<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                       Page
---------------------------------------------------------------------------------------------
<S>                                                                                   <C>
Report to Stockholders                                                                      1
Selected Consolidated Financial Data                                                    2 - 3
Management's Discussion and Analysis                                                   4 - 17
Independent Auditor's Report                                                               19
Consolidated Financial Statements:
  Statements of financial condition at December 31, 1999 and 1998                          20
  Statements of income and comprehensive income for the years ended                        21
    December 31, 1999, 1998 and 1997
  Statements of stockholders' equity for the years ended December 31, 1999, 1998      22 - 23
    and 1997
  Statements of cash flows for the years ended December 31, 1999, 1998 and 1997       24 - 26
Notes to Consolidated Financial Statements                                            27 - 55
Corporate Information                                                                 56 - 57
</TABLE>

This annual report to stockholders contains certain forward-looking statements
consisting of estimates with respect to the financial condition, results of
operations and other business of Coddle Creek Financial Corp. that are subject
to various factors which could cause actual results to differ materially from
those estimates. Factors which could influence the estimates include changes in
the national, regional and local market conditions, legislative and regulatory
conditions, and an adverse interest rate environment.
<PAGE>

                             Report to Stockholders

Dear Stockholder:

December 31, 1999 marked the end of our second complete year of operations as a
public company. On December 30, 1997, Mooresville Savings converted from a state
chartered mutual savings bank to a state chartered stock savings bank and became
a wholly-owned subsidiary of Coddle Creek Financial Corp.

The Company's consolidated total assets totaled $143.9 million at December 31,
1999 compared to $135.8 million a year earlier, representing a 5.9% increase.
Total stockholders' equity amounted to $34.4 million at December 31, 1999,
resulting in a book value per share of $49.29. The Company paid cash dividends
totaling $19.23 per share, including a return of capital in the form of a
special dividend of $17.18 per share, during 1999. A detail of financial results
and other information is contained in the accompanying 1999 Annual Report.

The Company is dedicated to providing high quality service for all of our
customers. The Board of Directors continues to study various methods of
increasing the value of your investment. In the future, the Board intends to
consider such issues as regular cash dividends, special dividends and the
Company's repurchase of outstanding common stock.

On behalf of the Board of Directors, management and staff, we would like to
thank you for your loyalty and confidence as demonstrated by your investment in
Coddle Creek Financial Corp.


                                        Sincerely,

                                        /s/ George W. Brawley, Jr.

                                        George W. Brawley, Jr.
                                        President and CEO

                                       1
<PAGE>

                  CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY
                      SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>

                                                                            December 31,
                                            -------------------------------------------------------------------------
                                              1999             1998            1997            1996            1995
                                            -------------------------------------------------------------------------
                                                          (Dollars In Thousands, Except Per Share Data)
<S>                                         <C>              <C>             <C>             <C>             <C>
Financial Condition Data:
Total assets                                $143,867         $135,811        $149,585        $112,552        $108,033
Investments securities (1)                    12,667           20,495          43,441          10,889          13,903
Loans receivable, net (4)                    123,486          118,057         102,198          97,951          90,555
Deposits                                      90,563           87,569          99,382          93,785          92,103
Stockholders' equity (2)                      34,445           45,119          46,993          14,412          13,726
Book value per share (2)                       49.29            66.89           69.67               -               -

<CAPTION>
                                                                          For the Years Ended
                                                                              December 31,
                                            -------------------------------------------------------------------------
                                               1999             1998           1997           1996              1995
                                            -------------------------------------------------------------------------
Operating Data:                                           (Dollars in Thousands, Except Per Share Data)
<S>                                         <C>              <C>             <C>             <C>             <C>
Interest and dividend income                $ 10,188         $ 10,316        $  8,997        $  8,679        $  7,946
Interest expense                               4,195            4,096           4,820           4,658           4,416
                                            -------------------------------------------------------------------------
Net interest income                            5,993            6,220           4,177           4,021           3,530
Provision for loan losses                          -              205             335               -              12
Noninterest income                               217              185             192             200             190
Noninterest expense                            4,007            2,957           2,993           3,146           2,624
                                            -------------------------------------------------------------------------
Income before income taxes                     2,203            3,243           1,041           1,075           1,084
Income tax expense                               817            1,039             374             354             304
                                            -------------------------------------------------------------------------
Net income                                     1,386            2,204             667             721             780
Other comprehensive income (loss),
  net of tax:
Unrealized gains (losses) on
securities, net of tax                           (67)              21              (3)            (35)             63
                                            -------------------------------------------------------------------------
Comprehensive income                        $  1,319         $  2,225        $    664        $    686        $    843
                                            =========================================================================

Basic earnings per share (2)                $   2.20         $   3.54         $     -         $     -         $     -
Diluted earnings per share (2)                  2.20             3.54               -               -               -
Dividends per share (2)                         2.05             1.00               -               -               -
Return of capital dividends per share          17.18                -               -               -               -
Dividend payout ratio (6)                     874.09%           28.25%              -               -               -
</TABLE>

                                   (Continued)

                                       2
<PAGE>

<TABLE>
<CAPTION>

                                                                         At or For the Years Ended
                                                                                December 31,
                                                -----------------------------------------------------------------------------
                                                   1999(5)         1998(5)         1997(5)         1996(5)         1995(5)
                                                -----------------------------------------------------------------------------
                                                                           (Dollars in Thousands)
<S>                                                <C>             <C>             <C>             <C>             <C>
Selected Other Data:
  Number of outstanding loans                        2,474           2,397           2,482           2,476           2,432
  Number of deposit accounts                         6,880           7,109           7,957           7,752           7,730
  Number of full-service offices                         3               3               3               3               3
Return on average assets                              1.00%           1.62%           0.58%           0.66%           0.75%
Return on average equity                              3.40%           4.98%           4.55%           5.37%           6.05%
Average equity to average assets                     29.25%          32.59%          12.87%          12.27%          12.37%
Interest rate spread                                  2.89%           3.11%           2.87%           3.08%           2.85%
Net yield on average interest-earning
  assets                                              4.38%           4.70%           3.68%           3.74%           3.49%
Average interest-earning assets to
  average interest-earning liabilities              148.65%         151.32%         119.06%         115.21%         114.59%
Ratio of noninterest expense to
  average total assets                                2.88%           2.18%           2.62%           2.88%           2.52%
Nonperforming assets to total assets (3)              1.01%           1.02%           1.02%           1.11%           1.11%
Nonperforming loans to total loans (3)                1.06%           1.20%           1.36%           1.23%           1.25%
Allowance for loan losses to
  nonperforming loans (3)                            64.98%          64.57%          47.83%          31.11%          32.95%
Allowance for loan losses to total loans
  receivable                                          0.69%           0.78%           0.65%           0.38%           0.41%
Provision for loan losses to total
  loans receivable, net                               0.00%           0.19%           0.33%           0.00%           0.01%
Net charge-offs to average loans
  outstanding                                         0.00%           0.00%           0.03%           0.01%           0.01%
Stockholders' equity to total assets                 23.94%          33.22%          31.42%          12.80%          12.71%
</TABLE>

(1)  Includes interest-earning deposits, federal funds sold, certificates of
     deposit, FHLB stock and investment securities.
(2)  On December 30, 1997, Mooresville Savings converted from a state chartered
     mutual savings bank to a state chartered stock savings bank and became a
     wholly-owned subsidiary of Coddle Creek Financial Corp. Earnings per share
     has been calculated in accordance with Statement of Financial Accounting
     Standards No. 128, Earnings Per Share, and is based on net income for the
     year, divided by the weighted average number of shares outstanding for the
     year. In accordance with the AICPA's SOP 93-6, unallocated ESOP shares were
     deducted from outstanding shares used in the computation of earnings per
     share. Diluted earnings per share includes the effect of dilutive common
     stock equivalents in the weighted average number of shares outstanding.
(3)  Nonperforming assets include mortgage loans and consumer loans 90 days or
     more delinquent and real estate acquired in settlement of loans. Non
     performing loans include nonaccrual loans and accruing loans past due 90
     days or more.
(4)  "Loans receivable, net," represents gross loans less net deferred loan
     fees, undisbursed loan funds and allowance for loan losses.
(5)  Ratios other than period-end ratios are based on monthly balances.
     Management does not believe the use of month-end balances has caused a
     material difference in the information provided.
(6)  The dividend payout ratio represents dividends per share, including the
     return of capital dividend, as a percent of basic earnings per share.

                                       3
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND OPERATING RESULTS

     The following discussion and analysis of financial condition and the
results of operations is intended to assist in understanding the financial
condition and changes therein and results of operations of the Company. This
discussion and analysis is intended to compliment, and should be read in
conjunction with, the audited financial statements of the Company and related
notes appearing elsewhere in this annual report to stockholders.

Description of Business

     Coddle Creek Financial Corp. (the "Company") was incorporated under laws of
the State of North Carolina for the purpose of becoming the bank holding company
of Mooresville Savings Bank, Inc. S.S.B. (the "Bank," or "Mooresville Savings")
in connection with the Bank's conversion from a state chartered mutual savings
bank to a state chartered stock savings bank (the "Conversion"), pursuant to the
Plan of Holding Company Conversion of Moorseville Savings Bank, Inc. S.S.B. (the
"Plan of Conversion"). The Company was organized to acquire all of the common
stock of Mooresville Savings upon its conversion to stock form. A subscription
and community offering of the Company's shares closed on December 30, 1997, at
which time the Company acquired all of the shares of the Bank and commenced
operations.

     In accordance with the Plan of Conversion, the Company issued 674,475
shares of common stock at the price of $50 per share which resulted in proceeds
of $32,494,000, net of conversion costs. The Company transferred $14,134,000 of
the net proceeds to Mooresville Savings for the purchase of all of the capital
stock of the Bank.

     The Company has no operations and conducts no business of its own other
than owning Mooresville Savings, investing its portion of the net proceeds
received in the Conversion, and lending funds to the Employee Stock Ownership
Plan (the "ESOP") which was formed in connection with the Conversion. The
principal business of the Bank is accepting deposits from the general public and
using those deposits and other sources of funds to make loans secured by real
estate and other forms of collateral located in the Bank's primary market area
of northern Mecklenburg and southern Iredell counties of North Carolina.

     Mooresville Savings' results of operations depend primarily on its net
interest income, which is the difference between interest income from
interest-earning assets and interest expense on interest-bearing liabilities.
The Bank's operations are also affected by noninterest income, such as
miscellaneous income from loans, customer deposit account service charges, and
other sources of revenue. The Bank's principal operating expenses, aside from
interest expense, consist of compensation and associated benefits, federal
deposit insurance premiums, occupancy costs, and other general and
administrative expenses.

     The Company did not commence operations until December 30, 1997; therefore,
the consolidated entity did not have any operations for the year ended December
31, 1997. The following discussion and analysis contains consolidated financial
results for the years ended December 31, 1999 and 1998 and the financial results
for Mooresville Savings for the year ended December 31, 1997. Because the
Company had no operations and conducted no business other than as described
above prior to December 31, 1997, the "Management's Discussion and Analysis"
concerns primarily the business of the Bank for 1997. However, for ease of
reading and because the financial statements are presented on a consolidated
basis, the Company and the Bank are collectively referred to herein as the
"Company" unless otherwise noted.

                                       4
<PAGE>

Comparison of Financial Condition at December 31, 1999, 1998 and 1997

     Total assets of the Company amounted to $143.9 million, $135.8 million, and
$149.6 million at December 31, 1999, 1998 and 1997 respectively. The increase
during 1999 is attributable increased loan demand, which was funded by
short-term borrowings and an increase in deposits. The decrease from December
31, 1997 to December 31, 1998 was primarily due to the Company returning cash
deposits to potential investors who did not receive stock in the Conversion due
to an oversubscription of the shares offered.

     The principal category of earnings assets is loans receivable, which
amounted to $124.9 million $110.6 million, and $102.0 million at December 31,
1999, 1998 and 1997, respectively. The Bank was able to increase the size of its
loan portfolio during 1999 and 1998 primarily through its marketing efforts in
the origination of permanent residential 1-4 family mortgages, residential
construction and home equity loans. All other categories of the Bank's loan
portfolio have remained fairly constant from 1997 to 1999. Loan originations for
the year ended December 31, 1999 totaled $44.3 million, other net changes
totaled $0.2 million, while loan principal repayments totaled $30.2 million as
the loan portfolio increased by $14.3 million. Loan originations for the year
ended December 31, 1998 totaled $51.3 million, other net changes totaled $0.1
million, while principal repayments totaled $42.8 million for a net increase in
the loan portfolio of $8.6 million over 1997. Management believes that its
marketing efforts, competitive rates and contacts within its community
contributed to the increased loan demand. The Bank maintains underwriting and
credit standards designed to maintain the quality of the loan portfolio.
Nonperforming loans at December 31, 1999, 1998 and 1997 totaled $1,382,000,
$1,386,000, and $1,449,000, respectively, and were 1.06%, 1.20%, and 1.36% of
total loans, respectively.

     In addition to loans, the Company invests in U. S. Treasury, Government and
federal agency, municipal and equity securities. Management does not engage in
the practice of trading securities, rather, the Company's investment portfolio
consists of securities designated as available for sale or held to maturity.
Investment securities, including interest-bearing deposits, at December 31,
1999, 1998 and 1997 totaled $12.7 million, $20.5 million, and $43.4 million,
respectively. The securities portfolio decreased by $7.8 million for the year
ended December 31, 1999 from December 31, 1998 as maturing securities were used
to fund loan growth. The securities portfolio decreased by $22.9 million for the
year ended December 31, 1998 from December 31, 1997 as cash held in
interest-bearing deposits was returned to investors due to the oversubscription
in connection with the Conversion.

     Savings deposits amounted to $90.6 million at December 31, 1999, an
increase of $3.0 million from $87.6 million at December 31, 1998, due to an
increase in transaction accounts with competitive interest rates. At December
31, 1998, deposits decreased by $11.8 million from $99.4 million at December 31,
1997, which was attributed to the return of deposits by the Bank in 1998 due to
the oversubscription of the stock offering. The Bank has focused its marketing
efforts on building depositor relationships and setting its deposit rates in the
local market to compete favorably with rates offered by competitors.

                                       5
<PAGE>

     Stockholders' equity decreased by $10.7 million during 1999 due to paying a
special return of capital dividend totaling $11.7 million and the adoption of
the Management Recognition Plan ("MRP"), offset by net income of $1.4 million.
Stockholders' equity decreased by $1.9 million during 1998 due to the full
funding of the $4.2 million note receivable to the ESOP, offset by net income of
$2.2 million. The unrealized gain (loss) on securities available for sale, net
of tax, amounted to $(21,000), $46,000 and $25,000 at December 31, 1999, 1998
and 1997, respectively.

Market Risk

     The Company's net income is dependent on its net interest income. Net
interest income is susceptible to interest rate risk to the degree that
interest-bearing liabilities mature or reprice on a different basis than
interest-earning assets. When interest-bearing liabilities mature or reprice
more quickly than interest-earning assets in a given period, a significant
increase in market rates of interest could adversely affect net income.
Similarly, when interest-earning assets mature or reprice more quickly than
interest-bearing liabilities, falling interest rates could result in a decrease
in net income.

     In an attempt to manage its exposure to changes in interest rates,
management monitors the Company's interest rate risk. Management meets on a
regular basis to review the Company's interest rate risk position and
profitability and to recommend adjustments for consideration by the Board of
Directors. Management also reviews the Company's securities portfolio,
formulates investment strategies, and oversees the timing and implementation of
transactions to assure attainment of the Board's objectives in the most
effective manner. Notwithstanding the Company's interest rate risk management
activities, the potential for changing interest rates is an uncertainty that can
have adverse effect on net income.

