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

                                   FORM 10-K


                ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]


              For the fiscal year ended         December 31, 1998
                                        -------------------------

               Commission file number        000-23465          
                                     --------------------------            


                         CODDLE CREEK FINANCIAL CORP.
                        -------------------------------
            (Exact name of registrant as specified in its charter)


          North Carolina                               56-2045998
      --------------------------                     ---------------
   (State or other jurisdiction of         (I.R.S. Employer Identification No.)
    incorporation or organization)

      347 North Main Street
    Mooresville, North Carolina                          28115
--------------------------------------                ----------
(Address of principal executive office)               (Zip Code)



                                (704) 664-4888                       
            ------------------------------------------------------   
             (Registrant's Telephone Number, Including Area Code)


       Securities Registered Pursuant to Section 12(b) of the Act:  None
                                                                    ----

          Securities Registered Pursuant to Section 12(g) of the Act:

                          Common Stock, no par value
                    ----------------------------------------       
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.       Yes     X               No  
                                              -------               ------

Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.            [   ]

State the aggregate market value of the voting stock held by non-affiliates of
the registrant (excluding five percent owners as non-affiliates).  The aggregate
market value shall be computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such stock, as of a specified date
within 60 days prior to the date of filing.  $31,375,500 common stock, no par
                                             --------------------------------
value, based on the closing price of such common stock on March 4, 1999.
-------------------------------------------------------------------------

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. 698,756 shares of common stock,
                                                 -------------------------------
no par value, outstanding at March 4, 1998.
-------------------------------------------
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                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report of Coddle Creek Financial Corp. for the year ended
December 31, 1998 (the "1998 Annual Report"), are incorporated by reference into
Part I, Part II and Part IV.

Portions of the Proxy Statement for the 1999 Annual Meeting of Shareholders of
Coddle Creek Financial Corp. to be held on April 21, 1998, are incorporated by
reference into Part III.

Portions of the Registration Statement of Coddle Creek Financial Corp. On Form
S-1, Registration No. 333-35497, dated September 12, 1997, as amended on
November 5 and 10, 1997, are incorporated by reference into Part IV.

Portions of the Form 10-K for the year ended December 31, 1997, are incorporated
by reference into Part IV.

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                                    PART I


ITEM 1.   BUSINESS

General

     Prior to December 30, 1997, Mooresville Savings Bank, Inc., S.S.B. (the
"Bank") operated as a mutual North Carolina-chartered savings bank.  On December
30, 1997, the Bank converted from a North Carolina-chartered mutual savings bank
to a North Carolina-chartered stock savings bank (the "Conversion").  In
connection with the Conversion, all of the issued and outstanding capital stock
of the Bank was acquired by Coddle Creek Financial Corp., a North Carolina
corporation (the "Company") which was organized to become the holding company
for the Bank.  At that time, the Company had an initial public offering of its
common stock, no par value (the "Common Stock").

     The Company is a bank holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") under the Bank
Holding Company Act of 1956, as amended (the "BHCA") and the savings bank
holding company laws of North Carolina.  The Company's office is located at 347
North Main Street, Mooresville, North Carolina.  The Company's activities
consist of investing the proceeds of its initial public offering which were
retained at the holding company level, holding the indebtedness outstanding from
the Mooresville Savings Bank, Inc., SSB Employee Stock Ownership Plan (the
"ESOP") and owning the Bank.  The Company's principal sources of income are
earnings on its investments and interest payments received from the ESOP with
respect to the ESOP loan.   In addition, the Company will receive any dividends
which are declared and paid by the Bank on its capital stock.

     At December 31, 1998, the Company and the Bank had total assets of $135.8
million, net loans of $110.6 million, deposits of $87.6 million and
stockholders' equity of $45.1 million.

     The Bank was originally chartered in 1937.  It has been a member of the
Federal Home Loan Bank ("FHLB") system, and its deposits have been federally
insured since 1947.  The Bank's deposits are insured by the Savings Association
Insurance Fund (the "SAIF") of the Federal Deposit Insurance Corporation (the
"FDIC") to the maximum amount permitted by law.  The Bank conducts business
through three (3) full service offices in Mooresville, Cornelius and
Huntersville, North Carolina.

     The Bank is engaged primarily in the business of attracting retail deposits
from the general public and using such deposits to make mortgage loans secured
by real estate.  The Bank makes one-to-four family residential real estate
loans, loans secured by multi-family residential and commercial property,
construction loans and equity line of credit loans.  The Bank also makes loans
which are not secured by real property, such as loans secured by pledged deposit
accounts and various types of secured and unsecured consumer loans.  The Bank's
primary source of revenue is interest income from its lending activities.  The
Bank's other major sources of revenue are interest and dividend income from
investments, interest income from its interest-earning deposit balances in other
depository institutions, and transactions and fee income from its lending and
deposit activities.  The major expenses of the Bank are interest on deposits and
general and administrative expenses such as employee compensation and benefits,
federal deposit insurance premiums, data processing expenses and occupancy
expenses.

     The operations of the Bank and depository institutions in general are
significantly influenced by general economic conditions and by related monetary
and fiscal policies of depository institution regulatory agencies, including the
Federal Reserve, the FDIC and the North Carolina Administrator, Savings
Institutions Division, North Carolina Department of Commerce (the
"Administrator").  Deposit flows and cost of funds are influenced by interest
rates on competing investments and general market rates of interest.  Lending
activities are affected by the demand for financing of real estate and other
types of loans, which in turn are affected by the interest rates at which such
financing may be offered and other factors affecting local demand and
availability of funds.

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     At December 31, 1998, the Company and the Bank had a total of 29 full-time
employees and 3 part-time employees.

     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 ESOP.  Accordingly, the discussion of the
business which follows in the Form 10-K concerns the business conducted by the
Bank, unless otherwise indicated.

Lending Activities

     General.   The Bank is engaged primarily in the business of attracting
deposits from the general public and using such deposits to make mortgage loans
secured by real estate.  The Bank's primary source of revenue is interest and
fee income from its lending activities, consisting primarily of mortgage loans
for the purchase or refinancing of one-to-four family residential real property
located in its primary market area.  The Bank also makes loans secured by multi-
family and nonresidential properties, construction loans, equity line loans,
savings account loans and various types of secured and unsecured consumer loans.
Approximately 98% of the Bank's gross loan portfolio is secured by real estate.
As of December 31, 1998, all of the loans in the Bank's real estate loan
portfolio were secured by properties in North Carolina.  On December 31, 1998,
the Bank's largest single outstanding loan had a balance of approximately
$500,000. This loan was performing in accordance with its original terms.  In
addition to interest earned on loans, the Bank receives fees in connection with
loan originations, loan servicing, loan modifications, late payments, loan
assumptions and other miscellaneous services.  The Bank generally does not sell
its loans; both fixed and adjustable rate loans are originated with the
intention that they will be held in the Bank's loan portfolio.

     Loan Portfolio Composition.  The Bank's net loan portfolio totaled
approximately $110.6 million at December 31, 1998 representing 81.4% of the
Bank's total assets at such date.  At December 31, 1998, 80.8% of the Bank's
gross loan portfolio was composed of one-to-four family residential mortgage
loans.  Multi-family residential and non-residential real estate loans
represented 4.2% on such date.  Construction loans and equity line lines
represented 6.4% and 6.6%, respectively, of the Bank's loan portfolio, before
net items, on such date.  As of December 31, 1998, 19% of the loans in the
Bank's loan portfolio, before net items, had adjustable interest rates.

     One to Four Family Residential Real Estate Lending.  The Bank's primary
lending activity, which it intends to continue to emphasize, is the origination
of fixed and adjustable rate mortgage loans to enable borrowers to purchase or
refinance one-to-four family residential real property.  Consistent with the
Bank's emphasis on being a community-oriented financial institution, it is and
has been the Bank's strategy to focus its lending efforts in its primary market
area. On December 31, 1998, approximately 82.5% of the Bank's real estate loan
portfolio, before net items, consisted of one-to-four family residential real
estate loans.  These include both loans secured by detached single-family
residences and condominiums and loans secured by housing containing not more
than four separate dwelling units.  Of such loan amounts, 15.1% had adjustable
interest rates.

     Adjustable rate loans are generally considered to involve a greater degree
of credit risk than fixed rate loans because borrowers may have difficulty
meeting their payment obligations if interest rates and required payment amounts
increase substantially.  Substantially all of the fixed-rate loans in the Bank's
mortgage loan portfolio have due on sale provisions allowing the Bank to declare
the unpaid balance due and payable in full upon the sale or transfer of an
interest in the property securing the loan.

     Historically, the Bank has not originated its one-to-four family
residential mortgage or other loans with the intention that they will be sold in
the secondary market.  Accordingly, the Bank originates fixed rate one-to-four
family residential real estate loans which satisfy the Bank's underwriting
requirements and are tailored to its local community, but do not necessarily
satisfy various technical FHLMC and FNMA underwriting requirements and purchase
requirements not related to documentation.

