<PAGE>

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

                                   FORM 10-K

               Annual Report Pursuant to Section 13 or 15(d) of
                      The Securities Exchange Act of 1934

                     For the year ended December 31, 2000

                       Commission File Number: 001-15089

                       Fidelity BancShares (N.C.), Inc.
--------------------------------------------------------------------------------
            (Exact name of Registrant as specified in its charter)

                 Delaware                                    56-1586543
                 --------                                    ----------
    (state or other jurisdiction of                       (I.R.S. Employer
     incorporation or organization)                     Identification Number)

          100 South Main Street, Fuquay-Varina, North Carolina 27526
--------------------------------------------------------------------------------
              (Address of principal executive offices) (zip code)

                                (919) 552-2242
--------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)


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

     8.50% Capital Securities issued by FIDBANK Capital Trust I
     8.50% Junior Subordinated Debentures, issued by Registrant

Securities registered pursuant to Section 12(g) of the Act:
     NONE

     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 twelve 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 ninety days.
Yes  [X]  No  [_]

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

     The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 29, 2001: The Registrant's voting stock has no readily
ascertainable market value as of any date within the last sixty days or
otherwise for the reason that such stock is not regularly traded and has no
quoted prices. Therefore, the aggregate market value of the voting stock held by
non-affiliates is not determinable.

                 Common Stock - $25 Par Value, - 28,070 shares
--------------------------------------------------------------------------------
        (Number of shares outstanding, by class, as of March 29, 2001)
<PAGE>

PART I

ITEM 1 - BUSINESS

General. Fidelity BancShares (N.C.), Inc. ("BancShares"), headquartered in
Fuquay-Varina, North Carolina, was organized under the laws of Delaware on
November 13, 1987 as a registered bank holding company for The Fidelity Bank
(the "Bank"). BancShares operates through the Bank, which provides a variety of
retail and commercial banking products and services to individuals and small- to
medium-sized businesses in the communities it serves. BancShares currently is
engaged in an expansion program, which involves acquisitions of other financial
institutions, or offices and/or deposits of other institutions, and the opening
of de novo branches. Certain statistical information with respect to BancShares'
business required by Guide 3 is contained in "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Item 8.
Financial Statements and Supplementary Data" which appears elsewhere in this
filing.

BancShares also is the parent company of FIDBANK Capital Trust I ("FIDBANK"), a
Delaware business trust that was organized for the sole purpose of issuing and
selling $23.0 aggregate liquidation amount of 8.50% capital securities (the
"Capital Securities"). The net proceeds from that sale, together with the
proceeds from FIDBANK's issuance of its common securities to BancShares, were
invested in a like aggregate face amount of BancShares' 8.50% junior deferrable
interest subordinated debentures which mature during 2029. The capital
securities and the junior subordinated debentures are subject to optional
redemption at any time on or after June 30, 2004. BancShares has entered into a
guaranty agreement which, when taken together with its obligations under the
trust agreement under which FIDBANK exists, the junior subordinated debentures,
and the indenture under which the debentures were issued, provides a full and
unconditional guarantee on a subordinated basis by BancShares of FIDBANK's
payment of distributions and other payments on the Capital Securities.

Members of the Holding family, including Lewis R. Holding, have been actively
involved in the management of BancShares. As a result, BancShares has been
managed from a long-term perspective with primary emphasis being placed on
balance sheet liquidity, loan quality, and earnings stability. Consistent with
its management philosophy, BancShares has emphasized a low-risk loan portfolio
derived from its local markets. (See "Item 12. Security Ownership of Certain
Beneficial Owners and Management" and "Item 13. Certain Relationships and
Related Transactions.")

All significant activities of BancShares and its subsidiaries are banking
related so that BancShares operates within one industry. Neither BancShares nor
its subsidiary has any foreign operations.

The Bank is a state-chartered commercial bank. Its predecessor bank, Bank of
Fuquay, was organized during 1909 and merged with Bank of Biscoe during 1970, at
which time the continuing bank's name was changed to The Fidelity Bank. The Bank
currently operates 62 banking offices in 44 separate central North Carolina
communities, 20 of which have been opened or acquired from other institutions
within the past five fiscal years. Most recently, during 1998 the Bank purchased
an aggregate of $35.7 million in assets and assumed an aggregate of $75.1
million in deposit liabilities, associated with five branch offices of a related
financial institution, First-Citizens Bank & Trust Company, Raleigh, North
Carolina ("FCB"), and during 1999, it purchased an aggregate of $29.1 million in
assets and assumed an aggregate of $99.6 million in deposit liabilities,
associated with seven additional branch offices of FCB. (See "Item 13. Certain
Relationships and Related Transactions" and note 15 to BancShares' consolidated
financial statements.) Additionally, during 1998, 1999, and 2000, the Bank
opened 15 de novo branch offices.

The Bank has two wholly-owned subsidiaries, Fidelity Properties, Inc. and TFB
Financial Services. TFB Financial Services, Inc. ("TFB Financial Services"),
formerly Servco Service Corporation, was acquired on September 1, 1996 in the
acquisition of Perpetual State Bank and provides non-deposit investment
products, including mutual funds, annuities, stocks, and bonds. Fidelity
Properties currently is inactive.

BancShares' principal executive offices are located at 100 South Main Street,
Fuquay-Varina, North Carolina 27526 and its telephone number is (919) 552-2242.

Description of Business. The Bank is a community-oriented bank which is engaged
in a general commercial and consumer banking business. Its operations are
primarily retail oriented and directed towards individuals and small- to medium-
sized businesses in its market area. While the Bank provides most traditional
commercial and consumer banking services, its principal activities are the
taking of demand and time deposits and the making of secured and unsecured
loans. The Bank's deposits are insured by the FDIC to the maximum amount
permitted by law.

The Bank is focused on community-oriented banking via (i) localized lending,
(ii) core deposit funding, (iii) conservative balance sheet management, and (iv)
stable growth. The Bank's franchise is well diversified, serving both large
cities and small rural towns in North Carolina. By outsourcing its core data
processing requirements to FCB (see "Item 13. Certain Relationships and Related
Transactions"), the Bank can offer a complete array of financial services while
maintaining its community banking orientation. The Bank's focus on diverse
markets and its emphasis on customer service provide it with a stable source of
core funding.

The Bank's primary source of revenue is interest income from its lending
activities. Since it commenced business, the Bank has pursued a strategy of
growth through internal expansion by establishing branch offices in communities
in its geographic market and by acquiring smaller institutions or offices of
other institutions in its existing markets or in new markets.

                                       2

<PAGE>

Competition. Commercial banking in North Carolina is highly competitive. In its
market areas, the Bank competes directly with a number of local, regional and
superregional banking organizations. Competition among financial institutions
for loans and deposits is based, to a large extent, on interest rates charged or
paid. Fees and charges for other services, office location, the quality of
customer services, community reputation and continuity of personnel, and, in the
case of loans to large commercial borrowers, relative lending limits, also are
important competitive factors. Many of the Bank's competitors have greater
resources, broader geographic markets and higher lending limits and offer more
services than the Bank, and they can better afford and make more effective use
of media advertising, support services and electronic technology than can the
Bank. The Bank depends on its reputation in its local community, direct customer
contact, its ability to make credit and other business decisions locally, and
personalized service to counter these competitive disadvantages.

In recent years, federal and state legislation has heightened the competitive
environment in which all financial institutions must conduct their business, and
the potential for competition among financial institutions of all types has
increased significantly. Additionally, with the elimination of restrictions on
interstate banking, a North Carolina commercial bank may be required to compete
not only with other North Carolina financial institutions, but also with out-of-
state financial institutions which may acquire North Carolina institutions and
are able to provide certain financial services across state lines, thereby
adding to the competitive atmosphere of the industry in general.

Employees. At December 31, 2000, the Bank employed 371 full-time employees and
29 part-time employees. The Bank is not a party to any collective bargaining
agreements and considers relations with its employees to be good. BancShares
does not have any separate employees.

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

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

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

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

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

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

The FDIC, Commissioner and FRB have broad powers to enforce laws and regulations
applicable to BancShares and the Bank, and to require corrective action of
conditions affecting the safety and soundness of the Bank. Among others, these
powers include cease and desist orders, the imposition of civil penalties and
the removal of officers and directors.

ITEM 2 - PROPERTIES

At December 31, 2000 the Bank maintained 62 banking offices in 44 central North
Carolina communities. BancShares owns the majority of the buildings and leases
other facilities from third parties. Statistical information with respect to
BancShares' property and equipment is contained in this filing under "Item 8.
Financial Statements and Supplementary Data."

ITEM 3 - LEGAL PROCEEDINGS

The Bank is a party to various legal proceedings in the ordinary course of its
business. However, based on information presently available, and after
consultation with legal counsel, BancShares' management believes that the
ultimate outcome in such proceedings, in the aggregate, will not have any
material adverse effect on BancShares' financial condition.

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

None.

                                       3

<PAGE>

PART II

ITEM 5 - MARKET FOR BANCSHARES' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

BancShares' common stock is not traded in an established public trading market.
On March 15, 2001, there were 122 record holders of BancShares' common stock.

The per share cash dividends paid by BancShares during each quarterly period
during 2000 and 1999 are set forth in Table XI, under Management's Discussion
and Analysis of Financial Condition and Results of Operations in Item 7 of this
report. A cash dividend of $8.00 per share was declared by the Board of
Directors on January 29, 2001, payable March 30, 2001, to holders of record as
of March 1, 2001. BancShares' sole source of funds for the payment of dividends
to its shareholders is dividends it receives from the Bank. Payments of
dividends by BancShares and the Bank are made at the discretion of their Boards
of Directors and are contingent upon satisfactory earnings as well as projected
future capital needs. Subject to the foregoing, it is currently management's
expectation that comparable cash dividends will continue to be paid in the
future.

                                       4
<PAGE>

ITEM 6 - SELECTED FINANCIAL DATA

     The following table sets forth certain selected consolidated financial
information for BancShares as of and for the years ended December 31, 2000,
1999, 1998, 1997, and 1996. The data has been derived from BancShares' audited
consolidated financial statements. The consolidated financial statements as of
December 31, 2000 and 1999 and for each of the years in the three year period
ended December 31, 2000, and the independent auditors' report thereon, are
included elsewhere in this filing. The following should also be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein.

<TABLE>
<CAPTION>
                                                            As of and for the year ended December 31,
                                                      ----------------------------------------------------
                                                        2000       1999       1998       1997       1996
                                                      --------   --------   --------   --------   --------
                                                         (Dollars in thousands, except per share data)
<S>                                                   <C>        <C>        <C>        <C>        <C>
Summary of Operations
Interest income ...................................   $ 67,047   $ 55,379   $ 46,570   $ 43,249   $ 37,238
Interest expense ..................................     30,474     23,213     19,892     19,016     16,245
                                                      --------   --------   --------   --------   --------
Net interest income ...............................     36,573     32,166     26,678     24,233     20,993
Provision for loan losses .........................      2,625      1,200        630        360        360
                                                      --------   --------   --------   --------   --------
Net interest income after provision for loan losses     33,948     30,966     26,048     23,873     20,633
Noninterest income ................................      7,166      5,183      5,476      3,974      3,348
Noninterest expense ...............................     28,396     24,044     19,418     15,878     14,191
                                                      --------   --------   --------   --------   --------
Net income before income. taxes ...................     12,718     12,105     12,106     11,969      9,790
Income taxes ......................................      4,617      4,468      4,457      4,581      3,487
                                                      --------   --------   --------   --------   --------
Net income ........................................   $  8,101   $  7,637   $  7,649   $  7,388   $  6,303
                                                      ========   ========   ========   ========   ========
Selected Period-End Balances
Total assets ......................................   $907,670   $839,088   $694,134   $582,995   $542,138
Investment securities and federal funds sold ......    180,554    165,356    186,804    177,240    161,429
Loans, gross ......................................    614,817    551,148    439,208    358,250    334,880
Interest earning assets ...........................    817,422    759,311    627,874    537,293    497,963
Deposits ..........................................    772,520    716,014    609,646    505,237    479,140
Interest bearing liabilities ......................    711,971    658,212    533,380    448,832    429,649
Shareholders' equity ..............................     77,513     69,895     64,808     59,117     51,242
Common shares outstanding .........................     28,070     28,170     28,410     28,410     28,410
                                                      --------   --------   --------   --------   --------
Selected Average Balances
Total assets ......................................   $853,293   $753,286   $610,306   $558,119   $476,559
Investment securities and federal funds sold ......    171,074    166,835    156,254    163,113    139,262
Loans, gross ......................................    587,468    493,023    390,162    349,526    297,229
Interest earning assets ...........................    774,422    686,557    559,348    514,410    437,880
Deposits ..........................................    726,126    647,566    528,672    487,985    414,829
Interest bearing liabilities ......................    664,215    584,675    465,999    433,979    370,876
Shareholders' equity ..............................     73,577     66,804     61,870     54,840     46,824
Common shares outstanding .........................     28,132     28,279     28,410     28,410     28,570
                                                      --------   --------   --------   --------   --------
Profitability Ratios
Return on average total assets ....................       0.95%      1.01%      1.25%      1.32%      1.32%
Return on average shareholders' equity ............      11.01      11.43      12.36      13.47      13.46
Dividend payout ratio (1) .........................      11.11      11.85      11.88      12.31      14.51
                                                      --------   --------   --------   --------   --------
Liquidity and Capital Ratios
Average loans to average deposits .................      80.90%     76.13%      73.8%     71.63%     71.65%
Average shareholders' equity to average total
     assets........................................       8.62       8.87      10.14       9.83       9.83
Tier 1 capital ratio (2) ..........................      11.87      12.06      12.96      13.24      10.30
Total capital ratio (2) ...........................      13.29      13.34      11.87      14.09      14.49
Leverage capital ratio (2) ........................       9.72       9.12       7.65       8.28       8.63
                                                      --------   --------   --------   --------   --------
Per Share of Common Stock
Net income (3) ....................................   $ 287.97   $ 270.05   $ 269.25   $ 260.04   $ 220.63
Cash dividends ....................................         32         32         32         32         32
Book value (4) ....................................   2,761.41   2,481.17   2,281.17   2,080.86   1,803.66
                                                      --------   --------   --------   --------  ---------
Asset Quality Ratios
Nonperforming assets to total gross loans and other
     real estate owned ............................       0.01%      0.02%      0.03%      0.02%      0.02%
Net charge-offs to average loans ..................       0.08       0.19       0.04        0.1       0.14
Total allowance for loan losses to total loans ....       1.19       0.93       1.05       1.16       1.24
                                                      --------   --------   --------   --------   --------
</TABLE>
__________

(1)      For each indicated period, total common dividends declared divided by
         net income.
(2)      See "Supervision and Regulation - Capital Adequacy" for a more detailed
         description of these ratios.
(3)      For each indicated period, net income divided by the average number of
         common shares outstanding. BancShares has no potentially dilutive
         securities.
(4)      At the end of each indicated period, shareholders' equity divided by
         the number of common shares outstanding.