     When adjusting the Company's asset/liability position, the Board and
management attempt to manage the Company's interest rate risk while enhancing
net interest margins. At times, depending on the level of general interest
rates, the relationship between long and short term interest rates, market
conditions and competitive factors, the Board and management may determine to
increase the Company's interest rate risk position somewhat in order to increase
its net interest margin. The Company's results of operations and net portfolio
values remain vulnerable to increases in interest rates and to fluctuations in
the difference between long-and short-term interest rates.

     Consistent with the asset/liability management philosophy set forth above,
the Company has taken several steps to manage its market rate risk. In order to
mitigate and manage interest rate risk, the Company has adopted the following
policies: (i) investing its excess liquidity in shorter term or adjustable rate
instruments with maturities or repricing periods of three years or less; (ii)
promoting mortgage loans with ten-year balloons, or 15 year amortizations; (iii)
promoting adjustable rate equity line of credit loans; (iv) promoting longer
term certificates of deposit; (v) increasing the level of interest-earning
assets relative to interest-bearing liabilities; and (vi) maintaining a
relatively low level of operating expenses and non-earning assets.

     The following tables provide further information about the Company's
financial instruments that are sensitive to changes in interest rates.

                                       6
<PAGE>

<TABLE>
<CAPTION>

                                                                          December 31, 1999
                                                                        Loans Receivable (A)
                                                                       Expected Maturity Date
                                                                      Years Ending December 31,
                                 ---------------------------------------------------------------------------------------------------
                                                                                                                            Fair
                                   2000        2001        2002         2003         2004      Thereafter       Total       Value
                                                                      (Dollars In Thousands)
<S>                              <C>          <C>         <C>          <C>          <C>        <C>             <C>          <C>
Fixed Rate                       $ 4,150      $4,106      $3,990       $4,089       $3,689       $78,884       $98,908      $97,756
  Average interest rate             9.25 %     10.47 %     10.14 %       8.41 %       7.92 %        7.48 %
Variable Rate                    $26,853      $    -      $    -       $    -       $    -       $     -       $26,853      $26,853
  Average interest rate             8.88 %         - %         - %          - %          - %           - %

<CAPTION>
                                                                    Investment Securities (B)
                                                                      Expected Maturity Date
                                                                    Years Ending December 31,
                                 ---------------------------------------------------------------------------------------------------
                                                                                                                            Fair
                                   2000        2001        2002         2003         2004      Thereafter       Total       Value
                                                                      (Dollars In Thousands)
<S>                              <C>          <C>         <C>          <C>          <C>        <C>             <C>          <C>
Interest-bearing cash            $ 6,912      $    -      $    -       $    -       $    -       $     -       $ 6,912      $ 6,912
  Average interest rate             4.25 %         - %         - %          - %          - %           - %
Certificates of deposit          $   100      $    -      $    -       $    -       $    -       $     -       $   100      $   100
  Average interest rate             5.31 %         - %         - %          - %          - %           - %
Securities available for sale    $   873      $  509      $  843       $  876       $    -       $   313       $ 3,414      $ 3,414
  Average interest rate             4.29 %      7.75 %      5.34 %       6.02 %          - %        6.25 %
Securities held to maturity      $     -      $    -      $  150       $    -       $    -       $ 1,031       $ 1,181      $ 1,157
  Average interest rate                - %         - %      4.80 %          - %          - %        4.62 %
Nonmarketable equity securities  $     -      $    -      $    -       $    -       $    -       $ 1,060       $ 1,060      $ 1,060
  Average interest rate                - %         - %         - %          - %          - %        7.75 %

<CAPTION>
                                                                   Expected Maturity Date (C)
                                                                    Years Ending December 31,
                                 ---------------------------------------------------------------------------------------------------
                                                                                                                            Fair
                                   2000        2001        2002         2003         2004      Thereafter       Total       Value
                                                                      (Dollars In Thousands)
<S>                              <C>          <C>         <C>          <C>          <C>        <C>             <C>          <C>
Deposits                         $74,291      $10,382     $1,504       $1,101       $1,303       $     -       $88,581      $85,698
  Average interest rate             4.43 %       5.32 %     5.27 %       5.30 %       5.11 %           - %
Note payable and FHLB advances   $ 5,000      $10,500     $    -       $    -       $    -       $     -       $15,500      $15,500
  Average interest rate             6.24 %       7.25 %        - %          - %          - %           - %
</TABLE>

(A) For loans receivable the table presents expected principal cash flows by
fixed and adjustable rate. The table includes contractual maturities including
scheduled principal repayments but excluding estimated prepayments for fixed
rate loans. Loans which have adjustable rates are shown as being due in the
period during which rates are next subject to change. The table presents fair
values at December 31, 1999 and weighted average interest rates by maturity
dates.
(B) For investment securities, including securities available for sale,
securities held to maturity, and nonmarketable equity securities, the table
presents contractual maturities. Interest-bearing cash is a due on demand
financial instrument and is presented as due in the one year category.
Nonmarketable equity securities have no contractual maturity and are placed in
the longest expected maturity date. The table presents fair values for
securities available for sale and amortized costs for all other investment
securities at December 31, 1999 and weighted average interest rates by maturity
dates.
(C) For deposits the table presents principal cash flows and weighted average
interest rates by contractual maturity dates.

                                       7
<PAGE>

<TABLE>
<CAPTION>

                                                                        December 31, 1998
                                                                       Loans Receivable (A)
                                                                      Expected Maturity Date
                                                                    Years Ending December 31,
                                 ---------------------------------------------------------------------------------------------------
                                                                                                                            Fair
                                   1999        2000        2001         2002         2003      Thereafter       Total       Value
                                                                      (Dollars In Thousands)
<S>                              <C>          <C>         <C>          <C>          <C>        <C>             <C>          <C>
Fixed Rate                       $ 2,129      $ 3,768     $3,770       $3,893       $3,791       $66,416       $83,767      $88,540
        Average interest rate       9.28 %       9.84 %    10.51 %       8.87 %       8.30 %        7.60 %
Variable Rate                    $27,706      $     -     $    -       $    -       $    -       $     -       $27,706      $27,706
      Average interest rate         8.17 %          - %        - %          - %          - %           - %

<CAPTION>
                                                                    Investment Securities (B)
                                                                      Expected Maturity Date
                                                                     Year Ending December 31,
                                 ---------------------------------------------------------------------------------------------------
                                                                                                                            Fair
                                   1999        2000        2001         2002         2003      Thereafter       Total       Value
                                                                      (Dollars In Thousands)
<S>                              <C>          <C>         <C>          <C>          <C>        <C>             <C>          <C>
Interest-bearing cash            $ 7,806      $     -     $    -       $    -       $    -       $     -       $ 7,806      $ 7,806
     Average interest rate          4.90 %          - %        - %          - %          - %           - %
Certificates of deposit          $   100      $     -     $    -       $    -       $    -       $     -       $   100      $   100
    Average interest rate           5.85 %          - %        - %          - %          - %           - %
Securities available for sale    $ 5,689      $   750     $1,390       $1,056       $1,036       $   323       $10,244      $10,244
     Average interest rate          5.55 %       5.73 %     6.79 %       5.71 %       5.80 %        6.25 %
Securities held to maturity      $   202      $     -     $    -       $  150       $    -       $ 1,029       $ 1,381      $ 1,430
     Average interest rate          5.99 %          - %        - %       4.80 %          - %        4.62 %
Nonmarketable equity securities  $     -      $     -     $    -       $    -       $    -       $   964       $   964      $   964
     Average interest rate             - %          - %        - %          - %          - %        7.50 %

<CAPTION>
                                                                    Expected Maturity Date (C)
                                                                     Years Ending December 31,
                                 ---------------------------------------------------------------------------------------------------
                                                                                                                            Fair
                                   1999        2000        2001         2002         2003      Thereafter       Total       Value
                                                                      (Dollars In Thousands)
<S>                              <C>          <C>         <C>          <C>          <C>        <C>             <C>          <C>
Deposits                         $62,336      $18,211     $2,206       $  773       $1,236       $    18       $84,780      $82,499
     Average interest rate          4.23 %       6.00 %     5.37 %       5.48 %       5.31 %        6.66 %

</TABLE>

(A) For loans receivable the table presents expected principal cash flows by
fixed and adjustable rate. The table includes contractual maturities including
scheduled principal repayments but excluding estimated prepayments for fixed
rate loans. Loans which have adjustable rates are shown as being due in the
period during which rates are next subject to change. The table presents fair
values at December 31, 1998 and weighted average interest rates by maturity
dates.
(B) For investment securities, including securities available for sale,
securities held to maturity, and nonmarketable equity securities, the table
presents contractual maturities. Interest-bearing cash is a due on demand
financial instrument and is presented as due in the one year category.
Nonmarketable equity securities have no contractual maturity and are placed in
the longest expected maturity date. The table presents fair values for
securities available for sale and amortized costs for all other investment
securities at December 31, 1998 and weighted average interest rates by maturity
dates.
(C) For deposits the table presents principal cash flows and weighted average
interest rates by contractual maturity dates.

                                       8
<PAGE>

Comparison of Operating Results for the Years Ended December 31, 1999, 1998, and
1997

     Net Income. Net income for the years ended December 31, 1999, 1998, and
1997 amounted to $1.4 million, $2.2 million, and $667,000, respectively. Net
income decreased in 1999 primarily due to expenses associated with the adoption
of the MRP, as discussed below. Net income increased in 1998 primarily due to an
increase in interest income as proceeds received in the Conversion were invested
in securities and funded loan growth.

     Net Interest Income. Net interest income amounted to $6.0 million, $6.2
million, and $4.2 million during the years ended December 31, 1999, 1998, and
1997, respectively. The average outstanding balance of interest-earning assets
in excess of interest-bearing liabilities amounted to $44.7 million, $44.8
million, and $18.2 million during 1999, 1998 and 1997, respectively. The Bank's
interest rate spread increased from 2.87% in 1997 to 3.11% in 1998, but
decreased to 2.89% in 1999. The decrease in the interest rate spread in 1999 was
due to a decrease in the average yield on interest-earning assets, offset by a
lesser decrease in the cost of funds. The average balances of interest-earning
assets over interest-bearing liabilities remained constant from 1998 to 1999.
The increase in the interest rate spread in 1998 was due to the decrease in the
Bank's cost of funds. The average yield on interest-bearing liabilities dropped
from 5.06% in 1997 to 4.69% in 1998. The 24 basis point increase in interest
rate spread in 1998, coupled with a $26.6 million increase in net average
balances of interest-earning assets over interest-bearing liabilities, increased
net interest income by $2.0 million.

     Interest Income. Interest income amounted to $10.2 million, $10.3 million,
and $9.0 million for the years ended December 31, 1999, 1998, and 1997,
respectively. The Company's average yield on interest-earning assets decreased
from 7.93% in 1997 to 7.80% in 1998 and 7.45% in 1999. The primary
interest-earning asset is loans receivable, which experienced a decrease in
average yield of 51 and 6 basis points during 1999 and 1998, respectively.
However, the average outstanding loan balance increased from $100.5 million in
1997 to $108.3 million in 1998, and to $120.9 million in 1999. The other
significant interest-earning asset is investment securities, for which the
average outstanding balance increased from $7.9 million in 1997 to $14.3 million
in 1998, and then decreased to $6.8 million in 1999. The increase in loan
volume, offset by a decrease in investment securities volume, resulted in a
stable total interest income in 1999 and 1998.

     Interest Expense. Interest expense amounted to $4.2 million, $4.1 million,
and $4.8 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The modest increase in interest expense in 1999 is due to
increases in the average outstanding balances of interest-bearing liabilities,
including short-term borrowings, offset by a 13 basis point decrease in the cost
of funds. The $7.9 million decrease in the average outstanding balance of
interest-bearing liabilities, coupled with the 37 basis point decrease in the
Bank's cost of funds from 5.06% in 1997 to 4.69% in 1998, is the primary reason
for the $724,000 decrease in interest expense in 1998.

                                       9
<PAGE>

Net Interest Income

Net interest income represents the difference between income derived from
interest-earning assets and interest expense incurred on interest-bearing
liabilities. Net interest income is affected by both (i) the difference between
the rates of interest earned on interest-earning assets and the rates paid on
interest-bearing liabilities ("interest rate spread") and (ii) the relative
amounts of interest-earning assets and interest bearing liabilities ("net
earning balance"). The following table sets forth information relating to
average balances of the Company's assets and liabilities for the years ended
December 31, 1999, 1998 and 1997. For the periods indicated, the table reflects
the average yield on interest-earning assets and the average cost of
interest-bearing liabilities (derived by dividing income or expense by the
monthly average balance of interest-earning assets or interest-bearing
liabilities, respectively) as well as the net yield on interest-earning assets
(which reflects the impact of the net earnings balance). Management does not
believe the use of month-end balances has caused a material difference in the
information provided.

<TABLE>
<CAPTION>

                                                     At December 31,                For the Year Ended December 31,
                                                          1999                   1999                            1998
                                                    --------------------------------------------------------------------------------
                                                     Average Yield/   Average               Average    Average             Average
                                                          Rate        Balance  Interest   Yield/Rate   Balance  Interest  Yield/Rate
                                                    --------------------------------------------------------------------------------
                                                                                     (Dollars in Thousands)
<S>                                                  <C>             <C>       <C>        <C>         <C>       <C>       <C>
Interest-earning assets:
  Interest-bearing deposits                               4.25%      $  9,007  $    430      4.77%    $  9,646  $    476     4.93%
  Investments (1)                                         4.96%         6,756       389      5.76%      14,310       896     6.26%
  Loans receivable, net (4)                               7.71%       120,908     9,369      7.75%     108,255     8,944     8.26%
                                                                     --------  --------               --------  --------
  Total interest-earning assets                           7.35%       136,671    10,188      7.45%     132,211    10,316     7.80%
                                                                               --------                         --------
Other assets                                                            2,622                            3,487
                                                                     --------                         --------
    Total assets                                                     $139,293                         $135,698
                                                                     ========                         ========

Interest-bearing liabilities:
  NOW and Money market                                    3.41%      $ 18,840  $    544      2.89%    $ 13,858  $    329     2.37%
  Passbook accounts                                       2.47%        10,495       251      2.47%      11,192       298     2.66%
  Certificates of deposit                                 5.31%        59,440     3,192      5.37%       6,232     3,469     5.56%
  Note payable and FHLB advances                          6.92%         3,167       208      6.57%           -         -        -
                                                                     --------  --------               --------  --------
Total interest-bearing liabilities                        4.65%        91,942     4,195      4.56%      87,372     4,096     4.69%
                                                                               --------                         --------
Other liabilities                                                       6,607                            4,097
Stockholders' equity                                                   40,744                           44,229
                                                                     --------                         --------
    Total liabilities and stockholders' equity                       $139,293                         $135,698
                                                                     ========                         ========
Net interest income and interest rate spread (2)          2.69%                $  5,993      2.89%              $  6,220     3.11%
                                                                               ========                         ========
Net yield on interest-earning assets (3)                                                     4.38%                           4.70%
Ratio of average interest-earning assets to average
  interest-earning liabilities interest-bearing
   liabilities                                                         148.65%                         151.32%
</TABLE>

(1) Includes investment securities and FHLB stock.
(2) Interest rate spread represents the difference between the average yield on
    interest-earning assets and the average cost of interest-bearing
    liabilities.
(3) Net yield on interest-earning assets represents net interest income divided
    by average interest-earning assets.
(4) Loans placed on nonaccruing status have been included in the computation of
    average balances.

                                      10
<PAGE>

Rate/Volume Analysis

The following table analyzes the dollar amount of changes in interest income and
interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between (i) changes
attributable to volume (changes in volume multiplied by the prior period's
rate), (ii) changes attributable to rates (changes in rate multiplied by the
prior period's volume), and (iii) changes in rate/volume (change in rate
multiplied the change in volume).