     Although the Bank believes that many of its one to four family residential
loans could be sold in the secondary market, some of such nonconforming loans
could be sold only after the Bank incurred certain costs and/or discounted 

                                       4
<PAGE>
 
the purchase price. As a result, the Bank's loan portfolio is less liquid than
would be the case if it was composed entirely of loans originated in conformity
with secondary market requirements.

     As of December 31, 1998, the Bank had 70 loan relationships with individual
borrowers in excess of $200,000, totaling approximately $18.7 million or 16.9%
of the Bank's total loan portfolio.  The majority of these loans are secured by
residential real estate located near or on Lake Norman, North Carolina, which is
located in parts of Catawba, Iredell, Lincoln and Mecklenburg counties.  While
these loans are performing according to the terms of their loan documents, an
economic downturn in the Bank's primary market area, in which Lake Norman is
located, could have an adverse effect on the performance of these loans.

     See also Note 3 of the "Notes to Consolidated Financial Statements" in the
1998 Annual Report.

Investment Securities

     Interest and dividend income from investment securities generally provides
the second largest source of income to the Company and the Bank after interest
on loans.  In addition, the Bank receives interest income from  deposits in
other financial institutions.

     At December 31, 1998, the Company's investment portfolio totaled
approximately $20.5 million and consisted of U.S. government and agency
securities, municipal bonds, interest-earning deposits in other financial
institutions, certificates of deposit and stock of the FHLB of Atlanta.

     As a member of the FHLB of Atlanta, the Bank is required to maintain an
investment in stock of the FHLB of Atlanta equal to the greater of 1% of the
Bank's outstanding home loans or 5% of its outstanding advances from the FHLB of
Atlanta.  No ready market exists for such stock, which is carried at cost.  As
of December 31, 1998, the Bank's investment in stock of the FHLB of Atlanta was
$964,000.

     North Carolina regulations require the Bank to maintain a minimum amount of
liquid assets which may be invested in specified short-term securities.  The
Bank's current investment policy provides that investment decisions will be made
by George W. Brawley, Jr., President and Chief Executive Officer, or by Dale W.
Brawley, Executive President and Treasurer, in his absence, and reviewed monthly
by the Board of Directors.  The investment policy provides that the objectives
of the investment portfolio are to:  (i) establish an acceptable level of
interest rate and credit risk for all investments; (ii) generate an acceptable
rate of return on investments; (iii) provide for adequate levels of liquidity
for the Bank; and (iv) provide guidance to management by the Board of Directors
on the investments desired for the Bank.

     Permitted investments include FHLB daily time deposits, insured
certificates of deposit, government securities and government agency securities.
The investment policy also permits investment in the general obligations of
municipalities primarily located within North Carolina.  Such general
obligations are considered less risky since they are repaid with taxes collected
by the municipality, not with revenues from a particular project.  At December
31, 1998, $2.3 million or 11.4% of the Company's investment portfolio consisted
of municipal bonds issued by municipalities located in North Carolina, all of
which had an A or above rating by Moodys Investment Service.

     At December 31, 1998, the market value of the Company's investment
securities available for sale and held to maturity, excluding interest-earning
deposits, certificates of deposit and stock of the FHLB of Atlanta (all of which
had a total cost of $8.9 million) were $10.2 million and $1.4 million,
respectively.

     See Note 2 of "Notes to Consolidated Financial Statements" in the 1998
Annual Report.

Deposits and Borrowings

     Deposits.  Deposits are the primary source of the Bank's funds for lending
and other investment purposes.  In addition to deposits, the Bank derives funds
from loan principal repayments, interest payments, investment income and
principal repayments, interest from its own interest-earning deposits, interest
income and advances from the FHLB of 

                                       5
<PAGE>
 
Atlanta and otherwise from its operations. Loan repayments are a relatively
stable source of funds while deposit inflows and outflows may be significantly
influenced by general interest rates and money market conditions.

     The Bank attracts both short-term and long-term deposits from the general
public by offering a variety of accounts and rates.  The Bank offers passbook
savings accounts, statement savings accounts, negotiable order of withdrawal
accounts, money market demand accounts, non-interest-bearing accounts, and fixed
interest rate certificates with varying maturities.  At December 31, 1998, 69.7%
of the Bank's deposits consisted of certificate accounts, 11.7% consisted of
passbook savings accounts, 15.8% consisted of interest-bearing transaction
accounts and 2.8% consisted of noninterest-bearing transaction accounts.
Deposit flows are greatly influenced by economic conditions, the general level
of interest rates, competition, and other factors, including the restructuring
of the thrift industry.  The Bank's savings deposits traditionally have been
obtained primarily from its primary market area.  The Bank utilizes traditional
marketing methods to attract new customers and savings deposits, including
print, television and radio media advertising and direct mailings.  The Bank
does not advertise for deposits outside of its local market area or utilize the
services of deposit brokers.

     At December 31, 1998, 1997 and 1996, the Bank's deposits totaled $87.6
million, $99.4 million, and $93.8 million, respectively.

     See Note 5 to the "Notes to Consolidated Financial Statements" in the 1998
Annual Report.

     Borrowings.    Borrowings may be used on a short-term basis to compensate
for reductions in the availability of funds from other sources.  They may also
be used on a longer term basis for general business purposes.  The Bank's
principal source of long-term borrowings are advances from the FHLB of Atlanta.
The FHLB system functions in a reserve credit capacity for savings institutions.
As a member, the Bank is required to own capital stock in the FHLB of Atlanta
and is authorized to apply for advances from the FHLB of Atlanta on the security
of that stock and a floating lien on certain of its real estate secured loans
and other assets.  Each credit program has its own interest rate and range of
maturities.  Depending on the program, limitations on the amount of advances are
based either on a fixed percentage of an institution's net worth or on the FHLB
of Atlanta's assessment of the institution's creditworthiness.  The Bank had no
outstanding borrowings from the FHLB of Atlanta at December 31, 1998.

Subsidiaries

     The Company has no subsidiaries other than the Bank.  The Bank has no
subsidiaries.

Results of Operations

     The Bank's results of operations are dependent primarily on net interest
income, which is the difference between the income earned on its interest-
earning assets, such as loans and investments, and the cost of its interest-
bearing liabilities, consisting of deposits and FHLB advances.  The Bank's
operations are affected to a much lesser degree by non-interest income, such as
transaction and other service fee income, and other sources of income.  The
Bank's net income is also affected by, among other things, provisions for loan
losses and operating expenses.  The Bank's  principal operating expenses, aside
from interest expense, consist of compensation and employee benefits, office
occupancy costs, data processing expenses and federal deposit insurance
premiums.  The Bank's results of operations are also significantly affected by
general economic and competitive conditions, particularly changes in market
interest rates, government legislation and policies concerning monetary and
fiscal affairs, housing and financial institutions and the attendant actions of
regulatory authorities.

Market Area

     The Bank's primary market area consists of the communities in an
approximately fifteen (15) mile radius around its headquarters office in
Mooresville, North Carolina.  This area includes portions of Iredell,
Mecklenburg, Lincoln, Catawba, Rowan and Cabarrus counties in North Carolina.
Mooresville is located only thirty (30) miles north 

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of Charlotte, North Carolina and the Bank's primary market area is and will
continue to be significantly affected by its close proximity to this major
metropolitan area.

     Employment in the Bank's primary market area is diversified among
manufacturing, agricultural, retail and wholesale trade, government, services
and utilities.  Major employers include Lake Norman Regional Medical Center,
Panasonic, and Mashushita Compressor Corporation.

Competition

     The Bank has operated in the Mooresville community for more than 60 years
and is the only financial institution headquartered in Mooresville.  However,
the Bank faces strong competition both in attracting deposits and making real
estate and other loans.  Its most direct competition for deposits has
historically come from other savings institutions, credit unions, brokerage
firms and commercial banks located in its primary market area, including large
financial institutions which have greater financial and marketing resources
available to them.  Two national money center commercial banks are currently
headquartered in Charlotte, North Carolina, which is only 30 miles from the
Bank's primary market area.  As of December 31, 1998, there were 9, 8 and 8
depository institutions with 15, 10 and 9 offices in Mooresville, Cornelius and
Huntersville, North Carolina, respectively.  Based upon June 30, 1998
comparative data, the Bank had 19.3% and 6.6% of the deposits in Mooresville and
Iredell County, respectively.  As a result of this intense competition, the
Bank's branch offices, excluding the Mooresville office, have lower levels of
deposits than the industry average.

     The Bank has also faced additional significant competition for investors'
funds from short-term money market securities and other corporate and government
securities.  While the Bank's market share of deposits has decreased in recent
years, its deposit base has grown principally due to economic growth in the
Bank's market area.  The ability of the Bank to attract and retain savings
deposits depends on its ability to generally provide a rate of return, liquidity
and risk comparable to that offered by competing investment opportunities.

     The Bank experiences strong competition for real estate loans from other
savings institutions, commercial banks, and mortgage banking companies.  The
Bank competes for loans primarily through the interest rates and loan fees it
charges, the efficiency and quality of services it provides borrowers, and its
more flexible underwriting standards. Competition may increase as a result of
the continuing reduction of restrictions on the interstate operations of
financial institutions.

