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HCSB Financial Services
Corporation
James R. Clarkson, President
Horry County State Bank
5009 Broad Street

Loris, South Carolina 29596-0218
T: (843) 716-6101

October 3, 2005

Ms. Joyce Sweeney, Branch
Chief
United States Securities and Exchange Commission
Division of Corporation
Finance
Judiciary Plaza
450 Fifth Street, NW
Washington, DC 20549

Re: HCSB Financial
Services Corporation
       Form
10-KSB for the period ended December 31, 2004
       File No.
0-26995

Dear Ms. Sweeney:

Thank you for comments in review of
our Form 10-KSB for the year ended December 31, 2004. Set forth are our responses to your
letter.

Form 10-KSB for the
period ended December 31, 2004

Financial Statements

Note 7 - Derivative
Instruments and Hedging Activities page 40

Comment 1

We note your disclosure on page 32
that you use the shortcut method of assessing hedge effectiveness for fair value hedges.
We also note your disclosure on page 41 that your Federal Home Loan Bank advances are
convertible advances that initially bear interest at a fixed-rate that can be converted to
a floating-rate after a certain period. Please tell us the following regarding these
hedges:

o

the specific terms of the convertible advances and swaps used to hedge these advances;

o

how those terms match the terms of the advances; and

o

how you determined that this particular hedging relationship qualifies for shortcut
treatment under paragraph 68 of SFAS 133.

Response:

Specific terms of the convertible
advances and swaps used to hedge these advances: We have entered into three interest
rate swaps, (with three attached options) to manage the interest rate risk on three of our
FHLB rate advances. These FHLB advances are not prepayable by the FHLB and the interest
rate on these advances begins as a fixed rate and at the FHLB’s option at specified
times during the term of the advance may be converted to a variable interest rate. (We
disclosed that all of our advances are convertible, which was intended to refer to the
interest rate component of the advance).

 The interest rate swap agreements provide for the
Company to make payments at a variable rate determined by a specified index (three month
LIBOR) in exchange for receiving payments at fixed rates.

The interest rate swap agreements
include option provisions (commonly known as swaptions) to automatically adjust (at the
same time) the variable interest swap agreements to a fixed rate if the FHLB exercises its
right to convert the options to a variable rate.

How the terms of swaps
match the advances:
Specific terms of each of the
advances and swaps used to hedge these advances:
Advances:

o

$4.6 million advance, fixed rate of 6.49%. $4.6 million notional amount in interest rate
swap, variable rate determined by three month LIBOR. The swap and the underlying advance
both expire or mature on May 24, 2010.

o

$5.0 million advance, fixed rate of 5.05%. $5.0 million notional amount in the interest rate swap,
variable rate determined by three month LIBOR. The swap and the underlying advance both
expire or mature on March 22, 2011.

o

$5.0 million advance, fixed rate of 5.92%. $5.0 million notional amount in the interest
rate swap, variable rate determined by three month LIBOR. The swap and the underlying
advance both expire or mature on March 1, 2010.

How we determined this hedging
relationship qualifies for the shortcut method:

Upon entering into the swap
agreements, we reviewed paragraph 68 of SFAS 133 to determine if these transactions met
the criteria to be accounted for using the shortcut method. We determined that the
shortcut method was appropriate, based on the fact that we have met all of the required
criteria outlined as follows:

          a.

          Criteria: The notional amount of the swap matches the principal amount of
          the interest-bearing asset or liability. Evaluation  of criteria:

     Transaction 1
     Transaction 2
     Transaction 3

     Interest

     Interest

     Interest

     FHLB
     Rate
     FHLB
     Rate
     FHLB
     Rate

     Advance
     Swap
     Advance
     Swap
     Advance
     Swap

     Notional amount

     $     4.6m

     $    4.6m

     $     5.0m

     $     5.0m

     $     5.0m

     $     5.0m

     Termination date
     5/24/2010
     5/24/2010
     3/22/2011
     3/22/2011
     3/01/2010
     3/01/2010

          b.

          Criteria: The fair value of the swap at its inception is zero.
          Evaluation of criteria: We believe this to be correct.

          c.

          Criteria: The formula for computing net settlements under the interest
          rate swap is the same for each net settlement. (That is, the fixed rate is the
          same throughout the term, and the variable rate is based on the same index and
          includes the same constant adjustment or no adjustment.) Evaluation of
          criteria: with the added swaption agreement, we have met these requirements.

          d.

          Criteria: The interest-bearing asset or liability is not prepayable.
          Evaluation of criteria: The FHLB advances are not prepayable.

          e.

          Criteria: Any other terms in the interest-bearing financial instruments
          or interest rate swaps are typical of those instruments and do not invalidate
          the assumption of no ineffectiveness. Evaluation of criteria: All other
          terms appear to be typical.

2

          f.

          Criteria: The expiration date of the swap matches the maturity date of
          the interest-bearing asset or liability. Evaluation of  criteria:
          See response to a. above.

          g.

          Criteria: There is no floor or ceiling on the variable interest rate of
          the swap. Evaluation of criteria: No floor or ceiling in the swap
          agreements.

          h.

          Criteria: The interval between repricings of the variable interest rate
          in the swap is frequent enough to justify an assumption that the variable
          payment or receipt is at a market rate (generally three to six months or less).
          Evaluation of criteria: The interval of repricing is based on a three
          month LIBOR.

Conclusion

We believe that we have met all of
the required criteria to use the shortcut method in accounting for these fair value
hedges.

Comment 2

Please provide us with a similar
analysis for any other hedging relationships for which you apply the shortcut method of
assessing hedge effectiveness.

Response:

We have entered into no other hedging
transactions.

In connection with your comments, we
acknowledge that:

o

The Company is responsible for the adequacy and accuracy of the disclosure in filing;

o

Staff comments or changes to disclosure in response to staff comments do not foreclose the
Commission from taking any action with respect to the filing; and

o

The Company may not assert staff comments as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the United States.

We appreciate the staff’s
assistance and suggestions to help improve the Company’s disclosures, and hope the
above responses clarify the issues you have raised with respect to our Form 10-K dated
December 31, 2004. Please do not hesitate to contact me at 843-716-6101 if additional
clarification or information is necessary.

Sincerely,
/s/ James R. Clarkson

James R. Clarkson
President and Chief Executive Officer

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