<TABLE>
<CAPTION>

                                            Year Ended December 31,                     Year Ended December 31,
                                                1999 vs. 1998                               1998 vs. 1997
                                           Increase (Decrease) Due to                 Increase (Decrease) Due to
                                   ------------------------------------------------------------------------------------
                                                          Rate/                                       Rate/
                                    Volume      Rate      Volume       Net      Volume      Rate      Volume      Net
                                   --------    ------    --------     -----    --------    ------    --------    -----
                                                                       (In Thousands)
<S>                               <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Interest income:
   Interest-bearing deposits       $   (31)   $   (15)   $     -    $   (46)   $   137    $    99    $    92    $   328
   Investments                        (473)       (72)        38       (507)       394         11          9        414
   Loans receivable                  1,045       (553)       (67)       425        645        (60)        (8)       577
                                   ------------------------------------------------------------------------------------
         Total interest income     $   541    $  (640)   $   (29)   $  (128)   $ 1,176    $    50    $    93    $ 1,319
                                   ------------------------------------------------------------------------------------

Interest expense:
   NOW and money market
     accounts                      $   118    $    72    $    25    $   215    $    44    $    38    $     6    $    88
   Passbook accounts                   (19)       (30)         2        (47)       (16)       (91)         4       (103)
   Certificates of deposit            (160)      (119)         2       (277)      (482)      (148)        18       (612)
   Note payable and FHLB advances      208          -          -        208        (97)         -          -        (97)
                                   ------------------------------------------------------------------------------------
         Total interest income     $   147    $   (77)   $    29    $    99    $  (551)   $  (201)   $    28    $  (724)
                                   ------------------------------------------------------------------------------------

Net Interest Income                $   394    $  (563)   $   (58)   $  (227)   $ 1,727    $   251    $    65    $ 2,043
                                   ====================================================================================
</TABLE>


                                      11
<PAGE>

     Provision for Loan Losses and Asset Quality. The Bank's provision for loan
losses amounted to $-0-, $205,000, and $335,000 in 1999, 1998 and 1997. The
provision, which is charged to operations, and the resulting loan loss
allowances are amounts Mooresville Savings' management believes will be adequate
to absorb potential losses on existing loans that may become uncollectible.
Loans are charged off against the allowance when management believes that
collectibility is unlikely. The evaluation to increase or decrease the provision
and resulting allowances is based on prior loan loss experience and other
factors, such as changes in the nature and volume of the loan portfolio, overall
portfolio quality, and current economic conditions. During the years ended
December 31, 1998 and 1997, management determined that its allowance for loan
losses should be increased to more closely reflect the credit risk inherent in
the loan portfolio resulting from the increase in the number of mortgage loans
collateralized by lakefront properties. These loans are inherently riskier,
because they are often the borrower's second residence. The Bank has adopted
policies to monitor, and increase when necessary, levels of loan loss
allowances. At December 31, 1999, the Bank's level of general valuation
allowances for loan losses amounted to $898,000 which management believes is
adequate to absorb potential losses in its loan portfolio.

     The Bank's level of nonperforming loans, defined as nonaccrual loans and
accruing loans past due 90 days or more, has historically been low as a
percentage of total loans outstanding. Loans outstanding which were delinquent
more than 90 days were approximately $1.4 million at December 31, 1999 and
December 31, 1998. Real estate acquired in settlement of loans amounted to
$65,000 and $-0- at December 31, 1999 and 1998, respectively.

     Noninterest Income. Noninterest income amounted to $217,000, $185,000, and
$192,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Noninterest income consists primarily of service charges and fees associated
with the Bank's checking accounts.

     Noninterest Expense. Noninterest expense consists primarily of operating
expenses for compensation and employee benefits, occupancy, federal deposit
insurance premiums, data processing charges and other operating expenses.
Noninterest expense amounted to $4.0 million for the year ended December 31,
1999, and $3.0 million for each of the years ended December 31, 1998 and 1997.
Compensation and employee benefits increased by $1.0 million in 1999 due to the
adoption and vesting of the MRP. The MRP reserved for issuance 26,979 shares of
common stock to certain officers, directors, and employees. The Company issued
shares to fund the MRP on January 26, 1999, and the restricted common stock
under the MRP vests at the rate of 25% annually beginning at the date of grant.
The expense related to the vesting of the MRP totaled $1.1 million for the year
ended December 31, 1999. Compensation and employee benefits decreased by
$158,000 during 1998, primarily due to recording a $275,000 charge to
compensation expense in 1997 as a result of the termination of the Bank's
defined benefit pension plan. All other expenses changed nominally during the
years ended December 31, 1999, 1998 and 1997.

     Income Taxes. The Company's effective income tax rate was 37.1%, 32.0%, and
35.9% for the years ended December 31, 1999, 1998 and 1997, respectively. The
lower effective income rates for 1998 was due to permanent differences of
nontaxable interest income. The effective rates for 1999 and 1997 reflects
normal expected rates on taxable income.

                                      12
<PAGE>

Capital Resources and Liquidity

     The objective of the Bank's liquidity management is to ensure the
availability of sufficient cash flows to meet all of its financial commitments.
Liquidity management addresses the Bank's ability to meet deposit withdrawals
either on demand or at contractual maturity, to repay borrowings, if any, as
they mature and to originate new loans and make investments as opportunities
arise.

     Significant liquidity sources for the Bank are proceeds from the sale of
stock, cash provided by new savings deposits, operating activities, sale or
maturity of investments, principal and interest payments on loans receivable and
advances from the Federal Home Loan Bank ("FHLB"). Advances from the FHLB have
not historically been a primary source of liquidity for the Bank.

     Operating activities provided $2.0 million, $1.9 million, and $819,000 for
the years ended December 31, 1999, 1998 and 1997, respectively. Historically, in
addition to cash provided by operating activities, financing activities have
provided the Bank with sources of funds for asset growth and liquidity.
Financing activities provided $5.4 million and $36.1 million for the years ended
December 31, 1999 and 1997, respectively. The large increase in 1997 was due to
$32.5 million in net proceeds received from the issuance of common stock in
connection with the Conversion. For the year ended December 31, 1998, $12.2
million was used in financing activities, primarily due to the return of excess
deposits from the Conversion and cash dividends paid.

     Cash provided by operating and financing activities is used by the Bank to
originate new loans to customers, to maintain investment portfolios and to meet
liquidity requirements. During 1999, 1998 and 1997, loans outstanding increased
$14.3 million, $8.6 million and $4.0 million, respectively.

     As a state chartered savings bank, Mooresville Savings must meet certain
liquidity requirements which are established by the Administrator of the North
Carolina Savings Institutions Division. The Bank's liquidity ratio at December
31, 1999, as computed under such regulations, was in excess of such
requirements. Given its excess liquidity and its ability to borrow from the
FHLB, the Bank believes that it will have sufficient funds available to meet
anticipated future loan commitments, unexpected deposit withdrawals, or other
cash requirements.

Asset/Liability Management

     The Bank's asset/liability management, or interest rate risk management, is
focused primarily on evaluating and managing the Bank's net interest income
given various risk criteria. Factors beyond the Bank's control, such as the
effects of changes in market interest rates and competition, may also have an
impact on the management of interest rate risk.

     In the absence of other factors, the Bank's overall yield on
interest-earning assets will increase as will its cost of funds on its
interest-bearing liabilities when market rates increase over an extended period
of time. Inversely, the Bank's yields and cost of funds will decrease when
market rates decline. The Bank is able to manage these swings to some extent by
attempting to control the maturity or rate adjustments of its interest-earning
assets and interest-bearing liabilities over given periods of time.

                                      13
<PAGE>

     The Bank's "gap" is typically described as the difference between the
amounts of such assets and liabilities which reprice within a period of time. In
a declining interest rate environment, a negative gap, or a situation where the
Bank's interest-bearing liabilities subject to repricing exceed the level of
interest-earning assets which will mature or reprice during the same period,
will have a favorable impact on the Bank's net interest income. Conversely, an
increase in general market rates over a sustained period of time will tend to
affect the Bank's net interest income adversely under circumstances when the
Bank has a negative gap. At December 31, 1999, the Bank had a negative gap
position of 29.19% as it reinvested its large interest-bearing cash balances
into long-term investments and loans which will be adversely impacted during
prolonged periods of rising interest rates and positively affected during
prolonged periods of interest rate declines. The Bank's asset/liability
management program has generally helped to decrease the exposure of its earnings
to interest rate increases

     In order to minimize the potential effects of adverse material and
prolonged increases or decreases in market interest rates on the Bank's
operations, management has implemented an asset/liability program designed to
stabilize the Bank's interest rate gap. The program emphasizes the investment of
excess cash in (i) short or intermediate term interest-earning assets, (ii) the
solicitation of transaction deposit accounts which are less sensitive to changes
in interest rates and can be repriced rapidly, and (iii) to a lesser extent, the
origination of adjustable rate mortgage loans.

     In addition to shortening the average repricing period of its assets, the
Bank has sought to be price rate competitive in the marketplace on its maturing
certificates of deposit to encourage depositors to reinvest in certificates with
the Bank. The Bank has approximately $44.5 million in certificates maturing in
2000 and management believes that substantially all of the maturing certificates
will be renewed.

     The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1999, which are
projected to reprice or mature in each of the future time periods shown. The
computations were made without using assumptions for loan prepayments or deposit
decline. Except as stated below, the amounts of assets and liabilities shown
which reprice or mature within a given period were determined in accordance with
contractual terms of the assets or liabilities. In making the computations, all
adjustable rate loans were considered to be due at the end of the next upcoming
adjustment period. Fixed rate loans are reflected at their contractual
maturities with consideration given to scheduled payments. Marketable equity
securities and savings accounts with no stated maturities are subject to
immediate repricing and availability and have been classified in the earliest
category. FHLB stock must be maintained at certain regulatory levels and is
classified in the more than ten years category. The interest rate sensitivity of
the Bank's assets and liabilities illustrated in the following table would vary
substantially if different assumptions were used or if actual experience differs
from that indicated by such assumptions.

                                      14
<PAGE>

<TABLE>
<CAPTION>
                                                                  Terms to Repricing at December 31, 1999
                                                     ------------------------------------------------------------------
                                                                   More than     More than
                                                       1 Year      1 Year to    3 Years to     More than
                                                      or Less       3 Years       5 Years       5 Years       Total
                                                     ------------------------------------------------------------------
                                                                          (Dollars in Thousands)
<S>                                                  <C>           <C>           <C>           <C>          <C>
Interest-earning assets (1):
  Loans Receivable (2):
    Adjustable rate residential 1-4 family           $ 12,194      $      -      $      -      $      -     $ 12,194
    Fixed rate residential 1-4 family                   2,580         7,680         7,379        74,835       92,474
    Other real estate loans - adjustable                8,633             -             -             -        8,633
    Other real estate loans fixed                          48           144           138         1,404        1,734
    Construction                                        6,026             -             -             -        6,026
    Other loans                                         1,522           272           261         2,645        4,700
                                                     ---------------------------------------------------------------
      Total loans                                      31,003         8,096         7,778        78,884      125,761
Interest-bearing deposits                               6,912             -             -             -        6,912
Investments                                               973         1,502           876         1,344        4,695
FHLB Stock                                                  -             -             -         1,060        1,060
                                                     ---------------------------------------------------------------
      Total interest-earning assets                  $ 38,888      $  9,598      $  8,654      $ 81,288     $138,428
                                                     ===============================================================
Interest-bearing liabilities:
  Deposits:
    Certificates of deposit                          $ 44,473      $ 11,886      $  2,404          $  -     $ 58,763
    Money market deposit accounts                      13,332             -             -             -       13,332
    NOW accounts                                        6,424             -             -             -        6,424
    Passbook savings                                   10,062             -             -             -       10,062
                                                     ---------------------------------------------------------------
      Total deposits                                   74,291        11,886         2,404             -       88,581
                                                     ---------------------------------------------------------------
Note payable and FHLB advances                          5,000        10,500             -             -       15,500
                                                     ---------------------------------------------------------------
Total interest-bearing liabilities                   $ 79,291      $ 22,386      $  2,404       $     -     $104,081
                                                     ===============================================================

Interest sensitivity gap per report                  $(40,403)     $(12,788)     $  6,250      $ 81,288     $ 34,347
Cumulative interest sensitivity gap
Cumulative gap as a percentage of                     (40,403)      (53,191)      (46,941)       34,347       34,347
  total interest-earning assets                        (29.19)%      (38.43)%      (33.91)%       24.81%       24.81%
Cumulative interest-earning assets
  as a percentage of interest-bearing liabilities       49.04%        47.69%        54.90%       133.00%      133.00%
</TABLE>

(1)  Interest-earning assets are included in the period in which the balances
     are expected to be redeployed and/or repriced as a result of anticipated
     prepayments, scheduled rate adjustments and contractual maturities.
(2)  Based upon amortization schedules of loan maturities using a weighted
     average interest rate for the entire loan portfolio.

                                      15
<PAGE>

Impact of Inflation and Changing Prices

     The financial statements and accompanying footnotes have been prepared in
accordance with generally accepted accounting principles ("GAAP"), which require
the measurement of financial position and operating results in terms of
historical dollars without consideration for changes in the relative purchasing
power of money over time due to inflation. The assets and liabilities of the
Company are primarily monetary in nature and changes in market interest rates
have a greater impact on its performance than the effects of inflation, which
has not had a significant impact on the Company during the years ended December
31, 1999, 1998 and 1997.

Impact of New Accounting Standards

     The FASB has issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, which the Company has not been required to adopt as of
December 31, 1999. This Statement, which is effective for fiscal years beginning
after June 15, 2000, establishes accounting and reporting standards for
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency- denominated forecasted
transaction. This Statement is not expected to have a significant impact on the
Company.

Recapture of Tax Bad Debt Reserves

     Prior to the enactment of the Small Business Job Protection Act of 1996
(the "1996 Act") on August 20, 1996, thrift institutions which met certain
definitional tests were permitted to establish tax reserves for bad debts and to
deduct annual additions to such reserves in arriving at taxable income. The Bank
was permitted to compute the annual bad debt deduction based upon an experience
method or a percentage equal to 8.0% of the Bank's taxable income before such
bad debt deduction (the "PTI Method"), subject to certain limitations. Under the
1996 Act, the PTI Method was repealed and the Bank is required to use the
experience method for computing its annual bad debt deduction for taxable years
beginning on or after December 31, 1995.

     The Bank will also have to recapture its excess tax bad debt reserves which
have accumulated since 1988, amounting to approximately $67,000, over a six year
period. The tax associated with the recaptured reserves is approximately
$26,000. The recapture was scheduled to begin with the Bank's 1996 year, but was
delayed two years because the Bank originated a required minimum level of
residential mortgage loans during 1996 and 1997. Deferred income taxes have been
previously established for the taxes associated with the recaptured reserves,
and the ultimate payment of the related taxes will not result in a charge to
earnings. The amount of reserves recaptured and associated tax were $11,000 and
$4,000, respectively, for each of the years ended December 31, 1999 and 1998.

                                      16
<PAGE>

Impact of the Year 2000

The Company's most critical external exposure to year 2000 system problems is
with its data processing provider, Fiserv, which has certified its systems as
year 2000 compliant. In addition, the Company has contacted its major customers
and vendors to inquire about their progress in addressing the year 2000 problem
and has noted no significant problems.

The year 2000 problems can affect the Company's operation in a number of ways
but the mission critical issue is maintaining customers' account information
including tracking deposits, interest accruals and loan payments. The Company is
dependent upon electricity, telephone lines, computer hardware and Fiserv's data
processing capability.

The Company is pleased to report that no significant year 2000 difficulties have
been encountered during the first part of 2000.

                                      17
<PAGE>

                      (This page intentionally left blank)


                                      18
<PAGE>

                    [LETTERHEAD OF MCGLADREY & PULLEN, LLP]


                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
Coddle Creek Financial Corp.
Mooresville, North Carolina

We have audited the accompanying consolidated statements of financial condition
of Coddle Creek Financial Corp. and subsidiary as of December 31, 1999 and 1998,
and the related consolidated statements of income and comprehensive income,
stockholders' equity, and cash flows for each of the years in the three year
period ended December 31, 1999. 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 audits.