                                       5
<PAGE>

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Introduction

     Management's discussion and analysis of earnings and related financial data
are presented to assist in understanding the financial condition and results of
operations of Fidelity BancShares (N.C.), Inc. and Subsidiaries ("BancShares"),
for the years 2000, 1999 and 1998. This discussion and analysis should be read
in conjunction with the audited Consolidated Financial Statements and related
notes presented under "Item 8. Financial Statements and Supplementary Data."
BancShares is a bank holding company with two wholly-owned subsidiaries - The
Fidelity Bank (the "Bank"), a North Carolina-chartered bank, and FIDBANK Capital
Trust I (the "Trust") - a statutory business trust created under the laws of the
State of Delaware.

Acquisitions.

     2000 Acquisitions. BancShares made no acquisitions during 2000.

     1999 Acquisitions. In August 1999, BancShares acquired the deposits of
seven North Carolina branches of First-Citizens Bank & Trust Company ("FCB")
(see notes 2 and 15 to BancShares' consolidated financial statements). These
acquisitions were accounted for as a purchase and, therefore, the results of
operations prior to the purchase are not included in BancShares' consolidated
financial statements. These acquisitions were as follows:

                                     Transaction    Loans     Deposits
                                        Date       Acquired   Acquired
                                        ----       --------   --------
                                                  (Dollars in thousands)

Gibsonville branch ..................  Aug-99      $ 4,496    $ 11,465
Kings Mountain branch ...............  Aug-99        6,021      22,910
Polkville branch ....................  Aug-99        1,811       8,749
Shelby branch .......................  Aug-99        7,094      20,649
Stokesdale branch ...................  Aug-99        2,467       6,040
Stoneville branch ...................  Aug-99        2,366      19,475
Wentworth branch ....................  Aug-99        3,783      10,285
                                                   -------    --------
     1999 acquisition totals.........              $28,038    $ 99,573
                                                   =======    ========

     1998 Acquisitions. In October 1998, BancShares acquired the deposits of
five North Carolina branches of FCB. These acquisitions were accounted for as a
purchase and, therefore, the results of operations prior to the purchase are not
included in BancShares' consolidated financial statements. These acquisitions
were as follows:

                                     Transaction    Loans     Deposits
                                        Date       Acquired   Acquired
                                        ----       --------   --------
                                                  (Dollars in thousands)

Siler City branch ...................  Oct-98      $ 6,754    $ 14,202
Salisbury branch ....................  Oct-98       11,754      20,310
Gastonia Main branch ................  Oct-98        5,933      33,544
Gastonia Union Road branch ..........  Oct-98        3,419       3,518
Gastonia Cox Road branch ............  Oct-98        5,834       3,519
                                                   -------    --------
     1998 acquisition totals.........              $33,694    $ 75,093
                                                   =======    ========

Results of Operations.

     Net Income. For 2000, net income of $8.1 million represented a 6.1%
increase from 1999 net income of $7.6 million. BancShares experienced a strong
increase in net interest income as well as noninterest income during 2000,
slightly offset by an increase in the provision for loan losses due to strong
loan growth and industry conditions.

     1999 net income of $7.6 million represented a 0.17% decrease from 1998 net
income of $7.6 million. While BancShares' experienced a strong increase in net
interest income during 1999, this growth was hampered by an increase in
provision for loan losses due to strong loan growth and an increase in operating
expenses due to the acquisition of seven branches during the third quarter.
BancShares also experienced a decrease in noninterest income during 1999 due to
a one time gain recorded in 1998 on the sale of rights to service mortgage loans
which was not present in 1999.

     Net income per share for 2000 was $287.97 compared to $270.05 for 1999; the
increase is attributable to increased earnings and decreased shares outstanding
due to the repurchase by BancShares of 100 shares of common stock.

     1999 net income per share was $0.80 more than the $269.25 recognized for
1998. The increase in net income per share during 1999 was attributable to a
decrease in shares outstanding with BancShares' repurchase of 240 shares of
common stock during the second quarter of 1999.

     Net Interest Income. The greatest portion of BancShares' earnings is from
net interest income, which is the difference between interest income on earning
assets and interest paid on deposits and other interest bearing liabilities. The
primary factors affecting net interest income are changes in the volume and
yields/rates on earning assets and interest bearing liabilities and the ability
to respond to changes in interest rates through asset/liability management.
Table I sets forth the average balances on interest earning assets and interest
bearing liabilities, as well as the average yields earned and average rates paid
for 2000, 1999 and 1998. The average prime rate, as set by the Federal Reserve,
was 9.23%, 8.00%, and 8.35% for the years ended December 31, 2000, 1999, and
1998, respectively.

     In 2000, net interest income was $36.6 million compared to $32.2 million in
1999, an increase of $4.4 million or 13.7%. 1999 net interest income was $5.5
million (20.57%) greater than 1998 net interest income of $26.7 million. The
increase in net interest income in 2000 and 1999 was attributable to increased
interest income from loans that occurred due to increased loan balances in both
years. Interest income grew $11.7 million or 21.1% during 2000 and $8.8 million
or 18.92% in 1999 compared to the respective previous year. Interest income
totaled $67.0 million in 2000, $55.4 million in 1999, and

                                       6
<PAGE>

$46.6 million in 1998. Interest expense increased $7.3 million, or 31.3%, in
2000 and $3.3 million, or 16.70%, in 1999 compared to previous year. Interest
expense was $30.5 million in 2000, $23.2 million in 1999, and $19.9 million in
1998. The increase in 2000 was due to higher volumes of interest bearing
liabilities and the increasing interest rate environment; in 1999 the increase
was attributable to higher volumes of interest bearings liabilities. The rates
paid on interest bearing liabilities were 4.59%, 3.97%, and 4.27% in 2000, 1999,
and 1998, respectively.

     Loans produced the largest component of interest income, amounting to $56.4
million in 2000, $45.3 million in 1999, and $37.6 million in 1998. This
represented an increase of $11.2 million or 24.7% in 2000 and $7.6 million or
20.34% in 1999. During 2000 and 1999, average loans outstanding increased $94.4
million or 19.2% and $102.9 million or 26.36%, respectively. In both years, loan
growth within the existing branches and de novo branch openings contributed to
the increases. In addition, in 1999, the overall growth was partially
attributable to the acquisition of seven branches, in which $28.0 million of
loans were acquired. Average yields on loans during 2000, 1999 and 1998 were
9.63%, 9.20%, and 9.66%, respectively. The increase in the 2000 average yield
was due to the increase in average prime rate during 2000 compared to 1999.
Likewise, the decline in the 1999 average yield on loans was due to the decline
in the average prime rate during 1999 compared to 1998.

     Earnings from investments and federal funds sold provided the remainder of
interest income, contributing $10.6 million in 2000, $10.1 million in 1999, and
$9.0 million in 1998. Average balances and yields on these securities are shown
in Table I. Included in 1999's $10.1 million earned on investments and federal
funds sold is $1.0 million earned on interest bearing cash balances attributable
to the deposit of proceeds from the $23.0 million Capital Trust Securities
issuance during 1999 (see note 8 to BancShares' consolidated financial
statements). Average interest bearing cash balances during 2000 and 1999 were
$13.7 million and $17.0 million, which earned an average rate of 6.20% and
5.22%, respectively. There were no interest bearing cash balances during 1998.

     As noted above, total 2000 interest expense increased 31.3% above that of
1999, which increased 16.7% compared to 1998. The principal component of
BancShares' interest expense is interest paid on deposits, which totaled $27.5
million in 2000, $21.5 million in 1999, and $19.5 million in 1998. Average
interest bearing deposit balances for 2000, 1999, and 1998 were $618.6 million,
$553.9 million, and $456.1 million, respectively. This represents an increase of
11.7% in 2000 and 21.4% in 1999 over the prior years due to de novo branch
openings and growth within the existing branch network. Additionally, the growth
during 1999 was partially attributable to the acquisition of branches. Included
in the $23.2 of million interest expense in 1999, is interest expense of $1.1
million resulting from the $23.0 million Capital Trust Securities issued by the
Trust during 1999 (see note 8 to BancShares' consolidated financial statements).
These long-term obligations, which qualify as Tier 1 Capital for BancShares,
bear interest at 8.50%, are callable in 2004, and mature in 2029. The average
balance on the long-term obligations during 2000 and 1999 was $23 million and
$12.6 million, respectively; the average rate paid on the obligations was 8.50%
in 2000 and 8.44% in 1999. There were no long-term obligations outstanding in
1998. See Table I and Table II.

     BancShares' interest rate spread was 4.09%, 4.11%, and 4.08% on a tax
equivalent basis in 2000, 1999, and 1998, respectively. BancShares' ability to
maintain a favorable spread between interest income and interest expense is a
major factor in generating earnings. Therefore, it is necessary for BancShares
to effectively manage earning assets and interest bearing liabilities.

     Provision for Loan Losses. BancShares' provision for loan losses charged
against earnings was $2,625,000, $1,200,000, and $630,000 in 2000, 1999, and
1998, respectively. The provision for loan losses increased primarily due to
increased loan balances, de novo branch openings and growth within the existing
branch network. As noted above, average loans grew $94.4 million or 19.2% in
2000 compared to $102.9 million or 26.34% in 1999. BancShares' also experienced
an increase in net charge-offs during 2000 and 1999 compared to previous years,
as discussed herein under `Asset Quality', which influenced the provision for
loan losses in those years. BancShares' provision for loan losses was also
impacted in 2000 by a slight softening of the economy during the year.

     Noninterest Income. Noninterest income, which consists primarily of service
charges, commissions and fees, increased $1,983,000 in 2000 over 1999 and
decreased $293,000 in 1999 compared to 1998. Total noninterest income was $7.2
million in 2000, $5.2 million in 1999, and $5.5 million in 1998. The increase in
2000 in noninterest income is attributable to growth in fee-earning transaction
accounts, increase in fees charged, and improved fee collection on accounts. The
primary increase is due to increased deposit accounts, a new overdraft checking
product, and increased NSF fees. The 1999 decrease in noninterest income
compared to 1998 is primarily attributable to the sale of the Bank's rights to
service $51 million in mortgage loans to Southern Bank and Trust Company for
$522,000, resulting in a gain of $507,456 in 1998 (see notes 4 and 15 to
BancShares' consolidated financial statements). Also affecting the 1999 decrease
in noninterest income was BancShares' contribution of one of the Bank's banking
facilities to the North Carolina Community Foundation in 1998. BancShares
recorded the market value of the land and building, $448,000, as a contribution
expense and, after writing off the value of the land of $40,000, recognized a
gain of $408,000 in 1998. The remaining components of other income, service

                                       7
<PAGE>

charges on deposit accounts and other service charges and fees, increased during
1999 by $441,000 and $233,000, respectively, over 1998. These increases in 1999
and 1998 were attributable to acquired branches, de novo branch openings and
deposit growth within the existing branch network.

     Noninterest Expense. Noninterest expense includes expenses attributable to
personnel, occupancy, furniture and equipment, data processing, FDIC
assessments, printing, supplies, legal and professional fees, postage,
amortization of intangibles, and other miscellaneous operating expenses.
Noninterest expense was $28.4 million in 2000, $24.0 million in 1999, and $19.4
million in 1998. Control of noninterest expense is an important aspect in
managing net income. Acquisition of branches during 1999 and 1998 should enhance
future operating results of BancShares; however, for the following fifteen
years, earnings will be reduced as BancShares amortizes intangibles resulting
from the acquisitions.

     The most significant element of BancShares' noninterest expense is
personnel costs. Salaries and benefits represented 53.7%, 52.22%, and 48.78% of
total noninterest expense during 2000, 1999, and 1998, respectively. Salaries
and benefits increased by $2.7 million or 21.4% in 2000 and $3.1 million or
32.57% in 1999. The primary causes of these increases are the acquisition of
seven branches in 1999 (for which costs have been incurred for an entire year
during 2000) and the opening of three de novo branches in 2000 and six in 1999.

     Occupancy and equipment expenses increased from $3.7 million in 1998 to
$4.4 million in 1999 to $4.8 million in 2000. These increases of $362,000 in
2000 and $706,000 in 1999 were attributable to acquired branches and de novo
branch openings noted above.

     Data processing costs represent charges by vendors that perform data
processing services for the Bank. Data processing fees are primarily based upon
per item or per account charges. Data processing costs were $2.5 million, $1.9
million, and $1.4 million in 2000, 1999, and 1998, respectively. These increases
were due to the addition of acquired and de novo branches as well as growth in
the loan and deposit base in the existing branch network, as noted above.

     Amortization of intangibles during 2000 increased $197,000 to $1,121,000
compared to $924,000 for 1999. Amortization of intangibles was $599,000 in 1998.
The increase in amortization of intangibles during 2000 and 1999 was
attributable to the acquisition of seven branches in the third quarter of 1999.
Intangibles from these acquisitions amounted to $4.1 million (see note 2 and 15
to BancShares' consolidated financial statements). Also impacting intangibles
amortization in 2000 and 1999 was the effect of a full year of amortization on
intangible assets arising from the 1998 acquisitions. These intangibles are
amortized over 15 years (see note 1 to BancShares' consolidated financial
statements).

     Other miscellaneous operating expenses were $4.7 million, $4.2 million, and
$4.2 million in 2000, 1999, and 1998, respectively. Other miscellaneous
operating expense during 1998 included BancShares' contribution expense of a
building at fair market value to a non-profit agency and the recognition of
$448,000 in contribution expense on this donation. Without the contribution
expense in 1998, 1999 other miscellaneous operating expenses increased $452,000
over 1998. These increases, as well as the $481,000 current year increase, were
the result of increases in costs across all categories of other operating
expenses due to the increased customer base and account activity resulting from
acquired branches, de novo branch openings and growth within the existing branch
network.

     Income Taxes. In 2000, 1999, and 1998, BancShares had taxable income for
book purposes that resulted in income tax expense of $4.6 million, $4.5 million,
and $4.5 million, respectively. The resulting effective income tax rates for the
years ended December 31, 2000, 1999, and 1998 were 36.30%, 36.91%, and 36.82%,
respectively.

Financial Condition.

     Earning and Noninterest Earning Assets. Earning assets consist of loans,
investment securities, and short-term investments that earn interest. Average
earning assets during 2000 were $774.4 million, an increase of $87.9 million or
12.8% over 1999's interest earning assets of $686.6 million. During 1999,
average interest earning assets increased $127.2 million or 22.74% from the 1998
average of $559.3 million. Increases during both years resulted from de novo
branch openings and growth within the existing branch network. Further, in 1999,
growth was partially attributable to the acquisition of branches noted above.
Cash received from the $23.0 million Capital Trust Securities issuance and
acquisition of branches in 1999 was invested in loans and short-term
investments, including federal funds and interest bearing cash deposits.

