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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, 2002

Commission File No. 0-10852

SOUTHERN BANCSHARES (N.C.), INC.

(Exact name of registrant as specified in its charter)

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

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

Securities registered pursuant to:

                                    Section 12(b) of the Act:                       8.25% Junior Subordinated Debentures
                                    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 o

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

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of the Registrant’s common equity held by nonaffiliates computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant’s most recently completed second fiscal quarter was $21.8 million. (There is no established market, published quotes or reported prices for the Registrant’s common stock. The market value of shares held by nonaffiliates has been calculated based on prices known to management of Registrant in privately negotiated transactions.)

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The number of shares outstanding of the Registrant’s common stock as of March 10, 2003: Common Stock, $5.00 par value - 111,825 shares

Portions of the Registrant’s definitive Proxy Statement dated March 21, 2003 for the 2003 Annual Meeting of Shareholders are incorporated by reference into Part III.

CROSS REFERENCE INDEX

      *   Information required by Item 10 is incorporated herein by reference to the information that appears under the captions “Section 16(a) Beneficial Ownership Reporting Compliance,” “PROPOSAL 1: ELECTION OF DIRECTORS”, and “Executive Officers” on pages 5 and 9 of Registrant’s definitive Proxy Statement dated March 21, 2003.

Information required by Item 11 is incorporated herein by reference to the information that appears under the captions “Director Compensation”, “Compensation Committee”, “Executive Compensation” and “Pension Plan” on pages 6, 8 and 10 of the Registrant’s definitive Proxy Statement dated March 21, 2003.

Information required by Item 12 is incorporated herein by reference to the information that appears under the caption “Beneficial Ownership of Voting Securities” on pages 2 through 5 of the Registrant’s definitive Proxy Statement dated March 21, 2003.

Information required by Item 13 is incorporated herein by reference to the information that appears under the caption “Transactions with Related Parties” on page 12 of the Registrant’s definitive Proxy Statement dated March 21, 2003.

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BUSINESS

General. Southern BancShares (N.C.), Inc. (hereinafter, with all of its subsidiaries, referred to as “BancShares” or “Registrant”), is a bank holding company which was organized during 1986 as the successor to Southern BancShares (N.C.), Inc., a North Carolina corporation (“SBS”). SBS was formed in 1982 as the parent company of Southern Bank and Trust Company (“Southern”). During 1986, SBS was merged into BancShares to effect the reincorporation of Southern’s parent company in Delaware.

Southern is BancShares’ principal operating subsidiary and is currently engaged in commercial banking through 49 offices located primarily in eastern North Carolina.

BancShares also is the parent company of Southern Capital Trust I (“SCT” or “the Trust”), a Delaware business trust that was organized during 1998 for the sole purpose of issuing and selling $23.0 million aggregate liquidation amount of 8.25% capital securities (the “Capital Securities”). The net proceeds from that sale, together with the proceeds from SCT’s issuance of its common securities to BancShares, were invested in a like aggregate face amount of BancShares’ 8.25% junior deferrable interest subordinated debentures which mature during 2028. The capital securities and the junior subordinated debentures are subject to optional redemption at any time on or after June 30, 2003. BancShares has entered into a guaranty agreement which, when taken together with its obligations under the trust agreement under which SCT exists, the junior subordinated debentures, and the indenture under which the debentures were issued, provides a full and unconditional guarantee on a subordinated basis by BancShares of SCT’s payment of distributions and other payments on the Capital Securities.

BancShares’s executive offices are located at 116 East Main Street, Mount Olive, North Carolina 28365, and its telephone number is (919) 658-7000.

BancShares’s principal assets are its investments in and receivables from its bank subsidiary and its investment securities portfolio. Its primary sources of income are dividends from its bank subsidiary and interest income on its investment securities portfolio. Certain laws and regulations restrict the ability of Southern to transfer funds to BancShares in the form of cash dividends or loans. All significant activities of BancShares and its subsidiaries are banking related so that BancShares operates within one industry segment. Neither BancShares nor its subsidiaries has any foreign operations.

Services. Southern provides a full range of banking and financial services to individuals, small and medium-sized businesses and governmental units located in its banking markets, including regular and interest checking accounts, money market, savings and time deposit accounts, personal and business loans and a variety of other services incidental to commercial banking. Southern has a wholly-owned subsidiary, Goshen, Inc., which acts as agent for credit life and credit accident and health insurance written in connection with loans made by Southern.

Employees. At December 31, 2002, BancShares and its subsidiaries employed a full-time staff of 368 and a part-time staff of 29 for a total of 397 employees.

Supervision and Regulation. BancShares is subject to the jurisdiction of the Board of Governors of the Federal Reserve System (the “FRB”) under the Bank Holding Company Act of 1956, as amended (the “BHC Act”). Under the BHC Act, BancShares is subject to supervision and examination by, and the regulations and reporting requirements of, the FRB, and its activities are limited to those permitted to bank holding companies. BancShares is required to obtain the prior approval of the FRB before it may acquire direct or indirect control of more than 5% of the outstanding voting stock, or substantially all of the assets of, any other bank or bank holding company. Additionally, the BHC Act prohibits BancShares from acquiring ownership or control of more than 5% of the outstanding voting stock of any company engaged in an activity that is not permitted for bank holding companies.