We conducted our audits in accordance with generally accepted auditing
standards. These 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 Coddle Creek
Financial Corp. and subsidiary as of December 31, 1999 and 1998 and the results
of their operations and their cash flows for each of the years in the three year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.

                                       /s/ McGladry & Pullen, LLP


Charlotte, North Carolina
January 20, 2000

                                      19
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


CONSOLIDATED Statements of Financial Condition
December 31, 1999 and 1998

<TABLE>
<CAPTION>


ASSETS                                                                1999             1998
--------------------------------------------------------------------------------------------------
<S>                                                              <C>               <C>
Cash
  Interest-bearing deposits (Note 2)                             $   6,912,000     $   7,806,000
  Noninterest-bearing deposits                                       1,502,000           439,000
Certificates of deposit (Note 2)                                       100,000           100,000
Securities available for sale (Note 2)                               3,414,000        10,244,000
Securities held to maturity (Fair value 1999 $1,157000;
  1998 $1,430,000) (Note 2)                                          1,181,000         1,381,000
Federal Home Loan Bank stock (Notes 2 and 6)                         1,060,000           964,000
Loans receivable, net (Note 3)                                     124,863,000       110,578,000
Office properties and equipment, net (Note 4)                        1,112,000           999,000
Accrued interest receivable:
  Investment securities                                                 85,000           216,000
  Loans receivable                                                     740,000           692,000
Cash value of life insurance (Note 7)                                1,176,000         1,075,000
Real estate owned                                                       65,000                 -
Deferred income taxes (Note 9)                                       1,219,000         1,193,000
Income tax refund claim receivable                                     386,000            36,000
Prepaid expenses and other assets                                       52,000            88,000
                                                                 -------------------------------
     Total assets                                                $ 143,867,000     $ 135,811,000
                                                                 ===============================
</TABLE>

<TABLE>
<CAPTION>

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------
<S>                                                              <C>               <C>
Liabilities:
  Deposits (Note 5)                                              $  90,563,000     $  87,569,000
  Note payable (Note 6)                                             10,500,000                 -
  Federal Home Loan Bank advances (Note 6)                           5,000,000                 -
  Advances from borrowers for taxes and insurance                       76,000           110,000
  Accounts payable and other liabilities                               807,000           522,000
  Deferred compensation (Note 7)                                     2,476,000         2,491,000
                                                                 -------------------------------
     Total liabilities                                             109,422,000        90,692,000
                                                                 -------------------------------
Commitments (Notes 7 and 13)
Stockholders' Equity: (Notes 6 and 8)
  Preferred stock, authorized 5,000,000 shares; none issued                  -                 -
  Common stock, no par value, authorized 20,000,000 shares;
    issued 698,756 shares in 1999 and 674,475 shares in 1998                 -                 -
  Additional paid-in capital                                        23,057,000        32,461,000
  Accumulated other comprehensive income (loss) (Note 2)               (21,000)           46,000
  Unearned ESOP shares (Note 10)                                    (3,725,000)       (4,021,000)
  Management recognition plan (Note 11)                               (728,000)                -
  Unearned compensation (Note 10)                                     (839,000)                -
  Retained earnings, substantially restricted (Notes 8 and 9)       16,701,000        16,633,000
                                                                 -------------------------------
     Total stockholders' equity                                     34,445,000        45,119,000
                                                                 -------------------------------
     Total liabilities and stockholders' equity                  $ 143,867,000     $ 135,811,000
                                                                 ===============================
</TABLE>

See Notes to Consolidated Financial Statements.

                                      20
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                     1999               1998              1997
---------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                <C>               <C>
Interest income:
  Loans                                                          $  9,369,000       $  8,944,000      $  8,367,000
  Investment securities                                               389,000            896,000           482,000
  Other                                                               430,000            476,000           148,000
                                                                 ---------------------------------------------------
                                                                   10,188,000         10,316,000         8,997,000
                                                                 ---------------------------------------------------
Interest expense:
  Deposits (Note 5)                                                 3,987,000          4,096,000         4,723,000
  Federal Home Loan Bank advances and
    note payable (Note 6)                                             208,000                  -            97,000
                                                                 ---------------------------------------------------
                                                                    4,195,000          4,096,000         4,820,000
                                                                 ---------------------------------------------------
       Net interest income                                          5,993,000          6,220,000         4,177,000
Provision for loan losses (Note 3)                                          -            205,000           335,000
                                                                 ---------------------------------------------------
       Net interest income after
         provision for loan losses                                  5,993,000          6,015,000         3,842,000
                                                                 ---------------------------------------------------
Noninterest income                                                    217,000            185,000           192,000
                                                                 ---------------------------------------------------
Other expenses:
  Compensation and employee benefits (Note 7)                       2,992,000          1,973,000         2,131,000
  Net occupancy                                                       146,000            318,000           191,000
  Deposit insurance premiums                                           56,000             59,000            45,000
  Data processing                                                     202,000            186,000           168,000
  Other                                                               611,000            421,000           458,000
                                                                 ---------------------------------------------------
                                                                    4,007,000          2,957,000         2,993,000
                                                                 ---------------------------------------------------
       Income before income taxes                                   2,203,000          3,243,000         1,041,000
Income taxes (Note 9)                                                 817,000          1,039,000           374,000
                                                                 ---------------------------------------------------
Net income                                                          1,386,000          2,204,000           667,000
Other comprehensive income (loss), net of tax:
  Unrealized gains (loss) on securities, net
    of tax 1999 ($32,000); 1998 $10,000;
    1997 ($2,000) (Note 2)                                            (67,000)            21,000            (3,000)
                                                                 ---------------------------------------------------
       Comprehensive income                                      $  1,319,000       $  2,225,000      $    664,000
                                                                 ===================================================

Basic earnings per share (Note 12)                               $       2.20       $       3.54      $          -
                                                                 ===================================================
Diluted earnings per share (Note 12)                             $       2.20       $       3.54      $          -
                                                                 ===================================================
Regular dividends per share                                      $       2.05       $       1.00      $          -
                                                                 ===================================================
Return of capital dividend per share                             $      17.18       $          -      $          -
                                                                 ===================================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       21
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>

                                                                      Additional           Other                 Unearned
                                                                       Paid-in         Comprehensive               ESOP
                                                                       Capital          Income (Loss)             Shares
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                <C>                    <C>
Balance, December 31, 1996                                          $          -         $     28,000         $          -
  Net proceeds from issuance of
    common stock                                                      32,494,000
  Purchase of common stock by the ESOP                                         -                    -             (577,000)
  Net income                                                                   -                    -                    -
  Net change in unrealized gain on
    securities available for sale, net                                         -               (3,000)                   -
                                                                    --------------------------------------------------------
Balance, December 31, 1997                                            32,494,000               25,000             (577,000)
  Purchase of common stock by the ESOP                                         -                    -           (3,639,000)
  Principal payment received on note
    receivable from ESOP                                                       -                    -              195,000
  Cash dividends
  Net income
  ESOP contribution                                                      (33,000)                   -                    -
  Net change in unrealized gain on
    securities available for sale, net                                         -               21,000                    -
                                                                    --------------------------------------------------------
Balance, December 31, 1998                                            32,461,000               46,000           (4,021,000)
  Adoption of management recognition plan                              1,542,000                    -                    -
  Vesting of management recognition plan
  Principal payment received on note
    receivable from ESOP                                                       -                    -              296,000
  Cash dividends
  Return of capital dividend                                         (10,849,000)                   -                    -
  Amortization of unearned compensation
  Net income
  ESOP contribution                                                     (144,000)                   -                    -
  Tax benefit of ESOP contribution                                        47,000                    -                    -
  Net change in unrealized gain (loss) on
    securities available for sale, net                                         -              (67,000)                   -
                                                                    --------------------------------------------------------
Balance, December 31, 1999                                          $ 23,057,000         $    (21,000)        $ (3,725,000)
                                                                    ========================================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       22
<PAGE>

<TABLE>
<CAPTION>

                                          Retained
  Management                              Earnings,            Total
  Recognition         Unearned          Substantially       Stockholders'
     Plan           Compensation         Restricted            Equity
--------------------------------------------------------------------------
<S>                 <C>                 <C>                 <C>
$          -        $          -        $ 14,384,000        $ 14,412,000

           -                   -                   -          32,494,000
           -                   -                   -            (577,000)
           -                   -             667,000             667,000
           -                   -                   -              (3,000)
--------------------------------------------------------------------------
           -                   -          15,051,000          46,993,000
           -                   -                   -          (3,639,000)
           -                   -                   -             195,000
           -                   -            (622,000)           (622,000)
           -                   -           2,204,000           2,204,000
           -                   -                   -             (33,000)

           -                   -                   -              21,000
--------------------------------------------------------------------------
           -                   -          16,633,000          45,119,000
  (1,542,000)                  -                   -                   -
     814,000                   -                   -             814,000

           -                   -                   -             296,000
           -                   -          (1,318,000)         (1,318,000)
           -            (860,000)                  -         (11,709,000)
           -              21,000                   -              21,000
           -                   -           1,386,000           1,386,000
           -                   -                   -            (144,000)
           -                   -                   -              47,000

           -                   -                   -             (67,000)
--------------------------------------------------------------------------
$   (728,000)       $   (839,000)       $ 16,701,000        $ 34,445,000
==========================================================================
</TABLE>

                                       23
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>

                                                         1999              1998                1997
--------------------------------------------------------------------------------------------------------
<S>                                                  <C>                <C>                <C>
Cash Flows From Operating Activities
  Net income                                         $ 1,386,000        $ 2,204,000        $   667,000
  Adjustments to reconcile net income to net
    cash provided by operating
    activities:
    Provision for loan losses                                  -            205,000            335,000
    Provision for depreciation                           102,000             64,000             72,000
    Provision for deferred income taxes                    6,000           (195,000)          (293,000)
    ESOP contribution                                    (97,000)           (33,000)                 -
    Amortization of deferred loan fees                  (202,000)          (232,000)          (162,000)
    Loss on sale of real estate owned                          -             10,000                  -
    Vesting of management recognition plan               814,000                  -                  -
    Amortization of unearned compensation                 21,000                  -                  -
    Dividends on unvested management
      recognition plan shares                            295,000                  -                  -
    Changes in assets and liabilities:
      (Increase) decrease in:
        Interest receivable                               83,000           (153,000)           (41,000)
        Cash value of life insurance                    (101,000)          (104,000)          (133,000)
        Income tax refund claim receivable              (350,000)           (35,000)            41,000
        Prepaid expenses and other assets                 36,000            (55,000)            28,000
      Increase (decrease) in:
        Interest payable                                 (19,000)           (91,000)            27,000
        Accounts payable and other liabilities             7,000             95,000             13,000
        Deferred compensation                            (15,000)           221,000            265,000
                                                     ---------------------------------------------------
          Net cash provided by
            operating activities                     $ 1,966,000        $ 1,901,000        $   819,000
                                                     ===================================================
</TABLE>
                                  (Continued)

                                       24
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                               1999              1998              1997
-------------------------------------------------------------------------------------------------------------
<S>                                                        <C>               <C>               <C>
Cash Flows From Investing Activities
  Proceeds from maturities of
    certificates of deposit                                $    100,000      $    100,000      $    100,000
  Purchases of certificates of deposit                         (100,000)         (100,000)         (100,000)
  Purchases of securities available for sale                   (500,000)      (16,013,000)                -
  Proceeds from maturities of securities
    available for sale                                          723,100         8,854,000           900,000
  Proceeds from maturities of securities
    held to maturity                                            200,000         1,327,000         1,000,000
  Purchase of Federal Home Loan Bank stock                      (96,000)          (34,000)          (61,000)
  Originations and principal payments on
  loans receivable, net                                     (14,148,000)       (8,501,000)       (4,303,000)
  Loan to ESOP for purchase of common stock                           -        (4,216,000)                -
  Principal payment received on note receivable
    from ESOP                                                   296,000           195,000                 -
  Purchases of office properties and equipment                 (215,000)         (172,000)          (41,000)
  Proceeds from the sale of real estate owned                         -             3,000            18,000
                                                           --------------------------------------------------
      Net cash used in
        investing activities                                 (7,232,000)      (18,557,000)       (2,487,000)
                                                           --------------------------------------------------
Cash Flows From Financing Activities
  Net increase (decrease) in deposits                         3,013,000       (11,722,000)        5,570,000
  Proceeds from Federal Home
    Loan Bank advances                                        5,000,000                 -         4,000,000
  Payments on Federal Home
    Loan Bank advances                                                -                 -        (6,000,000)
  Proceeds from note payable                                 12,000,000                 -                 -
  Payments on note payable                                   (1,500,000)                -                 -
  Increase (decrease) in advances from
    borrowers for taxes and insurance                           (34,000)           (5,000)                -
  Cash dividends paid                                       (13,044,000)         (453,000)                -
  Net proceeds from issuance of common stock                          -                 -        32,494,000
                                                           --------------------------------------------------
      Net cash provided by (used in)
        financing activities                                  5,435,000       (12,170,000)       36,064,000
                                                           --------------------------------------------------
      Increase (decrease) in cash equivalents
        and cash equivalents                                    169,000       (28,826,000)       34,396,000
Cash and cash equivalents:
  Beginning                                                   8,245,000        37,071,000         2,675,000
                                                           --------------------------------------------------
  Ending                                                   $  8,414,000      $ (8,245,000)     $ 37,071,000
                                                           ==================================================
</TABLE>

                                   (Continued)

                                       25
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                          1999              1998            1997
-------------------------------------------------------------------------------------------------------
<S>                                                   <C>               <C>              <C>
Supplemental Schedule of Cash and
  Cash Equivalents
    Interest-bearing                                  $  6,912,000      $  7,806,000     $ 36,649,000
    Noninterest-bearing                                  1,502,000           439,000          422,000
                                                      -------------------------------------------------
                                                      $  8,414,000      $  8,245,000     $ 37,071,000
                                                      =================================================
Supplemental Schedule of
  Cash Flow Information
  Cash payments for:
    Interest                                          $  4,214,000      $  4,187,000     $  4,793,000
    Income taxes                                         1,161,000         1,269,000          624,000
Supplemental Disclosures of Noncash
  Transactions
  Change in unrealized gain (loss) on
    available for sale securities, net of
    deferred taxes                                         (67,000)           21,000           (3,000)
  Real estate acquired in the settlement of loans           65,000            12,000           99,000
  Loan to ESOP for purchase of stock                             -                 -          577,000
  Account payable to ESOP                                        -                 -         (577,000)
  Loans originated to finance the sale of real
    estate acquired in the settlement of loans                   -            80,000                -
  Change in dividends accrued                              278,000           169,000                -
  Adoption of management recognition plan                1,542,000                 -                -
</TABLE>

See Notes to Consolidated Financial Statements.

                                       26
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 1. Nature of Business and Summary of Significant Accounting Policies

Conversion and organization of holding company: On December 30, 1997, pursuant
----------------------------------------------
to a Plan of Conversion which was approved by its members and regulators,
Mooresville Savings Bank, S.S.B. ("Mooresville Savings" or the "Bank") converted
from a North Carolina-chartered mutual savings bank to a North
Carolina-chartered stock savings bank (the "Conversion"), and became a
wholly-owned subsidiary of Coddle Creek Financial Corp. (the "Company"). The
Company was formed to acquire all of the common stock of the Bank upon its
conversion to stock form. The Company has no operations and conducts no business
of its own other than owning the Bank, investing its portion of the net proceeds
received in the Conversion, and lending funds to the Employee Stock Ownership
Plan (the "ESOP") which was formed in connection with the Conversion.