Supervision and Regulation

     Bank holding companies and state savings banks are extensively regulated
under both federal and state law. The following is a brief summary of certain
statutes and rules and regulations that affect or will affect the Company and
the Bank.  This summary is qualified in its entirety by reference to the
particular statute and regulatory provisions referred to below and is not
intended to be an exhaustive description of the statutes or regulations
applicable to the business of the Company and the Bank.  Supervision, regulation
and examination of the Company and the Bank by the regulatory agencies are
intended primarily for the protection of depositors rather than shareholders of
the Company.

     General.  The Company was organized for the purpose of acquiring and
holding all of the capital stock of the Bank to be issued in the Conversion.  As
a savings bank holding company subject to the Bank Holding Company Act of 1956,
as amended ("BHCA"), the Company is subject to certain regulations of the
Federal Reserve.  Under the BHCA, the Company's activities and those of its
subsidiaries are limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiaries or engaging in any other
activity which the Federal Reserve determines to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
The BHCA prohibits the Company from acquiring direct or indirect control of more
than 5% of the outstanding voting stock or substantially all of the assets of
any bank or savings bank or merging or consolidating with another bank holding
company or savings bank holding company without prior approval of the Federal
Reserve.

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     Additionally, the BHCA prohibits the Company from engaging in, or acquiring
ownership or control of, more than 5% of the outstanding voting stock of any
company engaged in a nonbanking business unless such business is determined by
the Federal Reserve to be so closely related to banking as to be properly
incident thereto.

     Similarly, Federal Reserve approval (or, in certain cases, non-disapproval)
must be obtained prior to any person acquiring control of the Company.  Control
is conclusively presumed to exist if, among other things, a person acquires more
than 25% of any class of voting stock of the holding company or controls in any
manner the election of a majority of the directors of the holding company.
Control is presumed to exist if a person acquires more than 10% of any class of
voting stock and the stock is registered under Section 12 of the Exchange Act or
the acquiror will be the largest shareholder after the acquisition.

     There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss to the depositors of such
depository institutions and the FDIC insurance funds in the event the depository
institution becomes in danger of default or in default.  For example, to avoid
receivership of an insured depository institution subsidiary, a bank holding
company is required to guarantee the compliance of any insured depository
institution subsidiary that may become "undercapitalized" with the terms of any
capital restoration plan filed by such subsidiary with its appropriate federal
banking agency up to the lesser of (i) an amount equal to 5% of the
institution's total assets at the time the institution became undercapitalized
or (ii) the amount which is necessary (or would have been necessary) to bring
the institution into compliance with all capital standards as of the time the
institution fails to comply with such capital restoration plan. Under a policy
of the Federal Reserve with respect to bank holding company operations, a bank
holding company is required to serve as a source of financial strength to its
subsidiary depository institutions and to commit resources to support such
institutions in circumstances where it might not do so absent such policy.  The
Federal Reserve under the BHCA also has the authority to require a bank holding
company to terminate any activity or to relinquish control of a nonbank
subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve's determination that such activity or control constitutes a serious risk
to the financial soundness and stability of any bank subsidiary of the bank
holding company.

     In addition, insured depository institutions under common control are
required to reimburse the FDIC for any loss suffered by either the Savings
Association Insurance Fund ("SAIF") or the Bank Insurance Fund ("BIF") as a
result of the default of a commonly controlled insured depository institution or
for any assistance provided by the FDIC to a commonly controlled insured
depository institution in danger of default.  The FDIC may decline to enforce
the cross-guarantee provisions if it determines that a waiver is in the best
interest of the SAIF or the BIF or both.  The FDIC's claim for damages is
superior to claims of stockholders of the insured depository institution or its
holding company but is subordinate to claims of depositors, secured creditors
and holders of subordinated debt (other than affiliates) of the commonly
controlled insured depository institutions.

     Federal regulations require that the Company must notify the Federal
Reserve Bank of Richmond prior to repurchasing Common Stock in excess of ten
percent of its net worth during a rolling twelve month period.

     As a result of the Company's ownership of the Bank, the Company is
registered under the savings bank holding company laws of North Carolina.
Accordingly, the Company is also subject to regulation and supervision by the
Administrator.

     Capital Adequacy Guidelines for Holding Companies.  The Federal Reserve has
adopted capital adequacy guidelines for bank holding companies and banks that
are members of the Federal Reserve system and have consolidated assets of $150
million or more.  For bank holding companies with less than $150 million in
consolidated assets, the guidelines are applied on a bank-only basis unless the
parent bank holding company (i) is engaged in nonbank activity involving
significant leverage or (ii) has a significant amount of outstanding debt that
is held by the general public.

     Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines. Under these regulations, the minimum ratio of
total capital to risk-weighted assets (including certain off-balance sheet
activities, such as standby letters of credit) is 8%.  At least half of the
total capital is required to be "Tier I capital," 

                                       8
<PAGE>
 
principally consisting of common stockholders' equity, noncumulative perpetual
preferred stock, and a limited amount of cumulative perpetual preferred stock,
less certain goodwill items. The remainder ("Tier II capital") may consist of a
limited amount of subordinated debt, certain hybrid capital instruments and
other debt securities, perpetual preferred stock, and a limited amount of the
general loan loss allowance. In addition to the risk-based capital guidelines,
the Federal Reserve has adopted a minimum Tier I capital (leverage) ratio, under
which a bank holding company must maintain a minimum level of Tier I capital to
average total consolidated assets of at least 3% in the case of a bank holding
company which has the highest regulatory examination rating and is not
contemplating significant growth or expansion. All other bank holding companies
are expected to maintain a Tier I capital (leverage) ratio of at least 1% to 2%
above the stated minimum.

     Dividend and Repurchase Limitations.  In connection with the Conversion,
the Bank has agreed with the FDIC that, during the first three years after
consummation of the Conversion, neither the Company nor the Bank will pay any
taxable dividend or make any other taxable distribution to its stockholders in
excess of their current or retained earnings.  Also, 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 Company must obtain Federal
Reserve approval prior to repurchasing Common Stock for in excess of 10% of its
net worth during any twelve-month period unless the Company (i) both before and
after the redemption satisfies capital requirements for "well capitalized" state
member banks; (ii) received a one or two rating in its last examination; and
(iii) is not the subject of any unresolved supervisory issues.

     Although the payment of dividends and repurchase of stock by the Company
are subject to certain notice requirements with the Administrator in addition to
other requirements and limitations of North Carolina corporate law, except as
set forth in this paragraph, neither the Administrator nor the FDIC have
promulgated any regulations specifically limiting the right of the Company to
pay dividends and repurchase shares.  However, the ability of the Company to pay
dividends or repurchase shares may be dependent upon the Company's receipt of
dividends from the Bank.  The Bank's ability to pay dividends is limited.  See "
-- Regulation of the Bank -- Restrictions on Dividends and Other Capital
Distributions."

     Capital Maintenance Agreement.  In connection with the Administrator's
approval of the Company's application to acquire control of the Bank, the
Company was required to execute a Capital Maintenance Agreement whereby it has
agreed to maintain the Bank's capital in an amount sufficient to enable the Bank
to satisfy all regulatory capital requirements.

     Federal Securities Law.  The Company has registered its Common Stock with
the SEC pursuant to Section 12(g) of the Exchange Act and will not deregister
the Common Stock for a period of three years following the completion of the
Conversion.  As a result of such registration, the proxy and tender offer rules,
insider trading reporting requirements, annual and periodic reporting and other
requirements of the Exchange Act are applicable to the Company.

Regulation of the Bank

     General.   Federal and state legislation and regulation have significantly
affected the operations of federally insured savings institutions and other
federally regulated financial institutions.  In addition, federal legislation
has imposed new limitations on investment authority, and higher insurance and
examination assessments on savings institutions and has made other changes that
may adversely affect the future operations and competitiveness of savings
institutions with other financial institutions, including commercial banks and
their holding companies.  The operations of regulated depository institutions,
including the Bank, will continue to be subject to changes in applicable
statutes and regulations from time to time.  Such changes may or may not be
favorable to the Bank.

     The Bank is a North Carolina-chartered savings bank, is a member of the
FHLB system, and its deposits are insured by the FDIC through the SAIF.  It is
subject to examination and regulation by the FDIC and the Administrator and to
regulations governing such matters as capital standards, mergers, establishment
of branch offices, subsidiary investments and activities, and general investment
authority.  Generally, North Carolina state chartered savings banks whose
deposits are issued by the SAIF are subject to restrictions with respect to
activities and investments, transactions 

                                       9
<PAGE>
 
with affiliates and loans-to-one borrower similar to those applicable to SAIF
insured savings associations. Such examination and regulation is intended
primarily for the protection of depositors and the federal deposit insurance
funds.

     The Bank is subject to various regulations promulgated by the Federal
Reserve including, without limitation, Regulation B (Equal Credit Opportunity),
Regulation D (Reserves), Regulation E (Electronic Fund Transfers), Regulation O
(Loans to Executive Officers, Directors and Principal Shareholders), Regulation
Z (Truth in Lending), Regulation CC (Availability of Funds) and Regulation DD
(Truth in Savings).  As creditors of loans secured by real property and as
owners of real property, financial institutions, including the Bank, may be
subject to potential liability under various statutes and regulations applicable
to property owners generally, including statutes and regulations relating to the
environmental condition of real property.