     Average noninterest earning assets during 2000 were $78.9 million compared
to $66.7 million in 1999, an increase of 18.2%. During 1999, an increase of
$15.8 million or 30.95% occurred compared to the 1998 average of $51.0 million.
The 2000 and 1999 increases were primarily due to increases in cash, fixed
assets and intangible assets resulting from the acquired branches or de novo
branch openings. The average balances of noninterest earning assets are shown in
Table I.

                                       8
<PAGE>

     Return on average total assets for 2000 was 0.95%, compared to 1.01% and
1.25% in 1999 and 1998, respectively. The decline for 2000 was the result of
increased total average assets, primarily attributable to de novo branch
openings in 2000 and a full year's impact of branches that opened in 1999, that
was proportionately greater than the increase in earnings. The decline in return
on average total assets for 1999 was caused by increases in average total assets
primarily attributable to the acquired branches and de novo branch openings
during 1999. Changes in the composition of average balances are shown in Table I
and Table II.

     Return on average equity for 2000 was 11.01%, compared to 11.43% and 12.36%
in 1999 and 1998, respectively. In 2000, the decline was due to increased
average equity due to earnings and unrealized gains on securities available for
sale. The decline in the 1999 return on average equity was due to a slight
decline in net income and an increase in average equity driven by earnings.

     Interest Bearing and Noninterest Bearing Liabilities. Interest bearing
liabilities consist of deposits, short-term borrowed funds and long-term
borrowed funds. Average interest bearing liabilities during 2000 were $664.2
million, an increase of 13.6% from the 1999 average of $584.7 million, which was
25.47% higher than that of 1998, $466.0 million. BancShares' principal interest
bearing liabilities are interest bearing deposits. Interest bearing deposits
represented $618.6 million, $553.9 million, and $456.1 million of average
interest bearing liabilities in 2000, 1999, and 1998, respectively. Short-term
borrowings and long-term borrowings represent the remaining balances. The 1999
increase in long-term borrowings is due to the $23.0 million Capital Trust
Securities issuance (see note 8 to BancShares' consolidated financial
statements). The cost of total interest bearing liabilities was 4.59%, 3.97%,
and 4.27% in 2000, 1999, and 1998, respectively.

     Average noninterest bearing liabilities during 2000 were $115.5 million, an
increase of $13.7 million or 13.5% over 1999's average, $101.8 million. During
1999, the average noninterest bearing liabilities increased $19.4 million or
23.50% over the 1998 average of $82.4 million. Noninterest bearing demand
deposits are the principal noninterest bearing liability. Increases in
noninterest bearing demand deposit balances are attributable to acquired
branches, de novo branch openings and expansion within the existing branch
network. See Table I.

     Loans. As of December 31, 2000, loans, net of the allowance for loan
losses, totaled $607.5 million compared to $546.0 million and $434.6 million at
year-end 1999 and 1998, respectively. The increase was attributable to normal
loan growth, from the existing branch network and de novo branch openings in
2000 and 1999. Also in 1999, growth was due to acquired loans of $28.0 million
from the acquisition of seven branches in third quarter 1999. The composition of
the loan portfolio for each of the years in the five year period ended December
31, 2000 is listed in Table IV. During 2000, BancShares experienced strong
growth in construction and land development loans and commercial and industrial
loans. This growth was generally consistent with the prior year.

     Rate sensitivity and liquidity in the loan portfolio are achieved by making
loans with adjustable interest rates and shorter maturities. This allows the
Bank to adjust its pricing structure with changes in interest rates. At the end
of 2000, 38.0% of the loan portfolio was due to mature or would be available for
interest rate repricing in 2001. See Table IV.

     Investments. Management's asset/liability strategies include maintaining an
investment securities portfolio with appropriate maturities to preclude the
necessity of selling investment securities for purposes of liquidity.
Traditionally, BancShares has maintained a larger investment portfolio than its
peers.

     BancShares accounts for investment securities under the provisions of
Statement of Financial Accounting Standards No. 115 ("Statement 115"),
"Accounting for Certain Investments in Debt and Equity Securities," which
requires that investments in debt and equity securities be classified in three
categories and accounted for as follows: debt securities that BancShares has the
positive intent and ability to hold to maturity are classified as held-to-
maturity and reported at amortized cost; debt and equity securities that are
bought and held principally for the purpose of selling them in the near term are
classified as trading securities and reported at fair value, with unrealized
gains and losses included in earnings; and debt and equity securities not
classified as either held-to-maturity securities or trading securities are
classified as available for sale securities and reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of shareholders' equity. Securities available for sale consist of
securities which may be sold in response to changes in interest rates,
prepayment risk, regulatory capital requirements and liquidity needs.

     At December 31, 2000, the fair value of available for sale securities
exceeded the carrying value by $6.2 million, deferred taxes related to these
available for sale securities were $2.5 million, and shareholders' equity
included $3.7 million for the net unrealized gain related to these available for
sale securities. At December 31, 1999, the fair value of available for sale
securities exceeded the carrying value by $5.1 million, deferred taxes related
to these available for sale securities were $2.1 million, and shareholders'
equity included $3.0 million for the net unrealized gain related to these
available for sale securities. BancShares does not maintain a trading account.

                                       9
<PAGE>

Asset Quality.

     Provision and Allowance for Loan Losses. Because BancShares' loan portfolio
represents its largest earning asset, BancShares continually monitors the
quality of its loan portfolio. The Bank operates in a diversified economic
environment and, in the opinion of management, is not unduly exposed to any one
particular industry. In 2000, BancShares charged-off loans net of recoveries of
$469,000. This represents a decrease of $470,000 from 1999 net charge-offs of
$939,000. This decrease is primarily the result of increased recoveries in 2000.
The 1999 net charge-offs of $939,000 were an increase of $765,000 from 1998 net
charge-offs of $174,000. This increase is primarily the result of reduced
recoveries in 1999. The percentage of charge-offs (net of recoveries) to average
outstanding loans was 0.08% in 2000, 0.19% in 1999, and 0.04% in 1998. See Table
V.

     The ratio of total non-performing assets to total loans plus other real
estate was 0.01% and 0.02% at December 31, 2000 and 1999, respectively. Assets
classified as other real estate were $75,000 and $117,000 at December 31, 2000
and 1999, respectively.

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

     Management considers a loan to be impaired when, based on current
information or events, it is probable that a borrower will be unable to pay all
amounts due according to the contractual terms of the loan agreement. Impaired
loans are valued using either the discounted expected cash flow method or the
value of the collateral.

     While a loan (including an impaired loan) is classified as nonaccrual and
the future collectibility of the recorded loan balance is doubtful, collections
of interest and principal are generally applied as a reduction to the principal
outstanding. When the future collectibility of the recorded loan balance is not
in doubt, interest income may be recognized on a cash basis. In the case where a
nonaccrual loan had been partially charged-off, recognition of interest on a
cash basis is limited to that which would have been recognized on the recorded
loan balance at the contractual interest rate. Receipts in excess of that amount
are recorded as recoveries to the allowance for loan losses until prior charge-
offs have been fully recovered.

     At December 31, 2000 and 1999, the Bank did not have any nonaccrual loans,
nor did the Bank have any restructured or impaired loans. At December 31, 2000
and 1999, the Bank did not have any accruing loans 90 days or more past due.

     The allowance for loan losses represented 1.19% and 0.93% of loans
outstanding at year-end 2000 and 1999, respectively. The Bank's provision for
loan losses charged against earnings was $2,625,000, $1,200,000, and $630,000,
in 2000, 1999, and 1998, respectively. The increase in the provision for loan
losses in 2000 and 1999 was primarily attributable to loan growth from de novo
branch openings and expansion in the existing branch network in both years, as
well the addition of loans from acquired branched during 1999 discussed above.
BancShare's also experienced an increase in net charge-offs during 2000 and 1999
compared to previous years, which influenced the provision for loan losses in
those years. BancShares' provision for loan losses was also impacted in 2000 by
a slight softening in the economy during the year.

     Management considers the December 31, 2000 allowance for loan losses
adequate to cover probable losses inherent in the loan portfolio. Management's
periodic evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's experience, the estimated value of any
underlying collateral, current economic conditions, analysis of peer bank
trends, and other risk factors. Management believes it has established the
allowance in accordance with generally accepted accounting principles and in
consideration of the current economic environment. While management uses the
best information available to make evaluations, future adjustments may be
necessary if economic or other conditions differ substantially from the
assumptions used.

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

Liquidity, Market Risk and Interest Sensitivity.

     Liquidity. Liquidity refers to the ability of BancShares to generate
sufficient funds to meet its financial obligations and commitments at a
reasonable cost. Maintaining liquidity ensures that funds will be available for
reserve requirements, customer demand for loans, withdrawal of deposit balances
and maturities of other deposits and liabilities. Past experience

                                       10
<PAGE>

helps management anticipate cyclical demands and amounts of cash required. These
obligations can be met by existing cash reserves or funds from maturing loans
and investments, but in the normal course of business are met by deposit growth.

     In assessing liquidity, many relevant factors are considered, including
stability of deposits, quality of assets, economy of the markets served,
business concentration, competition and BancShares' overall financial condition.
BancShares' liquid assets include all investment securities, federal funds sold,
and cash and due from banks. These assets represented 31.51% of deposits at
December 31, 2000, a decrease from 33.19% at December 31, 1999.

     BancShares' liquidity ratio, which is defined as cash plus short-term and
marketable securities divided by deposits and short-term liabilities, was 30.22%
at December 31, 2000, compared to 31.95% at December 31, 1999. In addition, the
Bank has a $108 million line of credit with the Federal Home Loan Bank to meet
liquidity needs.

     BancShares has traditionally maintained a high level of liquidity,
characteristic of the high ratio of investment securities to total assets that
it maintains. Although loans have increased in each of the recent fiscal
periods, BancShares' ability to manage its liquidity is enhanced by the mortgage
loan department's ability to sell mortgage loans originated for liquidity or
other asset/liability management requirements.

     Funds received from any maturing investments that are not immediately
necessary to sustain BancShares' liquidity are invested in similar instruments
or used to fund any increased loan demand. Investments scheduled to mature
within the one year time frame, without consideration of marketable equity
securities, represented 84.32% and 23.70% of the total investment securities
portfolio at December 31, 2000 and 1999, respectively.

     In addition, BancShares held marketable equity securities with fair values
of $8.8 million and $7.7 million at December 31, 2000 and 1999, respectively.
These investments are classified as available for sale and could be sold at
management's discretion.

     BancShares' consolidated statements of cash flows disclose the principal
sources and uses of cash from operating, investing, and financing activities for
2000, 1999, and 1998. In 2000, BancShares' operating activities provided cash
flows of $14.3 million. Net income of $8.1 million, adjusted for non-cash
operating activities, provided the majority of cash generated from operations.
Investing activities, including lending, used $76.5 million of BancShares' cash
flow. Loans originated, net, of principal collected, used $64.3 million.
Securities purchases, net of maturities, used $7.7 million, and expenditures for
premises and equipment utilized $4.4 million of BancShares' cash flow. Net
additional cash inflows of $59.0 million resulted from financing activities,
principally from deposit inflows of $56.5 million.

     In 1999, BancShares' operating activities provided cash flows of $9.8
million. Net income of $7.6 million, adjusted for non-cash operating activities,
provided the majority of cash generated from operations. Investing activities,
including lending, used $72.9 million of BancShares' cash flow. Loans
originated, net, of principal collected, used $84.8 million. Cash received in
connection with the acquisition of branches provided $66.3 million of BancShares
cash flow. Securities maturities, net of purchases, used $45.0 million, and
expenditures for premises and equipment utilized $9.1 million of BancShares'
cash flow. Net additional cash inflows of $39.8 million resulted from financing
activities, principally from short-term and long-term borrowing inflows of $11.3
million and $23.0 million, respectively.

     In 1998, BancShares' operating activities provided cash flows of $12.6
million. Net income of $7.6 million, adjusted for non-cash operating activities,
provided the majority of cash generated from operations. Investing activities,
including lending, provided $26.2 million of BancShares' cash flow. Loans
originated, net, of principal collected, used $47.4 million. Cash received in
connection with the acquisition of branches provided $35.4 million of BancShares
cash flow. Securities maturities, net of purchases, provided $42.0 million, and
expenditures for premises and equipment utilized $4.1 million of BancShares'
cash flow. Net additional cash inflows of $28.9 million resulted from financing
activities, principally from deposit inflows of $29.3 million.

     The Bank has no brokered funds. Jumbo certificates of deposit ("CD's") are
considered to include all CD's of $100,000 or more. The Bank does not and has
never aggressively bid on these deposits, and it does not seek nor does it
accept deposits from outside of its general trade area. Almost all of the Bank's
jumbo CD customers have other relationships with the Bank, including savings,
demand and other time deposits and, in some cases, loans. At December 31, 2000
and 1999, jumbo CD's represented 10.47% and 9.26% of total deposits,
respectively.

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

                                       11
<PAGE>

     Market Risk. Market risk reflects the risk of economic loss resulting from
adverse changes in market price and interest rates. The risk of loss can be
reflected in either diminished current market values or reduced potential net
interest income in future periods.

     BancShares' market risk arises primarily from interest rate risk inherent
in its lending and deposit taking activities. Management seeks to manage this
risk through the use of shorter term maturities. The composition and size of the
investment portfolio is managed so as to reduce the interest rate risk in the
deposit and loan portfolios while at the same time maximizing the yield
generated by the portfolio.

     The table below presents in tabular form the contractual balances and the
estimated fair value of financial instruments at their expected maturity dates
as of December 31, 2000. The expected maturity categories take into
consideration historical prepayment experience as well as management's
expectations based on the interest rate environment as of December 31, 2000. For
core deposits without contractual maturity (i.e., interest bearing checking,
savings and money market accounts), the table presents principal cash flows as
maturing in 2000 since they are subject to immediate repricing.

