or loss, as appropriate. SFAS 125 is
effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996 and is to be only applied on a
prospective basis. The application of SFAS 125 is not anticipated to have a
material impact on BancShares' financial condition or results of operations.

14
<PAGE>

In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective
Date of Certain Provisions of FSAB Statement No. 125, an Amendment to FASB
Statement No. 125" ("Statement 127"). Statement 127 delays the implementation
of certain provisions of Statement 125 because the changes required to be made
to information systems and accounting processes to allow compliance with
certain provisions of Statement 125 could not reasonably be expected to be made
in time for adoption on January 1, 1997. As a result of Statement 127,
Statement 125 guidance on transactions involving secured borrowings and
collateral, repurchase agreements, dollar-roll, securities lending and similar
transactions has been deferred until January 1, 1998. The impact from
BancShares' adoption of Statement 125, as amended by Statement 127, is
anticipated to be immaterial to BancShares' consolidated financial statements.

The FASB also issues exposure drafts for proposed statements of financial
accounting standards. Such exposure drafts are subject to comment from the
public, to revisions by the FASB and to final issuance by the FASB as
statements of financial accounting standards. Management considers the effect
of the proposed statements on the consolidated financial statements of
BancShares and monitors the status of changes to issued exposure drafts and to
proposed effective dates.

Recent Events

BancShares has announced that Mr. John C. Pegram, Jr., Executive Vice
President of Southern, will become President of Southern upon the retirement of
Bank President M. J. McSorley on July 1, 1998.

In the second quarter of 1997, BancShares expects to acquire the $16
million deposit Aurora, $9 million deposit Aulander and $5 million deposit
Hamilton offices of Wachovia Bank. BancShares expects to pay a premium of
approximately 6 percent on the deposits, or approximately $1.8 million.

BancShares has made application to open its first offices in Wallace,
Lumberton and Fairmont North Carolina. Subject to regulatory approval, these
offices are planned to open in the third quarter of 1997.

On February 5, 1997, the board of directors of Southern approved an
additional contribution of marketable equity securities to the Southern Bank
Foundation. These investments had an average cost basis of $542 thousand and a
fair value of $4.1 million on that date.

Management is not aware of any other known trends, events, uncertainties,
or current recommendations by regulatory authorities that will have or that are
reasonably likely to have a material effect on BancShares' liquidity, capital
resources or other operations.

MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS:

There is no active trading market for BancShares' common or preferred
stock although isolated transactions occur from time to time. Prices for
BancShares' common and preferred stock listed in the following table are based
on management's knowledge of the most recent sales prices for specific
transactions of each security.

The approximate number of record holders of BancShares' outstanding common
stock at December 31, 1996 was 347. Dividends paid to shareholders of
BancShares are dependent upon dividends received by BancShares from Southern.
Southern is restricted as to dividend payout by state laws applicable to banks
and may pay dividends only out of undivided profits. Should at any time its
surplus be less than 50 percent of its paid-in capital stock, Southern may not
declare a dividend until it has transferred from undivided profits to surplus
25 percent of its undivided profits or any lesser percentage that may be
required to restore its surplus to an amount equal to 50 percent of its
paid-in capital stock.

Additionally, dividends paid by Southern may be limited by the need to
retain sufficient earnings to satisfy minimum capital requirements imposed by
the Federal Deposit Insurance Corporation. Dividends on BancShares' common
stock may be paid only after dividends on preferred Series "B" and "C" shares
have been paid. Common share dividends are based upon BancShares' profitability
and are paid at the discretion of the Board of Directors. Management does not
expect any of the foregoing restrictions to materially limit its ability to pay
dividends comparable to those paid in the past.

Common shareholders are entitled to one vote per share and both classes of
preferred stockholders are entitled to one vote for each 38 shares owned of a
class.

15
<PAGE>

SELECTED QUARTERLY DATA

1996 1995
-------------------------------------------- ------------------------------------------
Fourth Third Second First Fourth Third Second First

----------- ---------- ---------- ---------- ---------- --------- --------- ----------
(thousands except per share data and ratios)

SUMMARY OF OPERATIONS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income . . . . . . $ 9,469 $ 9,321 $ 9,102 $ 8,884 $ 8,842 $ 8,594 $ 8,018 $ 7,440
=========== ========== ========== ========== ========== ========= ========= =========
Interest expense . . . . . .

4,313 4,345 4,344 4,448 4,545 4,421 3,848 3,241
----------- ---------- ---------- ---------- ---------- --------- --------- ---------
Net interest income . . . . 5,156 4,976 4,758 4,436 4,297 4,173 4,170 4,199
Provision for loan losses . 60 60 20 - - - - -
----------- ---------- ---------- ---------- ---------- --------- --------- ----------
Net interest income after
provision for
loan losses . . . . . 5,096 4,916 4,738 4,436 4,297 4,173 4,170 4,199
Noninterest income . . . . 1,426 1,018 1,013 1,051 1,077 867 900 1,184
Noninterest expense. . . . 4,813 5,068 4,222 4,100 4,628 3,847 3,591 3,595
----------- ---------- ---------- ---------- ---------- --------- --------- ----------
Income before income taxes. 1,709 866 1,529 1,387 746 1,193 1,479 1,788
Income taxes . . . . . . . 36 221 415 455 (106) 380 496 523
----------- ---------- ---------- ---------- ---------- --------- --------- ----------
Net income . . . . . . . . $ 1,673 $ 645 $ 1,114 $ 932 $ 852 $ 813 $ 983 $ 1,265
=========== ========== ========== ========== ========== ========= ========= ==========

Net income applicable to
common shares $ 1,569 $ 541 $ 1,015 $ 832 $ 748 $ 708 $ 882 $ 1,165
====== ==== ====== ==== ==== ======== ======== =====

PER SHARE OF STOCK
Net income per common share 13.09 4.51 8.46 6.94 6.26 5.83 7.24 9.57
Cash dividends - common . . 0.38 0.37 0.375 0.375 0.25 0.25 0.25 0.25
Cash dividends - preferred B 0.23 0.23 0.22 0.22 0.23 0.23 0.22 0.22
Cash dividends - preferred C 0.23 0.23 0.22 0.22 0.23 0.23 0.22 0.22
Common sales price
High . . . . . . . . . . . 175.00 175.00 175.00 110.00 110.00 110.00 110.00 110.00
Low . . . . . . . . . . . 175.00 175.00 110.00 110.00 110.00 110.00 110.00 110.00
Preferred B sales price
High . . . . . . . . . . . 11.25 11.25 10.80 10.00 10.00 10.00 10.00 10.00
Low . . . . . . . . . . . 11.25 10.80 10.00 10.00 10.00 10.00 10.00 10.00
Preferred C sales price
High . . . . . . . . . . . 11.25 11.25 10.80 10.00 10.00 10.00 10.00 10.00
Low . . . . . . . . . . . 11.25 10.80 10.00 10.00 10.00 10.00 10.00 10.00

</TABLE>

16
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Southern BancShares (N.C.), Inc.:

We have audited the accompanying consolidated balance sheets of Southern
BancShares (N.C.), Inc. and subsidiary (the "Company") as of December 31, 1996
and 1995, and the related consolidated statements of income, cash flows and
changes in shareholders' equity for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The accompanying consolidated statements of
income, cash flows and changes in shareholders' equity of Southern BancShares
(N.C.), Inc. and subsidiary for the year ended December 31, 1994, were audited
by other auditors whose report thereon dated February 24, 1995, expressed an
unqualified opinion. Their report referred to the fact that the Company changed
its method of accounting for investments in 1994.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Southern BancShares
(N.C.), Inc. and subsidiary as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Raleigh, North Carolina
February 14, 1997

17
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>

December 31
-------------------
ASSETS 1996 1995
-------- --------
<S> <C> <C>
Cash and due from banks .................................................................................. $ 21,445 $ 27,186
Investment securities:
Held-to-maturity, at amortized cost (fair value $64,559 and $108,679, respectively) ................... 63,676 106,873
Available-for-sale, at fair value (amortized cost $88,504 and $31,257, respectively) .................. 105,013 41,933
Federal funds sold ....................................................................................... 11,020 15,720
Loans, net of unearned income ............................................................................ 317,755 287,960
Less allowance for loan losses ....................................................................... (6,163) (6,321)
------ ------
Net loans ................................................................................................ 311,592 281,639
Premises and equipment ................................................................................... 15,439 11,997
Accrued interest receivable .............................................................................. 3,999 3,971
Intangible assets ........................................................................................ 5,991 6,748
Other assets ............................................................................................. 2,583 913
--------- ---------
Total assets .................................................................................... $ 540,758 496,980
========= =========