     The FDIC has extensive enforcement authority over North Carolina-chartered
savings banks, including the Bank.  This enforcement authority includes, among
other things, the ability to assess civil money penalties, to issue cease and
desist or removal orders and to initiate injunctive actions.  In general, these
enforcement actions may be initiated in response to violations of laws and
regulations and unsafe or unsound practices.

     The grounds for appointment of a conservator or receiver for a North
Carolina savings bank on the basis of an institution's financial condition
include: (i) insolvency, in that the assets of the savings bank are less than
its liabilities to depositors and others; (ii) substantial dissipation of assets
or earnings through violations of law or unsafe or unsound practices; (iii)
existence of an unsafe or unsound condition to transact business; (iv)
likelihood that the savings bank will be unable to meet the demands of its
depositors or to pay its obligations in the normal course of business; and (v)
insufficient capital or the incurring or likely incurring of losses that will
deplete substantially all of the institution's capital with no reasonable
prospect of replenishment of capital without federal assistance.

     Transactions with Affiliates.  Under current federal law, transactions
between the Bank and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act.  An affiliate of the Bank is any company or entity that
controls, is controlled by or is under common control with the savings bank.
Generally, subsidiaries of a bank, other than a bank subsidiary, and certain
other types of companies are not considered to be affiliates.  Generally,
Sections 23A and 23B (i) limit the extent to which the Bank or its subsidiaries
may engage in "covered transactions" with any one affiliate to an amount equal
to 10% of such the Bank's capital stock and surplus, and contain an aggregate
limit on all such transactions with all affiliates to an amount equal to 20% of
such capital stock and surplus and (ii) require that all such transactions be on
terms substantially the same, or at least as favorable, to the Bank or the
subsidiary as those provided to a nonaffiliate.  The term "covered transaction"
includes the making of loans or other extensions of credit to an affiliate, the
purchase of assets from an affiliate, the purchase of, or an investment in, the
securities of an affiliate, the acceptance of securities of an affiliate as
collateral for a loan or extension of credit to any person, or issuance of a
guarantee, acceptance or letter of credit on behalf of an affiliate.

     Further, current federal law has extended to savings banks the restrictions
contained in Section 22(h) of the Federal Reserve Act and its implementing
regulations with respect to loans to directors, executive officers and principal
stockholders.  Under Section 22(h), loans to directors, executive officers and
stockholders who own more than 10% of a savings bank, and certain affiliated
entities of any of the foregoing, may not exceed, together with all other
outstanding loans to such person and affiliated entities, the savings bank's
loans-to-one borrower limit as established by federal law and all loans to such
persons may not exceed the institution's unimpaired capital and unimpaired
surplus.  Section 22(h) also prohibits loans above amounts prescribed by the
appropriate federal banking agency to directors, executive officers and
stockholders who own more than 10% of a savings bank, and their respective
affiliates, unless such loan is approved in advance by a majority of the
disinterested directors of the board of directors of the savings bank and the
Company. Any "interested" director may not participate in the voting.  The
Federal Reserve has prescribed the loan amount (which includes all other
outstanding loans to such person), as to which such prior board of director
approval is required, as being the greater of $25,000 or 5% of unimpaired
capital and unimpaired surplus (up to $500,000).  Further, pursuant to Section
22(h) the Federal Reserve requires that loans to directors, executive officers,
and principal stockholders be made on terms substantially the same as offered in
comparable transactions to non-executive employees and not involve more than the
normal risk of repayment or present other unfavorable features.  Section 22(h)
also generally prohibits a depository institution from paying the overdrafts of
any of its executive officers or directors.

                                       10
<PAGE>
 
     Deposit Insurance.  The Bank's deposit accounts are insured by the FDIC
under the Savings Association Insurance Fund ("SAIF") to the maximum extent
permitted by law.  The Bank is also subject to insurance assessments imposed by
the FDIC.  Under current law, the insurance assessment to be paid by the SAIF
members shall be as specified in a schedule required to be issued by the FDIC
that would specify, at semiannual intervals, target reserve ratios designed to
maintain a reserve ratio of 1.25% of estimated insured deposits (or such higher
ratio as the FDIC may determine in accordance with the statute).  Further, the
FDIC is authorized to impose one or more special assessments in any amount
deemed necessary to enable repayment of amounts borrowed by the FDIC from the
United States Treasury Department.  The FDIC has established a risk-based
assessment schedule, having assessments ranging from 0% to 0.27% of an
institution's average assessment base, with most banks paying 0%.  The actual
assessment to be paid by each SAIF member is based on an institution's
assessment risk classification, which is determined based on whether the
institution is considered "well capitalized," "adequately  capitalized" or
"under capitalized," as such terms have been defined in applicable federal
regulations, and whether such institution is considered by its supervisory
agency to be financially sound or to have supervisory concerns.  In addition,
the Bank is charged an assessment to help pay interest on the FICO bonds at an
annual rate of approximately 0.015% of the bank's average assessment base until
the earlier of December 31, 1999 or the date upon which the last savings
association ceases to exist.  Based on the current financial condition and
capital levels of the Bank, the Bank does not expect that the current risk-based
assessment schedule will have a material impact on the Bank's future earnings.

     Community Reinvestment Act.  The Bank, like other financial institutions,
is subject to the Community Reinvestment Act, as amended ("CRA"). A purpose of
this Act is to encourage financial institutions to help meet the credit needs of
its entire community, including the needs of low- and moderate-income
neighborhoods.  A savings bank is evaluated and rated under three categories: a
lending test, an investment test and a service test.  For each of these three
tests, the savings bank is given a rating of either "outstanding," "high
satisfactory," "low satisfactory," "needs to improve" or "substantial non-
compliance."  A set of criteria for each rating is included in the regulation.
If an institution disagrees with a particular rating, the institution has the
burden of rebutting the presumption by clearly establishing that the
quantitative measures do not accurately present its actual performance, or that
demographics, competitive conditions or economic or legal limitations peculiar
to the service area should be considered.  The ratings received under the three
tests are used to determine the overall composite CRA rating or "outstanding,"
"satisfactory," "needs to improve" or "substantial non-compliance."

     During the Bank's last compliance examination, which was performed by the
FDIC under the new CRA regulations in July 1996, the Bank received a
"satisfactory" rating with respect to CRA compliance.  The Bank's rating with
respect to CRA compliance would be a factor to be considered by the Federal
Reserve and FDIC in considering applications submitted by the Bank to acquire
branches or to acquire or combine with other financial institutions and take
other actions and could result in the denial of such applications.

     Capital Requirements Applicable To The Bank.  The FDIC requires the Bank to
have a minimum leverage ratio of Tier I capital (principally consisting of
common stockholders' equity, noncumulative perpetual preferred stock and
minority interests in consolidated subsidiaries, less certain intangible items,
goodwill items, identified losses and investments in securities subsidiaries) to
total assets of at least 3%; provided, however that all institutions, other than
those (i) receiving the highest rating during the examination process and (ii)
not anticipating or experiencing any significant growth, are required to
maintain a ratio of 1% or 2% above the stated minimum, with an absolute minimum
leverage ratio of not less than 4%.  The FDIC also requires the Bank to have a
ratio of total capital to risk-weighted assets, including certain off-balance
sheet activities, such as standby letters of credit, of at least 8%. At least
half of the total capital is required to be Tier I capital.  The remainder
("Tier II capital") may consist of a limited amount of subordinated debt,
certain hybrid capital instruments, other debt securities, certain types of
preferred stock and a limited amount of loan loss allowance.

     An institution which fails to meet minimum capital requirements may be
subject to a capital directive which is enforceable in the same manner and to
the same extent as a final cease and desist order, and must submit a capital
plan within 60 days to the FDIC.  If the leverage ratio falls to 2% or less, the
bank may be deemed to be operating in an unsafe or unsound condition, allowing
the FDIC to take various enforcement actions, including possible termination 

                                       11
<PAGE>
 
of insurance or placement of the institution in receivership. At December 31,
1998, the Bank had a leverage ratio of 23.14%.

     The Administrator requires that net worth equal at least 5% of total
assets.  Intangible assets must be deducted from net worth and assets when
computing compliance with this requirement.  At December 31, 1998, the Bank
complied with each of the capital requirements of the FDIC and the
Administrator.

     Each federal banking agency was required by law to revise its risk-based
capital standards to ensure that those standards take adequate account of
interest rate risk, concentration of credit risk, and the risk of nontraditional
activities, as well as reflect the actual performance and expected risk of loss
on multi-family mortgages.  On August 2, 1995, the federal banking agencies
issued a joint notice of adoption of final risk-based capital rules to take
account of interest rate risk.  The final regulation required an assessment of
the need for additional capital on a case-by-case basis, considering both the
level of measured exposure and qualitative risk factors.  The final rule also
stated an intent to, in the future, establish an explicit minimum capital charge
for interest rate risk based on the level of a bank's measured interest rate
risk exposure.  The final regulation has not had a material impact on the Bank's
capital requirements.