Nature of business: The Bank is primarily engaged in the business of obtaining
------------------
savings deposits and originating single-family residential loans within its
primary lending area of Northern Mecklenburg and Southern Iredell Counties. The
Bank's underwriting policies require such loans to be made at 80% loan to value
based upon appraised values unless private mortgage insurance is obtained. These
loans are secured by the underlying properties. The Bank's primary regulators
are the Federal Deposit Insurance Company ("FDIC") and the Administrator of the
North Carolina Savings Institutions Division (the "NC Administrator"). The
Bank's deposits are insured by the Savings Association Insurance Fund ("SAIF")
of the FDIC.

The following is a description of the significant accounting policies used in
the preparation of the accompanying financial statements.

Principles of consolidation: The consolidated financial statements include the
---------------------------
accounts of Coddle Creek Financial Corp. and its wholly-owned subsidiary,
Mooresville Savings Bank, S.S.B., for the year ended December 31, 1999 and 1998.
The Company was capitalized on December 30, 1997, therefore, the consolidated
financial statements for the year ended December 31, 1997 include the operations
of the Bank only. All significant intercompany transactions and balances have
been eliminated in consolidation.

Basis of financial statement presentation: The accounting and reporting policies
-----------------------------------------
of the Company conform to generally accepted accounting principles and general
practices within the financial services industry. In preparing the financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the statement of financial condition
and revenues and expenses for the period. Actual results could differ from those
estimates.

Cash and cash equivalents: For purposes of reporting the statements of cash
-------------------------
flows, the Company includes all interest and noninterest-bearing cash accounts,
which are not subject to withdrawal restrictions or penalties, as cash
equivalent and considers all highly liquid debt instruments with original
maturities when purchased of three months or less to be cash equivalents. The
Company also maintains deposits with financial institutions which are in excess
of the federally-insured amounts. Cash flows from loans and deposits are
reported on a net basis.

                                       27
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 1. Nature of Business and Summary of Significant Accounting Policies
(Continued)

Investment in debt securities: The Company and the Bank have investments in debt
-----------------------------
securities, which consist of obligations of the U. S. Government and federal
agencies and municipal obligations.

SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities,
requires that management classify all securities as trading, available for sale,
or held to maturity as individual investment securities are acquired, and that
the appropriateness of such classification be reassessed at each statement of
financial condition date.

Since the Company and the Bank do not buy investment securities in anticipation
of short-term fluctuations in market prices, none of the investment securities
are classified as trading in accordance with Statement No. 115. All investment
securities have been classified as either held to maturity or available for
sale.

Securities available for sale: Securities classified as available for sale are
-----------------------------
those securities that the Company and the Bank intend to hold for an indefinite
period of time but not necessarily to maturity. Any decision to sell a security
classified as available for sale could be based on various factors, including
significant movements in interest rates, changes in the maturity mix of the
Company and the Bank's assets and liabilities, liquidity needs, regulatory
capital considerations, and other similar factors. Securities available for sale
are carried at their fair (market) value. Premium and discounts are amortized
using a method that approximates the interest method over the contractual lives.
Unrealized gains or losses are reported as increases or decreases in equity, net
of the related deferred tax effect. Realized gains or losses, determined on the
basis of the cost of specific securities sold, are included in income.

Securities held to maturity: Securities classified as held to maturity are those
securities the Company has both the intent and ability to hold to maturity
regardless of changes in market conditions, liquidity needs or changes in
general economic conditions. These securities are carried at cost adjusted for
amortization of premium and accretion of discount, computed by a method that
approximates the interest method over their contractual lives. Based on the
Company and the Bank's financial position and liquidity, management believes the
Company and the Bank have the ability to hold these securities to maturity.

Declines in the fair value of individual securities classified as either held to
maturity or available for sale below their amortized cost that are determined to
be other than temporary result in write-downs of the individual securities to
their fair value with the resulting write-downs included in current earnings as
realized losses.

Investment in Federal Home Loan Bank stock: The Bank, as a member of the Federal
Home Loan Bank ("FHLB") system, is required to maintain an investment in capital
stock of the FHLB in an amount equal to the greater of 1% of its outstanding
home loans or 5% of advances from the FHLB. No ready market exists for the FHLB
stock, and it has no quoted market value.

                                       28
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 1. Nature of Business and Summary of Significant Accounting Policies
(Continued)

Loans receivable: Loans receivable are stated at unpaid principal balances, less
----------------
undisbursed loan funds, the allowance for loan losses, and net deferred
loan-origination fees and discounts. The Bank's loan portfolio consists
principally of long-term conventional loans collateralized by first deeds of
trust on single-family residences, other residential property, nonresidential
property and land. Interest income is accrued and credited to interest income as
it is earned, using the interest method.

Allowance for loan losses: The allowance for loan losses is increased by charges
-------------------------
to income and decreased by charge-offs (net of recoveries). The allowance is an
amount that management believes will be adequate to absorb estimated losses on
existing loans. Management's periodic evaluation of the adequacy of the
allowance is based on the Bank's past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to pay, the estimated value of any underlying collateral, and current
economic conditions. The loan portfolio is further analyzed by each loan type
and delinquency status to determine the risk category for each loan that is used
in calculating the allowance for loan losses. Loans delinquent greater than 90
days are evaluated individually for loss exposure, while other loans are
evaluated aggregately by type. Allocated and unallocated portions are determined
in the same manner. While management uses the best information to make
evaluations, future adjustments may be necessary, if economic or other
conditions differ substantially from the assumptions used.

Impaired loans: The Bank assesses loans delinquent greater than 90 days for
--------------
impairment. SFAS No. 114 requires that the Bank establish specific loan loss
allowances on impaired loans if it is doubtful that all principal and interest
due, according to the loan terms, will be collected. An allowance on an impaired
loan is required if the present value of the future cash flows discounted using
the loan's effective interest rate is less than the carrying value of the loan.
An impaired loan can also be valued based upon its fair value in the market
place or on the basis of its underlying collateral if the loan is collateral
dependent. If foreclosure is imminent, and the loan is collateral dependent, the
loan must be valued based upon the fair value of the underlying collateral.

Real estate owned: Real estate owned is initially recorded at the estimated fair
-----------------
value at the date of foreclosure, establishing a new cost basis. Based on
periodic evaluations by management, the carrying values are reduced where they
exceed fair value minus estimated costs to sell. Costs relating to the
development and improvement of the property are capitalized, while holding costs
of the property are charged to expense in the period incurred.

                                       29
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 1. Nature of Business and Summary of Significant Accounting Policies
(Continued)

Interest Income: The Bank continues to accrue interest on loans, including loans
---------------
delinquent 90 days or more, when collectibility of interest is not in doubt. At
the time a loan becomes nonperforming and collectibility of principal is in
doubt, the loan is placed on nonaccrual status by establishing an allowance for
uncollected interest. When a loan is on nonaccrual status interest income is
recognized only to the extent cash payments are received. If and when management
determines that the collectibility of principal and interest is no longer in
doubt, the loan is returned to performing status and the reserve for uncollected
interest is reversed. The Bank anticipates that it will account for interest on
impaired loans in a similar fashion in the future if and when it has impaired
loans.

Loan-origination fees and related costs: Loan fees and certain direct loan
---------------------------------------
origination costs are deferred, and the net fee or cost is recognized as an
adjustment to interest income using the interest method over the contractual
life of the loans, adjusted for actual prepayments.

Office properties and equipment: Office properties and equipment are stated at
-------------------------------
cost less accumulated depreciation, which is computed principally by the
straight-line method.

Benefit plans: The Bank had a noncontributory defined benefit pension plan
-------------
covering all employees who met the eligibility requirements, which was
terminated during 1997. To have been eligible, an employee must have been 21
years of age and have completed one year of continuous service. The plan
provided benefits based on the career earnings of each participant which were
subject to certain reductions if the employee retires before reaching age 62.
The Bank's funding policy was to make the maximum annual contribution that was
deductible for income tax purposes.

The Bank has a 401(k) plan covering substantially all of its employees. The Bank
matches 50% of the qualified employees contributions, limited to 6% of the
employee's salary.

The Bank has deferred compensation and retirement agreements for the benefit of
the Board of Directors and several key employees. The plans are unfunded and the
liabilities are being accrued over the term of active service of the
participants. The Bank has also purchased life insurance policies in amounts
sufficient to discharge its obligation under the agreements in the event of
death.

The Bank has an ESOP which covers substantially all of its employees.
Contributions to the plan are based upon the amortization requirement of the
ESOP's debt to the Company, subject to compensation limitations, and are
expensed in accordance with the AICPA's Statement of Position 93-6, Employer's
Accounting for Employee Stock Ownership Plans.

                                       30
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 1. Nature of Business and Summary of Significant Accounting Policies
(Continued)

Income taxes: Deferred taxes are provided on a liability method whereby deferred
------------
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.

Earnings per share: SFAS No. 128, Earnings Per Share, requires the presentation
------------------
of earnings per share by all entities that have common stock or potential common
stock, such as options, warrants and convertible securities, outstanding that
trade in a public market. Those entities that have only common stock outstanding
are required to present basic earnings per share amounts. Basic per share
amounts are computed by dividing net income (the numerator) by the
weighted-average number of common shares outstanding (the denominator). All
other entities are required to present basic and diluted per share amounts.
Diluted per share amounts assume the conversion, exercise or issuance of all
potential common stock instruments unless the effect is to reduce the loss or
increase the income per common share from continuing operations. For purposes of
this computation, the number of shares of common stock purchased by the Bank's
employee stock ownership plan which have not been allocated to participant
accounts are not assumed to be outstanding. The activity from the date of
Conversion, December 30, 1997, to the end of the 1997 fiscal year is
insufficient to compute a per share amount for the that fiscal year. See Note 12
for further information.

Fair value of financial instruments: The estimated fair values required under
-----------------------------------
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, have been
determined by the Company using available market information and appropriate
valuation methodologies. However, considerable judgment is required to develop
the estimates of fair value. Accordingly, the estimates presented for the fair
value of the Company's financial instruments are not necessarily indicative of
the amounts the Company could realize in a current market exchange. The use of
different market assumptions or estimation methodologies may have a material
effect on the estimated fair market value amounts.

The fair value estimates presented are based on pertinent information available
to management as of December 31, 1999 and 1998. Although management is not aware
of any factors that would significantly affect the estimated fair value amount,
such amounts have not been comprehensively revalued for purposes of these
financial statements since that date and therefore, current estimates of fair
value may differ significantly from the amounts presented here.

Off-statement of financial condition risk: The Company is a party to financial
-----------------------------------------
instruments with off-statement of financial condition risk such as commitments
to extend credit and lines of credit. Management assesses the risk related to
these instruments for potential losses on an ongoing basis.

                                       31
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Notes 2. Securities

The amortized cost and fair values of securities as of December 31, 1999 and
1998 are summarized as follows:

<TABLE>
<CAPTION>
                                                                     1999
                                     ------------------------------------------------------------------------
                                                           Gross               Gross
                                       Amortized         Unrealized         Unrealized             Fair
                                         Cost              Gains               Losses              Value
                                     ------------------------------------------------------------------------
<S>                                  <C>                <C>                 <C>                 <C>
Securities available for sale:
U.S. Government and federal
  agencies obligations               $  1,903,000       $          -        $    (21,000)       $  1,882,000
Municipal Obligations                   1,038,000                  -              (6,000)          1,032,000
Equity securities                         500,000                  -                   -             500,000
                                     ------------------------------------------------------------------------
                                     $  3,441,000       $          -        $    (27,000)       $  3,414,000
                                     ========================================================================
Securities held to maturity:
Municipal obligations                $  1,181,000       $          -        $    (24,000)       $  1,157,000
                                     ========================================================================
Other investments:
Interest-earning deposits            $  6,912,000       $          -        $          -        $  6,912,000
Certificates of deposit                   100,000                  -                   -             100,000
Federal Home Loan Bank stock            1,060,000                  -                   -           1,060,000
                                     ------------------------------------------------------------------------
                                     $  8,072,000       $          -        $          -        $  8,072,000
                                     ========================================================================
<CAPTION>
                                                                     1998
                                     ------------------------------------------------------------------------
                                                           Gross               Gross
                                       Amortized         Unrealized         Unrealized             Fair
                                         Cost              Gains               Losses              Value
                                     ------------------------------------------------------------------------
<S>                                  <C>                <C>                 <C>                 <C>
Securities available for sale:
U.S. Government and federal
  agencies obligations               $  9,130,000       $     56,000        $          -        $  9,186,000
Municipal Obligations                   1,042,000             16,000                   -           1,058,000
                                     ------------------------------------------------------------------------
                                     $ 10,172,000       $     72,000        $          -        $ 10,244,000
                                     ========================================================================
Securities held to maturity:
U.S. Government and federal
  agencies obligations               $    100,000       $      1,000        $          -        $    101,000
Municipal obligations                   1,281,000             48,000                   -           1,329,000
                                     ------------------------------------------------------------------------
                                     $  1,381,000       $     49,000        $          -        $  1,430,000
                                     ========================================================================
Other investments:
Interest-earning deposits            $  7,806,000       $          -        $          -        $  7,806,000
Certificates of deposit                   100,000                  -                   -             100,000
Federal Home Loan Bank stock              964,000                  -                   -             964,000
                                     ------------------------------------------------------------------------
                                     $  8,870,000       $          -        $          -        $  8,870,000
                                     ========================================================================
</TABLE>

                                       32
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 2. Securities (Continued)

The amortized cost and fair value of securities at December 31, 1999 by
contractual maturity are shown below:


                                              Amortized          Fair
                                                Cost             Value
                                             ----------------------------
Securities available for sale:
Due in one year or less                      $  368,000       $  373,000
Due after one year through five years         2,252,000        2,228,000
Due after five years through ten years          321,000          313,000
Due after ten years                                   -                -
Equity securities                               500,000          500,000
                                             ----------------------------
                                             $3,441,000       $3,414,000
                                             ============================

Securities held to maturity:
Due in one year or less                      $        -       $        -
Due after one year through five years           150,000          151,000
Due after five years through ten years        1,021,000          996,000
Due after ten years                              10,000           10,000
                                             ----------------------------
                                             $1,181,000       $1,157,000
                                             ============================

There were no sales of investment securities for the years ended December 31,
1999, 1998 and 1997.