LIABILITIES
Deposits:

Noninterest-bearing ................................................................................. $ 64,089 $ 56,440
Interest-bearing .................................................................................... 416,477 392,562
--------- ---------
Total deposits ........................................................................................... 480,566 449,002
Short-term borrowings .................................................................................... 5,064 1,469
Long-term obligations .................................................................................... 1,400 2,600
Accrued interest payable ................................................................................. 3,204 3,491
Other liabilities ........................................................................................ 5,746 3,255
--------- ---------
Total liabilities ............................................................................... 495,980 459,817
--------- ---------
SHAREHOLDERS' EQUITY

Series B non-cumulative preferred stock, no par value; 408,728 and 840,744 shares
authorized at December 31, 1996 and 1995, respectively; and 407,752 and 408,728
shares issued and outstanding at December 31, 1996 and 1995, respectively ........................... 1,986 1,991
Series C non-cumulative preferred stock, no par value; 43,631 and 420,372 shares
authorized at December 31, 1996 and 1995, respectively; 43,631 shares issued and
outstanding at December 31, 1996 and 1995........................................................... 578 578
Common stock, $5 par value; 158,485 shares authorized and 119,918 shares issued
and outstanding at December 31, 1996 and 1995 ...................................................... 600 600
Surplus ................................................................................................. 10,000 10,000
Retained earnings ....................................................................................... 20,718 16,948
Unrealized gain on securities available-for-sale, net of tax ............................................ 10,896 7,046
---------- ---------
Total shareholders' equity ..................................................................... 44,778 37,163
---------- ---------
Total liabilities and shareholders' equity ..................................................... $540,758 $ 496,980
========== ==========
</TABLE>

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

18
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except share and per share data)

Year ended December 31,
1996 1995 1994
-------- --------- -------
<S> <C> <C> <C>
Interest income:
Loans ....................................................................... $ 26,878 $ 24,338 $ 20,943
Investment securities:
U. S. Government ......................................................... 6,756 5,365 3,551
State, county and municipal ............................................... 2,163 2,135 2,139
Other ..................................................................... 577 246 219
--------- --------- --------
Total investment securities interest income ..................... 9,496 7,746 5,909
Federal funds sold ........................................................... 402 810 312
--------- --------- -------
Total interest income ................................................. 36,776 32,894 27,164
Interest expense:
Deposits .................................................................... 16,933 15,410 10,638
Short-term borrowings ....................................................... 400 336 86
Long-term obligations ....................................................... 117 309 320
--------- --------- --------
Total interest expense ................................................ 17,450 16,055 11,044
--------- --------- --------
Net interest income .................................................... 19,326 16,839 16,120
Provision for loan losses ................................................... 140 - -
--------- --------- --------
Net interest income after provision for loan losses ................... 19,186 16,839 16,120
Noninterest income:
Service charges on deposit accounts ........................................ 2,664 2,347 2,220
Other service charges and fees ............................................. 780 645 692
Investment securities gains, net ........................................... 460 1 1
Insurance commissions ...................................................... 145 99 80
Gain (loss) on sale of loans ............................................... (158) 39 (192)
Other ...................................................................... 617 897 87
--------- --------- ---------
Total noninterest income .............................................. 4,508 4,028 2,888
Noninterest expense:
Personnel .................................................................. 7,975 6,892 6,146
Intangibles amortization ................................................... 1,638 1,362 752
Data processing ............................................................ 1,440 1,334 1,218
Furniture and equipment .................................................... 1,314 1,111 914
Occupancy .................................................................. 1,203 941 900
FDIC insurance assessment .................................................. 772 651 744
Charitable contributions ................................................... 589 173 230
Other ...................................................................... 3,272 3,197 3,014
--------- --------- ---------
Total noninterest expense ............................................. 18,203 15,661 13,918
--------- --------- ---------
Income before income taxes ..................................................... 5,491 5,206 5,090
Income taxes ................................................................... 1,127 1,293 1,402
--------- --------- ---------
Net income ............................................................ $ 4,364 $ 3,913 $ 3,688
========= ========= =========
Per share information:
Net income applicable to common shares ...................................... $ 33.00 $ 28.90 $ 27.04
Cash dividends declared on common shares .................................... 1.50 1.00 1.00
Weighted average common shares outstanding .................................. 119,918 121,226 123,521
========= ========= =========

</TABLE>

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

19
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ................................................................ $ 4,364 $ 3,913 $ 3,688
Adjustments to reconcile net income to net cash provided by operating
activities:

Provision for loan losses .......................................... 140 -- --
Contribution expense for donation of marketable equity securities .. 536 -- --
Gain on contribution of marketable equity securities ............... (458) -- --
Gains on sales and issuer calls of securities ...................... (2) (1) (1)
Loss on sale and abandonment of premises and equipment ............. 55 315 38
Net (accretion) amortization on investments ....................... (66) (40) 8
Amortization of intangibles ........................................ 1,638 1,362 752
Depreciation ....................................................... 963 811 706
Net increase in accrued interest receivable ........................ (28) (603) (734)
Net (decrease) increase in accrued interest payable ................ (287) 1,810 300
Net increase in other assets ....................................... (1,666) (114) (1,416)
Net increase (decrease) in other liabilities ....................... 2,275 2,184 (1,635)
------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ...................................... 7,464 9,637 1,706
INVESTING ACTIVITIES: ------- -------- --------
Proceeds from maturities and issuer calls of investment securities
available-for-sale ...................................................... 111 81 95
Proceeds from maturities and issuer calls of investment securities
held-to-maturity ........................................................ 53,749 50,457 61,381
Proceeds from sales of investment securities available-for-sale ............. 105 -- --
Purchases of investment securities held-to-maturity ......................... (11,414) (53,850) (56,784)
Purchases of investment securities available-for-sale ....................... (58,592) (18,650) (2,500)
Net increase in loans ....................................................... (24,748) (33,141) (15,944)
Proceeds from sales of premises and equipment ............................... 12 -- 303
Additions to premises and equipment ......................................... (4,472) (2,906) (1,620)
Net cash received for branches acquired .................................... 3,380 46,056 -- .
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES ......................................... (41,869) (11,953) (15,069)
-------- -------- --------
FINANCING ACTIVITIES:
Net decrease in demand and interest bearing demand deposits ................. 15,455 18,226 24,524
Net increase (decrease) in time deposits .................................... 6,713 12,330 (32,062)
Principal payments on long-term obligations ................................. (1,200) (1,200) (1,200)
Net proceeds (repayments) of short-term borrowed funds ...................... 3,595 (497) (1,010)
Cash dividends paid ......................................................... (587) (531) (472)
Purchase and retirement of stock ............................................ (12) (253) (878)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ............................ 23,964 28,075 (11,098)
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ........................... (10,441) 25,759 (24,461)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR ............................. 42,906 17,147 41,608
-------- -------- --------
CASH AND CASH EQUIVALENTS AT THE END OF YEAR ................................... $ 32,465 $ 42,906 $ 17,147
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH PAID DURING
THE YEAR FOR:

Interest .................................................................. $ 17,737 $ 14,245 $ 10,609
Income taxes .............................................................. $ 1,085 $ 1,764 $ 1,883
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Unrealized gain on securities available-for-sale ............................... $ 5,833 $ 4,650 $ 6,026
======== ======== ========
</TABLE>

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

20
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in thousands except per share data)

<TABLE>
<CAPTION>
Preferred Stock
------------------------------------ Common
Series B Series C Stock
------------------ --------------- ------------------ Retained
Shares Amount Shares Amount Shares Amount Surplus Earnings
------- --------- ------- ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 ................ 414,421 $ 2,019 43,959 $ 582 130,031 $ 650 $ 6,000 $ 15,399
Effect of implementation of SFAS
115 at January 1, 1994, net of
income tax effect .......................
Net income ................................ 3,688
Purchase and retirement of stock .......... (1,032) (5) (8,264) (41) (832)
Appropriation of retained earnings ........ 4,000 (4,000)
Cash dividends:
Common stock ($1.00 per share) ....... (124)
Preferred B ($.76 per share) ......... (315)
Preferred C ($.76 per share) ......... (33)
Change in unrealized gain on
available-for-sale securities,
net of taxes .........................
--------- --------- -------- --------- ------- --------- --------- ---------
BALANCE, DECEMBER 31, 1994 ................ 413,389 $ 2,014 43,959 $ 582 121,767 $ 609 $ 10,000 $ 13,783
Net income ................................ 3,913
Purchase and retirement of stock .......... (4,661) (23) (328) (4) (1,849) (9)
(217)
Cash dividends:
Common stock ($1.00 per share) ....... (121)
Preferred B ($.90 per share) ......... (370)
Preferred C ($.90 per share) ......... (40)
Change in unrealized gain on
available-for-sale securities,
net of taxes .........................
-------- --------- -------- --------- ------- --------- --------- ---------
BALANCE, DECEMBER 31, 1995 ................ 408,728 $ 1,991 43,631 $ 578 119,918 $ 600 $ 10,000 $ 16,948