     Effective June 26, 1996, the federal banking agencies issued a joint policy
statement announcing the agencies' election not to adopt a standardized measure
and explicit capital charge for interest rate risk at that time.  Rather, the
policy statement (i) identifies the main elements of sound interest rate risk
management, (ii) describes prudent principles and practices for each of those
elements, and (iii) describes the critical factors affecting the agencies'
evaluation of a bank's interest rate risk when making a determination of capital
adequacy.  The joint policy statement is not expected to have a material impact
on the Bank's management of interest rate risk.

     In December 1994, the FDIC adopted a final rule changing its risk-based
capital rules to recognize the effect of bilateral netting agreements in
reducing the credit risk of two types of financial derivatives - interest and
exchange rate  contracts.   Under the rule, savings banks are permitted to net
positive and  negative mark-to-market values of rate contracts with the same
counterparty, subject to legally enforceable bilateral netting contracts that
meet certain criteria. This represents a change from the prior rules which
recognized only a very limited form of netting.  The Bank does not anticipate
that this rule will have a material effect upon its financial condition or
results of operations.

     Loans-To-One-Borrower.  The Bank is subject to the Administrator's loans-
to-one-borrower limits.  Under these limits, no loans and extensions of credit
to any borrower outstanding at one time and not fully secured by readily
marketable collateral shall exceed 15% of the net worth of the savings bank.
Loans and extensions of credit fully secured by readily marketable collateral
may comprise an additional 10% of net worth.  These limits also authorize
savings banks to make loans-to-one-borrower, for any purpose, in an amount not
to exceed $500,000.  A savings bank also is authorized to make loans-to-one-
borrower to develop domestic residential housing units, not to exceed the lesser
of $30 million or 30% of the savings bank's net worth, provided that the
purchase price of each single-family dwelling in the development does not exceed
$500,000 and the aggregate amount of loans made under this authority does not
exceed 150% of net worth.  These limits also authorize a savings bank to make
loans-to-one-borrower to finance the sale of real property acquired in
satisfaction of debts in an amount up to 50% of net worth.

     As of December 31, 1998, the largest aggregate amount of loans which the
Bank had to any one borrower was $662,000.  The Bank had no loans outstanding
which management believes violate the applicable loans-to-one-borrower limits.
The Bank does not believe that the loans-to-one-borrower limits will have a
significant impact on its business, operations and earnings.

     Federal Home Loan Bank System.  The FHLB system provides a central credit
facility for member institutions.  As a member of the FHLB of Atlanta, the Bank
is required to own capital stock in the FHLB of Atlanta in an amount at least
equal to the greater of 1% of the aggregate principal amount of its unpaid
residential mortgage loans, home purchase contracts and similar obligations at
the end of each calendar year, or 5% of its outstanding advances (borrowings)
from the FHLB of Atlanta.  On December 31, 1998, the Bank was in compliance with
this requirement with an investment in FHLB of Atlanta stock of $964,000.

                                       12
<PAGE>
 
     Each FHLB is required to contribute at least 10% of its reserves and
undivided profits to fund the principal and a portion of the interest on certain
bonds and certain other obligations which are used to fund the resolution of
troubled savings association cases, and to transfer a percentage of its annual
net earnings to the Affordable Housing Program. These contributions continue to
reduce the FHLB of Atlanta's earnings and the Bank's dividends on its FHLB of
Atlanta stock.

     Federal Reserve System.  Federal Reserve regulations require savings banks,
not otherwise exempt from the regulations, to maintain reserves against their
transaction accounts (primarily negotiable order of withdrawal accounts) and
certain nonpersonal time deposits.  The reserve requirements are subject to
adjustment by the Federal Reserve. As of December 31, 1998, the Bank was in
compliance with the applicable reserve requirements of the Federal Reserve.

     Restrictions on Acquisitions.  Federal law generally provides that no
"person," acting directly or indirectly or through or in concert with one or
more other persons, may acquire "control," as that term is defined in FDIC
regulations, of a state savings bank without giving at least 60 days' written
notice to the FDIC and providing the FDIC an opportunity to disapprove the
proposed acquisition.  Pursuant to regulations governing acquisitions of
control, control of an insured institution is conclusively deemed to have been
acquired by, among other things, the acquisition of more than 25% of any class
of voting stock.  In addition, control is presumed to have been acquired,
subject to rebuttal, upon the acquisition of more than 10% of any class of
voting stock.  Such acquisitions of control may be disapproved if it is
determined, among other things, that (i) the acquisition would substantially
lessen competition; (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the savings bank or prejudice the
interests of its depositors; or (iii) the competency, experience or integrity of
the acquiring person or the proposed management personnel indicates that it
would not be in the interest of the depositors or the public to permit the
acquisitions of control by such person.

     For three years following completion of the Conversion, North Carolina
conversion regulations require the prior written approval of the Administrator
before any person may directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of an equity security of the
Bank.  If any person were to so acquire the beneficial ownership of more than
10% of any class of any equity security without prior written approval, the
securities beneficially owned in excess of 10% would not be counted as shares
entitled to vote and would not be voted or counted as voting shares in
connection with any matter submitted to stockholders for a vote.  Approval is
not required for (i) any offer with a view toward public resale made exclusively
to the Bank or its underwriters or the selling group acting on its behalf or
(ii) any offer to acquire or acquisition of beneficial ownership of more than
10% of the common stock of the Bank by a corporation whose ownership is or will
be substantially the same as the ownership of the Bank, provided that the offer
or acquisition is made more than one year following the consummation of the
Conversion.  The regulation provides that within one year following the
Conversion, the Administrator would approve the acquisition of more than 10% of
beneficial ownership only to protect the safety and soundness of the
institution.  During the second and third years after the Conversion, the
Administrator may approve such an acquisition upon a finding that (i) the
acquisition is necessary to protect the safety and soundness of the Company and
the Bank or the Boards of Directors of the Company and the Bank support the
acquisition and (iii) the acquiror is of good character and integrity and
possesses satisfactory managerial skills, the acquiror will be a source of
financial strength to the Company and the Bank and the public interests will not
be adversely affected.

     Liquidity.  The Bank is subject to the Administrator's requirement that the
ratio of liquid assets to total assets equal at least 10%.  The computation of
liquidity under North Carolina regulation allows the inclusion of mortgage-
backed securities and investments which, in the judgment of the Administrator,
have a readily marketable value, including investments with maturities in excess
of five years.  On December 31, 1998, the Bank's liquidity ratio, calculated in
accordance with North Carolina regulations, was approximately 15.9%.  Prior to
and following that date, the Bank's liquidity ratio exceeded 10% of total
assets.  At December 31, 1998, the Bank had $12.0 million in available credit
with the FHLB of Atlanta and stable, core-like time deposits of $100,000 or more
of approximately $11.5 million.
     Additional Limitations on Activities.  FDIC law and regulations generally
provide that the Bank may not engage as principal in any type of activity, or in
any activity in an amount, not permitted for national banks, or directly acquire
or retain any equity investment of a type or in an amount not permitted for
national banks.  The FDIC has authority to grant exceptions from these
prohibitions (other than with respect to non-service corporation equity

                                       13
<PAGE>
 
investments) if it determines no significant risk to the insurance fund is posed
by the amount of the investment or the activity to be engaged in and if the Bank
is and continues to be in compliance with fully phased-in capital standards.
National banks are generally not permitted to hold equity investments other than
shares of service corporations and certain federal agency securities.  Moreover,
the activities in which service corporations are permitted to engage are limited
to those of service corporations for national banks.

     Savings banks are also generally prohibited from directly or indirectly
acquiring or retaining any corporate debt security that is not of investment
grade (generally referred to as "junk bonds").  State savings banks are also
required to notify the FDIC at least 30 days prior to the establishment or
acquisition of any subsidiary, or at least 30 days prior to conducting any such
new activity.  Any such activities must be conducted in accordance with the
regulations and orders of the FDIC and the Administrator.

     Prompt Corrective Regulatory Action.  Federal law provides the federal
banking agencies with broad powers to take corrective action to resolve problems
of insured depository institutions.  The extent of these powers depends upon
whether the institutions in question are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," or
"critically undercapitalized."  Under the FDIC regulations applicable to the
Bank, an institution is considered "well capitalized" if it has (i) a total
risk-based capital ratio of 10% or greater, (ii) a Tier I risk-based capital
ratio of 6% or greater, (iii) a leverage ratio of 5% or greater and (iv) is not
subject to any order or written directive to meet and maintain a specific
capital level for any capital measure.  An "adequately capitalized" institution
is defined as one that has (i) a total risk-based capital ratio of 8% or
greater, (ii) a Tier I risk-based capital ratio of 4% or greater and (iii) a
leverage ratio of 4% or greater (or 3% or greater in the case of an institution
with the highest examination rating and which is not experiencing or
anticipating significant growth).  An institution is considered (A)
"undercapitalized" if it has (i) a total risk-based capital ratio of less than
8%, (ii) a Tier I risk-based capital ratio of less than 4% or (iii) a leverage
ratio of less than 4% (or 3% in the case of an institution with the highest
examination rating and which is not experiencing or anticipating significant
growth); (B) "significantly undercapitalized" if the institution has (i) a total
risk-based capital ratio of less than 6%, or (ii) a Tier I risk-based capital
ratio of less than 3% or (iii) a leverage ratio of less than 3% and (C)
"critically undercapitalized" if the institution has a ratio of tangible equity
to total assets equal to or less than 2%.  As of December 31, 1998, the most
recent notification received by the Bank from the FDIC categorized the Bank as
well-capitalized.