<TABLE>
<CAPTION>
                                                        Maturing in year ended December 31,
                                         -------------------------------------------------------------------
                                           2001       2002       2003       2004       2005       Thereafter   Total     Fair Value
                                         --------   --------   --------   --------   --------     ----------   -----     ----------
                                                                          (Dollars in thousands)
<S>                                      <C>        <C>        <C>        <C>        <C>          <C>          <C>       <C>
Assets
   Loans:
       Fixed rate ....................   $ 95,246   $ 84,828   $ 89,359   $ 38,034   $ 15,278     $ 29,121     $351,866  $ 350,866
       Average rate (%) ..............       9.36%      9.00%      8.82%      8.11%      8.29%        7.74%        8.82%

       Variable rate .................   $135,687   $ 15,642   $ 13,683   $  4,242   $  5,538     $ 88,159     $262,951  $ 262,951
       Average rate (%) ..............      10.26%     10.31%     10.30%     10.16%      9.95%       10.03%       10.18%

   Investment securities (1):

       Fixed rate ....................   $127,911   $ 14,986          -          -          -     $      8     $142,905  $ 142,797
       Average rate (%) ..............       5.68%      6.34%         -          -          -        10.86%        5.75%

Liabilities
   Savings and interest bearing

       Checking:
       Fixed rate ....................   $288,375          -          -          -          -            -     $288,375  $ 288,375
       Average rate (%) ..............       2.79%         -          -          -          -            -         2.79%

   Certificates of deposit:

       Fixed rate ....................   $275,846   $ 57,664   $ 26,718   $ 13,726          -            -     $373,954  $ 375,154
       Average rate (%) ..............       5.91%      6.24%      6.54%      6.17%         -            -         6.02%

   Short-term obligations:

       Variable rate .................   $ 26,641          -          -          -          -            -     $ 26,641  $  26,642
       Average rate (%) ..............       4.66%         -          -          -          -            -         4.66%

   Long-term obligations:

       Fixed rate ....................          -          -          -          -          -     $ 23,000     $ 23,000  $  19,849
       Average rate (%) ..............          -          -          -          -          -         8.50%        8.50%
</TABLE>

_________

(1)  Marketable equity securities with a book value of approximately $2,645,000
     and a fair value of approximately $8,799,000 have been excluded from this
     table.

                                       12
<PAGE>

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

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

     As of December 31, 2000, BancShares had a positive one year cumulative gap
position of 12.49% and a positive total cumulative gap position of 13.72%.
BancShares has interest earning assets of $511.1 million maturing or repricing
within one year and interest bearing liabilities of $408.0 million repricing
within one year. BancShares experienced growth in loans and investments with
maturities of one year or less which were outpaced by the growth in deposits and
short-term borrowings which also had maturities of one year or less. A positive
gap position implies that interest earning assets (loans and investments) will
reprice at a faster rate than interest bearing liabilities (deposits). In a
falling rate environment, this position will generally have a negative effect on
earnings, while in a rising rate environment this position will generally have a
positive effect on earnings.

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

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

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

Capital Resources.
     Shareholders' Equity and Capital Adequacy. Sufficient levels of capital are
necessary to sustain growth and absorb losses. To this end, the Federal Reserve,
which regulates BancShares, and the FDIC, which regulates the Bank, have
established risk based capital ("RBC") adequacy guidelines.

     As of December 31, 2000, BancShares' Leverage Capital Ratio (as defined
herein) was 9.72%, as compared to 9.12% and 7.65%, respectively, at year-end
1999 and 1998. Within RBC calculations, BancShares' assets, including
commitments to lend and other off-balance sheet items, are weighted according to
Federal regulatory guidelines for the risk considered inherent in the assets.
BancShares' Tier 1 Capital Ratio (as defined herein) as of December 31, 2000 was
11.87% compared to ratios of 12.06% and 10.30% for 1999 and 1998, respectively.
The increase in the Tier 1 Capital ratio in 1999 is attributed to the issuance
of the $23.0 million of Capital Trust Securities which qualify as Tier 1
Capital. The calculation of Total Capital Ratio (as defined herein) allows, in
BancShares' circumstances, the inclusion of BancShares' allowance for loan
losses in capital, but only to a maximum of 1.25% of risk weighted assets. As of
December 31, 2000, BancShares' Total Capital Ratio was 13.29%. The Total Capital
Ratios for 1999 and 1998 were 13.34% and 11.87%, respectively. The increase in
the Total Capital ratio in 1999 compared to 1998 is attributable to the issuance
of the $23.0 million of Capital Trust Securities.

     As of December 31, 2000, the Bank's Leverage Capital Ratio (as defined
above) was 9.17%, which, along with 8.67% and 7.29% as of December 31, 1999 and
1998, respectively, represents a well-capitalized institution under FDIC
standards (one whose ratio exceeds 5%). The Bank's Tier 1 Capital ratio (as
defined above) as of December 31, 2000 was 11.26%, which, along with 12.28% and
9.86% as of December 31, 1999 and 1998, respectively, represents a well-
capitalized institution under FDIC standards (one whose ratio exceeds 6%). As of
December 31, 2000, the Bank's Total Capital Ratio (as defined above) was 12.31%.
The Total Capital ratios for 1999 and 1998 were 13.17% and 10.81%, respectively.
Total Capital Ratio in all three years represented well-capitalized institutions
under FDIC standards (the ratio exceeds 10%).

     These ratios will improve if BancShares' capital increases at a rate
proportionately faster than liabilities. Management is aware that growth must be
controlled. BancShares' recent expansion plans discussed elsewhere herein may
appear to be contrary to this policy but management is also aware that the
process of expanding market share by normal business processes can be very
difficult and expensive. Management believes that improvement in its overall
market share

                                       13
<PAGE>

within an existing trade area is valuable in the long run and should be pursued
by BancShares, when it can be done prudently.

     BancShares' primary source of new capital is earnings. In 2000, equity
capital increased through retention of earnings by $7.2 million, compared to
$6.7 million in 1999 and 1998. BancShares' internal capital generation rate was
11.01% in 2000, 10.08% in 1999, and 10.89% in 1998. At December 31, 2000,
shareholders' equity totaled $77.5 million, compared to $69.9 million in 1999.
Shareholders' equity for 2000 and 1999 included, as discussed above, $3.7
million and $3.0 million, respectively, of net unrealized securities gains on
available for sale securities.

     The ratio of average shareholders' equity to average total assets was 8.62%
in 2000, 8.87% in 1999, and 10.14% in 1998.

     Retention of sufficient earnings to maintain an adequate capital position
that provides BancShares with expansion capabilities is an important factor in
determining dividends. During 2000, BancShares paid $900,000 in dividends,
versus $905,000 and $909,000 in 1999 and 1998. As a percentage of net income,
dividends were 11.11% in 2000, 11.85% in 1999, and 11.88% in 1998. The decrease
in dividends paid in 2000 compared to 1999 and 1999 compared to 1998 is
attributable to a decrease in the number of shares outstanding each year.

Accounting and Other Matters.
     In June, 1998, the Financial Accounting Standard Board (the "FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
BancShares adopted the provisions of SFAS No. 133 on January 1, 2001, but since
BancShares does not utilize derivatives, adoption of this pronouncement did not
have an effect on BancShares' consolidated financial statements.

     The FASB issued SFAS No. 140 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("SFAS No. 140"), which
replaced SFAS No. 125. SFAS No. 140 revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of SFAS No. 125's
provisions without reconsideration. SFAS No. 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001. This statement is effective for recognition and classification
of collateral and disclosures relating to securitization transactions and
collateral for fiscal years beginning after December 15, 2000. This statement is
not expected to materially impact BancShares.

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

                                       14
<PAGE>

Statistical Information.

     The following tables contain certain additional information regarding
BancShares' business operations.

Table I.

Average Balance Sheet Items and Net Interest Differential
Average Balances and Average Rates Earned and Paid

<TABLE>
<CAPTION>
                                                                      Year ended December 31,
                                   -------------------------------------------------------------------------------------------------
                                                 2000                             1999                             1998
                                   -------------------------------  -------------------------------  -------------------------------
                                                Interest                         Interest                        Interest
                                     Average    Income/    Yield/     Average     Income/   Yield/     Average   Income/     Yield/
                                     Balance    Expense     Rate      Balance     Expense    Rate      Balance   Expense      Rate
                                   ----------  ---------- --------  ----------  ---------- --------  ----------  ---------- --------
                                                                 (Dollars in thousands, taxable-equivalent)
<S>                                <C>         <C>        <C>       <C>         <C>        <C>       <C>         <C>        <C>
Assets
Interest earning assets:
    Loans (1) (2)................  $ 587,468    $56,561     9.63%     493,023    $45,412     9.21%   $ 390,162    $37,732    9.67%
    Taxable investment
     securities..................    156,614      8,569     5.47      131,509      7,168     5.45      105,157      6,009    5.71
    Non taxable investment
      securities (2).............      1,322         84     6.35          137          8     5.84          570         36    6.32
    Federal funds sold...........     13,138        834     6.35       35,189      1,764     5.01       50,527      2,664    5.27
    Other investments............      2,143        294    13.72       10,003        306     3.06       12,932        260    2.01
    Interest bearing deposits
      in other banks.............     13,737        851     6.19       16,696        872     5.22           --         --      --
                                   ---------    -------    -----    ---------    -------    -----    ---------    -------   -----
Total interest earning assets....  $ 774,422    $67,193     8.68%   $ 686,557    $55,530     8.09%     559,348    $46,701    8.35%
                                   ---------    -------    -----    ---------    -------    -----    ---------    -------   -----
Noninterest earning assets:
    Interest bearing deposits
    in other banks...............     29,928                           24,948                           19,602
    Premises and equipment.......     34,629                           28,454                           22,860
    Other assets.................     20,386                           18,266                           12,502
    Reserve for loan losses......     (6,072)                          (4,939)                          (4,006)
                                   ---------                        ---------                        ---------
Total assets.....................  $ 853,293                        $ 753,286                        $ 610,306
                                   ---------                        ---------                        ---------
Liabilities & Equity
Interest bearing liabilities:
    Demand deposits..............  $ 102,117    $ 1,594     1.56%   $  97,987    $ 1,475     1.51%   $  70,854     $1,176    1.66%
    Savings deposits.............    158,504      5,682     3.58      137,276      4,050     2.95      114,163      3,826    3.35
    Time deposits................    357,997     20,223     5.65      318,608     15,960     5.01      271,068     14,477    5.34
    Short-term borrowings (3)....     22,597      1,019     4.51       18,201        664     3.65        9,914        413    4.17
    Long-term borrowings.........     23,000      1,955     8.50       12,603      1,064     8.44           --         --      --
                                   ---------    -------    -----    ---------    -------    -----    ---------    -------   -----
Total interest bearing
   liabilities...................    664,215    $30,473     4.59%   $ 584,675    $23,213     3.97%     465,999    $19,892    4.27%
                                   ---------    -------    -----    ---------    -------    -----    ---------    -------   -----
Noninterest bearing liabilities:
    Demand deposits..............    107,508                           93,695                           72,587
    Other liabilities............      7,993                            8,112                            9,850
Shareholders' equity.............     73,577                           66,804                           61,870
                                   ---------                        ---------                        ---------
Total liabilities and equity.....  $ 853,293                        $ 753,286                        $ 610,306
                                   =========                        =========                        =========
Interest rate spread (4).........                           4.09%                            4.12%                           4.08%
                                                           =====                            =====                           =====
Net interest income and net
    interest margin (5)..........               $36,720     4.74%                $32,317     4.71%                $26,809    4.79%
                                                =======    =====                 =======    =====                 =======   =====
</TABLE>

----------
(1)  Average balances include non-accrual loans.
(2)  The average rate on nontaxable loans and investment securities has been
     adjusted to a tax equivalent yield using a 36.5% tax rate for 2000 and
     34% tax rate for 1999 and 1998.
(3)  See Table X.
(4)  Interest rate spread is the difference between earning asset yield and
     interest bearing liability rate.
(5)  Net interest margin is net interest income divided by average earning
     assets.

                                       15
<PAGE>

Table II.
Average Balance Sheet Items and Net Interest Differential
Analysis of Changes in Interest Differential

<TABLE>
<CAPTION>
                                                            2000                                  1999
                                              ------------------------------------   ------------------------------------
                                                     Change from previous                  Change from previous
                                                          year due to:                          year due to:
                                                             Yield/        Total                   Yield/        Total
                                                Volume        Rate        Change       Volume       Rate         Change
                                              ----------   ----------   ----------   ----------   ----------   ----------
                                                                         (Dollars in thousands)
<S>                                           <C>          <C>          <C>          <C>          <C>          <C>
Assets
Interest earning assets:
    Loans ..................................   $   9,054    $   2,095    $  11,149    $ 590,566    $(582,886)   $   7,680
    Taxable investment securities ..........         999          402        1,401       89,738      (88,579)       1,159
    Non taxable investment securities.......          74            2           76       (1,283)       1,255          (28)
    Federal funds sold .....................      (1,252)         322         (930)     (34,328)      33,428         (900)
    Other investments ......................          (3)          (9)         (12)      (9,701)       9,747           46
    Interest bearing balances in other
     banks .................................        (169)         148          (21)         436          436          872
                                               ---------    ---------    ---------    ---------    ---------    ---------
Total interest earning assets ..............       8,702        2,960       11,663      635,428     (626,599)       8,829
                                               ---------    ---------    ---------    ---------    ---------    ---------
Liabilities & Equity
Interest bearing liabilities:
    Demand deposits ........................          25           94          119       78,051      (77,752)         299
    Savings deposits .......................         809          823        1,632       25,020      (24,796)         224
    Time deposits ..........................       2,099        2,164        4,263      172,611     (171,128)       1,483
    Short-term borrowings ..................         173          182          355       19,953      (19,702)         251
    Long-term borrowings ...................         881           10          891          532          532        1,064
                                               ---------    ---------    ---------    ---------    ---------    ---------
Total interest bearing liabilities .........       3,987        3,273        7,260      296,167     (292,846)       3,321
                                               ---------    ---------    ---------    ---------    ---------    ---------
Change in net interest income ..............   $   4,715    $    (313)   $   4,403    $ 339,258    $(333,753)   $   5,508
                                               =========    =========    =========    =========    =========    =========
</TABLE>

____________

       Average loan balances include nonaccrual loans. BancShares earns tax-
exempt interest on certain loans and investment securities due to the borrower
or issuer being either a governmental agency or a quasi-governmental agency.
Yields related to loans and securities exempt from both federal and state income
taxes, federal income taxes only, or state income taxes only, are stated on a
taxable equivalent basis assuming a blended statutory income tax rate of 36.5%
for 2000 and 34% for 1999 and 1998. The taxable equivalent adjustment was
approximately $145,000, $151,000, and $131,000 for the years 2000, 1999 and
1998, respectively. The variance due to rate and volume is allocated equally
between the changes in volume and rate.