Bank holding companies are required to serve as a source of financial strength for their depository institution subsidiaries, and, if their depository institution subsidiaries become undercapitalized, bank holding companies may be required, subject to certain limits, to guarantee compliance by those subsidiaries with capital restoration plans filed with their regulators.

The federal Gramm-Leach-Bliley Act enacted in 1999 (the “GLB Act”) dramatically changed various federal laws governing the banking, securities and insurance industries. The economic effects of the GLB Act on the banking industry, and competitive conditions in the financial services industry generally, may be profound. The GLB Act may expand opportunities for BancShares and Southern to provide other services and obtain other revenues in the future, and also may present new competitive challenges.

The internal affairs of BancShares, including the rights of its shareholders, are governed by Delaware law and by its Articles of Incorporation and Bylaws. BancShares files periodic reports under the Securities Exchange Act of 1934 and is subject to the jurisdiction of the Securities and Exchange Commission.

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As an insured, state-chartered bank that is not a member of the Federal Reserve System, Southern is subject to supervision and examination by, and the regulations and reporting requirements of, the North Carolina Commissioner of Banks (the “Commissioner”) and the Federal Deposit Insurance Corporation (the “FDIC”). Absent approval of the FDIC, Southern is prohibited from engaging as principal in activities that are not permitted for national banks and it is prohibited from acquiring or retaining any equity investment of a type not permitted for national banks.

As a subsidiary of BancShares, Southern is subject to restrictions under federal law on the amount of, and its ability to enter into, transactions with, or investments in the securities of, BancShares and certain other affiliated entities. Though it is not a member of the Federal Reserve System, Southern is subject to the FRB’s reserve requirements applicable to all banks and its business is significantly influenced by the fiscal policies of the FRB. The actions and policy directives of the FRB determine to a significant degree Southern’s cost and the availability of funds and the rates of interest charged on its loans and paid on its deposits.

The FDIC, Commissioner and FRB 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.

Statistical Data. Certain statistical disclosures for bank holding companies required by Guide 3 are included in the information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

PROPERTIES

BancShares does not own or lease any real property. Except for three 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 116 East Main Street, Mount Olive, North Carolina. At December 31, 2002 there were 48 Southern offices in North Carolina. On February 24, 2003 Southern opened its 49^th office in Kenansville, North Carolina.

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 2002, 2001 and 2000. 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.

SUMMARY

BancShares experienced a 10.56 percent increase in net income during 2002, compared to 2001. A change in accounting principle related to amortization of intangibles associated with branch acquisitions prior to 2002 is the principal reason for the 2002 increase. Consolidated net income was $9.1 million for 2002 compared to $8.2 million for 2001 and $3.7 million for 2000. Net income per share for the year ended December 31, 2002 totaled $76.77 compared to $68.66 in 2001 and $28.51 in 2000. Return on average assets totaled 1.05 percent during 2002, 0.99 percent during 2001 and 0.52 percent during 2000. Table 1 provides a five year summary of financial information for BancShares.

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An analysis of BancShares’ financial condition and growth can be made by examining the changes and trends in interest-earning assets and interest-bearing liabilities. Such an analysis also requires an evaluation of noninterest income and noninterest expenses. In recent years, increasing total noninterest income has been a significant focus for BancShares. The introduction of new revenue sources and modifications to existing products and services has allowed bank service related noninterest income to grow. In recent years the recognition of gains and losses on available-for-sale securities has also had a significant impact on total noninterest income, although management does not consider these sources of noninterest income to be a recurring source of revenues for BancShares. Franchise expansion has contributed to the growth in noninterest income, but has also resulted in large increases in noninterest expense, especially personnel-related costs, occupancy expenses, equipment expenses and intangible asset amortization expenses prior to 2002.

Members of the Holding family, including Frank B. Holding who serves as a director and the Chairman of BancShares’ Executive Committee, have been actively involved in the management of BancShares. Currently, various members of the Holding family control an aggregate of 66.61% of BancShares’ common stock. Southern is party to contracts with an affiliated financial institution, First-Citizens Bank & Trust Company, Raleigh, North Carolina, pursuant to which Southern is provided with various management consulting, support and data processing services. See “Beneficial Ownership of Voting Securities” and “Transactions with Related Parties” in the preceding PROXY STATEMENT and Note 15, Related Parties in the following NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. As a result, Bancshares has been managed from a long-term perspective with primary emphasis being placed on balance sheet liquidity, loan quality, and earnings stability.

CRITICAL ACCOUNTING POLICIES

BancShares’ significant accounting policies are set forth in note 1 of the consolidated financial statements. Of these significant accounting policies, BancShares considers its policy regarding the allowance for loan losses to be its single critical accounting policy, because it requires management’s most subjective and complex judgments. In addition, changes in economic conditions can have a significant impact on the allowance for loan losses and therefore the provision for loan losses and results of operations. Bancshares has developed appropriate policies and procedures for assessing the adequacy of the allowance for loan losses, recognizing that this process requires a number of assumptions and estimates with respect to its loan portfolio. BancShares’ assessments may be impacted in future periods by changes in economic conditions, the impact of regulatory examinations, and the discovery of information with respect to borrowers which is not known to management at the time of the issuance of the consolidated financial statements. For additional discussion concerning BancShares’ allowance for loan losses and related matters, see Asset Quality.

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Table 1

SELECTED FINANCIAL DATA