     Interstate Banking.   The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act"), effective September 29,
1995, permits adequately capitalized bank and savings bank holding companies to
acquire control of banks and savings banks in any state.  The states may
specifically permit interstate acquisitions prior to September 29, 1995, by
enacting legislation that provides for such transactions.  North Carolina
adopted nationwide reciprocal interstate acquisition legislation in 1994.

     Such interstate acquisitions are subject to certain restrictions.  States
may require the bank or savings bank being acquired to have been in existence
for a certain length of time but not in excess of five years. In addition, no
bank or saving bank may acquire more than 10% of the insured deposits in the
United States or more than 30% of the insured deposits in any one state, unless
the state has specifically legislated a higher deposit cap. States are free to
legislate stricter deposit caps.

     The Interstate Banking Act also provides for interstate branching,
effective June 1, 1997, allowing interstate branching in all states, provided
that a particular state has not specifically denied interstate branching by
legislation prior to such time.  Unlike interstate acquisitions, a state may
deny interstate branching if it specifically elects to do so by June 1, 1997.
States may choose to allow interstate branching prior to June 1, 1997 by opting-
in to a group of states that permits these transactions.  These states generally
allow interstate branching via a merger of an out-of-state bank with an in-state
bank, or on a de novo basis.  North Carolina has enacted legislation permitting
branching transactions.

     Restrictions on Dividends and Other Capital Distributions.  A North
Carolina-chartered stock savings bank may not declare or pay a cash dividend on,
or repurchase any of, its capital stock if the effect of such transaction would
be to reduce the net worth of the institution to an amount which is less than
the minimum amount required by applicable federal and state regulations.  In
addition, a North Carolina-chartered stock savings bank, for a period of five
years after 

                                       14
<PAGE>
 
its conversion from mutual to stock form, must obtain the written approval from
the Administrator before declaring or paying a cash dividend on its capital
stock in an amount in excess of one-half of the greater of (i) the institution's
net income for the most recent fiscal year end, or (ii) the average of the
institution's net income after dividends for the most recent fiscal year end and
not more than two of the immediately preceding fiscal year ends, if applicable.
Under FDIC regulations, no stock repurchases may be made by the savings bank
during the first year following a conversion from mutual to stock, except that
stock repurchases of no greater than 5% of the bank's outstanding shares may be
repurchased during the first year where compelling and valid business reasons
are established to the satisfaction of the FDIC.

     Also, without the prior written approval of the Administrator, a North
Carolina-chartered stock savings bank, for a period of five years after its
conversion from mutual to stock form, may not repurchase any of its capital
stock. The Administrator will give approval to repurchase only upon a showing
that the proposed repurchase will not adversely affect the safety and soundness
of the institution.

     In addition, the Bank is not permitted to declare or pay a cash dividend on
or repurchase any of its capital stock if 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 ownership.

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

     Other North Carolina Regulations.  As a North Carolina-chartered savings
bank, the Bank derives its authority from, and is regulated by, the
Administrator.  The Administrator has the right to promulgate rules and
regulations necessary for the supervision and regulation of North Carolina
savings banks under his jurisdiction and for the protection of the public
investing in such institutions.  The regulatory authority of the Administrator
includes, but is not limited to, the establishment of reserve requirements; the
regulation of the payment of dividends; the regulation of stock repurchases, the
regulation of incorporators, stockholders, directors, officers and employees;
the establishment of permitted types of withdrawable accounts and types of
contracts for savings programs, loans and investments; and the regulation of the
conduct and management of savings banks, chartering and branching of
institutions, mergers, conversions and conflicts of interest.  North Carolina
law requires that the Bank maintain federal deposit insurance as a condition of
doing business.

     The Administrator conducts regular examinations of North Carolina-chartered
savings banks.  The purpose of such examinations is to assure that institutions
are being operated in compliance with applicable North Carolina law and
regulations and in a safe and sound manner. These examinations are usually
conducted on a joint basis with the FDIC.  In addition, the Administrator is
required to conduct an examination of any institution when he has good reason to
believe that the standing and responsibility of the institution is of doubtful
character or when he otherwise deems it prudent.  The Administrator is empowered
to order the revocation of the license of an institution if he finds that it has
violated or is in violation of any North Carolina law or regulation and that
revocation is necessary in order to preserve the assets of the institution and
protect the interests of its depositors.  The Administrator has the power to
issue cease and desist orders if any person or institution is engaging in, or
has engaged in, any unsafe or unsound practice or unfair and discriminatory
practice in the conduct of its business or in violation of any other law, rule
or regulation.

     A North Carolina-chartered savings bank must maintain net worth, computed
in accordance with the Administrator's requirements, of 5% of total assets and
liquidity of 10% of total assets, as discussed above. Additionally, a North
Carolina-chartered savings bank is required to maintain general valuation
allowances and specific loss reserves in the same amounts as required by the
FDIC.

     Subject to limitation by the Administrator, North Carolina-chartered
savings banks may make any loan or investment or engage in any activity which is
permitted to federally chartered institutions.  However, a North Carolina-
chartered savings bank cannot invest more than 15% of its total assets in
business, commercial, corporate and agricultural loans.  In addition to such
lending authority, North Carolina-chartered savings banks are authorized to
invest 

                                       15
<PAGE>
 
funds, in excess of loan demand, in certain statutorily permitted investments,
including but not limited to (i) obligations of the United States, or those
guaranteed by it; (ii) obligations of the State of North Carolina; (iii) bank
demand or time deposits; (iv) stock or obligations of the federal deposit
insurance fund or a FHLB; (v) savings accounts of any savings institution as
approved by the board of directors; and (vi) stock or obligations of any agency
of the State of North Carolina or of the United States or of any corporation
doing business in North Carolina whose principal business is to make education
loans.

     North Carolina law provides a procedure by which savings institutions may
consolidate or merge, subject to approval of the Administrator.  The approval is
conditioned upon findings by the Administrator that, among other things, such
merger or consolidation will promote the best interests of the members or
stockholders of the merging institutions. North Carolina law also provides for
simultaneous mergers and conversions and for supervisory mergers conducted by
the Administrator.

     Future Requirements.  Statutes and regulations are regularly introduced
which contain wide-ranging proposals for altering the structures, regulations
and competitive relationships of financial institutions.  It cannot be predicted
whether or what form any proposed statute or regulation will be adopted or the
extent to which the business of the Company and the Bank may be affected by such
statute or regulation.

ITEM 2.   DESCRIPTION OF PROPERTIES

     The following table sets forth the location of the Bank's principal office
in Mooresville, North Carolina and its full service branch office in Cornelius
and Huntersville, North Carolina, as well as certain other information relating
to these offices as of December 31, 1998.

<TABLE>
<CAPTION>
                                                             Owned
                                           Net Book Value      or          Deposits
               Address                      of Property      leased     (In Thousands)
-------------------------------------      --------------    ------     --------------
<S>                                           <C>            <C>            <C>

Mooresville:                                  $226,000       Owned          $73,794
347 North Main Street
Mooresville, North Carolina 28115

Cornelius:                                    $286,000       Owned          $ 7,727
20209 Highway 73 West
Cornelius, North Carolina 28031

Huntersville:                                 $189,000       Owned          $ 6,048
401 Gilead Road
Huntersville, North Carolina 28078
                                              $701,000                      $87,569
                                              ========                      =======
</TABLE>

     In addition, the Bank owns a 1.24 acre lot located at Highway 150 West, 239
West Plaza Drive, Mooresville, North Carolina, purchased in 1988 for future
expansion purposes.  The net book value of this property at December 31, 1998
was $65,000.  The total net book value of the Bank's furniture, fixtures and
equipment on December 31, 1998 was $233,000.  The properties are considered by
the Bank's management to be in good condition.

                                       16
<PAGE>
 
ITEM 3.   LEGAL PROCEEDINGS

     In the opinion of management, neither the Company nor the Bank is involved
in any pending legal proceedings other than routine, non-material proceedings
occurring in the ordinary course of business.

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

     No matter was submitted to a vote of the Company's stockholders during the
quarter ended December 31, 1998.


                                    PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     See the information under the section captioned "Common Stock Information"
on page 59 in the Company's 1998 Annual Report, which section is incorporated
herein by reference.  See "Item 1.  BUSINESS--Regulation of the Bank--
Restrictions on Dividends and Other Capital Distributions" above for regulatory
restrictions which limit the ability of the Bank to pay dividends to the
Company.

ITEM 6.   SELECTED FINANCIAL DATA

     The information required by this Item is set forth in the table captioned
"Selected Consolidated Financial Data" on pages 2 and 3 of the Company's 1998
Annual Report which is incorporated herein by reference.

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATION

     See the information set forth under Item 1 above and the information set
forth under the section captioned "Management's Discussion and Analysis of
Financial Condition and Operating Results" on pages 4 through 18 in the
Company's 1998 Annual Report, which section is incorporated herein by reference.