                                       16
<PAGE>

Table III. Investment Portfolio

       The following table sets forth the carrying amount of investment
securities:

<TABLE>
<CAPTION>
                                                            December 31,
                                                 ----------------------------------
                                                    2000        1999        1998
                                                 ----------  ----------  ----------
                                                       (Dollars in thousands)
<S>                                              <C>         <C>         <C>
U.S. Treasury and U.S. Government agencies......  $142,905    $133,006    $ 90,146
States and political subdivisions ..............        --       2,000          --
Marketable equity securities ...................     8,799       7,749       9,608
                                                  --------    --------    --------
        Total ..................................  $151,704    $142,755    $ 99,754
                                                  ========    ========    ========
</TABLE>

       The following table sets forth the maturities of investment securities at
December 31, 2000 and the weighted average yields of such securities. (Note that
nontaxable investment securities have not been adjusted to a tax equivalent
basis and unrealized gain (loss) on available for sale securities is not
included.)

<TABLE>
<CAPTION>
                                                                                     Maturing After One
                                                         ------------------------------------------------------------------------
                                                             Within One Year      But Within Five Years       After Ten Years
                                                           Amount       Yield       Amount       Yield       Amount       Yield
                                                         ----------   ---------   ----------   ---------   ----------   ---------
                                                                               (Dollars in thousands)
<S>                                                      <C>          <C>         <C>          <C>         <C>          <C>
U.S. Treasury and other U.S. Government agencies (1)...   $127,911      5.68%      $ 14,986      6.34%        $   8      10.86%
Other (2)..............................................      2,645      5.80             --        --            --         --
                                                          --------     -----       --------     -----         -----     ------
        Total..........................................   $130,556      5.68%      $ 14,986      6.34%        $   8      10.86%
                                                          ========     ======      ========     =====         =====     ======
</TABLE>

(1)  Mortgage-backed securities are included in the obligations of U.S.
     Government agencies and spread within the columns according to their
     anticipated repayment schedules.
(2)  The "Within One Year" column of the "Other" category includes marketable
     equity securities held by BancShares. Accordingly, the yield on these
     securities represents anticipated dividend income rather than interest
     income.

Table IV. Loan Portfolio

                    Analysis of Loans by Type and Maturity

       The table below classifies loans by major category:

<TABLE>
<CAPTION>
                                                                        December 31,
                                             ----------------------------------------------------------------
                                                 2000         1999         1998         1997         1996
                                             ------------ ------------ ------------ ------------ ------------
                                                                     (Dollars in thousands)
<S>                                          <C>          <C>          <C>          <C>          <C>
Real estate:
     Construction and land development......  $ 100,727    $  79,576    $  51,499    $  33,851    $  28,787
     Mortgage:
        One to four family residential......    150,164      141,937      134,681      141,301      144,331
        Commercial .........................     89,657       74,320       65,339       57,222       51,629
        Equity lines of credit .............     80,766       75,015       62,205       44,915       35,971
        Farmland ...........................      4,950        5,502        4,983        4,579        5,839
Commercial and industrial ..................    139,599      124,858       79,724       41,851       36,330
Consumer ...................................     39,124       37,675       33,849       28,630       26,934
Agricultural ...............................      4,697        3,957        4,523        3,335        2,669
Other ......................................      5,133        8,308        2,405        2,566        2,390
                                              ---------    ---------    ---------    ---------    ---------
        Total ..............................    614,817      551,148      439,208      358,250      334,880
Less allowance for loan losses..............     (7,298)      (5,142)      (4,601)      (4,145)      (4,139)
                                              ---------    ---------    ---------    ---------    ---------
        Net loans ..........................  $ 607,519    $ 546,006    $ 434,607    $ 354,105    $ 330,741
                                              =========    =========    =========    =========    =========
</TABLE>

                                       17
<PAGE>

         The following table identifies the maturities of all loans as of
December 31, 2000, and addresses the sensitivity of these loans to changes in
interest rates.

                                Loan Sensitivity

<TABLE>
<CAPTION>
                                                                                             December 31, 2000
                                                                              ------------------------------------------------
                                                                                Within     One to Five    After Five
                                                                               One Year       Years         Years       Total
                                                                              ----------  -------------  ------------  -------
                                                                                            (Dollars in thousands)
<S>                                                                           <C>         <C>            <C>          <C>
Real estate - construction and land development ............................  $ 100,727     $      --    $      --    $ 100,727
Commercial and industrial ..................................................     52,435        60,535       26,629      139,599
Other ......................................................................     77,771       206,071       90,649      374,491
                                                                              ---------     ---------    ---------    ---------
                                                                              $ 230,933     $ 266,606    $ 117,278    $ 614,817
                                                                              =========     =========    =========    =========

Loans maturing after one year with:
          Fixed interest rates .............................................                $ 227,500    $  29,119    $ 256,619
          Floating or adjustable rates .....................................                   39,106       88,159      127,265
                                                                                            ---------    ---------    ---------
                                                                                            $ 266,606    $ 117,278    $ 383,884
                                                                                            =========    =========    =========
</TABLE>


                              Nonperforming Assets

       The following analysis identifies other real estate owned and loans that
were either non-accruing, past-due or restructured:

<TABLE>
<CAPTION>
                                                                        December 31,
                                               ----------------------------------------------------------
                                                 2000          1999        1998         1997       1996
                                               --------      --------    --------     --------   --------
                                                                   (Dollars in thousands)
<S>                                            <C>           <C>         <C>          <C>        <C>
Nonaccrual loans ............................  $     --      $     --    $     --     $     --   $     --
Restructured loans ..........................        --            --          --           --         --
                                               --------      --------    --------     --------   --------
    Total nonperforming loans ...............        --            --          --           --         --
Other real estate ...........................        75           117         111           57         57
                                               --------      --------    --------     --------   --------
    Total nonperforming assets ..............  $     75      $    117    $    111     $     57   $     57
                                               ========      ========    ========     ========   ========

Accruing loans 90 days or more
    past due ................................  $     --      $     --    $     --     $     85   $     10
Loans at December 31 ........................  $614,817      $551,148    $439,208     $358,250   $334,880
Ratio of nonperforming assets to total
    loans plus other real estate ............      0.01%         0.02%       0.03%        0.02%      0.02%
Interest income that would have been
    earned on nonperforming loans
    had they been performing ................  $     --      $     --    $     --     $     --   $     --
Interest income earned on nonperforming
    nonperforming loans .....................  $     --      $     --    $     --     $     --   $     --
</TABLE>

                                       18
<PAGE>

Table V. Summary of Loan Loss Experience

                    Analysis of the Allowance for Loan Losses

       The table presented below summarizes activity in the allowance for loan
losses for each of the years in the five year period ended December 31, 2000:

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                             ----------------------------------------------------
                                                               2000       1999       1998       1997       1996
                                                             --------   --------   --------   --------   --------
                                                                            (Dollars in thousands)
<S>                                                          <C>        <C>        <C>        <C>        <C>
Allowance for loan losses -beginning of year ..............  $  5,142   $  4,601   $  4,145   $  4,139    $  4,078
Charge-offs:
    Commercial and industrial .............................       442        430         96        196          32
    Real estate:
       Construction and land development ..................        --         --         --         --          --
       Mortgage:
          One to four family ..............................       581        994      1,192        273         283
          Commercial ......................................        --         --         --         --          --
          Equity lines of credit ..........................        --         --         --         --          19
          Farmland ........................................       301          4         --         --          --
    Consumer ..............................................       165        206        253        379         262
                                                             --------   --------   --------   --------    --------
Total charge-offs .........................................     1,489      1,634      1,541        848         596
                                                             --------   --------   --------   --------    --------
Recoveries:
    Commercial and industrial .............................       178        208         36         63           3
    Real estate:
       Construction and land development ..................        --         --         --         --          --
       Mortgage:
          One to four family ..............................       692        291      1,193        308          90
          Commercial ......................................        --         --         --         --          --
          Equity lines of credit ..........................        --         --         --         --          19
          Farmland ........................................        96          4         --         --          --
    Consumer ..............................................        54        192        138        123          68
                                                             --------   --------   --------   --------    --------
Total recoveries ..........................................     1,020        695      1,367        494         180
                                                             --------   --------   --------   --------    --------
Net charge-offs ...........................................       469        939        174        354         416
Provision for loan losses .................................     2,625      1,200        630        360         360
Addition due to acquired branches .........................        --        280         --         --          --
                                                             --------   --------   --------   --------    --------
Allowance for loan losses - end of year ...................  $  7,298   $  5,142   $  4,601   $  4,145    $  4,022
                                                             ========   ========   ========   ========    ========
Average loans outstanding during the year .................  $587,468   $493,023   $390,162   $349,526    $297,229
                                                             ========   ========   ========   ========    ========
Ratio of net charge-offs to average loans outstanding......      0.08%      0.19%      0.04%      0.10%       0.14%
                                                             ========   ========   ========   ========    ========
</TABLE>


                   Allocation of the Allowance for Loan Losses

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

<TABLE>
<CAPTION>
                                                                          December 31,
                              --------------------------------------------------------------------------------------------------
                                    2000                1999                1998                1997                1996
                              ------------------  ------------------  ------------------  ------------------  ------------------
                                         % of                % of                % of                % of                % of
                                         loans               loans               loans               loans               loans
                                        in each             in each             in each             in each             in each
                                        category            category            category            category            category
                                        to total            to total            to total            to total            to total
                               Amount    loans     Amount    loans     Amount    loans     Amount    loans     Amount    loans
                              --------  --------  --------  --------  --------  --------  --------  --------  --------  --------
                                                                 (Dollars in thousands)
<S>                           <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Real estate:
    Construction and
      land development ......  $  201      16%     $  159      14%     $  154      12%     $  102      10%     $   86       9%
    Mortgage:
      One to four family
        residential .........     660      24         286      26         456      31         617      39         659      43
      Commercial ............     998      16         166      14         328      15         620      16         681      15
      Equity lines of credit.     162      13         150      14         187      14         135      13         108      11
Commercial,
    Industrial and
    agricultural ............   3,217      24       2,712      23       2,132      19       1,227      12       1,088      11
Consumer ....................   1,329       6         851       7         911       8         958       8         956       8
Other .......................     141       1         228       2          72       1          77       2          72       3
Unallocated .................     590       -         590      --         361      --         409      --         489      --
                               ------    ----      ------    ----      ------    ----      ------    ----      ------    ----
    Total ...................  $7,298     100%     $5,142     100%     $4,601     100%     $4,145     100%     $4,139     100%
                               ======    ====      ======    ====      ======    ====      ======    ====      ======    ====
</TABLE>

                                       19
<PAGE>

Table VI. Deposits

     The average monthly volume of deposits and the average rates paid on such
deposits are presented below:

<TABLE>
<CAPTION>
                                               2000                        1999                         1998
                                      ----------------------      ----------------------       ----------------------
                                       Average      Average        Average      Average         Average     Average
                                       Balance       Rates         Balance       Rates          Balance      Rates
                                      ---------    ---------      ---------    ---------       ---------    ---------
                                      (Dollars in thousands)
<S>                                   <C>          <C>            <C>          <C>             <C>          <C>
Non-interest bearing demand.........  $107,508         -- %        $ 93,695         -- %       $ 72,587         -- %
Interest bearing demand ............   102,117       1.56            97,987       1.51           70,854       1.66
Savings ............................   158,504       3.58           137,276       2.95          114,163       3.35
Time deposits ......................   357,997       5.65           318,608       5.01          271,068       5.34
                                      --------                     --------                    --------
           Total deposits ..........  $726,126                     $647,566                    $528,672
</TABLE>

     Maturities of time certificates of deposit of $100,000 or more at December
31, 2000 are summarized as follows (dollars in thousands):

Maturity category:

<TABLE>
<S>                                         <C>
Three months or less .....................  $ 18,808
Over three through six months ............    14,929
Over six months through twelve months         22,740
Over one year ............................    24,442
                                            --------
                                            $ 80,919
                                            ========
</TABLE>

Table VII. Return on Equity and Assets

     The following table presents certain ratios of BancShares:

<TABLE>
<CAPTION>
                                                  Year ended December 31,
                                              2000         1999         1998
                                            --------     --------     --------
<S>                                         <C>          <C>          <C>
Return on average assets .................    0.95 %       1.01 %       1.25 %
Return on average equity .................   11.01        11.43        12.36
Dividend payout ratio ....................   11.11        11.85        11.88
Equity to assets ratio ...................    8.62         8.87        10.14
</TABLE>

Table VIII. Capital Adequacy

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

<TABLE>
<CAPTION>
                                                        December 31,
                                             -------------------------------
                                               2000       1999        1998
                                             --------   --------    --------
                                                 (Dollars in thousands)
<S>                                          <C>        <C>         <C>
Total shareholders' equity ................  $ 77,513   $ 69,895    $ 64,808
Leverage capital ..........................    84,047     75,601      50,656
Tier I capital ............................    84,047     75,601      50,656
Total capital .............................    94,114     83,665      58,381

Leverage capital ratio (1) ................      9.72 %     9.12 %      7.65 %
Tier I capital ratio ......................     11.87      12.06        10.3
Total capital ratio (2) ...................     13.29      13.34       11.87
</TABLE>

_____________
(1)  Bank holding companies operating at the 3% minimum are expected to have
     well diversified risk profiles, including no undue interest rate risk,
     excellent asset quality, high liquidity and strong earnings. Bank holding
     companies not meeting these requirements are expected to maintain a
     leverage ratio somewhat higher than the 3% minimum applicable to the
     highest rated companies.
(2)  The minimum ratio of qualifying total capital to risk weighted assets is
     8%, of which 4% must be Tier 1 capital, which is common equity, retained
     earnings, and a limited amount of perpetual preferred stock, capital trust
     certificates, less certain intangibles.

                                       20
<PAGE>

Table IX. Interest Rate Sensitivity Analysis

<TABLE>
<CAPTION>
                                                            December 31, 2000
                              ----------------------------------------------------------------------------------
                                1-30       31-90       91-180      181-365      Total        Total
                                Days       Days         Days        Days       One-Year      Non-
                              Sensitive   Sensitive   Sensitive    Sensitive   Sensitive    sensitive     Total
                              ---------  ----------  ----------   ----------  ----------  -----------   --------
                                                            (Dollars in thousands)
<S>                           <C>         <C>         <C>          <C>          <C>         <C>         <C>
Assets:

Loans......................   $ 254,700   $  28,300   $  14,706    $  29,411    $ 327,117    $287,700   $ 614,817
Investment securities......       9,986      64,999      38,000       14,926      127,911      23,793     151,704
Federal funds sold.........      28,850          --          --           --       28,850          --      28,850
Other......................          --          --          --           --           --       2,645       2,645
Interest bearing deposits
   in other banks..........      27,178          --          --           --       27,178          --      27,178
                              ---------   ---------   ---------    ---------    ---------    --------   ---------
   Total interest earning
      assets...............   $ 320,714   $  93,299   $  52,706    $  44,337    $ 511,056    $314,138   $ 825,194
                              =========   =========   =========    =========    =========    ========   =========

Liabilities:

Savings and checking
   with interest...........   $      --  $       --   $      --   $       --    $      --    $182,832   $ 182,832
Money market saving........     105,543          --          --           --      105,543          --     105,543
Time deposits..............      37,062      56,944      85,106       96,733      275,845      98,109     373,954
Short-term borrowings......      26,642          --          --           --       26,642          --      26,642
Long-term borrowings.......          --          --          --           --           --      23,000      23,000
                              ---------   ---------   ---------    ---------    ---------    --------   ---------
   Total interest bearing
      liabilities..........   $ 169,247   $  56,944   $  85,106    $  96,733    $ 408,030    $303,941   $ 711,971
                              =========   =========   =========    =========    =========    ========   =========

Interest sensitivity gap...   $ 151,467   $  36,355   $ (32,400)   $ (52,396)   $ 103,026    $ 10,197   $ 113,223
                              =========   =========   =========    =========    =========    ========   =========

Cumulative interest
  sensitivity gap..........   $ 151,467   $ 187,822   $ 155,422    $ 103,026    $ 103,026    $113,223   $ 113,223
Cumulative interest
  sensitivity gap to total
  interest earning assets..       18.36 %     22.76 %     18.83 %      12.49 %      12.49 %     13.72 %     13.72 %
</TABLE>

     Assets and liabilities with maturities of one year or less and those that
may be adjusted within this period are considered interest-sensitive. The
interest-sensitivity position has meaning only as of the date for which it was
prepared.