Net income ................................ 4,364
Purchase and retirement of stock .......... (976) (5) (7)
Cash dividends:
Common stock ($1.50 per share) ....... (180)
Preferred B ($.90 per share) ......... (368)
Preferred C ($.90 per share) ......... (39)
Change in unrealized gain on
available-for-sale securities,
net of taxes .........................
--------- --------- -------- --------- ------- --------- --------- ---------
BALANCE, DECEMBER 31, 1996 ................ 407,752 $ 1,986 43,631 $ 578 119,918 $ 600 $ 10,000 $ 20,718
========= ========= ======== ========= ======= ========= ========= =========

</TABLE>

Unrealized
gain (loss) on
securities
available- Total
for-sale Shareholders'
net of taxes Equity
<S> <C> <C>

BALANCE, DECEMBER 31, 1993 ................ -- $ 24,650
Effect of implementation of SFAS
115 at January 1, 1994, net of
income tax effect ....................... 3,996 3,996
Net income ................................ 3,688
Purchase and retirement of stock .......... (878)
Appropriation of retained earnings ........
Cash dividends:
Common stock ($1.00 per share) ....... (124)
Preferred B ($.76 per share) ......... (315)
Preferred C ($.76 per share) ......... (33)
Change in unrealized gain on
available-for-sale securities,
net of taxes .........................

(19) (19)
---------- ---------
BALANCE, DECEMBER 31, 1994 ................ $ 3,977 $ 30,965

Net income ................................
3,913

Purchase and retirement of stock ..........
(253)
Cash dividends:

Common stock ($1.00 per share) .......
(121)
Preferred B ($.90 per share) ......... (370)

Preferred C ($.90 per share) ......... (40)
Change in unrealized gain on
available-for-sale securities,
net of taxes ......................... 3,069 3 ,069
---------- ---------
BALANCE, DECEMBER 31, 1995 ................ $ 7,046 $ 37,163

Net income ................................ 4,364
Purchase and retirement of stock .......... (12)
Cash dividends:
Common stock ($1.50 per share) ....... (180)
Preferred B ($.90 per share) ......... (368)

Preferred C ($.90 per share) .........
(39)
Change in unrealized gain on

available-for-sale securities,

net of taxes .........................

3,850 3,850
--------- ---------
BALANCE, DECEMBER 31, 1996 ................ $ 10,896 $ 44,778
========= =========

</TABLE>

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

21
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

Note 1. Summary of Significant Accounting Policies

BANCSHARES

Southern BancShares (N.C., Inc. ("BancShares") is the holding company for
Southern Bank and Trust Company ("Southern"), which operates 40 banking offices
in eastern North Carolina. Southern, which began operations in January, 1901,
has two non-bank subsidiaries, Goshen, Inc. and Goshen Properties, Inc., whose
insurance operations and property management operations complement the
operations of its parent. Southern and BancShares are headquartered in Mount
Olive, North Carolina.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of BancShares
and its wholly-owned subsidiary, Southern. The statements also include the
accounts of Goshen, Inc. and Goshen Properties, Inc., wholly-owned subsidiaries
of Southern. BancShares' financial resources are primarily provided by
dividends from Southern and there are no material differences between the
results of operations or financial position of BancShares or of Southern. All
significant intercompany balances have been eliminated in consolidation.

BASIS OF FINANCIAL STATEMENT PRESENTATION

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The most significant
estimates made by BancShares in the preparation of its consolidated financial
statements are the determination of the allowance for loan losses, the
valuation of other real estate, the valuation allowance for deferred tax assets
and fair value estimates for financial instruments.

RECLASSIFICATIONS

Certain prior year balances have been reclassified to conform to the
current year presentation. Such reclassifications had no effect on net income
or shareholders' equity as previously reported.

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks and federal funds sold, since federal funds are
purchased and sold for one day periods.

INVESTMENT SECURITIES

In January 1994, BancShares adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". SFAS No. 115 requires that investments in certain debt and
equity securities be classified as either: held-to-maturity (reported at
amortized cost), trading (reported at fair value with unrealized gains and
losses included in earnings), or available-for-sale (reported at fair value
with unrealized gains and losses excluded from earnings and reported, net of
related income taxes, as a separate component of shareholders' equity).

22
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)

(Dollars in thousands)

Note 1. Summary of Significant Accounting Policies - continued

BancShares' investment securities are classified in two categories and
accounted for as follows:

- Securities held-to-maturity: Securities held-to-maturity consist of debt
instruments for which BancShares has the positive intent and ability to
hold to maturity, and are reported at amortized cost.

- Securities available-for-sale: Securities available-for-sale consist of
certain debt and equity securities not classified as trading securities
nor as securities held-to-maturity, and consist of securities which may be
sold in response to changes in interest rates, prepayment risk, regulatory
capital requirements and liquidity needs.

Unrealized holding gains and losses, net of tax, on securities
available-for-sale are reported as a net amount in a separate component of
shareholders' equity until realized. The effect of adoption of SFAS No. 115 at
January 1, 1994 was an increase in shareholders' equity of $3,996 (net of a tax
effect of $2,059).

Gains and losses on the sale of securities available-for-sale are
determined using the specific-identification method. Premiums and discounts are
amortized into income on a level yield basis.

LOANS

Loans are stated at principal amounts outstanding, reduced by unearned
income and an allowance for loan losses.

Southern originates certain residential mortgages with the intent to sell.
Such loans held-for-sale are included in loans in the accompanying consolidated
balance sheets at the lower of cost or fair value as determined by outstanding
commitments from investors or current quoted market prices.

Interest income on substantially all loans is recognized in a manner that
approximates the level yield method when related to the principal amount
outstanding. Accrual of interest is discontinued on a loan when management
believes the borrower's financial condition is such that collection of
principal or interest is doubtful. Loans are returned to the accrual status
when the factors indicating doubtful collectibility cease to exist.

Southern provides an allowance for loan losses on a reserve basis and
includes in operating expenses a provision for loan losses determined by
management. The allowance is reduced by charge-off's and increased by
subsequent recoveries. Management's periodic evaluation of the adequacy of the
allowance is based on Southern's past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
experience, the estimated value of any underlying collateral, current economic
conditions and other risk factors. Management believes it has established the
allowance in accordance with generally accepted accounting principles and the
current economic environment. While management uses the best information
available to make evaluations, future adjustments may be necessary if economic
and other conditions differ substantially from the assumptions used.

23
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)

(Dollars in thousands)

Note 1. Summary of Significant Accounting Policies - continued

In addition, various regulatory agencies, as an integral part of their
examination process, periodically review Southern's allowance for loan losses
and losses on other real estate owned. Such agencies may require Southern to
recognize additions to the allowances based on the examiners' judgments about
information available to them at the time of their examinations.

Effective January 1, 1995, as required, BancShares adopted the provisions
of SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as amended
by SFAS No. 118, "Accounting by Creditors for impairment of a Loan - Income
Recognition" (collectively referred to hereafter as "Statement 114"). The
adoption of Statement 114 did not have a material effect on BancShares'
financial condition or results of operations. Under the provisions of Statement
114, the 1995 and 1996 allowances for loan losses related to loans that are
identified as impaired in accordance with Statement 114 is based on discounted
cash flows using the loans' initial interest rates or the fair value of the
collateral if the loan is collateral dependent. Large groups of smaller balance
homogenous loans that are collectively evaluated for impairment (such as credit
card, residential mortgage and consumer installment loans) are excluded from
this impairment evaluation in accordance with Statement 114, and their
allowance for loan losses is calculated in accordance with the allowance for
loan losses policy discussed above.