The change in accumulated comprehensive income, which consists of unrealized
gains (losses) on securities available for sale, for the years ended December
31, 1999, 1998 and 1997 is as shown below:

                                                 1999        1998         1997
                                               ---------------------------------
Balance, beginning                             $ 46,000    $ 25,000    $ 28,000
  Change in unrealized holding gains (losses)   (99,000)     31,000      (5,000)
  Change in deferred income taxes                32,000     (10,000)      2,000
                                               ---------------------------------
Balance, ending                                $(21,000)   $ 46,000    $ 25,000
                                               =================================

                                       33
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 2.    Securities (Continued)

The following table sets forth certain information regarding the carrying value
and contractual maturities of the Company's investment portfolio at December 31,
1999:


<TABLE>
<CAPTION>
                                                                 Carrying Value
                                    ----------------------------------------------------------------------
                                                    After One       After Five
                                                       Year           Years
                                                     Through         Through       After
                                       One Year     Five Years      Ten Years     Ten Years      Total
                                    ----------------------------------------------------------------------

Securities available for sale:
<S>                                <C>              <C>          <C>            <C>           <C>
 U.S. government and
  agency securities                 $            -   $   509,000  $          -   $         -   $   509,000
 Federal Home Loan
  Bank bonds                                           1,373,000                           -     1,373,000
 Municipal bonds                           373,000       346,000       313,000             -     1,032,000
 Equity securities                         500,000             -             -             -       500,000
Securities held to maturity:
 Municipal bonds                                         150,000     1,021,000        10,000     1,181,000
Other investments:
 Interest-earning deposits               6,912,000             -             -             -     6,912,000
 Certificates of deposit                   100,000             -             -             -       100,000
 Federal Home Loan
  Bank stock                                                   -             -     1,060,000     1,060,000
                                    ----------------------------------------------------------------------
                                       $ 7,885,000   $ 2,378,000  $  1,334,000   $ 1,070,000   $12,667,000
                                    ======================================================================
</TABLE>


The following table sets forth the weighted average yield by maturity (tax
exempt obligations have not been computed on a tax equivalent basis) of the
Company's investment portfolio at December 31, 1999:


<TABLE>
<CAPTION>
                                                                 Carrying Value
                                    ----------------------------------------------------------------------
                                                    After One       After Five
                                                       Year           Years
                                                     Through         Through        After
                                       One Year     Five Years      Ten Years     Ten Years      Total
                                    ----------------------------------------------------------------------
<S>                                 <C>              <C>          <C>            <C>           <C>
Securities available for sale:
 U.S. government and
  agency securities                              -          7.75%            -             -          7.75%
 Federal Home Loan
  Bank bonds                                     -          5.99%            -             -          5.99%
 Municipal bonds                              4.29%         4.50%         6.25%            -          4.96%
 Equity securities                               -             -             -             -             -
Securities held to maturity:
 Municipal bonds                                 -          4.80%         4.62%         4.80%         4.65%
Other investments:
 Interest-earning deposits                    4.65%            -             -             -          4.25%
 Certificates of deposit                      4.31%            -             -             -          5.31%
 Federal Home Loan
  Bank stock                                     -             -             -          7.75%         7.75%
                                    ----------------------------------------------------------------------
                                              4.00%         5.77%         5.55%         7.75%         4.81%
                                    ======================================================================
</TABLE>

                                       34
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 3. Loans Receivable

Loans receivable at December 31, 1999 and 1998 consist of the following:


<TABLE>
<CAPTION>
                                                           1999                                 1998
                                            --------------------------------------------------------------------------
                                                                      Percentage                          Percentage
                                                   Amount             of Total            Amount           of Total
                                            --------------------------------------------------------------------------
Real estate loans:
<S>                                         <C>                          <C>       <C>                         <C>
 One-to-four family residential             $    104,331,000             83.55%    $    93,063,000             84.16%
 Multi-family residential                            850,000              0.68             894,000              0.81
 Nonresidential                                    3,391,000              2.72           3,980,000              3.60
 Construction                                      9,849,000              7.89           7,356,000              6.65
 Equity line                                       8,195,000              6.56           7,567,000              6.84
                                            --------------------------------------------------------------------------
  Total real estate loans                        126,616,000            101.40         112,860,000            102.06
                                            --------------------------------------------------------------------------
Consumer Loans:
 Installment loans                                 2,491,000              1.99           1,618,000              1.46
 Other                                             1,416,000              1.13             735,000              0.67
                                            --------------------------------------------------------------------------
  Total consumer loans                             3,907,000              3.12           2,353,000              2.13
                                            --------------------------------------------------------------------------
  Total gross loans                              130,523,000            104.52          11,521,300            104.19
                                            --------------------------------------------------------------------------
Less:
 Construction loans in process                    (3,823,000)            (3.05)         (2,960,000)            (2.68)
 Net deferred loan fees                             (939,000)            (0.75)           (780,000)            (0.70)
 Allowance for loan losses                          (898,000)            (0.72)           (895,000)            (0.81)
                                            --------------------------------------------------------------------------
                                                  (5,660,000)            (4.52)         (4,635,000)            (4.19)
                                            --------------------------------------------------------------------------
                                            $    124,863,000            100.00%    $    11,057,800            100.00%
                                            ==========================================================================
</TABLE>

The following is an analysis of the allowance for loan losses for the years
ended December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                 1999               1998               1997
                                                          --------------------------------------------------------
<S>                                                        <C>              <C>               <C>
Balance at beginning of year                               $       895,000  $        693,000  $       388,000
                                                          --------------------------------------------------------
 Loans charged off:
  Real Estate                                                            -            (5,000)         (32,000)
  Consumer                                                               -                 -                -
                                                          --------------------------------------------------------
   Total loans charged off                                               -            (5,000)         (32,000)
                                                          --------------------------------------------------------
 Recoveries:
  Real Estate                                                        3,000             2,000            2,000
  Consumer                                                               -                 -                -
                                                          --------------------------------------------------------
   Total recoveries                                                  3,000             2,000            2,000
                                                          --------------------------------------------------------
  Provision for loan losses                                              -           205,000          335,000
                                                          --------------------------------------------------------
Balance at end of year                                     $       898,000  $        895,000  $       693,000
                                                          ========================================================
Ratio of net charge-offs to average loans
 outstanding                                                          0.00%             0.00%            0.03%
                                                          ========================================================
</TABLE>

                                       35
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 3.      Loans Receivable (Continued)

The allocation of the allowance for loan losses applicable to each category of
loans at December 31, 1999 and 1998 is as follows:


                                                     1999
                               -------------------------------------------------
                                                  Percent of
                                                   Allowance       Percent of
                                   Amount of       to Total         Loans to
                                   Allowance       Allowance      Gross Loans
                               -------------------------------------------------
Real estate loans:
 One-to-four family residential $      334,000          37.19%           79.93%
 Multi-family residential                    -              -             0.65
 Nonresidential                              -              -             2.60
 Construction                                -              -             7.55
 Equity line                            26,000           2.90             6.28
                               -------------------------------------------------
  Total real estate loans              360,000          40.09            97.01
                               -------------------------------------------------
Consumer loans:
 Installment loans                      17,000           1.89             1.91
 Other                                   5,000           0.56             1.08
                               -------------------------------------------------
  Total consumer loans                  22,000           2.45             2.99
                               -------------------------------------------------
Unallocated                            516,000          57.46                -
                               -------------------------------------------------
                               $       898,000         100.00%          100.00%
                               =================================================

                                                    1998
                                -----------------------------------------------
                                                 Percent of
                                                  Allowance          Percent of
                                    Amount of     to Total            Loans to
                                    Allowance     Allowance         Gross Loans
                                -----------------------------------------------
Real estate loans:
 One-to-four family residential $      297,000        33.18%           80.78%
 Multi-family residential                    -            -             0.78
 Nonresidential                              -            -             3.45
 Construction                                -            -             6.38
 Equity line                            21,000         2.35             6.57
                                -----------------------------------------------
  Total real estate loans              318,000        35.53            97.96
                                -----------------------------------------------
Consumer loans:
 Installment loans                       9,000         1.01             1.40
 Other                                   3,000         0.33             0.64
                                -----------------------------------------------
  Total consumer loans                  12,000         1.34             2.04
                                -----------------------------------------------

Unallocated                            565,000        63.13
                                -----------------------------------------------
                               $       895,000       100.00%          100.00%
                                ===============================================

                                       36
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 3.      Loans Receivable (Continued)

The Bank assesses loans delinquent more than 90 days for impairment. Such loans
amounted to approximately $1,382,000 and $1,386,000 at December 31, 1999 and
1998, respectively, and had an average outstanding balance of approximately
$1,992,000 and $1,489,000 for the years ended December 31, 1999 and 1998,
respectively. These loans are primarily collateral dependent and management has
determined that the underlying collateral value is in excess of the carrying
amounts. As a result, the Bank has determined that specific allowances on these
loans are not required.

Nonperforming loans for which interest has been reduced totaled approximately
$1,237,000 and $996,000 at December 31, 1999 and 1998, respectively. The
differences between interest income that would have been recorded under the
original terms of such loans and the interest income actually recognized totaled
$44,000, $30,000 and $58,000 for the years ended December 31, 1999, 1998 and
1997, respectively.

The following table sets forth information with respect to nonperforming assets
identified by the Bank, including nonaccrual loans and accruing loans past due
90 days or more at the date indicated:


<TABLE>
<CAPTION>
                                                                At December 31,
                                            ---------------------------------------------------------
                                                  1999                1998               1997
                                            ---------------------------------------------------------
<S>                                         <C>                <C>                <C>
Nonaccrual loans                            $     1,237,000    $        996,000   $      1,076,000
Accruing loans past due 90 days or more             145,000             390,000            373,000
Troubled debt restructuring                               -                   -                  -
Foreclosed real estate                               65,000                   -             81,000
                                            -------------------------------------------------------
Total nonperforming assets                  $     1,447,000    $      1,386,000   $      1,530,000
                                            =======================================================
Nonperforming loans to total gross loans               1.06%               1.20%              1.36%
                                            =======================================================
Nonperforming assets to total assets                   1.01%               1.02%              1.02%
                                            =======================================================
Total assets                                $   143,867,000    $    135,811,000   $    149,585,000

Total gross loans                           $   130,523,000    $    115,213,000   $    106,538,000
</TABLE>

                                       37
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 4. Office Properties and Equipment

Office properties and equipment at December 31, 1999 and 1998 consist of the
following:


                                           1999               1998
                                 --------------------------------------
Cost:
Land                             $         364,000    $        364,000
Buildings                                  879,000             879,000
Building improvements                      175,000             175,000
Furniture and fixtures                     747,000             743,000
Automobiles                                 47,000              47,000
                                 --------------------------------------
                                         2,212,000           2,208,000
Less accumulated depreciation            1,100,000           1,209,000
                                 --------------------------------------
                                 $       1,112,000    $        999,000
                                 ======================================


Note 5. Deposits

Deposits at December 31, 1999 and 1998 consist of the following:

<TABLE>
<CAPTION>
                                                     1999                                       1998
                               ------------------------------------------------------------------------------------
                                                    Weighted                                    Weighted
                                                     Average                                     Average
                                      Amount          Rate         Percent        Amount           Rate     Percent
                               ------------------------------------------------------------------------------------
<S>                            <C>                  <C>            <C>       <C>                <C>         <C>
Noninterest-bearing deposits   $       1,652,000                     1.8 %   $      2,440,000                 2.8 %
NOW accounts                           6,424,000         0.89%       7.1            6,000,000       0.89%     6.9
Money market                          13,332,000         4.63%      14.8            7,715,000       4.40%     8.9
Passbook savings                      10,062,000         2.47%      11.2            1,022,200       2.47%    11.7
                               ------------------------------------------------------------------------------------
                                      31,470,000                    34.9            2,637,700                30.3
                               ------------------------------------------------------------------------------------
Certificates of deposit:
 2.00% to 3.99%                          646,000                     0.7              634,000                 0.7
 4.00% to 5.99%                       46,887,000                    52.0            4,595,900                52.7
 6.00% to 7.99%                       11,230,000                    12.4            1,425,000                16.3
                               ------------------------------------------------------------------------------------
                                      58,763,000         5.31%      65.1            6,084,300       5.46%    69.7
                               ------------------------------------------------------------------------------------
                                      90,233,000                   100.0 %          8,722,000               100.0 %
                                                                   =======                                  =======
Accrued interest payable                 330,000                                      349,000
                               -------------------------------               ----------------------------
                               $      90,563,000         4.49%               $      8,756,900       4.55%
                               ===============================               ============================
</TABLE>

The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was approximately $11,196,000 and $11,500,000 at December 31, 1999 and
December 31, 1998, respectively.

                                       38
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 5.     Deposits (Continued)

The aggregate amount of certificates of deposit by maturity with a minimum
denomination of $100,000 at December 31, 1999 is as follows:


Maturity Period:
Within 3 months or less                      $       4,693,000
Over 3 months through 6 months                       1,281,000
Over 6 months through 12 months                      2,827,000
Over 12 months                                       2,395,000
                                             -----------------
                                             $      11,196,000
                                             =================


At December 31, 1999, the scheduled maturities of certificates of deposits are
as follows:


Year Ending December 31,                          Amount
------------------------                    -------------------
2000                                        $        44,473,000
2001                                                 10,382,000
2002                                                  1,504,000
2003                                                  1,101,000
2004                                                  1,303,000
                                            -------------------
                                            $        58,763,000
                                            ===================



Interest expense on deposits for the years ended December 31, 1999, 1998 and
1997 is summarized as follows:


                                  1999            1998             1997
                          -------------------------------------------------
NOW and money market      $      544,000    $     329,000     $     241,000
Passbook savings                 251,000          298,000           401,000
Certificates of deposit        3,192,000        3,469,000         4,081,000
                          -------------------------------------------------
                          $    3,987,000   $    4,096,000    $    4,723,000
                          =================================================


Eligible savings accounts are insured up to $100,000 by the SAIF which is
administered by the FDIC.

The Bank has $100,000 of U. S. Government and federal agency obligations pledged
as security for public deposits at December 31, 1999.

                                       39
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 6. Note Payable and Federal Home Loan Bank Advances

The Company has a note payable outstanding for $10,500,000 and $-0- at December
31, 1999 and 1998, respectively. The note is due in quarterly interest only
installments at the prime rate (8.5% at December 31, 1999) less 1.25%, with the
principal balance due February 28, 2001. The note is collateralized by the
Bank's common stock.

The Bank has advances from the FHLB outstanding for $5,000,000 and $-0- at
December 31, 1999 and 1998, respectively. Interest is payable at 6.24% and the
balance is due on November 30, 2000. Advances are collateralized by the Bank's
stock in the FHLB and qualifying first mortgage loans.

Interest expense on the note payable and FHLB advances totaled $208,000, $-0-
and $97,000 for the years ended December 31, 1999, 1998 and 1997, respectively.

Note 7. Employee Benefit Plans

The Bank had a defined benefit pension plan covering substantially all of its
employees, which was terminated during 1997. Upon termination, the Bank made
contributions to the plan so that it was fully funded, and the participants were
then paid out of the plan assets. All participants were paid by December 31,
1997. Pension expense was $-0-, $-0-, and $378,000 for the years ended December
31, 1999, 1998 and 1997, respectively. The expense for 1997 is net of a
curtailment gain of $297,000. The Company adopted SFAS No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits, during 1998. The
Statement revises employers' disclosures about pensions, but does not change the
measurement or recognition criteria.

The components of net periodic benefit cost for the years ended December 31,
1999, 1998 and 1997 are as follows:


<TABLE>
<CAPTION>
                                                    1999            1998           1997
                                             ----------------------------------------------
<S>                                          <C>              <C>             <C>
Service cost                                 $          -     $        -      $    61,000
Interest cost                                           -              -          139,000
Expected return on plan assets                          -              -         (109,000)
Amortization of prior service cost                      -              -           12,000
Additional cost to fully fund the plan upon
 termination                                            -              -          275,000
                                             ----------------------------------------------
Net periodic benefit cost                    $          -     $        -      $   378,000
                                             ==============================================
</TABLE>


Weighted-average assumptions used to develop the net periodic pension cost as of
December 31, 1997 were:


Discount rate                                                       7.0 %
Expected rate of return on plan assets                              7.0
Rate of compensation increase                                       5.0

                                       40
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 7. Employee Benefit Plans (Continued)

The Bank has adopted a savings plan under Section 401(k) of the Internal Revenue
Code. This plan allows employees, who meet certain service and age requirements,
to defer a percentage of their income through contributions to the plan. In
accordance with provisions of the plan, the Bank matches 50% of the employee's
contribution, limited to 6.0% of the employee's salary. The expense for the plan
was $72,000, $72,000 and $79,000 for the years ended December 31, 1999, 1998 and
1997, respectively.

The Bank has also entered into unfunded deferred compensation agreements and a
salary continuation agreement providing retirement and death benefits for the
directors and several key employees. Vested benefits under the agreements are
payable in installments upon death or retirement. The retirement age for these
plans was changed from 65 to 70 years old during the year ended December 31,
1999. The Bank has insured the lives of the directors and employees for amounts
sufficient to discharge its obligation under such agreements in the event of
death. The cash surrender value of these policies is $1,176,000 and $1,075,000
at December 31, 1999 and 1998, respectively. The present value of the liability
for the benefits is being accrued over the expected term of active service of
the directors and employees. The amount accrued is $2,476,000 and $2,491,000 at
December 31, 1999 and 1998, respectively. The expense related to the agreements
for the years ended December 31, 1999, 1998 and 1997 amounted to $44,000,
$391,000 and $350,000, respectively. The discount rate of 7% was used in
determining the present value of the future obligation at December 31, 1999 and
1998, respectively.