                                       21
<PAGE>

Table X. Short-Term Borrowings

<TABLE>
<CAPTION>
                                                                         2000                   1999                   1998
                                                              ----------------------   -------------------    ------------------
                                                                 Amount        Rate      Amount      Rate       Amount     Rate
                                                              ----------    --------   ---------   --------   ---------  -------
                                                                                     (Dollars in thousands)
<S>                                                           <C>           <C>        <C>         <C>        <C>        <C>
Federal funds purchased:
    At December 31......................................       $     --           -- %       --        -- %          --      -- %
    Average during year.................................             41         3.01   $     45      5.28     $      --      --
    Maximum month end balance during year...............             --                      --                      --

Repurchase agreements:
    At December 31......................................       $ 23,066         4.50 % $ 19,753      4.52  %  $  11,467    3.21 %
    Average during year.................................         20,430         4.34     16,079      3.50         8,251    3.87
    Maximum month end balance during year...............         23,205                  23,145                  11,467

US Treasury tax and loan accounts:

    At December 31......................................       $  3,576         5.72 % $  3,220      3.66 %   $     150    4.11 %
    Average during year.................................          2,126         6.15      2,078      4.79         1,661    5.55
    Maximum month end balance during year...............          3,614                   4,396                   3,591
</TABLE>

Table XI. Selected Quarterly Data

<TABLE>
<CAPTION>
                                                                 2000                                   1999
                                              --------------------------------------   ------------------------------------
                                               Fourth     Third     Second     First    Fourth    Third     Second    First
                                              -------    ------    --------   ------   -------   -------   --------  ------
                                                              (Dollars in thousands, except per share data)
<S>                                           <C>        <C>       <C>        <C>      <C>       <C>        <C>      <C>
SUMMARY OF OPERATIONS

Interest income ............................   $17,748   $17,039   $16,536   $15,724   $15,586   $14,348   $13,059   $12,386
Interest expense ...........................     8,304     7,873     7,339     6,958     6,729     6,126     5,220     5,138
                                               -------   -------  --------   -------   -------   -------   -------   -------
Net interest income ........................     9,444     9,166     9,197     8,766     8,857     8,222     7,839     7,248
Provision for loan losses ..................       750       750       750       375       300       300       300       300
                                               -------   -------  --------   -------   -------   -------   -------   -------
Net interest income after provision for loan
      losses ...............................     8,694     8,416     8,447     8,391     8,557     7,922     7,539     6,948
Noninterest income .........................     1,905     1,970     1,888     1,403     1,420     1,251     1,251     1,261
Noninterest expense ........................     7,376     7,332     7,015     6,673     6,694     6,258     5,563     5,529
                                               -------   -------  --------   -------   -------   -------   -------   -------
Net income before income taxes .............     3,223     3,054     3,320     3,121     3,283     2,915     3,227     2,680
Income taxes ...............................     1,167     1,110     1,211     1,129     1,087       962     1,358     1,061
                                               -------   -------  --------   -------   -------   -------   -------   -------
Net income .................................   $ 2,056   $ 1,944   $ 2,109   $ 1,992   $ 2,196   $ 1,953   $ 1,869   $ 1,619
                                               =======   =======  ========   =======   =======   =======   =======   =======
PER SHARE OF STOCK

Net income per common share ................   $ 73.24   $ 69.14   $ 74.88   $ 70.71   $ 77.89   $ 69.28   $ 65.90   $ 56.98
Cash dividends - per common share ..........      8.00      8.00      8.00      8.00      8.00      8.00      8.00      8.00
</TABLE>


Forward-Looking Statements

         This discussion may contain statements that could be deemed
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 and the Private Securities Litigation Reform Act, which
statements are inherently subject to risks and uncertainties. Forward-looking
statements are statements that include projections, predictions, expectations or
beliefs about future events or results or otherwise are not statements of
historical fact. Such statements are often characterized by the use of the
qualifying words (and their derivatives) such as "expect," "believe,"
"estimate," "plan," "project," "anticipate," or other statements concerning
opinions or judgements of BancShares and its management about future events.
Factors that could influence the accuracy of such forward-looking statements
include, but are not limited to, the financial success or changing strategies of
BancShares' customers, actions of government regulators, the level of market
interest rates, and general economic conditions.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information is included in Item 7 in the text of BancShares' Management's
Discussion and Analysis of Financial Condition and Results of Operations (under
the caption "Liquidity, Market Risk and Interest Sensitivity") and is
incorporated herein by reference.

                                       22
<PAGE>

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         Independent Auditors' Report

The Board of Directors
Fidelity BancShares (N.C.), Inc.:

We have audited the accompanying consolidated balance sheets of Fidelity
BancShares (N.C.), Inc. and subsidiaries (the "Company") as of December 31, 2000
and 1999, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the years in the three year
period ended December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fidelity BancShares
(N.C.), Inc. and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three year
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.

                                                     KPMG LLP
February 16, 2001

                                       23
<PAGE>

              FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES

                          Consolidated Balance Sheets

                          December 31, 2000 and 1999

<TABLE>
<CAPTION>
                             Assets                                           2000                       1999
                                                                        ----------------           ----------------
<S>                                                                     <C>                        <C>
Cash and due from banks                                                 $     35,657,872           $     31,510,348
Interest bearing deposits in other banks                                      27,178,095                 40,747,611
Federal funds sold                                                            28,850,000                 22,600,000
                                                                        ----------------           ----------------
          Total cash and cash equivalents                                     91,685,967                 94,857,959

Investment securities:
  Held to maturity (estimated fair value of $142,796,950
   in 2000 and $132,844,174 in 1999)                                         142,904,792                135,006,444
  Available for sale (cost of $2,644,600 in 2000 and 1999)                     8,799,080                  7,749,252
                                                                        ----------------           ----------------
          Total investment securities                                        151,703,872                142,755,696

Loans                                                                        614,817,472                551,148,143
Allowance for loan losses                                                     (7,297,833)                (5,141,647)
                                                                        ----------------           ----------------
          Loans, net                                                         607,519,639                546,006,496

Federal Home Loan Bank of Atlanta stock, at cost                               2,169,700                  2,059,300
Premises and equipment, net                                                   34,749,653                 32,834,942
Accrued interest receivable                                                    5,961,767                  4,824,267
Intangible assets                                                             12,777,041                 13,898,119
Other assets                                                                   1,102,807                  1,850,852
                                                                        ----------------           ----------------
          Total assets                                                  $    907,670,446           $    839,087,631
                                                                        ================           ================
                   Liabilities and Shareholders' Equity

Deposits:
  Noninterest-bearing demand deposits                                   $    110,191,311           $    103,774,405
  Savings and interest-bearing demand deposits                               288,374,723                266,549,100
  Time deposits                                                              373,953,911                345,690,121
                                                                        ----------------           ----------------
          Total deposits                                                     772,519,945                716,013,626

Short-term borrowings                                                         26,641,586                 22,972,551
Long-term borrowings                                                          23,000,000                 23,000,000
Accrued interest payable                                                       6,306,181                  4,729,785
Other liabilities                                                              1,689,965                  2,476,970
                                                                        ----------------           ----------------
          Total liabilities                                                  830,157,677                769,192,932
                                                                        ----------------           ----------------
Shareholders' equity:
  Common stock ($25 par value; 29,200 shares authorized;
   28,070 and 28,170 shares issued and outstanding in 2000
   and 1999, respectively)                                                       701,750                    704,250
  Surplus                                                                      6,176,362                  6,198,366
  Accumulated other comprehensive income                                       3,688,615                  3,021,971
  Retained earnings                                                           66,946,042                 59,970,112
                                                                        ----------------           ----------------
          Total shareholders' equity                                          77,512,769                 69,894,699
                                                                        ----------------           ----------------
                                                                        $    907,670,446           $    839,087,631
                                                                        ================           ================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       24
<PAGE>

               FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
                       Consolidated Statements of Income

                 Years ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                                     2000                  1999                  1998
                                                                --------------        --------------        --------------
<S>                                                             <C>                   <C>                   <C>
Interest income:
    Interest and fees on loans                                  $   56,448,614        $   45,264,188        $   37,614,925
    Interest and dividends on investment securities:
       Non taxable interest income                                      50,588                 5,080                21,840
       Taxable interest                                              9,420,583             8,039,638             6,008,666
       Dividend income                                                 293,792               305,726               259,928
    Interest on federal funds sold                                     833,781             1,764,036             2,664,161
                                                                --------------        --------------        --------------
            Total interest income                                   67,047,358            55,378,668            46,569,520
                                                                --------------        --------------        --------------
Interest expense:
    Deposits                                                        27,499,766            21,484,771            19,478,840
    Short-term borrowings                                            1,019,244               664,136               412,516
    Long-term borrowings                                             1,955,000             1,064,389                    --
                                                                --------------        --------------        --------------
            Total interest expense                                  30,474,010            23,213,296            19,891,356
                                                                --------------        --------------        --------------
            Net interest income                                     36,573,348            32,165,372            26,678,164

Provision for loan losses                                            2,625,000             1,200,000               630,000
                                                                --------------        --------------        --------------
            Net interest income after provision for
              loan losses                                           33,948,348            30,965,372            26,048,164
                                                                --------------        --------------        --------------
Noninterest income:
    Service charges on deposit accounts                              4,202,024             2,999,046             2,557,659
    Other service charges and fees                                   2,478,240             2,091,139             1,857,945
    Gain on sale of mortgage servicing rights                               --                    --               507,456
    Other income                                                       485,743                92,966               553,561
                                                                --------------        --------------        --------------
            Total noninterest income                                 7,166,007             5,183,151             5,476,621
                                                                --------------        --------------        --------------
Noninterest expenses:
    Salaries and employee benefits                                  15,245,959            12,556,789             9,471,641
    Occupancy and equipment                                          4,767,258             4,405,599             3,699,708
    Data processing                                                  2,549,314             1,924,771             1,420,359
    Amortization of intangibles                                      1,121,078               924,312               598,709
    Other expense                                                    4,712,929             4,232,231             4,227,997
                                                                --------------        --------------        --------------
            Total noninterest expense                               28,396,538            24,043,702            19,418,414
                                                                --------------        --------------        --------------
            Net income before income taxes                          12,717,817            12,104,821            12,106,371
Income tax expense                                                   4,616,567             4,468,172             4,457,000
                                                                --------------        --------------        --------------

Net Income                                                      $    8,101,250        $    7,636,649        $    7,649,371
                                                                ==============        ==============        ==============
Per share information:
    Net income                                                  $       287.97        $       270.05        $       269.25

    Cash dividends declared                                     $        32.00        $        32.00        $        32.00

    Weighted average shares outstanding                                 28,132                28,279                28,410
</TABLE>

See accompanying notes to consolidated financial statements.

                                       25
<PAGE>

               FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES

         Consolidated  Statements of Changes in Shareholders' Equity

                 Years ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                                  Accumulated
                                                                                                     other
                                                           Common stock                          comprehensive        Retained
                                                      ----------------------
                                                        Shares      Amount          Surplus          income           earnings
                                                      ---------    ---------      -----------    -------------     -------------
<S>                                                   <C>          <C>            <C>            <C>               <C>
Balance December 31, 1997                                28,410      710,250      $ 6,251,174        5,235,996     $  46,919,683

    Net income for 1998                                      --           --               --               --         7,649,371
    Cash dividends ($32.00 per share)                        --           --               --               --          (909,120)
    Unrealized loss on securities available for sale,
      net of deferred taxes of $695,947                      --           --               --       (1,049,178)               --
                                                      ---------    ---------      -----------    -------------     -------------
   Comprehensive income
Balance December 31, 1998                                28,410      710,250        6,251,174        4,186,818        53,659,934
                                                      ---------    ---------      -----------    -------------     -------------

    Net income for 1999                                      --           --               --               --         7,636,649
    Cash dividends ($32.00 per share)                        --           --               --               --          (905,280)
    Purchase and retirement of common stock                (240)      (6,000)         (52,808)              --          (421,191)
    Unrealized loss on securities available for sale,
      net of deferred taxes of $693,901                      --           --               --       (1,164,847)               --
                                                      ---------    ---------      -----------    -------------     -------------
    Comprehensive income
Balance December 31, 1999                                28,170      704,250        6,198,366        3,021,971        59,970,112
                                                      ---------    ---------      -----------    -------------     -------------

    Net income for 2000                                      --           --               --               --         8,101,250
    Cash dividends ($32.00 per share)                        --           --               --               --          (899,824)
    Purchase and retirement of common stock                (100)      (2,500)         (22,004)              --          (225,496)
    Unrealized gain on securities, available for
      sale, net of deferred taxes of $383,184                --           --               --          666,644                --
                                                      ---------    ---------      -----------    -------------     -------------
    Comprehensive income
Balance December 31, 2000                                28,070      701,750       $6,176,362        3,688,615      $ 66,946,042
                                                      =========    =========      ===========    =============     =============

<CAPTION>
                                                                                   Total
                                                              Comprehensive     shareholders'

                                                                  income          equity
                                                              -------------    --------------
<S>                                                            <C>             <C>
Balance December 31, 1997                                                      $   59,117,103

    Net income for 1998                                       $   7,649,371         7,649,371
    Cash dividends ($32.00 per share)                                    --          (909,120)
    Unrealized loss on securities available for sale,
      net of deferred taxes of $695,947                          (1,049,178)       (1,049,178)
                                                              -------------    --------------
   Comprehensive income                                           6,600,193
                                                              =============
Balance December 31, 1998                                                          64,808,176
                                                                               --------------