MORTGAGE SERVICING RIGHTS

BancShares adopted SFAS No. 122 ("Statement 122") effective January 1,
1996. Statement 122 requires entities to recognize as separate assets any
rights to service mortgage loans for others. Mortgage servicing rights that are
acquired or result from the sale of a loan with servicing rights retained
should carry a value based on the relative fair values of the mortgage
servicing rights and the related loans. Statement 122 also requires a servicer
to assess its capitalized mortgage servicing rights for impairment based on the
fair values of those rights.

The adoption of Statement 122 did not have a material effect on
BancShares' financial condition or results of operations. However, changes in
circumstances in future periods could result in the recognition of significant
mortgage servicing rights or an impairment of the recorded asset.

24
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)

(Dollars in thousands)

Note 1. Summary of Significant Accounting Policies - continued

OTHER REAL ESTATE OWNED

Other real estate owned was $0 and $86 at December 31, 1996 and 1995,
respectively, and is included in other assets. Other real estate owned is
carried at the lower of (1) the recorded amount of the loan or lease for which
the foreclosed property previously served as collateral or (2) the current fair
value of the property less estimated costs to sell.

Subsequent to foreclosure, gains or losses on the sale of and losses on
the periodic revaluation of other real estate owned are credited or charged to
expense. Net costs of maintaining and operating foreclosed properties are
expensed as incurred.

PREMISES AND EQUIPMENT

Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed using an
accelerated method for assets acquired prior to January, 1991 and using the
straight-line method for assets acquired subsequent to January 1, 1991.

Depreciation of buildings and improvements, and furniture and equipment is
provided over the estimated useful lives of the assets. Estimated useful lives
range from 15 to 31.5 years for buildings and improvements and 3 to 10 years
for furniture and equipment.

INTANGIBLE ASSETS

Intangible assets amounted to $5,991 and $6,748 in 1996 and 1995,
respectively. Prior to 1995, intangible assets were amortized on a
straight-line basis over ten years. During 1995, management changed its method
of amortization of intangible assets originated prior to 1995 from a
straight-line basis to an accelerated basis to better match the amortization
with the period benefited. The impact on net income for the year ended
December 31, 1995, was to increase amortization expense by approximately $384.
Intangible assets are subject to periodic review and are adjusted for any
impairment of value.

IMPAIRMENT OF LONG-LIVED ASSETS

Statement of Financial Accounting Standards No. 121 ("Statement 121") was
adopted January 1, 1996 and had no impact on BancShares' financial position or
results of operations. Statement 121 establishes accounting standards for the
impairment of long-lived assets, including certain identifiable intangibles and
goodwill, by requiring that such assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. An impairment loss should be recognized if the sum of the
undiscounted future cash flows is less than the carrying amount of the asset.
Those assets to be disposed of are to be reported at the lower of the carrying
amount or fair value less costs to sell. Statement 121 could have a material
impact on BancShares' consolidated financial statements for future periods
should an event or changes in circumstances occur in such future periods,
requiring a review by management for impairment.

25
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)

(Dollars in thousands)

Note 1. Summary of Significant Accounting Policies - continued

INCOME TAXES

BancShares uses the asset and liability method to account for deferred
income taxes. The objective of the asset and liability method is to establish
deferred tax assets and liabilities for the temporary differences between the
financial reporting basis and the income tax basis of BancShares' assets and
liabilities at enacted rates expected to be in effect when such amounts are
realized or settled.

BancShares files a consolidated federal income tax return with Southern
and its subsidiaries. The method of allocating federal income tax expense is
determined under a tax allocation agreement between BancShares and the
subsidiaries. This allocation agreement specifies that income tax expense will
be computed for subsidiaries on a separate company basis.

Recognition of deferred tax assets is based on management's belief that it
is "more likely than not" that the tax benefit associated with certain
temporary differences, operating loss carry forwards and tax credits will be
realized. A valuation allowance is recorded for deferred tax assets when the
"more likely than not" standard is not met.

EARNINGS PER COMMON SHARE

Earnings Per Common Share are computed by dividing income applicable to
common shares by the weighted average number of common shares outstanding
during the period. Income applicable to common shares represents net income
reduced by dividends paid to preferred shareholders.

Earnings per common share are calculated based on the following amounts
for the years ended December 31:

1996 1995 1994
---- ---- ----

Net income ..................................$ 4,364 $ 3,913 $ 3,688
Less: Preferred dividends ................... (407) (410) (348)
----- ----- -----
Net income applicable to common shares .....$ 3,957 $ 3,503 $ 3,340
===== ===== =====
Weighted average common shares

outstanding during the period ............. 119,918 121,226 123,521
======= ======= =======

NEW ACCOUNTING STANDARDS

BancShares adopted SFAS No. 123, "Accounting for Stock-Based Compensation"
("Statement 123") on January 1, 1996. BancShares does not currently have any
stock-based compensation plans, but has determined that in the event it does
offer stock-based compensation plans in future periods that it will elect to
continue to measure compensation cost using APB 25, as permitted by the
provisions of Statement 123.

26
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Dollars in thousands)

Note 1. Summary of Significant Accounting Policies - continued

The Financial Accounting Standards Board ("FASB") issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("Statement 125") in June 1996. Statement 125 includes guidance
for assessing isolation of transferred assets and for accounting for transfers
of items including: transfers of partial interests, servicing of financial
assets, securitizations, transfers of sales-type and direct financing lease
receivables, securities lending transactions, repurchase agreements, loan
syndications and participations and extinguishments of liabilities. Statement
125 uses a financial-components approach to develop accounting and reporting
standards for transfers and servicing of financial assets and extinguishments
of liabilities. Under the financial-components approach, after a transfer of
financial assets, an entity would recognize all financial assets and servicing
it controls and liabilities it has incurred and would derecognize financial
assets when control has been surrendered and liabilities when extinguished.
Statement 125 also provides consistent standards for distinguishing transfers
of financial assets that are sales from transfers that are secured borrowings.
Statement 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities after December 31, 1996 and is to be applied
prospectively.

In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125, an Amendment to FASB
Statement No. 125" ("Statement 127"). Statement 127 delays the implementation
of certain provisions of Statement 125 because the changes required to be made
to information systems and accounting processes to allow compliance with
certain provisions of Statement 125 could not reasonably be expected to be made
in time for adoption on January 1, 1997. As a result of Statement 127,
Statement 125 guidance on transactions involving secured borrowings and
collateral, repurchase agreements, dollar-roll, securities lending and similar
transactions has been deferred until January 1, 1998. The impact from
BancShares' adoption of Statement 125, as amended by Statement 127, is
anticipated to be immaterial to BancShares' consolidated financial statements.

Note 2. Investment Securities

The amortized cost and estimated fair values of investment securities at
December 31 were as follows:

December 31, 1996
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
SECURITIES HELD-TO-MATURITY:

U. S. Government .................................... $ 36,311 91 -- 36,402
Obligations of states and
political subdivisions ............................ 27,165 799 (4) 27,960
Corporate securities ................................. 200 -- (3) 197
--------- --------- --------- ---------
63,676 890 (7) 64,559
========= ========= ========= =========

SECURITIES AVAILABLE-FOR-SALE:
U. S. Government .................................... 70,121 -- (15) 70,106
Marketable equity securities ......................... 8,612 16,296 (97) 24,811
Obligations of states and
political subdivisions ............................ 7,647 278 (4)
7,921
Mortgage-backed securities ........................... 2,124 106 (55) 2,175
--------- --------- --------- ---------
88,504 16,680 (171) 105,013
========= ========= ========= =========
TOTALS ................................................ $ 152,180 17,570 (178) 169,572
========= ========= ========= =========

</TABLE>

December 31, 1995
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ----------- ----------
CURITIES HELD-TO-MATURITY:
<S> <C> <C> <C> <C>
U. S. Government .................................... $ 78,298 837 (10) 79,125
Obligations of states and
political subdivisions ............................ 28,275 976 -- 29,251
Corporate securities ................................. 300 3 -- 303
--------- --------- --------- ---------
106,873 1,816 (10) 108,679
========= ========= ========= =========
SECURITIES AVAILABLE-FOR-SALE:
U. S. Government .................................... 16,654 114 -- 16,768
Marketable equity securities ......................... 6,469 10,207 -- 16,676
Obligations of states and
political subdivisions ............................ 5,474 259 (9) 5,724
Mortgage-backed securities ........................... 2,660 105 -- 2,765
--------- --------- --------- ---------
31,257 10,685 (9) 41,933
========= ========= ========= =========
TOTALS ............................................... $ 138,130 12,501 (19) 150,612
========= ========= ========= =========

</TABLE>

27
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Dollars in thousands)

Note 2. Investment Securities -continued

Securities with a par value of $73,050 were pledged at December 31, 1996
to secure public deposits and for other purposes as required by law and
contractual arrangement.