ITEM 7A   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Pages 6 and 7 of the Company's 1998 Annual Report are herein incorporated
by reference.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated financial statements of the Company and supplementary data
set forth on pages 19 through 57 of the Company's 1998 Annual Report are
incorporated herein by reference.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     N/A.

                                       17
<PAGE>
 
                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this Item regarding directors and executive
officers of the Company is set forth under the sections captioned "Proposal 1 -
Election of Directors - Nominees" on pages 6 through 7 of the Proxy Statement of
the 1999 Annual Meeting of Stockholders (the "Proxy Statement") and "Proposal 1
- Election of Directors - Executive Officers" on page 9 of the Proxy Statement,
which sections are incorporated herein by reference.

     The information required by this Item regarding compliance with Section
16(a) of the Securities Exchange Act of 1934 is set forth under the section
captioned "Section 16(a) Beneficial Ownership Reporting Compliance" set forth on
page 6 of the Proxy Statement, which is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by this Item is set forth under the sections
captioned "Proposal 1 - Election of Directors - Directors' Compensation" on
pages 8 through 9 and " - Executive Compensation" on pages 10 through 13 of the
Proxy Statement, which sections are incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item is incorporated by reference from the
section captioned "Security Ownership of Certain Beneficial Owners" on pages 3
through 6 of the Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     See the section captioned "Proposal 1 - Election of Directors - Certain
Indebtedness and Transactions of Management" on page 16 of the Proxy Statement,
which section is incorporated herein by reference.


                                    PART IV

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

14(a)1.   Consolidated Financial Statements (contained in the Company's
          1998 Annual Report which is attached hereto as Exhibit (13) and
          incorporated herein by reference) including the following:

          (a)  Independent Auditors' Report

          (b)  Consolidated Statements of Financial Condition as of December 31,
               1998 and 1997

          (c)  Consolidated Statements of Income and Comprehensive Income for
               the Years Ended December 31, 1998, 1997 and 1996

          (d)  Consolidated Statements of Cash Flows for the Years Ended
               December 31, 1998, 1997 and 1996

          (e)  Consolidated Statements of Stockholder's Equity for the Years
               Ended December 31, 1998, 1997 and 1996

          (f)  Notes to Consolidated Financial Statements

                                       18
<PAGE>
 
<TABLE> 
<CAPTION> 
<S>             <C> 
14(a)2.        Consolidated Financial Statement Schedules

               All schedules have been omitted as the required information is
               either inapplicable or included in the Notes to Consolidated
               Financial Statements.

<CAPTION> 
<S>             <C>                 <C> 
14(a)3.        Exhibits

               Exhibit (3)(i)      Certificate of Incorporation, incorporated herein by reference to Exhibit 
                                   (3)(i) to the Registration Statement on Form S-1, Registration No.  333-
                                   35497, dated September 12, 1997, and amended on November 5 and 10, 1997.

               Exhibit (3)(ii)     Bylaws, incorporated herein by reference to Exhibit (3)(ii) to the 
                                   Registration Statement on Form S-1, Registration No.  333-35497, dated 
                                   September 12, 1997, and amended on November 5 and 10, 1997.

               Exhibit (4)         Specimen Stock Certificate, incorporated herein by reference to Exhibit 
                                   (4) to the Registration Statement on Form S-1, Registration No.  333-35497, 
                                   dated September 12, 1997, and amended on November 5 and 10, 1997.

               Exhibit (10)(a)     Employment Agreement between Mooresville Savings Bank, Inc., S.S.B. and 
                                   George W. Brawley, Jr. dated December 30, 1997, as amended on December 15, 
                                   1998.

               Exhibit (10)(b)     Employment Agreement between Mooresville Savings Bank, Inc., S.S.B. and 
                                   Dale W. Brawley dated December 30, 1997, as amended on December 15, 1998.

               Exhibit (10)(c)     Employment Agreement between Mooresville Savings Bank, Inc., S.S.B. and 
                                   Billy R. Williams dated December 30, 1997, as amended on December 15, 1998.

               Exhibit (10)(d)     Employee Stock Ownership Plan and Trust of Mooresville Savings Bank, Inc., 
                                   S.S.B., incorporated by reference to Exhibit 10(d) to the Company's Form 
                                   10-K for the year ended December 31, 1997.

               Exhibit (10)(e)     Mooresville Savings Bank, Inc., S.S.B. Severance Plan, incorporated herein 
                                   by reference to Exhibit 10(f) to the Registration Statement on Form S-1, 
                                   Registration No. 333-35497, dated September 12, 1997, and as amended on 
                                   November 5 and 10, 1997.

               Exhibit (10)(f)     Capital Maintenance Agreement between Coddle Creek Financial Corp. and 
                                   Mooresville Savings Bank, Inc., S.S.B., incorporated by reference to Exhibit 
                                   10(f) to the Company's Form 10-K for the year ended December 31, 1997.

               Exhibit (10)(g)     Management Recognition Plan of Mooresville Savings Bank, Inc., S.S.B.

               Exhibit (10)(h)     Stock Option Plan of Coddle Creek Financial Corp.

               Exhibit (10)(i)     (i) Amended and Restated Retirement Payment Agreements between Mooresville 
                                   Savings Bank, Inc., S.S.B. and each of Donald R. Belk, 
</TABLE> 

                                       19
<PAGE>
 
<TABLE> 
<CAPTION> 
<S>                                <C> 
                                   George W. Brawley and Claude U. Voils, Jr. dated September 3, 1979, as amended 
                                   and restated September 8, 1997.

                                   (ii)   Retirement Payment Agreement between Mooresville Savings Federal Savings & 
                                   Loan Association and Calvin E. Tyner dated September 3, 1979, as amended on 
                                   September 8, 1997.

                                   (iii)  Amended and Restated Director's Deferred Compensation Agreements between 
                                   Mooresville Savings Bank, Inc., S.S.B. and each of Donald R. Belk, George W. 
                                   Brawley, Jr., Calvin E. Tyner, and Claude U. Voils, Jr. dated January 1, 1985, as
                                   amended and restated on March 31, 1988 and September 8, 1997 and as amended for 
                                   Messrs. Belk, Brawley, and Voils on December 16, 1998.

                                   (iv)   Amended and Restated Director's Deferred Compensation Agreements between 
                                   Mooresville Savings Bank, Inc., S.S.B. and each of Donald R. Belk, George W.  
                                   Brawley, Jr.., Calvin E. Tyner, and Claude U. Voils, Jr. dated December 1, 1985, 
                                   as amended and restated on September 8, 1997 and as amended for Messrs. Belk, 
                                   Brawley and Voils on December 16, 1998.

                                   (v)    Amended and Restated Retirement Plan Agreements between Mooresville Savings 
                                   Bank, Inc., S.S.B. and each of George W. Brawley, Jr., Donald R. Belk, Claude U.
                                   Voils, Jr. and Calvin E. Tyner dated November 1, 1993, as amended and restated on 
                                   September 15, 1997, and as amended for Messrs. Brawley, Belk, and Voils on December 
                                   16, 1998.

                                   (vi)   Amended and Restated Retirement Payment Agreements between Mooresville Savings 
                                   Bank, S.S.B. and George W. Brawley, Jr. dated December 1, 1990, as amended and 
                                   restated on September 8, 1997 and as amended on December 16, 1998.

                                   (vii)  Amended and Restated Retirement Payment Agreement between Mooresville Savings 
                                   Bank, S.S.B. and Dale W. Brawley dated November 1, 1990, amended and restated on 
                                   October 21, 1993, as amended and restated on September 8, 1997.

                                   (viii) Amended and Restated Retirement Payment Agreements between (a) Mooresville 
                                   Savings Bank, Inc., S.S.B. and each of Donald R. Belk, George W. Brawley, Jr., 
                                   and Claude U. Voils, Jr. dated March 1, 1993, as amended and restated on September  
                                   8, 1997 and as amended for each of them on December 16, 1998 and (b) Mooresville  
                                   Savings Bank, Inc., S.S.B. and Dale W. Brawley dated February 11, 1993, as amended 
                                   and restated on October 21, 1993 and September 8, 1997.

                                   (ix)   Amended and Restated Retirement Payment Agreements between Mooresville Savings 
                                   Bank, Inc., S.S.B. and each of Dale W. Brawley and George W. Brawley, Jr. dated August 
                                   1, 1993, amended and restated on October 23, 1993 for Dale W. Brawley, as amended and 
                                   restated on September 8, 1997, and as amended for George W. Brawley on December 16, 1998.
</TABLE> 

                                       20
<PAGE>
 
<TABLE> 
<CAPTION> 
<S>                                <C> 
                                   (x)    Amended and Restated Retirement Payment Agreement between Mooresville Savings 
                                   Bank, Inc., S.S.B. and Jack G. Lawler dated June 1, 1994, as amended and restated on 
                                   September 8, 1997. 

                                   (xi)   Amended and Restated Salary Continuation Agreements between Mooresville Savings 
                                   Bank, Inc., S.S.B. and each of Dale W. Brawley, George W. Brawley, Jr., Patricia B.
                                   Clontz, and Richard E. Woods dated September 1, 1984, as amended and restated on 
                                   September 17, 1997, and as amended for George W. Brawley on December 16, 1998.