    Net income for 1999                                           7,636,649         7,636,649
    Cash dividends ($32.00 per share)                                    --          (905,280)
    Purchase and retirement of common stock                              --          (479,999)
    Unrealized loss on securities available for sale,
      net of deferred taxes of $693,901                          (1,164,847)       (1,164,847)
                                                              -------------
    Comprehensive income                                          6,471,802
                                                              =============
Balance December 31, 1999                                                          69,894,699
                                                                               --------------

    Net income for 2000                                           8,101,250         8,101,250
    Cash dividends ($32.00 per share)                                    --          (899,824)
    Purchase and retirement of common stock                              --          (250,000)
    Unrealized gain on securities, available for
      sale, net of deferred taxes of $383,184                       666,644           666,644
                                                              -------------    --------------
    Comprehensive income                                      $   8,767,894
                                                              =============
Balance December 31, 2000                                                      $   77,512,769
                                                                               ==============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       26
<PAGE>

               FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows

                 Years ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                                             2000              1999               1998
                                                                      -----------------  -----------------  -----------------
<S>                                                                  <C>                <C>                <C>
Cash flows from operating activities:
    Net income                                                       $      8,101,250   $      7,636,649   $      7,649,371
    Adjustments to reconcile net income to net cash
      provided by operating activities:
        Depreciation and amortization                                       3,658,864          3,216,484          2,560,884
        Amortization (accretion) on investment securities                    (246,358)           132,266             23,475
        Loss (gain) on disposition or abandonment of premises
          and equipment                                                       (16,260)             1,637             97,994
        Provision for loan losses                                           2,625,000          1,200,000            630,000
        Origination of loans held for sale                                 (3,508,450)       (12,818,050)       (18,860,150)
        Proceeds from sales of loans held for sale                          3,555,810         12,860,521         18,920,919
        Gain on sales of loans held for sale                                  (47,360)           (42,471)           (60,769)
        Loss on other real estate                                             138,235                 --                 --
        Deferred income taxes                                              (1,015,704)          (581,537)          (523,835)
        Decrease (increase) in accrued interest receivable                 (1,137,500)        (1,172,612)           417,389
        Decrease (increase) in other assets, net                              748,045         (1,052,154)           516,341
        Increase (decrease) in other liabilities, net                        (154,486)          (186,536)           399,183
        Increase in accrued interest payable                                1,576,396            606,321            820,017
                                                                      ---------------     --------------     --------------
            Net cash provided by operating activities                      14,277,482          9,800,518         12,590,819
                                                                      ---------------     --------------     --------------
Cash flows from investing activities:
    Purchase of securities held to maturity                               (39,653,069)      (104,996,900)       (75,256,467)
    Return of capital on securities available for sale                             --                 --            456,000
    Proceeds from maturities and issuer calls of
      securities held to maturity                                          32,001,079         60,004,666        117,217,555
    Purchase of FHLB of Atlanta stock                                        (110,400)          (196,898)           (59,102)
    Net increase in loans                                                 (64,276,382)       (84,841,466)       (47,437,432)
    Purchases of premises and equipment                                    (4,436,232)        (9,171,037)        (4,077,361)
    Proceeds from sales of premises and equipment                                  --              2,000             18,671
    Net cash received on purchases of branches                                     --         66,305,756         35,375,611
                                                                      ---------------     --------------     --------------
            Net cash provided (used) by investing activities              (76,475,004)       (72,893,879)        26,237,475
                                                                      ---------------     --------------     --------------
Cash flows from financing activities:
    Net increase in deposits                                               56,506,319          6,794,010         29,276,749
    Net increase in short-term borrowings                                   3,669,035         11,355,207            566,029
    Net increase in long-term borrowings                                           --         23,000,000                 --
    Cash dividends paid                                                      (899,824)          (905,280)          (909,120)
    Purchase and retirement of common stock                                  (250,000)          (479,999)                --
                                                                      ---------------     --------------     --------------
            Net cash provided by financing activities                      59,025,530         39,763,938         28,933,658
                                                                      ---------------     --------------     --------------
            Net increase (decrease) in cash and cash equivalents           (3,171,992)       (23,329,423)        67,761,952

Cash and cash equivalents at beginning of year                             94,857,959        118,187,382         50,425,430
                                                                      ---------------     --------------     --------------

Cash and cash equivalents at end of year                             $     91,685,967   $     94,857,959   $    118,187,382
                                                                      ===============     ==============     ==============

Supplemental disclosures of cash flow information:
    Cash paid during the year for interest                           $     28,897,614   $     22,606,975   $     19,071,339
                                                                      ===============     ==============     ==============
    Cash paid during the year for income taxes                       $      5,823,064   $      4,524,559   $      4,959,400
                                                                      ===============     ==============     ==============
Supplemental disclosure of noncash financing and
    investing activities:
      Unrealized gains (losses) on available-for-sale
        securities, net of deferred tax effects of $383,184,
        $693,901 and $695,947, respectively                          $        666,644   $     (1,164,847)  $     (1,049,178)
                                                                      ===============     ==============     ==============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       27
<PAGE>

               FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998



(1)  Summary of Significant Accounting and Reporting Policies

     (a)  Nature of Operations

          Fidelity BancShares (N.C.), Inc. (the "Company") is a bank holding
          company incorporated under the General Corporation Law of the State of
          Delaware. The principal activity of the Company is ownership of The
          Fidelity Bank (the "Bank"), which operates sixty-two offices primarily
          in central North Carolina, and FIDBANK Capital Trust I (the "Trust"),
          a statutory business trust created under the laws of the State of
          Delaware that issued $23.0 million of 8.50% Capital Securities (the
          "Capital Securities") in June 1999 maturing in 2029.

          The Bank's primary source of revenue is derived from interest income
          on loans to customers and from its investment securities portfolio.
          The loan portfolio is comprised mainly of real estate, commercial,
          consumer, and equity line of credit loans. These loans are primarily
          collateralized by residential and commercial properties, commercial
          equipment, and personal property.

     (b)  Consolidation

          The accompanying consolidated financial statements of the Company
          include the accounts of the Bank and the Trust, the Company's wholly-
          owned subsidiaries. The Bank also has two wholly-owned subsidiaries,
          Fidelity Properties, Inc. and TFB Financial Services. There have been
          no transactions by Fidelity Properties, Inc. other than the initial
          capitalization. TFB Financial Services, Inc., provides depositors
          alternative non-deposit investment products. All significant
          intercompany transactions have been eliminated in consolidation.

     (c)  Basis of Financial Statement Presentation

          The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions that affect the reported amounts of assets and
          liabilities and disclosure of contingent assets and liabilities at the
          reporting date and the reported amounts of revenues and expenses
          during the reporting period. Actual results could differ from those
          estimates.

     (d)  Cash and Cash Equivalents

          Cash and cash equivalents include cash on hand, amounts due from
          banks, and federal funds sold. Generally, federal funds are purchased
          and sold for one-day periods.

                                       28
<PAGE>

               FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998



     (e)  Investment Securities

          The Company accounts for investment securities under Statement of
          Financial Accounting Standards ("SFAS") No. 115, "Accounting for
          Certain Investments in Debt and Equity Securities". This statement
          addresses the accounting and reporting for investments in equity
          securities that have readily determinable fair values and for all
          investments in debt securities. These investments are to be classified
          into three categories and accounted for as follows: (1) debt
          securities that the entity has the positive intent and the ability to
          hold to maturity are classified as held-to-maturity and reported at
          amortized cost; (2) debt and equity securities that are bought and
          held principally for the purpose of selling them in the near term are
          classified as trading securities and reported at fair value, with
          unrealized gains and losses included in earnings; and (3) debt and
          equity securities not classified as either securities held to maturity
          or trading securities are classified as available for sale and consist
          of securities which may be sold in response to changes in interest
          rates, prepayment risk, regulatory capital requirements and liquidity
          needs. Such securities are reported at fair value, with unrealized
          gains and losses excluded from earnings and reported as a separate
          component of shareholders' equity. The classification of securities is
          determined by management at the date of purchase. The Company does not
          hold any trading securities.

          Amortization of premiums and accretion of discounts are recognized as
          adjustments to interest income using the interest method. Gains and
          losses on sales of securities, computed based on specific
          identification of the amortized cost of each security, are included in
          other income at the time of the sale.

     (f)  Loans

          Loans are stated at the amount of unpaid principal, reduced by an
          allowance for loan losses. Interest on loans is recorded as earned on
          an accrual basis.

          Loans, including impaired loans, are generally classified as
          nonaccrual if they are past due as to maturity or payment of principal
          or interest for a period of more than 90 days, unless such loans are
          well-secured and in the process of collection. Loans that are current
          or past due less than 90 days may also be classified as nonaccrual if
          repayment in full of principal and/or interest is in doubt. Loans may
          be returned to accrual status when all principal and interest amounts
          contractually due (including arrearages) are reasonably assured of
          repayment within an acceptable period of time, and there is a
          sustained period of repayment performance (generally a minimum of six
          months) by the borrower, in accordance with the contractual terms.

                                       29
<PAGE>

               FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998



          While a loan (including an impaired loan) is classified as nonaccrual
          and the future collectibility of the recorded loan balance is
          doubtful, collections of interest and principal are generally applied
          as a reduction to the principal outstanding. When the future
          collectibility of the recorded loan balance is not in doubt, interest
          income may be recognized on a cash basis. In the case where a
          nonaccrual loan had been partially charged-off, recognition of
          interest on a cash basis is limited to that which would have been
          recognized on the recorded loan balance at the contractual interest
          rate. Receipts in excess of that amount are recorded as recoveries to
          the allowance for loan losses until prior charge-offs have been fully
          recovered.

     (g)  Allowance and Provision for Loan Losses

          The Company provides for loan losses on the allowance method.
          Additions to the allowance for loan losses are provided by charges to
          operations based on various factors which, in management's judgment,
          deserve current recognition in estimating probable losses inherent in
          the loan portfolio. Such factors considered by management include the
          market value of the underlying collateral, growth and composition of
          the loan portfolio, the relationship of the allowance for loan losses
          to outstanding loans, delinquency trends, and economic conditions.

          Allowances for loan losses related to loans that are identified as
          impaired are based on discounted cash flows using the loan's initial
          interest rate or the fair value of the collateral if the loan is
          collateral dependent. Larger groups of smaller balance homogeneous
          loans that are collectively evaluated for impairment (such as credit
          card, residential mortgage and consumer installment loans) are
          excluded from this impairment evaluation and their allowance for loan
          losses is calculated in accordance with the allowance for loan losses
          policy discussed above.

          Management evaluates the carrying value of loans periodically and the
          allowance is adjusted accordingly. While management uses the best
          information available to make evaluations, future adjustments to the
          allowance may be necessary if conditions differ substantially from the
          assumptions used in making the evaluations.

          In addition, various regulatory agencies, as an integral part of their
          examination process, periodically review the Company's allowance for
          loan losses. Such agencies may require the Company to recognize
          additions to the allowance based on their judgments about information
          available to them at the time of their examination.

                                       30
<PAGE>

               FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998



     (h)  Assets Acquired in Settlement of Loans

          Assets acquired in settlement of loans consist primarily of property
          acquired through a foreclosure proceeding or acceptance of a deed-in-
          lieu of foreclosure. Assets acquired in settlement of loans are
          recorded initially at the lower of the loan balance plus unpaid
          accrued interest or estimated fair value of the property less
          estimated selling costs at the date of foreclosure. The initial
          recorded value may be subsequently reduced by additional allowances,
          which are charged to earnings, if the estimated fair value of the
          property, less estimated selling costs, declines below the initial
          recorded value. Costs related to the improvement of the property are
          capitalized, whereas those related to holding the property are
          expensed.

     (i)  Membership/Investment in Federal Home Loan Bank of Atlanta Stock

          The Company is a member of the Federal Home Loan Bank of Atlanta
          ("FHLB"). Membership provides the Company with the ability to draw
          $108 million of advances from the FHLB, subject to a signed blanket
          collateral agreement. No advances were drawn by the Company in 2000 or
          1999.

          As a requirement for membership, the Company invests in stock of the
          FHLB in the amount of 1% of its outstanding residential loans or 5% of
          its outstanding advances from the FHLB, whichever is greater. Such
          stock is pledged as collateral for any FHLB advances drawn by the
          Company. At December 31, 2000 and 1999, the Company owned 21,697 and
          20,593 shares of the FHLB's $100 par value capital stock,
          respectively. No ready market exists for such stock, which is carried
          at cost.

     (j)  Premises and Equipment

          Premises and equipment are stated at cost less accumulated
          depreciation. Depreciation is computed using an accelerated method
          based on the estimated useful lives of assets. Useful lives range from
          10 to 31.5 years for premises and from 5 to 10 years for equipment and
          fixtures. Expenditures for repairs and maintenance are charged to
          expense as incurred. Upon retirement or other disposition of the
          assets, the cost and the related accumulated depreciation are removed
          from the accounts and any gains or losses are included in income.

                                       31
<PAGE>

               FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998



     (k)  Intangible Assets

          Intangible assets are composed primarily of goodwill and core deposit
          premiums. Amortization of goodwill and core deposit premiums is
          computed using the straight-line method based on the estimated useful
          lives of the assets (current useful lives range from 8 - 15 years).
          The lives of the assets are estimated by management at the time the
          assets are acquired using information available at that time and are
          subject to re-evaluation as new information becomes available.

     (l)  Income Taxes

          Income tax expense is based on consolidated net income and generally
          differs from income taxes paid due to deferred income taxes and
          benefits arising from income and expenses being recognized in
          different periods for financial and income tax reporting. The Company
          uses the asset and liability method to account for deferred income
          taxes. The objective of the asset and liability method is to establish
          deferred tax assets and liabilities for the temporary differences
          between the financial reporting basis and the income tax basis of the
          Company's assets and liabilities at enacted rates expected to be in
          effect when such amounts are recovered or settled. The Bank and its
          subsidiaries are included in the consolidated federal return filed by
          the Company. Each subsidiary pays its allocation of federal income
          taxes or receives a payment to the extent that tax benefits are
          realized. The Company and its subsidiaries each file separate state
          income tax returns.

     (m)  Net Income Per Share

          Net income per share is computed based on the weighted average number
          of common shares outstanding during the year. The Company currently
          has no potentially dilutive securities.

     (n)  Comprehensive Income

          In June 1997, the Financial Accounting Standards Board ("FASB") issued
          SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
          establishes standards for reporting and display of comprehensive
          income and its components in a full set of general purpose financial
          statements. The Company adopted this statement in 1998. The Company's
          only component of accumulated other comprehensive income is unrealized
          gain/loss on securities available for sale.