The amortized cost and estimated fair value of debt securities at December
31, 1996, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because issuers may have the right to call
or prepay obligations with or without call or prepayment penalties.

Amortized Fair
Cost Value

Held-to-maturity securities:

Due in one year or less ....................$ 43,307 $ 43,399
Due after one year through five years ...... 8,716 8,904
Due after five years through ten years ..... 7,475 7,916
Due after ten years ........................ 4,178 4,340
------ ------
63,676 64,559
====== ======

Available-for-sale securities:

Due in one year or less .................... 24,770 24,766
Due after one year through five years ...... 46,098 46,106
Due after five years through ten years ..... 1,796 1,882
Due after ten years ........................ 5,104 5,273
------ ------
77,768 78,027
====== ======

Mortgage-backed securities ................. 2,124 2,175
Marketable equity securities ............... 8,612 24,811
------ ------
$152,180 $169,572
======= =======

On December 17, 1996, the board of directors of Southern approved the
contribution of 7,500 shares of marketable equity securities to the Southern
Bank Foundation. These investments had a cost basis of $78 and a fair value of
$536 on that date, resulting in the recognition of a realized securities gain
of $458. BancShares recorded charitable contribution expense of $536 related to
this transaction.

There were no sales of securities available-for-sale during the years
ended December 31, 1996, 1995 and 1994. Excluding the $458 gain previously
discussed, gains on investment securities in 1996, 1995 and 1994 were
attributable to issuer calls of debt securities.

28
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Dollars in thousands)

Note 3. Loans

Loans by type were as follows:

December 31, December 31,
1996 1995

Commercial, financial and agricultural ....... $ 70,881 $ 57,398
Real estate - construction ................... 2,470 1,533
Real estate - mortgage ....................... 206,870 189,315
Consumer ..................................... 35,512 37,548
Lease financing .............................. 2,370 2,410
--------- ---------
Total loans ................................. 318,103 288,204
Less unearned income ..................... (348) (244)
--------- ---------
Total loans less unearned income ........ $ 317,755 $ 287,960
========= =========

Loans held for sale .......................... $ 4,143 $ 3,411
Loans serviced for others .................... $ 73,202 $ 65,563

On December 31, 1996 and 1995, total loans to directors, executive
officers and related individuals and organizations were $4,734 and $2,152,
respectively. During 1996, $3,002 of new loans were made to this group and
repayments totaled $420. There were no restructured or nonaccrual loans to
directors, executive officers or related individuals and organizations. All
extensions of credit to such persons have been made in the ordinary course of
business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time in comparable transactions with
others and did not involve more than normal risks of collectibility.

Note 4. Allowance for Loan Losses

Transactions in the allowance for loan losses for the three years ended
December 31 were:

December 31
1996 1995 1994
------- ------- -------
Balance at beginning of year ............ $ 6,321 $ 6,653 $ 6,717
Provision for loan losses ............... 140 -- --
Loans charged off ....................... (539) (463) (296)
Loan recoveries ......................... 241 131 232
------- ------- -------
Balance at end of the year ............... $ 6,163 $ 6,321 $ 6,653
======= ======= =======

At December 31, 1996 and 1995, Southern had nonaccrual loans of $147 and
$50, respectively. At December 31, 1996 and 1995, Southern had restructured
loans of $8 and $0, respectively. At December 31, 1996 and 1995, Southern had
accruing loans past due 90 days or more totaling $343 and $508, respectively.
The amount of foregone interest on nonaccrual and restructured loans at
December 31, 1996 and 1995, was not material for the periods presented. At
December 31, 1996 and 1995, Southern's impaired loans, as determined under
Statement 114, were less than the nonaccrual and restructured loan amounts
presented above, and no additional allowances for loan losses were required as
a result of the application of Statement 114 to these impaired loans.

29
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Dollars in thousands)

Note 5. Premises and Equipment

The components of premises and equipment were as follows:

December 31,
1996 1995
---- ----
Land . . . . . . . . . . . . . . . . $ 2,783 $ 2,715
Buildings and improvements . . . . . 9,262 8,543
Furniture and equipment . . . . . . 5,804 4,881
Construction-in-progress . . . . . 3,467 1,189
------ -------
21,316 17,328
Less: accumulated depreciation . . . . (5,877) (5,331)
------ ------
$15,439 $11,997
====== ======

Note 6. Income Taxes

The components of income tax expense (benefit) for the years ended December 31
were:

1996 1995 1994
-------- ------- -------
Current:

Federal.................................. $ 1,348 $ 1,040 $ 1,529
State.................................... 21 6 102
------- ------- -------
1,369 1,046 1,631
------- ------- ------

Deferred:
Federal.................................. (242) 247 (229)
State.................................... -- -- --
------- ------- --------
(242) 247 (229)
-------- ------- -------
$ 1,127 $ 1,293 $ 1,402
======== ======= =======

A reconciliation of the expected tax expense, based on the Federal statutory
rate of 34 percent, to the actual tax expense for the years ended December 31 is
as follows:

1996 1995 1994
---- ---- ----
Amount of tax computed at Federal
statutory rate of 34 percent ..................$ 1,867 $ 1,770 $ 1,731
Increase (decrease) in taxes
resulting from:

Tax exempt income ........................... (792) (625) (502)
Amortization of intangible assets ........... 167 190 148
Nontaxable gain on securities donated ....... (162) -- --
State income tax (net of federal benefit) ... 14 4 67
Other, net................................... 33 (46) (42)
------ ------- -------
$ 1,127 $1,293 1,402
======= ====== ======
Effective tax rate ......................... 21% 25% 28%
======= ====== ======

30
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)

Note 6. Income Taxes -continued

Significant components of BancShares' deferred tax liabilities and (assets) are
as follows:

December 31,
1996 1995
-------- -------
Deferred tax liabilities:

Depreciation ............................ $ 629 $ 697
Leased assets ........................... 199 136
Investment securities ................... 5,613 3,630
Other ................................... 263 149
------- -------
Gross deferred tax liabilities .... 6,704 4,612
------- -------
Deferred tax assets:
Allowance for loan losses ............... (1,613) (1,566)
Intangible assets ....................... (449) (207)
Other real estate owned ................. -- (7)
Other ................................... (84) (15)
------- -------
Gross deferred tax assets ......... (2,146) (1,795)
------- -------
Net deferred tax liability ................ $ 4,558 $ 2,817
======= =======

No valuation allowance for deferred tax assets was required at December 31,
1996 or 1995. Management has determined that it is more likely than not that
the net deferred tax asset can be supported by carrybacks to federal taxable
income in the carryback period. A portion of the change in the net deferred
tax liability relates to unrealized gains and losses on securities
available-for-sale. The related current period deferred tax expense of
approximately $1,983 and $1,581 for the years ended December 31, 1996 and 1995,
respectively, have been recorded directly to shareholders' equity.

Note 7. Deposits

Deposits at December 31 are summarized as follows:

1996 1995
-------- --------
Demand ......................................... $ 64,089 $ 56,440
Checking with interest ....................... 66,554 59,181
Savings ........................................ 51,969 51,999
Money market accounts .......................... 45,027 41,225
Time ........................................... 252,927 240,157
-------- --------
Total deposits ............................. $480,566 $449,002
======== ========

Total time deposits with a denomination of $100 or more were $45,566 and
$41,308 at December 31, 1996 and 1995, respectively.

31
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Dollars in thousands)

Note 7 - Deposits - continued

At December 31, 1996, the scheduled maturities of time deposits were:

1997 . . . . . . . . . . . . . . . $ 203,468
1998 . . . . . . . . . . . . . . . 46,251
1999 . . . . . . . . . . . . . . . 2,566
2000 . . . . . . . . . . . . . . . 577
2001 and thereafter . . . . . . . 65
-------
Total time deposits $ 252,927
=======
Note 8. Short-Term Borrowings and Long-Term Obligations

SHORT-TERM BORROWINGS

Short-term borrowings at December 31 were:

1996 1995
------ ----
U.S. Treasury tax and loan accounts . . . $ 1,226 $ 388
Repurchase agreements . . . . . . . . . . 3,838 1,081
------ ------
Total short-term borrowings . . . . . . . $ 5,064 $ 1,469
====== ======

The U. S. Treasury tax and loan accounts averaged $1,052 in 1996. The
highest month-end balance of the U. S. Treasury tax and loan accounts in 1996
was $1,300. The average rate on U. S. Treasury tax and loan deposits in 1996
was 5.09 percent. The repurchase agreements averaged $2,934 in 1996. The
highest month-end balance of the repurchase agreements was $4,507. The average
rate on repurchase agreements in 1996 was 4.04 percent.