Note 8. Stockholders' Equity

On December 30, 1997, the Company completed and closed its stock offering. Gross
proceeds from the sale of 674,475 shares amounted to $33,724,000 and were
reduced by conversion costs of $1,230,000. $4,216,000 of these net proceeds were
loaned to the ESOP to purchase 53,958 shares in the open market. The Company
transferred $14,134,000 of the net proceeds to the Bank for the purchase of its
common stock and retained the remaining net proceeds.

Concurrent with the Conversion, the Bank established a liquidation account in an
amount equal to its net worth as reflected in its latest statement of financial
condition contained in the definitive prospectus used in connection with the
Company's initial public offering. The liquidation account will be maintained
for the benefit of eligible deposit account holders and supplemental eligible
deposit account holders who continue to maintain their deposit accounts in the
Bank after the Conversion. Only in the event of a complete liquidation will
eligible deposit account holders and supplemental eligible deposit account
holders be entitled to receive a liquidation distribution from the liquidation
account in the amount of the then current adjusted sub-account balance for
deposit accounts then held before any liquidation distribution may be made with
respect to common stockholders. Dividends paid by the Bank subsequent to the
Conversion cannot be paid from this liquidation account.

                                       41
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 8. Stockholders' Equity (Continued)

Subject to applicable law, the Board of Directors of the Company or the Bank may
each provide for the payment of dividends. Future declarations of cash
dividends, if any, by the Company may depend upon dividend payments by the Bank
to the Company. Subject to regulations promulgated by the NC Administrator, the
Bank will not be permitted to pay dividends on its common stock if its
stockholders' equity would be reduced below the amount required for the
liquidation account or its capital requirement. The Company has declared regular
dividends of $2.05 and $1.00 per share for the years ended December 31, 1999 and
December 31, 1998, respectively. The Company also paid a return of capital
dividend of $17.18 per share in 1999.

For a period of five years after its conversion from mutual to stock form, the
Bank must obtain the written approval from the NC Administrator before declaring
or paying a cash dividend to the Company on its capital stock in an amount in
excess of one-half of the greater of (i) the Bank's net income for the most
recent fiscal year end or (ii) the average of the Bank's net income after
dividends for the most recent fiscal year end and not more than two of the
immediately preceding fiscal year ends. During 1999 and 1998, the Bank
upstreamed $1,295,000 and $675,000, respectively, in regular dividends to the
Company.

In connection with the Conversion, the Bank has agreed with the FDIC that,
within the first three years after completion of the Conversion, neither the
Company nor the Bank will pay any taxable dividend or make any taxable
distribution in excess of their current earnings and retained earnings. The
Company and the Bank have agreed to notify the FDIC before making a return of
capital during the first three years following the Conversion.

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

The FDIC requires the Bank to have a minimum leverage ratio of Tier I Capital
(principally consisting of retained earnings and any other common stockholders'
equity, less any intangible assets) to all assets of at least 3%, provided that
it receives the highest rating during the examination process. For institutions
that receive less than the highest rating, the Tier I capital requirement is 1%
to 2% above the stated minimum. The FDIC also requires the Bank to have a ratio
of total capital to risk-weighted assets of 8%, of which at least 4% must be in
the form of Tier I capital. The NC Administrator requires a net worth equal to
at least 5% of total assets. The Bank complied with all of the capital
requirements at December 31, 1999 and 1998.

                                       42
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 8. Stockholders' Equity  (Continued)

The following is a reconciliation of the Bank's capital in accordance with
generally accepted accounting principles (GAAP) to the components of regulatory
capital at December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                        -------------------------------------------------------------------------
                                                                      1999 - Bank Only
                                        -------------------------------------------------------------------------
                                           Leverage            Tier I                                N.C.
                                           Ratio of          Risk-Adjusted     Risk-Based         Savings Bank
                                         Tier I Capital        Capital           Capital            Capital
                                        -------------------------------------------------------------------------
                                                                   (Dollars in Thousands)
<S>                                     <C>                 <C>               <C>                <C>
Equity (GAAP)                           $         31,353    $        31,353   $        31,353    $         31,353
Unrealized loss on securities
 available for sale                                   10                 10                10                  10
Supplemental capital items:
 General valuation allowance                           -                  -               898                 898
                                        -------------------------------------------------------------------------
Regulatory capital                                31,363             31,363            32,261              32,261
Minimum capital requirement                        4,257              2,340             6,240               7,094
                                        -------------------------------------------------------------------------
Excess regulatory capital               $         27,106    $        29,023   $        26,021    $         25,167
                                        =========================================================================
Average assets                          $        141,884                                         $        141,884
                                        ================                                         ================
Risk-weighted assets                                        $        77,996   $        77,996
                                                          ===================================
Capital as a percentage of assets:
 Actual                                            22.10  %           40.21 %           41.36  %            22.74 %
 Required                                           3.00               3.00              8.00                5.00
                                        ---------------------------------------------------------------------------
Excess                                             19.10  %           37.21 %           33.36  %            17.74 %
                                        ===========================================================================
</TABLE>

                                       43
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 8. Stockholders' Equity (Continued)


<TABLE>
<CAPTION>
                                        -------------------------------------------------------------------------
                                                                      1998 - Bank Only
                                        ------------------------------------------------------------------------
                                           Leverage              Tier I                               N.C.
                                           Ratio of          Risk-Adjusted     Risk-Based         Savings Bank
                                        Tier I Capital           Capital         Capital            Capital
                                        ------------------------------------------------------------------------
                                                                      (Dollars in Thousands)
<S>                                     <C>                 <C>                <C>                <C>
Equity (GAAP)                           $         30,305    $        30,305    $       30,305     $        30,305
Unrealized gain on securities
  available for sale                                 (33)               (33)              (33)                (33)
Supplemental capital items:
  General valuation allowance                          -                  -               895                 895
                                        -------------------------------------------------------------------------
Regulatory capital                                30,272             30,272            31,167              31,167
Minimum capital requirement                        3,924              2,089             5,570               6,540
                                        -------------------------------------------------------------------------
Excess regulatory capital               $         26,348    $        28,183    $       25,597     $        24,627
                                        =========================================================================
Average assets                          $        130,808                                          $       130,808
                                        ================                                          ===============
Risk-weighted assets                                        $        69,623    $       69,623
                                                            ===============    ==============
Capital as a percentage of assets:
  Actual                                           23.14  %           43.48 %           44.77  %            23.83 %
  Required                                          3.00               3.00              8.00                5.00
                                        ---------------------------------------------------------------------------
Excess                                             20.14  %           40.48 %           36.77  %            18.83 %
                                        ===========================================================================
</TABLE>


A ratio of 4% of total assets was used for purposes of computing the minimum
required leverage ratio of Tier I Capital.

As of December 31, 1999, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
total capital to risk weighted assets of 10%, Tier I Capital to risk weighted
assets of 6% and Tier I Capital to total assets of 5% or $7,800,000, $4,680,000
and $7,094,000 respectively. There are no conditions or events since the
notification that management believes have changed the Bank's category.

                                       44
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 9. Income Tax Matters

Under the Internal Revenue Code, the Bank is allowed a special bad debt
deduction related to additions to the tax bad debt reserve established for the
purpose of absorbing losses. The Bank is required to compute such deductions
using an experience method. The Bank's tax bad debt deduction was $-0-, $3,000
and $30,000 in 1999, 1998 and 1997, respectively.

In conjunction with the change in computing the tax bad debt deduction, the Bank
will also have to recapture its excess tax bad debt reserves which have
accumulated since 1988, amounting to approximately $67,000, over a six year
period. The tax associated with the recaptured reserve is approximately $26,000.
The recapture was scheduled to begin with the Bank's 1996 year, but was delayed
two years because the Bank originated a required minimum level of residential
mortgage loans during 1996 and 1997. Deferred income taxes have been previously
established for the taxes associated with the recaptured reserves and the
ultimate payment of the related taxes will not result in a charge to earnings.
The amount of reserve recaptured and associated tax were $11,000 and $4,000,
respectively, for each of the years ended December 31, 1999 and 1998.

Deferred taxes have been provided for certain increases in the Bank's tax bad
debt reserves subsequent to 1987 which are in excess of recorded book loan loss
allowances. At December 31, 1999 and 1998, retained earnings contain certain
historical additions to the bad debt reserve for income tax purposes of
approximately $3,816,000, the balance prior to 1988, for which no deferred taxes
have been provided because the Bank does not intend to use these reserves for
purposes other than to absorb losses. If this pre-1988 reserve is used for
purposes other than to absorb losses or adjustments arising from the carryback
of net operating losses, income taxes may be imposed at the then existing rates.
The unrecorded deferred income tax liability on the above amount was
approximately $1,493,000 as of December 31, 1999 and 1998.

                                       45
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 9.   Income Tax Matters (Continued)

The tax effects of temporary differences that gave rise to significant portions
of the net deferred tax asset in the statement of financial condition were as
follows at December 31, 1999 and 1998:


                                                    1999            1998
                                             ------------------------------
Deferred tax assets:
Unrealized loss on securities                $       6,000 $            -
Interest income on non performing assets            19,000         15,000

Deferred compensation                              956,000        966,000
   Allowance for loan losses                       347,000        347,000
   Pension plan contribution                       147,000        158,000
   Accrued expenses                                      -         42,000
   Management recognition plan                      67,000              -
                                             ------------------------------
                                                 1,542,000      1,528,000
                                             ------------------------------
Deferred tax liabilities:
   Property and equipment                          115,000        109,000
   FHLB stock dividends                            136,000        136,000
   Deferred loan fees                               47,000         35,000
   Tax bad debt reserves                            18,000         22,000
   Unrealized gains on securities                        -         26,000
   FHLB accrued dividend                             7,000          7,000
                                             ------------------------------
                                                   323,000        335,000
                                             ------------------------------
      Net deferred tax asset                 $   1,219,000 $    1,193,000
                                             ==============================


At December 31, 1999 and 1998, no valuation allowance was recorded for deferred
tax assets.

Income tax expense (credits) for the year ended December 31, 1999, 1998 and 1997
consists of the following:


                              1999        1998           1997
                         ----------------------------------------
Current                  $    811,000 $   1,234,000  $   667,000
Deferred                        6,000      (195,000)    (293,000)
                         ----------------------------------------
                         $    817,000 $   1,039,000  $   374,000
                         ========================================

                                       46
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 9.   Income Tax Matters (Continued)

A reconciliation of the federal income tax rate to the effective tax rate for
the year ended December 31, 1999, 1998 and 1997 is as follows:


<TABLE>
<CAPTION>
                                                            1999                 1998               1997
                                                        -------------------------------------------------------
<S>                                                             <C>                  <C>                <C>
Statutory federal income tax rate                               34.0  %              34.0 %             34.0  %
Increases (decreases) in taxes resulting from:
 Nontaxable income                                              (3.3)                (4.5)              (2.1)
 Nondeductible expense                                           3.0                                     1.2
 State income tax, net of federal benefit                        2.6                  2.3                1.6
 Other                                                           0.8                  0.2                1.2
                                                        -------------------------------------------------------
Effective tax rate                                              37.1  %              32.0 %             35.9  %
                                                        =======================================================
</TABLE>


Note 10. Employee Stock Ownership Plan

The Bank has established an ESOP to benefit all qualified employees. The ESOP
purchased 53,958 shares of common stock in the open market subsequent to the
Conversion with proceeds received from a loan from the Company. The ESOP
purchased 21,240 additional shares with proceeds from the return of capital
dividend paid by the Company in 1999.

The Company's note receivable is to be repaid based upon 15 annual installments
of principal and interest on December 31 of each year through December 31, 2012.
Interest is based upon the prime rate, which will be adjusted and paid annually.
The note may be prepaid without penalty. The unallocated shares of stock held by
the ESOP are pledged as collateral for the debt. The ESOP is funded by
contributions made by the Bank in amounts sufficient to retire the debt. The
note receivable is presented as a reduction of stockholders' equity and had an
outstanding balance of $3,725,000 and $4,021,000 at December 31, 1999 and
December 31, 1998, respectively.

Shares are released as the debt is repaid and earnings from the common stock
held by the ESOP are allocated among participants on the basis of compensation
in the year of allocation. Benefits become 100% vested after five years of
credited service. Forfeitures of nonvested benefits will be reallocated among
remaining participating employees in the same proportion as contributions.

Dividends on unallocated shares may be used by the ESOP to repay the debt to the
Company and are not reported as dividends but as additional compensation expense
in the financial statements. Dividends on allocated or committed to be allocated
shares may also be used to repay the debt to the Company and are reported as
dividends in the financial statements. Special return of capital dividends paid
in 1999 on 50,071 unallocated ESOP shares totaled $860,000 and are being
amortized as compensation expense as ESOP shares are released to the
participants. During the year ended December 31, 1999, $21,000 was amortized as
compensation expense.

                                       47
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 10.    Employee Stock Ownership Plan (Continued)

Expenses of $173,000, $162,000 and $-0- have been incurred during 1999, 1998,
and 1997, respectively, in connection with the ESOP. The expenses include, in
addition to the cash contribution necessary to fund the ESOP, $(144,000),
$(33,000) and $-0- for 1999, 1998, and 1997, respectively, which represents the
difference between the fair value of the shares which have been released or
committed to be released to participants, and the cost of these shares to the
ESOP. The Bank has debited this amount to paid-in capital and reduced the
expense in accordance with the provisions of AICPA Statement of Position 93-6.
The related income tax benefit of $47,000 and $-0- for 1999, 1998 and 1997,
respectively have been credited to paid-in capital.

The ESOP has a put option which requires the Company to repurchase its common
stock from participants in the ESOP who are eligible to receive benefits under
the terms of the plan and elect to receive cash in exchange for their common
stock. The potential commitment for the put option is $272,000 at December 31,
1999 based on the fair value of the 9,135 shares released of $29.75 per share.
The fair value of the unallocated shares is $1,965,000 at December 31, 1999.
This commitment will fluctuate based on the fair value of the shares.

Note 11. Management Recognition Plan and Stock Option Plan

The Company's stockholders approved the Company's Stock Option Plan and the
Bank's Management Recognition Plan and Trust (the "MRP") on January 26, 1999.
The Stock Option Plan reserves for issuance up to 67,447 stock options to
certain officers, directors, and employees either in the form of incentive stock
options or non-incentive stock options. The exercise price of the stock options
may not be less than the fair value of the Company's common stock at date of
grant. The options granted to employees, which vest at the rate of 25% annually
beginning at the date of grant, were all granted in 1999 and expire in 2009.
Options granted to non-employee directors vested immediately on the date of
grant. The weighted average fair value of the options on the grant date was
$31.00 per share. As permitted under the generally accepted accounting
principles, grants under the plan will be accounted for following the provisions
of APB Opinion No. 25 and its related interpretations. Accordingly, no
compensation cost has been recognized for grants made to date. Had compensation
cost been determined based on the fair value method prescribed in FASB Statement
No. 123, the pro forma effect on reported net income would be as follows for the
year ended December 31:


                                                                     1999
                                                            -------------------
Net income
 As reported                                                 $       1,386,000
 Pro forma                                                           1,179,000
Earnings per share
 As reported
  Basic                                                       $           2.20
  Diluted                                                                 2.20
 Pro forma
  Basic                                                                   1.86
  Diluted                                                                 1.86


                                       48
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 11. Management Recognition Plan and Stock Option Plan (Continued)

In determining the fair value of the option grant as prescribed in Statement No.
123, the Black-Scholes option pricing model was used with the following
assumptions: a risk-free interest rate of 6.65%, expected lives of 10 years,
expected volatility of 54.56% and expected dividends of $2.00 per year.

At December 31, 1999, 58,136 options have been granted at an exercise price of
$31.00, of which 22,120 options are currently exercisable. No options have been
exercised to date and all options granted are outstanding at December 31, 1999.

The MRP reserved for issuance 26,979 shares of common stock to certain officers,
directors, and employees at the time of the adoption. The Company issued 24,281
shares to fund the MRP on January 26, 1999. The restricted common stock under
the MRP vests at the rate of 25% annually beginning at the date of grant. The
expense related to the vesting of the MRP totaled $1,109,000 for the year ended
December 31, 1999, which includes $295,000 for dividends paid in cash on
unvested MRP shares.