                                   (xii)  Amended and Restated Supplemental Income Agreements between Mooresville 
                                   Savings Bank, Inc., S.S.B. and each of Dale W. Brawley, George W. Brawley, Jr., 
                                   Billy R. Williams, Donald G. Jones and Richard E. Woods dated November 1, 1993, 
                                   as amended and restated on September 17, 1997, and as amended for George W. Brawley 
                                   on December 16, 1998.

                                   (xiii) Amended and Restated Salary Continuation Agreements between Mooresville  
                                   Savings Bank, S.S.B. and each of Lucille Doster, Marie Hedrick, Carol Huffman,
                                   Brenda Johnson, D. Glenn Jones, and Nancy Lee Petrea dated February 1, 1988, as 
                                   amended and restated on September 17, 1997.

               Exhibit (10)(j)     Mooresville Savings Bank, Inc., S.S.B. Non-Qualified Excess Savings Plan, 
                                   incorporated herein by reference to Exhibit 10(i)  to the Registration Statement 
                                   on Form S-1, Registration No. 333-35497, dated September 12, 1997, as amended on 
                                   November 5 and 10, 1997.

               Exhibit (11)        Statement regarding computation of per share earnings.
 
               Exhibit (12)        Statement regarding computation of ratios.

               Exhibit (13)        1998 Annual Report to Security Holders.

               Exhibit (21)        See Item 1.  "Business" for discussion of subsidiaries.

               Exhibit (23)        Consent of Independent Certified Public Accountants.

               Exhibit (27)        Financial Data Schedule.


14(b)          The Company filed no reports on Form 8-K during the last quarter of the fiscal year ended December 
               31, 1998.
</TABLE> 

                                       21
<PAGE>
 
                                   SIGNATURES

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

                                    CODDLE CREEK FINANCIAL CORP.


Date:  March 25, 1999         By:    /s/ George W. Brawley, Jr.
                                    ---------------------------------
                                    George W. Brawley, Jr.
                                    President and Chief Executive Officer


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
 
Signature                                  Title                   Date
---------                                  -----                   ----      
<S>                              <C>                          <C>
 
 /s/ George W. Brawley, Jr.      President, Chief Executive   March 25, 1999
------------------------------
George W. Brawley, Jr.           Officer and Director
 
 /s/ Dale W. Brawley             Executive Vice President,    March 25, 1999
------------------------------
Dale W. Brawley                  Treasurer and Director
 
 /s/ Billy R. Williams           Chief Financial Officer,     March 25, 1999
------------------------------   
Billy R. Williams                Chief Accounting Officer,
                                 Controller and Secretary  
 
 /s/ Willis L. Barnette          Director                     March 25, 1999  
------------------------------                                 
Willis L. Barnette


 /s/ Donald R. Belk              Director                     March 25, 1999
------------------------------
Donald R. Belk
 
                                 Director                     March 25, 1999
------------------------------
Jack G. Lawler
 
 /s/ Claude U. Voils, Jr.        Director                     March 25, 1999
------------------------------
Claude U. Voils, Jr.
</TABLE>

                                       22
<PAGE>
 
                               INDEX TO EXHIBITS


Exhibit No.              Description
-----------              -----------

Exhibit (10)(a)     Employment Agreement between Mooresville Savings Bank, Inc.,
                    S.S.B. and George W. Brawley, Jr. dated December 30, 1997,
                    as amended on December 15, 1998.

Exhibit (10)(b)     Employment Agreement between Mooresville Savings Bank, Inc.,
                    S.S.B. and Dale W. Brawley dated December 30, 1997, as
                    amended on December 15, 1998.

Exhibit (10)(c)     Employment Agreement between Mooresville Savings Bank, Inc.,
                    S.S.B. and Billy R. Williams dated December 30, 1997, as
                    amended on December 15, 1998.

Exhibit (10)(g)     Management Recognition Plan of Mooresville Savings Bank,
                    Inc., S.S.B.

Exhibit (10)(h)     Stock Option Plan of Coddle Creek Financial Corp.

Exhibit (10)(i)     (i) Amended and Restated Retirement Payment Agreements
                    between Mooresville Savings Bank, Inc., S.S.B. and each of
                    Donald R. Belk, George W. Brawley and Claude U. Voils, Jr.
                    dated September 3, 1979, as amended and restated September
                    8, 1997.

                    (ii) Retirement Payment Agreement between Mooresville
                    Savings Federal Savings & Loan Association and Calvin E.
                    Tyner dated September 3, 1979, as amended on September 8,
                    1997.

                    (iii) Amended and Restated Director's Deferred Compensation
                    Agreements between Mooresville Savings Bank, Inc., S.S.B.
                    and each of Donald R. Belk, George W. Brawley, Jr., Calvin
                    E. Tyner, and Claude U. Voils, Jr. dated January 1, 1985, as
                    amended and restated on March 31, 1988 and September 8, 1997
                    and as amended for Messrs. Belk, Brawley, and Voils on
                    December 16, 1998.

                    (iv) Amended and Restated Director's Deferred Compensation
                    Agreements between Mooresville Savings Bank, Inc., S.S.B.
                    and each of Donald R. Belk, George W. Brawley, Jr.., Calvin
                    E. Tyner, and Claude U. Voils, Jr. dated December 1, 1985,
                    as amended and restated on September 8, 1997 and as amended
                    for Messrs. Belk, Brawley and Voils on December 16, 1998.

                    (v) Amended and Restated Retirement Plan Agreements between
                    Mooresville Savings Bank, Inc., S.S.B. and each of George W.
                    Brawley, Jr., Donald R. Belk, Claude U. Voils, Jr. and
                    Calvin E. Tyner dated November 1, 1993, as amended and
                    restated on September 15, 1997, and as amended for Messrs.
                    Brawley, Belk, and Voils on December 16, 1998.

                    (vi) Amended and Restated Retirement Payment Agreements
                    between Mooresville Savings Bank, S.S.B. and George W.
                    Brawley, Jr. dated December 1, 1990, as amended and restated
                    on September 8, 1997 and as amended on December 16, 1998.

                    (vii) Amended and Restated Retirement Payment Agreement
                    between Mooresville Savings Bank, S.S.B. and Dale W. Brawley
                    dated November 1, 1990, amended and restated on October 21,
                    1993, as amended and restated on September 8, 1997.

                                       23
<PAGE>
Exhibit No.              Description
-----------              -----------

                    (viii) Amended and Restated Retirement Payment Agreements
                    between (a) Mooresville Savings Bank, Inc., S.S.B. and each
                    of Donald R. Belk, George W. Brawley, Jr., and Claude U.
                    Voils, Jr. dated March 1, 1993, as amended and restated on
                    September 8, 1997 and as amended for each of them on
                    December 16, 1998 and (b) Mooresville Savings Bank, Inc.,
                    S.S.B. and Dale W. Brawley dated February 11, 1993, as
                    amended and restated on October 21, 1993 and September 8,
                    1997.

                    (ix) Amended and Restated Retirement Payment Agreements
                    between Mooresville Savings Bank, Inc., S.S.B. and each of
                    Dale W. Brawley and George W. Brawley, Jr. dated August 1,
                    1993, amended and restated on October 23, 1993 for Dale W.
                    Brawley, as amended and restated on September 8, 1997, and
                    as amended for George W. Brawley on December 16, 1998.

                    (x) Amended and Restated Retirement Payment Agreement
                    between Mooresville Savings Bank, Inc., S.S.B. and Jack G.
                    Lawler dated June 1, 1994, as amended and restated on
                    September 8, 1997.

                    (xi) Amended and Restated Salary Continuation Agreements
                    between Mooresville Savings Bank, Inc., S.S.B. and each of
                    Dale W. Brawley, George W. Brawley, Jr., Patricia B. Clontz,
                    and Richard E. Woods dated September 1, 1984, as amended and
                    restated on September 17, 1997, and as amended for George W.
                    Brawley on December 16, 1998.

                    (xii) Amended and Restated Supplemental Income Agreements
                    between Mooresville Savings Bank, Inc., S.S.B. and each of
                    Dale W. Brawley, George W. Brawley, Jr., Billy R. Williams,
                    Donald G. Jones and Richard E. Woods dated November 1, 1993,
                    as amended and restated on September 17, 1997, and as
                    amended for George W. Brawley on December 16, 1998.

                    (xiii) Amended and Restated Salary Continuation Agreements
                    between Mooresville Savings Bank, S.S.B. and each of Lucille
                    Doster, Marie Hedrick, Carol Huffman, Brenda Johnson, D.
                    Glenn Jones, and Nancy Lee Petrea dated February 1, 1988, as
                    amended and restated on September 17, 1997.

Exhibit (11)        Statement regarding computation of per share earnings.

Exhibit (12)        Statement regarding computation of ratios.

Exhibit (13)        1998 Annual Report to Security Holders.

Exhibit (23)        Consent of Independent Certified Public Accountants.

Exhibit (27)        Financial Data Schedule.

                                       24