LONG-TERM OBLIGATIONS

The $1,400 note payable to a bank at December 31, 1996, originally was
negotiated in 1993 by BancShares for the purchase of the outstanding stock of
another financial institution, and is secured by investment securities.
Interest is payable monthly at 6.00 percent. Future principal payments as of
December 31, 1996, are as follows:

Year ending December 31,

1997 . . . . . . . . . . $ 1,200
1998 . . . . . . . . . . 200
-----
$ 1,400
=====

32
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)

(Dollars in thousands)

Note 9. Acquisitions

BancShares has consummated numerous acquisitions in recent years. All of
the transactions have been accounted for as purchases, with the results of
operations not included in BancShares' Consolidated Statements of Income until
after the transaction date. The pro forma impact of the acquisitions as though
they had been made at the beginning of the periods presented is not material to
BancShares' consolidated financial statements.

The following table provides information regarding the acquisitions that
have been consummated during the three-year period ending December 31, 1996:

Deposit
Assets Liabilities Resulting
Date Institution/Location Acquired Assumed Intangible
- ---------- ------------------------ -------- ---------- ----------
August 1996 United Carolina Bank $ 6,085 $ 6,085 $ 419
Edenton, North Carolina

June 1996 First Citizens Bank 7,352 7,348 539
Windsor, North Carolina

June 1995 First Union National Bank 18,041 18,039 774
Farmville, North Carolina

June 1995 First Union National Bank 9,299 9,297 399
Garland, North Carolina

June 1995 First Union National Bank 8,057 8,057 345
Kill Devil Hills, North Carolina

June 1995 First Union National Bank 12,427 12,425 533
Salemburg, North Carolina

June 1995 First Citizens Bank 3,109 3,107 62
Kill Devil Hills, North Carolina

December 1994 First Citizens Bank 2,439 2,427 49
Turkey, North Carolina

November 1994 First Citizens Bank 4,779 4,759 95
Scotland Neck, North Carolina

In June 1996 BancShares sold the Scotland Neck location acquired in
November 1994 to Triangle Bank. The deposit liabilities sold to Triangle Bank
totaled $4,037 and resulted in no material gain or loss.

33
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Dollars in thousands)

Note 10. Retirement Plans

Southern has a noncontributory, defined benefit pension plan which covers
substantially all full-time employees. Employees who qualify under length of
service and other requirements participate in the noncontributory defined
benefit pension plan. Under the plan, retirement benefits are based on years of
service and average earnings. The policy is to fund the maximum amount
allowable for federal income tax purposes. The plan's assets consist primarily
of investments in a related bank's common trust funds, which include listed
common stocks and fixed income securities (see Note 15). It is Southern's
policy to determine the service cost and projected benefit obligation using the
Projected Unit Credit Cost method.

Pension expense is included in personnel expense and includes the
following components:
1996 1995 1994
----- ----- ------
Service benefits earned during the period.............$ 255 $ 191 $ 185
Interest cost on projected benefit obligation......... 373 338 311
Return on assets ..................................... (309) (865) 73
Net amortization and deferral ........................ 2 540 (394)
----- ----- ------
Net periodic pension cost ...........................$ 321 $ 204 $ 175
===== ===== ======

The funded status of the plan as of December 31 was as follows:

1996 1995
-------- --------
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including
vested benefits of $3,873 and $3,694,
respectively..................................$ 4,031 $ 3,783
====== ======
Projected benefit obligation....................$ (5,417) $ (4,909)
Plan assets, at fair value........................ 4,936 4,583
Plan assets in excess of (less than) projected ------ ------
benefit obligation.......................... (481) (326)
Unrecognized prior service cost................... 90 98
Unrecognized net loss............................. 409 391
Unrecognized transition asset..................... (265) (306)
------ ------
Prepaid (accrued) pension expense.................$ (247) $ (143)
====== ======

The projected benefit obligation was determined using an assumed discount
rate of 7.25 percent, 7.25 percent and 7.75 percent at December 31, 1996, 1995
and 1994, respectively, an assumed long-term rate of compensation increase of
4.25 percent, 4.25 percent and 4.50 percent at December 31, 1996, 1995 and
1994, respectively, and an assumed long-term rate of return on plan assets of
8.25 percent, 8.50 percent and 8.25 percent at December 31, 1996, 1995 and
1994, respectively.

Employees are also eligible to participate in a matching savings plan
after one year of service. During 1996 Southern made participating
contributions to this plan of $198 compared to $173 during 1995 and $157 during
1994.

34
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)

(Dollars in thousands)

Note 11. Regulatory Requirements and Restrictions

BancShares and its banking subsidiary are subject to certain requirements
imposed by state and federal banking statutes and regulations. These
regulations establish guidelines for minimum capital levels, restrict certain
dividend payments and require the maintenance of noninterest-bearing reserve
balances at the Federal Reserve Bank. Such reserves averaged $8,295 during 1996
of which $7,329 was satisfied by vault cash and the remainder by amounts held
in the Federal Reserve Bank.

Various regulatory agencies have implemented guidelines that evaluate
capital based on risk adjusted assets. An additional capital computation
evaluates tangible capital based on tangible assets. Minimum capital
requirements set forth by the regulators require a Tier 1 capital ratio of no
less than 4 percent of risk-adjusted assets, a total capital ratio of no less
than 8 percent of risk-adjusted assets, and a leverage capital ratio of no less
than 4 percent of average tangible assets. To meet the Federal Deposit
Insurance Corporation's ("FDIC") "well capitalized" standards, the Tier 1 and
total capital ratios must be at least 6 percent and 10 percent, respectively.
Failure to meet minimum capital requirements may result in certain actions by
regulators that could have a direct material effect on the consolidated
financial statements. As of December 31, 1996, Southern was considered to be
"well capitalized" by the FDIC.

Southern's capital components ratios as of December 31, 1996 and 1995 are
set forth below:

<TABLE>
<CAPTION>
Risk-based capital: 1996 1995
---- ----
<S> <C> <C>
Tier 1 capital ......................................................... $ 27,891 $ 23,369
Total capital .......................................................... 31,861 26,819
Risk-adjusted assets ................................................... 298,862 261,949
Average tangible assets ................................................ 510,574 417,304

Tier 1 capital ratio ................................................... 9.33% 8.92%
Total capital ratio .................................................... 10.66% 10.24%
Leverage capital ratio ................................................. 5.46% 5.60%
</TABLE>

The primary source of funds for the dividends paid by BancShares to its
shareholders is dividends received from its Banking subsidiary. Southern Bank
is restricted as to dividend payout by state laws applicable to banks and may
pay dividends only out of retained earnings. Should at anytime its surplus be
less than 50% of its paid-in capital stock, Southern Bank may not declare a
dividend until it has transferred from retained earnings to surplus 25% of its
undivided profits or any lesser percentage that may be required to restore its
surplus to an amount equal to 50% of its paid-in capital stock. Additionally,
dividends paid by Southern Bank may be limited by the need to retain sufficient
earnings to satisfy minimum capital requirements imposed by the FDIC. Dividends
on BancShares' common shares may be paid only after dividends on preferred
Series "B" and "C" shares have been paid. Common share dividends are based upon
BancShares' profitability and paid at the discretion of the Board of Directors.
Management does not expect any of the foregoing restrictions to materially
limit its ability to pay dividends comparable to those paid in the past. At
December 31, 1996, Southern had available undivided profits of approximately
$9.8 million, unless declaration of dividends for such amount would reduce the
regulatory capital of Southern below the minimum levels discussed above. At
December 31, 1996, approximately $31.5 million of BancShares' investment in
Southern was restricted as to transfer to BancShares without obtaining prior
regulatory approval.

Common shareholders are entitled to one vote per share and both classes of
preferred shareholders are entitled to one vote for each 38 shares owned of a
class.