Note 12. Earnings Per Share

Earnings per share has been calculated in accordance with FASB Statement No.
128, Earnings Per Share. For purposes of this computation, the number of shares
of common stock purchased by the Bank's employee stock ownership plan which have
not been allocated to participant accounts are not assumed to be outstanding.
The following are reconciliations of the amounts used in the per share
calculations for 1999 and 1998, which are the years the Company was in
operation:

<TABLE>
<CAPTION>
                                                              For the Year Ended December 31, 1999
                                             ----------------------------------------------------------------------
                                                       Income                 Shares                 Per Share
                                                    (Numerator)            (Denominator)              Amount
                                             ----------------------------------------------------------------------
<S>                                          <C>                           <C>                  <C>
Basis EPS
Income available to stockholders             $            1,386,000              630,442        $              2.20
                                                                                                ===================
Effect of dilutive securities
Stock options                                                    --                  233
                                             ----------------------------------------------
Dilutive EPS
Income available to stockholders             $            1,386,000              630,675        $              2.20

                                             ======================================================================
<CAPTION>
                                                              For the Year Ended December 31, 1998
                                             ----------------------------------------------------------------------
                                                       Income                 Shares                 Per Share
                                                    (Numerator)            (Denominator)              Amount
                                             ----------------------------------------------------------------------
<S>                                          <C>                           <C>                  <C>
Basic and Diluted EPS                        $            2,204,000              622,839        $              3.54
                                             ======================================================================
</TABLE>

                                       49
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 13. Commitments, Contingencies and Related Party Transactions

In addition to undisbursed loan funds outstanding, the Bank has mortgage loan
commitments and unused home equity loans and lines of credit outstanding at
December 31, 1999. Commitments, which are disbursed subject to certain
limitations, extend over varying periods of time with the majority subject to
disbursement over a 6-month period. A summary of these commitments, except for
undisbursed loan funds is as follows:

<TABLE>
<CAPTION>
                                                    Fixed Rate          Variable Rate           Total
                                                ------------------------------------------------------------
<S>                                            <C>                  <C>                 <C>
Commitments to extend credit, mortgage loans    $         1,835,000  $               -   $         1,835,000
Unused home equity loans and lines of credit                      -          6,096,000             6,096,000
</TABLE>

The Bank has made loans to its officers and directors in the normal course of
business. The following is an analysis of the loans to officers and directors
for the year ended December 31, 1999:

<TABLE>

<S>                                                                                     <C>
Balance, beginning                                                                       $         1,930,000
Originations                                                                                         184,000
Payments                                                                                            (667,000)
                                                                                         -------------------
Balance, ending                                                                          $         1,447,000
                                                                                         ===================
</TABLE>

Additionally, officers and directors maintain deposits with the Bank in the
normal course of business. Such deposits amounted to approximately $1,286,000 at
December 31, 1999.

The Bank has entered into employment agreements with certain key employees in
order to establish their duties and compensation and to provide for their
continued employment with the Bank. The agreements will provide for an initial
term of employment of three years. Commencing on the first anniversary date and
continuing on each anniversary date thereafter, following a performance
evaluation of the employee, each agreement may be extended for an additional
year so that the remaining term shall be three years, unless written notice of
non-renewal is given by the Board of Directors. In the event of a change in
control of the Company, the employees are to receive a minimum 6% salary
increase plus an amount equal to the average bonus from the two previous years.

                                       50
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 14. Fair Value of Financial Instruments

The following table reflects a comparison of carrying amounts and the fair
values of the financial instruments as of December 31, 1999 and 1998:


<TABLE>
<CAPTION>
                                                       1999                                    1998
                                      -------------------------------------------------------------------------
                                           Carrying             Fair            Carrying             Fair
                                            Value              Value              Value              Value
                                      -------------------------------------------------------------------------
<S>                                   <C>                <C>                <C>                <C>
Financial assets:
 Cash
  Interest-bearing deposits           $       6,912,000  $       6,912,000  $      7,806,000   $      7,806,000
  Noninterest-bearing deposits                1,502,000          1,502,000           439,000            439,000
 Certificates of deposit                        100,000            100,000           100,000            100,000
 Investments                                  4,595,000          4,571,000        11,625,000         11,674,000
 Loans receivable                           124,863,000        123,714,000       110,578,000        115,351,000
 Accrued interest receivable                    825,000            825,000           908,000            908,000
   FHLB stock                                 1,060,000          1,060,000           964,000            964,000

Financial liabilities:
 Deposits                                    90,563,000         87,680,000        87,569,000         85,238,000
 Advances from borrowers for
  taxes and insurance                            76,000             76,000           110,000            110,000
 Note payable                                10,500,000         10,500,000                 -                  -
 FHLB advances                                5,000,000          5,000,000                 -                  -
 Accounts payable and other
  liabilities                                   807,000            807,000           522,000            522,000
 Deferred compensation                        2,476,000          2,476,000         2,491,000          2,491,000
</TABLE>


The fair values utilized in the table were derived using the information
described below for the group of instruments listed. It should be noted that the
fair values disclosed in this table do not represent market values of all assets
and liabilities of the Company and, thus, should not be interpreted to represent
the market or liquidation value of the Company.

The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:

Cash and certificates of deposits: The carrying amounts for cash and short-term
---------------------------------
instruments approximate their fair values.

Investment securities: Fair values for securities are based on quoted market
---------------------
prices, where available. If quoted market prices are not available, fair values
are based on quoted market prices of similar securities.

                                       51
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 14. Fair Value of Financial Instruments (Continued)

Loans receivable: The fair value of fixed rate loans is estimated by discounting
----------------
the future cash flows, adjusted for prepayments, using the current rates at
which similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities. For variable rate loans that reprice
frequently and with no significant change in credit risk, fair values are equal
to carrying amounts. Management believes that the allowance for loan losses is
an appropriate indication of the applicable credit risk associated with
determining the fair value of its loan portfolio and has been deducted from the
estimated fair value of loans.

Accrued interest receivable, advances from borrowers for taxes and insurance,
-----------------------------------------------------------------------------
accounts payable and other liabilities and deferred compensation: The fair value
-----------------------------------------------------------------
is the amount receivable on demand at the statement of financial condition date.

Deposits: The fair value of demand deposits, savings accounts, and certain money
---------
market deposits is the amount payable on demand at the statement of financial
condition. The fair value of fixed maturity certificates of deposit are
estimated based upon the discounted value of contractual cash flows using rates
currently offered for deposits with similar remaining maturities.

Note payable and FHLB advances: The fair values of the note payable and FHLB
-------------------------------
advances are equal to their recorded book values due to the market rates of
interest and short-term nature.

Off-statement of financial condition instruments: Fair values for the Bank's
-------------------------------------------------
off-statement of financial condition instruments (loan commitments) are based on
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standings. The
fair value for such commitments is nominal.

                                       52
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 15. Parent Company Financial Data

The following are condensed financial statements for Coddle Creek Financial
Corp. as of and for the years ended December 31, 1999 and 1998. The Company had
no operations during the period from December 30, 1997 through December 31,
1997.

                   Condensed Statements of Financial Condition
                           December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                1999               1998
                                                       --------------------------------------
<S>                                                    <C>                 <C>
Assets:
  Cash                                                 $       12,113,000  $       9,976,000
  Investment in Mooresville Savings Bank, S.S.B.               31,353,000         30,305,000
  Securities available for sale                                 1,772,000          4,929,000
  Other assets                                                    154,000            101,000
                                                       --------------------------------------
           Total assets                                $       45,392,000  $      45,311,000
                                                       ======================================

Note payable                                           $       10,500,000  $
Accounts payable and other liabilities                            447,000            192,000
                                                       --------------------------------------
           Total liabilities                                   10,947,000            192,000
                                                       --------------------------------------
Stockholders' Equity:
    Additional paid-in capital                                 23,057,000         32,461,000
    Accumulated other comprehensive income (loss)                 (21,000)            46,000
    Unearned ESOP shares                                       (3,725,000)        (4,021,000)
    Management recognition plan                                  (728,000)                 -
    Unearned compensation                                        (839,000)                 -
    Retained earnings                                          16,701,000         16,633,000
                                                       --------------------------------------
           Total stockholders' equity                          34,445,000         45,119,000
                                                       --------------------------------------
           Total liabilities and stockholders' equity  $       45,392,000  $      45,311,000
                                                       ======================================
<CAPTION>

                         Condensed Statements of Income
                 For the Years Ended December 31, 1999 and 1998

<S>                                                    <C>                 <C>
Equity in earnings of Mooresville Savings Bank, S.S.B. $        1,352,000  $       1,790,000
Interest income                                                   427,000            657,000
Interest expense                                                 (208,000)           (66,000)
Other expense                                                    (185,000)          (177,000)
                                                       --------------------------------------
           Net income                                  $        1,386,000  $       2,204,000
                                                       ======================================
</TABLE>

                                       53
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 15. Parent Company Financial Data (Continued)

                       Condensed Statements of Cash Flows
                     Years Ended December 31, 1999 and 1998


<TABLE>
<CAPTION>
                                                                                    1999                1998
                                                                            --------------------------------------
<S>                                                                         <C>                 <C>
Cash Flows from Operating Activities:
Net income                                                                  $        1,386,000  $       2,204,000
Adjustments to reconcile net income to net cash provided
  by (used in) operating activities:
  Equity in earnings of Mooresville Savings Bank, S.S.B.                            (1,352,000)        (1,790,000)
  Changes in assets and liabilities:
    Increase in other assets                                                           (50,000)          (101,000)
    Increase (decrease) in accounts payable and other liabilities                      (17,000)            11,000
                                                                            --------------------------------------
           Net cash provided by (used in) operating activities                         (33,000)           324,000
                                                                            --------------------------------------
Cash Flows from Investing Activities:
  Due from Mooresville Savings Bank, S.S.B.                                                  -          8,989,000
  Upstream dividend from Mooresville Savings Bank, S.S.B.                            1,295,000            675,000
  Purchases of securities available for sale                                          (500,000)        (9,459,000)
  Proceeds from maturities of securities available for sale                          3,623,000          4,550,000
  Loan to ESOP for purchase of common stock                                                  -         (4,216,000)
  Principal payment received on note receivable from ESOP                              296,000            195,000
                                                                            --------------------------------------
           Net cash provided by investing activities                                 4,714,000            734,000
                                                                            --------------------------------------
Cash Flows from Financing Activities:
  Proceeds from note payable                                                        12,000,000                  -
  Payments on note payable                                                          (1,500,000)                 -
  Cash dividends paid                                                              (13,044,000)          (453,000)
                                                                            --------------------------------------
           Net cash used in financing activities                                    (2,544,000)          (453,000)
                                                                            --------------------------------------
Net increase in cash                                                                 2,137,000            605,000
  Cash - beginning                                                                   9,976,000          9,371,000
                                                                            --------------------------------------
  Cash - ending                                                             $       12,113,000  $       9,976,000
                                                                            ======================================
Supplemental Disclosures of Noncash Transactions
  Changes in dividends accrued                                              $          278,000  $         169,000
</TABLE>

                                       54
<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 16. Future Reporting Requirements

The FASB has issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, which the Company has not been required to adopt as of
December 31, 1999. This Statement, which is effective for fiscal years beginning
after June 15, 2000, establishes accounting and reporting standards for
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. This Statement is not expected to have a significant impact on the
Company.

                                       55
<PAGE>

                              CORPORATE INFORMATION

                               EXECUTIVE OFFICERS:

                             George W. Brawley, Jr.
                                President and CEO

                                 Dale W. Brawley
                            Executive Vice President

                                Billy R. Williams
                              Secretary/Controller


                                   DIRECTORS:

                             George W. Brawley, Jr.
                        Chairman of the Board, President
                         and CEO of Moorseville Savings
                                      Bank

                                 Dale W. Brawley
                           Executive Vice President of
                            Moorseville Savings Bank

                              Claude U. Voils, Jr.
                                 Retired Chemist
                               of National Starch

                                 Jack G. Lawler
                              Retired President of
                                   Taltronics

                                  Don E. Mills
                                   Optometrist
                           Optometric Eye Care Center

                                 Donald R. Belk
                          President of E.F. Belk & Son
                             Electrical Contractors


                              Stock Transfer Agent
                         Registrar and Transfer Company
                                10 Commerce Drive
                               Cranford, NJ 07016


                              Special Legal Counsel
                            Brooks, Pierce, McLendon,
                             Humphrey & Leonard, LLP
                             2000 Renaissance Plaza
                              230 North Elm Street
                              Greensboro, NC 27420


                              Independent Auditors
                             McGladrey & Pullen, LLP
                              One Morrocroft Centre
                       6805 Morrison Boulevard, Suite 200
                               Charlotte, NC 28211


                               Annual Meeting
                 The 1999 annual meeting of stockholders of
                Coddle Creek Financial Corp. will be held at
                11:00 A.M. on April 20, 2000 at the Company's
                 corporate office at 347 North Main Street,
                              Mooresville, NC.

                                  Form 10-K
               A copy of Form 10-K, including the financial statements
               for the year ended December 31, 1999, as filed with
               the Securities and Exchange Commission will be
               furnished without charge to the Company's stockholders
               upon written request to Coddle Creek Financial Corp., 347
               Main Street, P.O. Box 117, Mooresville, NC 28115
               Attn: George Brawley, President


                                Corporate Office
                              347 North Main Street
                                  P.O. Box 117
                              Mooresville, NC 28115

                                       56
<PAGE>

                            Common Stock Information

The Company had 699,156 shares of common stock outstanding at March 1, 2000,
which are held by 443 shareholders of record, not including the number of
persons or entities where stock is held in nominee or "street" name through
various brokerage firms or banks. The Company's common stock began trading on
December 31, 1997 and is traded on the over the counter market with quotations
available through the OTC Bulletin Board under the symbol "CDLC". Payment of
dividends by the Bank to the Company is subject to various restrictions. Under
applicable banking regulations, the Bank may not declare or pay a cash dividend
if the effect thereof would be to reduce its net worth to an amount less than
the minimum amount required by applicable federal and state regulations. In
addition, for the five year period following the consummation of the Bank's
stock conversion, which occurred on December 30, 1997, the Bank must obtain
written approval from the Administrator of the Savings Institution Division,
North Carolina Department of Commerce, before it can declare a cash dividend in
an amount in excess of one-half of the greater of (i) its net income for the
most recent fiscal year or (ii) the average of its net income for the most
recent fiscal year and not more than two of the immediately preceding fiscal
years, as applicable. Also, the Bank is not permitted to declare a cash dividend
of the effect thereof would be to cause its net worth to be reduced below the
amount required for the liquidation account established in connection with the
Bank's conversion from mutual to stock form. In connection with such conversion,
the Bank agreed with the FDIC that, during the first three years following the
conversion, neither the Company nor the Bank will pay any taxable dividend in
excess of current and retained earnings.

The following table reflects the stock trading and dividend payment frequency of
the Company for the years ended December 31, 1999 and 1998.


<TABLE>
<CAPTION>
                                    Dividends                              Stock Price
                      ------------------------------------------------------------------------------
                           Regular             Special                High                 Low
                      ------------------------------------------------------------------------------
<S>                   <C>                 <C>                 <C>                 <C>
1999
First Quarter         $             0.25  $                -  $            69.00  $            58.00
Second Quarter                      0.53                   -               64.00               56.00
Third Quarter                       0.63               17.18               60.50               38.50
Fourth Quarter                      0.64                   -               41.00               29.00

1998
First Quarter         $             0.25  $                -  $            82.75  $            70.00
Second Quarter                      0.25                   -               89.00               74.25
Third Quarter                       0.25                   -               73.25               42.00
Fourth Quarter                      0.25                   -               62.00               52.00
</TABLE>

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