35
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)

(Dollars in thousands)

Note 12. Commitments, Contingencies and Concentration of Credit Risk

In the normal course of business there are various commitments and
contingent liabilities outstanding, such as guarantees, commitments to extend
credit, etc., which are not reflected in the accompanying financial statements.

Southern is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, standby letters of credit and
undisbursed advances on customer lines of credit. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheet.

Southern is exposed 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 which is represented by the contractual notional
amount of those instruments. Southern uses the same credit policies in making
these commitments and conditional obligations as it does for on-balance-sheet
instruments.

Commitments to extend credit and undisbursed advances on customer lines
of credit are agreements to lend to a customer as long as there is no violation
of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many commitments expire without being drawn, the total commitment amounts
do not necessarily represent future cash requirements. Southern evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by Southern, upon extension of credit is based on
management's credit evaluation of the borrower. Collateral held varies but may
include trade accounts receivable, property, plant, and equipment and
income-producing commercial properties.

Standby letters of credit are commitments issued by Southern 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.

Outstanding standby letters of credit as of December 31, 1996 and 1995
amounted to $1,260 and $1,328, respectively. Outstanding commitments were
$48,878 and $31,491 at December 31, 1996 and 1995, respectively. Undisbursed
advances on customer lines of credit were $22,084 and $16,175 at December 31,
1996 and 1995, respectively. Southern does not anticipate any losses as a
result of these transactions.

Southern grants agribusiness, commercial and consumer loans to customers
primarily in eastern North Carolina. Although Southern has a diversified loan
portfolio, a substantial portion of its debtors' ability to honor their
contracts is dependent upon the agricultural industry and in particular the
tobacco segment thereof. For several decades tobacco has come under increasing
criticism for potential health risks. Management is unable to predict the
impact of the contingencies inherent in this market segment as it relates to
Southern.

36
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)

(Dollars in thousands)

Note 12. Commitments, Contingencies and Concentration of Credit Risk -
continued

BancShares is also involved in various legal actions arising in the normal
course of business. After a review of pending and threatened actions with its
legal counsel, management is of the opinion that the outcome of such actions
will not have a material adverse effect on the consolidated financial condition
of BancShares.

BancShares has deposits insured under both of the FDIC insurance funds,
the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund
("SAIF"). In July 1995, the FDIC and other regulatory agencies proposed a plan
to recapitalize the SAIF, and Congress mandated a one-time assessment for all
SAIF-insured deposits on September 30, 1996. BancShares had approximately
$87,000 of SAIF-insured deposits subject to the one-time assessment and
recorded $569 on September 30, 1996 as a one-time FDIC insurance expense.

At December 31, 1996, BancShares had approximately $98,000 of SAIF-insured
deposits. BancShares expects that under current FDIC assessment guidelines that
it will not incur any FDIC deposit insurance assessments for 1997. However,
beginning in 1997 the FDIC is required to collect from all banks an insurance
assessment for Financing Corporation ("FICO") funding requirements.
Accordingly, BancShares expects a 1997 FDIC FICO assessment expense of
approximately $109, based on the FDIC FICO assessment rates in effect for the
first six months of 1997.

37
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)

(Dollars in thousands)

Note 13. Parent Company Financial Statements

Presented below are the condensed financial statements (parent company only) of
Southern BancShares (N.C.), Inc. as of December 31, 1996 and 1995 and for the
three years ended December 31, 1996.

December 31,

CONDENSED BALANCE SHEETS 1996 1995
----- ----

ASSETS
Cash .............................................. $ 46 $ 4
Investments ....................................... 6,188 3,443
Investment in subsidiary .......................... 41,322 37,091
------- -------
Total assets ............................. $47,556 $40,538
======= =======

Liabilities and Shareholder' Equity
Accrued liabilities ............................... $ 1,378 $ 736
Accrued interest payable .......................... -- 39
Note payable ...................................... 1,400 2,600
------- -------
Total liabilities ........................ 2,778 3,375
Shareholders' equity .............................. 44,778 37,163
------- -------
Total liabilities and shareholders' equity $47,556 $40,538
======= =======

<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME Year ended December 31,
-----------------------
1996 1995 1994
------ ------- -----
<S> <C> <C> <C>
Dividends from bank subsidiary ........................... $ 2,637 $ 2,507 $ 2,843
Other dividends .......................................... 78 44 40
------- ------- -------
Total income .................................... 2,715 2,551 2,883

Interest expense ......................................... (117) (309) (314)
Miscellaneous income (expense) ........................... (42) 6 (70)
------- ------- -------
Income before equity in undistributed income of subsidiary 2,556 2,248 2,499
Equity in undistributed income of subsidiary ............. 1,808 1,665 1,189
------- ------- -------
Net income ...................................... $ 4,364 $ 3,913 $ 3,688
======= ======= =======

</TABLE>

38
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)

(Dollars in thousands)

Note 13. Parent Company Financial Statements (continued)

PARENT COMPANY ONLY
CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994

<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income .......................................................... $ 4,364 $ 3,913 $ 3,688
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed net income of subsidiary ............. (1,808) (1,665) (1,189)
Increase in accrued liabilities .............................. 642 153 5
Increase (decrease) in interest payable ...................... (39) 9 4
----- ----- -----
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................ 3,159 2,410 2,508
----- ----- -----
INVESTING ACTIVITIES:
Purchase of investments .............................................. (1,318) (444) --
----- ----- -----
NET CASH USED IN INVESTING ACTIVITIES ................................... (1,318) (444) --
----- ----- -----
FINANCING ACTIVITIES:

Dividends paid ........................................................ (587) (531) (472)
Purchase and retirement or redemption of stock ........................ (253) (878)
Principal payments on note payable .................................... (1,200) (1,200) (1,200)
----- ----- -----
NET CASH USED IN FINANCING ACTIVITIVIES .................................. (1,799) (1,984) (2,550)
----- ----- -----

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................... 42 (18) (42)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR ....................... 4 22 64
----- ----- -----
CASH AND CASH EQUIVALENTS AT THE END OF YEAR ............................. $ 46 $ 4 $ 22
===== ===== =====

</TABLE>

Note 14. Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:

Cash and due from banks, federal funds sold, and accrued interest receivable

The carrying amounts for cash and due from banks, federal funds sold and
accrued interest receivable are equal to their fair values due to the short term
nature of these financial instruments.

Investment securities

Fair values of investment securities are based on quoted market prices. If
a quoted market price is not available, fair value is estimated using quoted
market prices for similar securities.

39
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)

(Dollars in thousands)

Note 14. Fair Value of Financial Instruments - continued

Loans receivable

For variable-rate loans that are performing fair values are based on
carrying values. The fair values of fixed rate loans that are performing are
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for
the same remaining maturities. The fair value of nonperforming loans is based
on the book value of each loan, less an applicable reserve for credit losses.
This reserve for credit losses is determined on a loan by loan basis for
nonperforming assets based on one or a combination of the following: external
appraisals, internal assessments using available market information and
specific borrower information, or discounted cash flow analysis.

Deposits

The fair value of demand deposits, savings accounts and money market
deposits is the amount payable on demand at year end. The fair value of
certificates of deposit is estimated by discounting the future cash flows using
the current rates paid for similar deposits.

Short-term borrowed funds and accrued interest payable

The carrying amounts for short-term borrowed funds and accrued interest
payable are equal to the fair values due to the short term nature of these
financial instruments.

Note Payable

The carrying amount for the note payable is considered to be equal to its
fair value since the note bears interest at a variable rate.

Commitments

Southern's commitments to extend credit have no carrying value and are
generally at variable rates and/or have relatively short terms to expiration.
Accordingly, these financial instruments are deemed to have no material fair
value.

Fair value estimates are made by management at specific points in time
based on relevant information about the financial instrument and the market.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time BancShares' entire holdings of a particular
financial instrument nor are potential taxes and other expenses that would be
incurred in an actual sale considered. Because no market exists for a
significant portion of BancShares' financial instruments, fair value estimates
are based on judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions and/or the methodology used
could significantly affect the estimates disclosed. Similarly, the fair values
disclosed could vary significantly from amounts realized in actual
transactions.

40
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)

(Dollars in thousands)

Note 14. Fair Value of Financial Instruments - continued

Fair value estimates are based on existing on-and-off balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. For example, BancShares has premises and equipment which
are not considered financial instruments. Accordingly, the value of these
assets has not been incorporated into the fair value estimates. In addition,
tax ramifications related to the realization of the unrealized gains and losses
can have a significant effect on fair value estimates and have not been
considered in any of the estimates.

The estimated fair values of BancShares' financial instruments at December
31 are as follows:

<TABLE>
<CAPTION>
1996 1995
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks .............................. $ 21,445 $ 21,445 $ 27,186 $ 27,186
Federal funds sold ................................... 11,020 11,020 15,720 15,720
Investment securities:
Held-to-maturity ................................... 63,676 64,559 106,873 108,679
Available-for-sale ................................. 105,013 105,013 41,933 41,933
Loans ................................................ 311,592 322,746 281,639 287,237
Accrued interest receivable .......................... 3,999 3,999 3,971 3,971

Financial liabilities:

Deposits ............................................. $480,566 $481,091 $449,002 $452,538
Short-term borrowings ................................ 5,064 5,064 1,469 1,469
Long-term obligations ................................ 1,400 1,400 2,600 2,600
Accrued interest payable ............................. 3,204 3,204 3,491 3,491

</TABLE>

Note 15. Related Parties

BancShares has entered into various service contracts with another bank
holding company and its subsidiary (the "Corporation"). The Corporation has two
significant shareholders, which are also significant shareholders of
BancShares. The first significant shareholder is a director of BancShares and
at December 31, 1996 beneficially owned 31,131 shares, or 25.96 percent, of
BancShares' outstanding common stock and 22,171 shares, or 5.42 percent, of
BancShares' outstanding Series B preferred stock. At the same date, the second
significant shareholder beneficially owned 28,127 shares, or 23.46 percent, of
BancShares' outstanding common stock, and 17,205 shares, or 4.21 percent, of
BancShares' Series B preferred stock. The above totals include 17,205 Series B
preferred shares, or 4.21 percent, that are considered to be beneficially owned
by both of the shareholders and, therefore, are included in each of their
totals.

41
<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)

(Dollars in thousands)

Note 15. Related Parties (continued)

These two significant shareholders are directors and executive officers of
the Corporation and at December 31, 1996, beneficially owned 2,567,982 shares,
or 26.64 percent, and 1,195,046 shares, or 12.40 percent, respectively, of the
Corporation's outstanding Class A common stock, and 632,021 shares, or 35.93
percent, and 324,094 shares, or 18.43 percent, respectively, of the
Corporation's outstanding Class B common stock. The above totals include
262,920 Class A common shares, or 2.73 percent, and 41,825 Class B Common
shares, or 2.38 percent, that are considered to be beneficially owned by both
of the shareholders and, therefore, are included in each of their totals. A
subsidiary of the Corporation is First-Citizens Bank & Trust Company ("First
Citizens"). As more fully discussed elsewhere herein, Southern acquired a
branch from First Citizens in both 1996 and 1995.

The following table lists the various charges paid to the Corporation during
the years ended December 31,

1996 1995 1994
----- ----- ----
Data and item processing ............$1,477 $1,160,828 $1,160
Forms, supplies and equipment ....... 300 180 179
Trustee for employee benefit plans .. 62 57 59
Consulting fees ..................... 79 69 68

Trust investment services ........... 24 24 16
Internal auditing services .......... 165 132 130
Other services ...................... 143 64 32
------ ------ ------
$2,601 $2,003 $1,644
====== ====== ======

Data and item processing expenses include courier services, proof and encoding,
microfilming, check storage, statement rendering and item processing forms.
BancShares also has a correspondent relationship with the Corporation.
Correspondent account balances with the Corporation included in cash and due
from banks totaled $8,673, $16,167 and $6,881 at December 31, 1996, 1995 and
1994, respectively.

Note 16. Subsequent Events

Southern has entered into an agreement, subject to regulatory approval, to
acquire three branches from another bank. The effect on BancShares will be an
increase of approximately $30 million in deposits. This transaction is
scheduled to be completed in the second quarter of 1997.

Southern has also made application to the regulatory authorities to open
DE NOVO branches in three new eastern North Carolina markets. Subject to
regulatory approval these branches are planned to open in the third quarter of
1997.

On February 5, 1997, the board of directors of Southern approved the
contribution of 48,250 shares of marketable equity securities to the Southern
Bank Foundation. These investments had an average cost basis of $542 and, on
February 5, 1997, a fair value of $4.1 million.

42
<PAGE>

DIRECTORS _______________________________________________________________________________________________________________
<S> <C> <C>
Bynum R. Brown Moses B. Gillam, Jr. W. A. Potts
Murfreesboro, NC Windsor, NC Mount Olive, NC
President and Owner, Partner, Gillam and Gillam, Attorneys Chairman of the Board,
Bynum R. Brown Agency, Inc. Mount Olive Pickle Company, Inc.
(Real Estate and Insurance) LeRoy C. Hand (Retired Veterinarian)
Secretary-Treasurer, Roanoke Camden, NC
Valley Nursing Home, Inc. Retired Physician, former President, Charles L. Revelle, Jr.
Albemarle Emergency Associates, P.A. Murfreesboro, NC
Chairman of the Board and former
William H. Bryan President, Revelle Agri-Products, Inc.;
Mt. Olive, NC Frank B. Holding Vice President, Revelle Builders of
President, Director and Treasurer Smithfield, NC N. C., Inc.; President, Revelle
Mount Olive Pickle Company, Inc. Executive Vice Chairman of the Board, Equipment Co., Inc.
(Manufacturer of Pickle and Pepper First-Citizens Bank & Trust Company (Agribusiness)
Products) and First Citizens BancShares

D. Hugh Carlton M. J. McSorley Charles O. Sykes
Warsaw, NC Mount Olive, NC Mount Olive, NC
President, Carlton Insurance Agency, President and CEO, President, Mount Olive Livestock Inc.
(Insurance) Southern Bank and Trust Company; Market, Inc.
Vice President, Southern BancShares (N.C.), (Livestock Auction Market and Dealer)
Inc.

Robert J. Carroll
Gates, NC W. B. Midyette, Jr. John N. Walker
President and Owner, Carroll's Garage, Bath, NC Mount Olive, NC
Inc. Retired Farmer President Emeritus,
(Truck and Farm Equipment Dealer) Mount Olive Pickle Company, Inc.

Hope H. Connell W. Hunter Morgan
Raleigh, NC Sunbury, NC R. S. Williams
Senior Vice President, President, Kellogg-Morgan Agency, Inc. Mount Olive, NC
First-Citizens Bank & Trust Company (Insurance) President, Southern BancShares;
Chairman of the Board
and Consultant,
J. Edwin Drew Charles I. Pierce, Sr. Southern BancShares (N.C.), Inc.
Macclesfield, NC Ahoskie, NC and Southern Bank and Trust
Retired Physician President, Pierce Printing Co., Inc. Company
Former President, J. Edwin Drew, M.D., (Commercial Printers)
P.A.

OFFICERS _________________________________________________________________________________________________________________

OFFICERS OF SOUTHERN BANCSHARES (N.C.), INC.

R. S. Williams, President David A. Bean, Secretary and Treasurer R. D. Ray, Assistant Treasurer
and Chairman of the Board
Paul A. Brewer, Assistant Secretary

M. J. McSorley, Vice President

EXECUTIVE OFFICERS OF SOUTHERN BANK AND TRUST COMPANY
R. S. Williams, Chairman of the Board John C. Pegram, Jr., Executive Vice R. D. Ray, Senior Vice President
President

M. J. McSorley, President Paul A. Brewer, Senior Vice President David A. Bean, Vice President, Controller
and Chief Executive Officer and Secretary

</TABLE>

The following are subsidiaries of Southern BancShares (N.C.), Inc. :

Subsidiary State of Incorporation

Southern Bank and Trust Company North Carolina

Goshen, Inc. North Carolina

Goshen Properties, Inc. North Carolina

Report of Independent Accountants

To the Board of Directors
and Shareholders of
Southern BancShares (N.C.), Inc.

In our opinion, the consolidated statements of income, of cash flows and of
changes in shareholders' equity for the year ended December 31, 1994 present
fairly, in all material respects, the results of operations and cash flows of
Southern BancShares (N.C.), Inc. and its subsidiary for the year ended
December 31, 1994, in conformity with generally accepted accounting principles.
These 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. We conducted our audit of these statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above. We have not audited the consolidated financial
statements of Southern BancShares (N.C.), Inc. for any period subsequent to
December 31, 1994.

As discussed in note 1 to the consolidated financial statements, the Company
changed its method of accounting for investments in 1994.

PRICE WATERHOUSE LLP
Raleigh, North Carolina
February 24, 1995