                                       32
<PAGE>

               FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998



     (o)  Segment Reporting

          In June 1997, the FASB issued SFAS No. 131, "Disclosures about
          Segments of an Enterprise and Related Information." SFAS No. 131
          requires that public business enterprises report certain information
          about operating segments in a complete set of financial statements
          issued to shareholders. It also requires that public business
          enterprises report certain information about their products and
          services, the geographic areas in which they operate and their major
          customers. Adoption of this statement by the Company in 1998 had no
          effect on the Company's consolidated financial statements as the
          Company's only operating segment is commercial banking.

     (p)  Reclassifications

          Certain amounts in the 1999 and 1998 consolidated financial statements
          of the Company have been reclassified to conform with the 2000
          presentation.

(2)  Acquisitions of Branches

     On August 22, 1999, the Company purchased seven branches from First-
     Citizens Bank & Trust Company ("FCB"), a related party (see note 15). Loans
     and deposits acquired were $28,038,000 and $99,573,000, respectively. An
     intangible asset of approximately $4,147,000 resulted from this purchase.

     On October 23, 1998, the Company purchased five branches from FCB (see note
     15). Loans and deposits acquired were approximately $33,694,000 and
     $75,093,000, respectively. An intangible asset of approximately $4,090,000
     resulted from this purchase.

                                       33
<PAGE>

               FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998


(3)  INVESTMENT SECURITIES

     The amortized cost and estimated fair values of investment securities at
     December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                              2000
                                          ---------------------------------------------------------------------
                                                                Gross              Gross            Estimated
                                            Amortized         unrealized         unrealized           fair
                                              cost              gains              losses             value
                                          --------------    -------------     --------------     --------------
<S>                                       <C>               <C>               <C>                <C>
Available for sale:
   Marketable equity securities           $    2,644,600    $   6,154,480     $           --     $    8,799,080
                                          ==============    =============     ==============     ==============

Held to maturity:
 U.S. Agency                                  92,939,755           98,656           (288,336)        92,750,075
 U.S. Treasury                                49,965,037          137,084            (55,246)        50,046,875
                                          --------------    -------------     --------------     --------------
                                          $  142,904,792    $     235,740     $     (343,582)    $  142,796,950
                                          ==============    =============     ==============     ==============
<CAPTION>
                                                                             1999
                                          ---------------------------------------------------------------------
                                                                 Gross             Gross             Estimated
                                            Amortized          unrealized        unrealized             fair
                                               cost              gains             losses              value
                                          --------------    -------------     --------------     --------------
<S>                                       <C>               <C>               <C>                <C>
Available for sale:
   Marketable equity securities           $    2,644,600    $   5,104,652     $           --     $    7,749,252
                                          ==============    =============     ==============     ==============
Held to maturity:
 U.S. Agency                                  78,042,300            1,038         (1,833,538)        76,209,800
 U.S. Treasury                                54,964,144            9,375           (339,145)        54,634,374
 Obligations of state and
  political subdivisions                       2,000,000               --                 --          2,000,000
                                          --------------    -------------     --------------     --------------
                                          $  135,006,444    $      10,413     $   (2,172,683)    $  132,844,174
                                          ==============    =============     ==============     ==============
</TABLE>

   The amortized cost and estimated fair value of debt securities at December
   31, 2000 by contractual maturities are as follows:

<TABLE>
<CAPTION>
                                                                   Amortized         Estimated
                                                                     cost           fair value
                                                                --------------    --------------
<S>                                                             <C>               <C>
Due in one year or less:
   U.S. Treasury                                                $   34,978,961    $   34,925,000
   U. S. Agency                                                     92,931,447        54,954,688
Due after one year through five years:
   U.S. Treasury                                                    14,986,076        15,121,875
Due after ten years:
   U.S. Agency                                                           8,308             9,137
                                                                --------------    --------------
                                                                $  142,904,792    $  142,796,950
                                                                ==============    ==============
</TABLE>

   There were no sales of investment securities during 2000, 1999 or 1998.

   Investment securities with an amortized cost of approximately $85,281,000 and
   $120,950,000 were pledged to secure public deposits at December 31, 2000 and
   1999, respectively.

                                       34
<PAGE>

               FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998

(4)  LOANS AND ALLOWANCE FOR LOAN LOSSES

     Major classifications of loans as of December 31, 2000 and 1999 are
summarized as follows:

<TABLE>
<CAPTION>
                                                           2000                1999
                                                      ---------------     ---------------
<S>                                                   <C>                 <C>
Loans secured by real estate:
   Construction and land development                  $   100,727,225     $    79,576,126
   Single-family residential                              230,929,619         216,951,839
   Farmland                                                 4,950,429           5,502,464
   Commercial                                              89,657,350          74,320,018
Commercial and industrial                                 139,598,634         124,858,443
Consumer                                                   39,123,853          37,674,743
Agricultural                                                4,697,313           3,956,957
Other                                                       5,133,049           8,307,553
                                                      ---------------     ---------------
                                                          614,817,472         551,148,143
Allowance for loan losses                                  (7,297,833)         (5,141,647)
                                                      ---------------     ---------------
                                                      $   607,519,639     $   546,006,496
                                                      ===============     ===============
</TABLE>

   There were no loans designated as held for sale at December 31, 2000 and
1999.

   The Company offers loans to its officers, directors, and employees for the
   financing of their personal residences and for other personal purposes. These
   loans are made in the ordinary course of business and are made on
   substantially the same terms prevailing at the time as comparable
   transactions with other persons. Management does not believe these loans
   involve more than the normal risk of collectibility or present other
   unfavorable features.

   The following is a reconciliation of aggregate loans outstanding to executive
   officers, directors, and their immediate families for the years ended
   December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                          2000                1999
                                                      --------------     -------------
<S>                                                   <C>                <C>
Balance at beginning of year                          $    5,504,778     $     494,383
New loans                                                    774,890         5,504,778
Principal repayments                                        (616,919)         (494,383)
                                                      --------------     -------------
Balance at end of year                                $    5,662,749     $   5,504,778
                                                      ==============     =============
</TABLE>

                                       35
<PAGE>

               FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998

     A summary of the allowance for loan losses for the years ended December 31,
     2000, 1999 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                                    2000               1999               1998
                                                            ---------------     ---------------     ---------------
     <S>                                                    <C>                 <C>                 <C>
     Balance at beginning of year                           $     5,141,647     $     4,601,000     $     4,144,752
     Provision for loan losses                                    2,625,000           1,200,000             630,000
     Charge-offs                                                 (1,488,940)         (1,633,754)         (1,540,681)
     Recoveries                                                   1,020,126             694,401           1,366,929
     Allowance for loan losses on purchased loans                        --             280,000                  --
                                                            ---------------     ---------------     ---------------
     Balance at end of year                                 $     7,297,833     $     5,141,647     $     4,601,000
                                                            ===============     ===============     ===============
</TABLE>

     At December 31, 2000 and 1999, the Company had no nonaccrual loans and no
     accruing loans ninety days or more past due. In addition, at and during the
     years ended December 31, 2000 and 1999, the Company had no impaired loans.
     As of December 31, 2000 and 1999, the balance of other real estate acquired
     through foreclosure was $75,000 and $117,000, respectively.

     In January 1998, the Company sold rights to service $51 million in mortgage
     loans to Southern Bank and Trust Company ("SBT"), Mount Olive, North
     Carolina, for $522,000 (including accrued interest), resulting in a gain of
     $507,456. The two significant shareholders of the Company also are
     significant shareholders of Southern BancShares (N.C.), Inc., the parent
     holding company for SBT (see note 15). The Company no longer services loans
     for others.

(5)  Premises and Equipment

     Premises and equipment at December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                              2000                 1999
                                                                        ----------------     ----------------
     <S>                                                                <C>                  <C>
     Land                                                               $     10,826,463     $     10,202,696
     Building and improvements                                                28,154,397           25,511,153
     Furniture and equipment                                                   9,358,994            8,380,341
                                                                        ----------------     ----------------
                                                                              48,339,854           44,094,190
     Less accumulated depreciation                                           (13,590,201)         (11,259,248)
                                                                        ----------------     ----------------
     Premises and equipment, net                                        $     34,749,653     $     32,834,942
                                                                        ================     ================
</TABLE>

                                      36
<PAGE>

               FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998

(6)  Deposits

     At December 31, 2000 and 1999, time deposits of $100,000 or more amounted
     to approximately $80,919,000 and $66,297,000, respectively. For the years
     ended December 31, 2000, 1999 and 1998, interest expense on time deposits
     of $100,000 or more amounted to approximately $4,491,000, $3,401,000 and
     $2,750,000, respectively.

     Time deposit accounts as of December 31, 2000, mature in the following
     years and approximate amounts: 2001 - $275,845,000; 2002 - $57,664,000;
     2003 -$26,718,000; and thereafter - $13,726,000.

(7)  Short-Term Borrowings

     Short-term borrowings at December 31, 2000 and 1999 consist of the
     following:

<TABLE>
<CAPTION>

                                                                               2000                1999
                                                                       ----------------    -----------------
     <S>                                                               <C>                 <C>
     Securities sold under agreements to repurchase                    $     23,066,000    $      19,753,000
     Treasury tax and loan deposits                                           3,575,586            3,219,551
                                                                       ----------------    -----------------
                                                                       $     26,641,586    $      22,972,551
                                                                       ================    =================
</TABLE>

     Information concerning securities sold under agreements to repurchase is
     summarized as follows:

<TABLE>
<CAPTION>
                                                   2000           1999
                                                   ----           ----
     <S>                                       <C>            <C>
     Average rate during year                         4.34%          3.50%
     Average balance during year               $20,429,842    $16,079,058
     Maximum month-end balance during year     $23,205,000    $23,145,000
</TABLE>

     These borrowings have maturities of less than 90 days. Securities sold
     under agreements to repurchase represent transactions whereby the Bank
     sells investment securities to certain of its commercial customers on an
     overnight basis and repurchases such securities the next day. At December
     31, 2000, $28,489,130 of investment securities were pledged for repurchase
     agreements. The securities collateralizing the repurchase agreements have
     been delivered to a third party custodian for safekeeping.

(8)  Long-Term Borrowings

     The $23.0 million long-term obligations at December 31, 2000 are Capital
     Trust Securities of the Trust which were issued during 1999. These long-
     term obligations, which qualify as Tier 1 Capital for BancShares, bear
     interest at 8.50% and mature in 2029. BancShares may redeem the long-term
     obligations in whole or in part on or after June 30, 2004. The sole asset
     of the Trust is $23.0 million of 8.50% Junior Subordinated Debentures of
     BancShares due 2029. Considered together, the undertakings constitute a
     full and unconditional guarantee by BancShares of the Trust's obligations
     under the Capital Securities.

                                      37
<PAGE>

               FIDELITY BANCSHARES (N.C), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998


(9)  Income Taxes

     The components of income taxes for the years ended December 31, 2000, 1999
     and 1998 are as follows:

<TABLE>
<CAPTION>
                                   2000                1999                1998
                             ---------------     ---------------     ---------------
            <S>              <C>                 <C>                 <C>
            Current:
              Federal        $     5,012,050     $     4,531,557     $     4,440,197
              State                  620,221             518,152             540,638
                             ---------------     ---------------     ---------------
                                   5,632,271           5,049,709           4,980,835
                             ---------------     ---------------     ---------------
            Deferred:
              Federal               (850,184)           (489,703)           (442,637)
              State                 (165,520)            (91,834)            (81,198)
                             ---------------     ---------------     ---------------
                                  (1,015,704)           (581,537)           (523,835)
                             ---------------     ---------------     ---------------

                             $     4,616,567     $     4,468,172     $     4,457,000
                             ===============     ===============     ===============
</TABLE>

     The reconciliation of expected income tax expense at the statutory federal
     rate with income tax expense for the years ended December 31, 2000, 1999
     and 1998 is as follows:

<TABLE>
<CAPTION>
                                                          2000                1999                1998
                                                     ---------------     ---------------     ---------------
       <S>                                           <C>                 <C>                 <C>
            Expected income tax expense at statutory
              rate (35%)                             $     4,451,236     $     4,236,687     $     4,237,230
       Increase (decrease) in income tax expense
          resulting from:
             State taxes, net                                295,555             277,107             298,636
             Tax exempt income                               (14,592)             (1,494)             (6,320)
             Other, net                                     (115,632)            (44,128)            (72,546)
                                                     ---------------     ---------------     ---------------
                                                     $     4,616,567     $     4,468,172     $     4,457,000
                                                     ===============     ===============     ===============
</TABLE>

     The deferred tax components at December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                                2000                 1999
                                                                          ----------------     -----------------
       <S>                                                                <C>                  <C>
       Deferred tax assets:
          Allowance for loan losses                                       $      2,881,549     $       1,944,267
          Deferred compensation                                                    382,982               367,683
          Depreciation                                                             524,757               360,948
          Pension costs                                                            171,734                85,880
          Other                                                                         --                71,036
                                                                          ----------------     -----------------
              Total gross deferred tax assets                                    3,961,022             2,829,814
                                                                          ----------------     -----------------

       Deferred tax liabilities:
          Premises and equipment                                                  (195,832)             (196,154)
          Bond accretion                                                          (146,710)              (38,810)
          Amortization of intangibles                                              (28,863)              (25,484)
          Unrealized gains on available for sale securities                     (2,465,865)           (2,082,681)
          Other                                                                     (4,547)                   --
                                                                          ----------------     -----------------
              Total gross deferred tax liabilities                              (2,841,817)           (2,343,129)
                                                                          ----------------     -----------------

              Net deferred tax asset                                      $      1,119,205     $         486,696
                                                                          ================     =================
</TABLE>

                                       38
<PAGE>

               FIDELITY BANCSHARES (N.C), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998


     No valuation allowance for deferred tax assets was required at December 31,
     2000 or 1999 as management has determined that it is more likely than not
     that the net deferred tax asset can be realized.

(10) Employee Benefit Plans

     Capital Accumulation Plan

     The Company has a profit sharing 401(k) plan (the "Plan") for all full time
     employees with at least one year of service, which covers substantially all
     employees. Under the Plan, employees may contribute up to an annual maximum
     as determined under the Internal Revenue Code, not to exceed 16% of the
     participant's compensation. The Company matches 100% of such contributions
     for the first three percent of the participant's contributions and 50% of
     the next three percent. Further, the Company may make additional
     contributions on a discretionary basis. The Plan provides that employees'
     contributions are 100% vested at all times and the Company's contributions
     are 100% vested after five years of service. The Company incurred $327,201,
     $282,848 and $245,166 of expense related to the Plan for the years ended
     December 31, 2000, 1999 and 1998, respectively. The majority of the Plan's
     assets are held by a related party as trustee. See note 15 for additional
     information.

     Pension Plan

     The Company has a noncontributory, defined benefit pension plan
     ("Retirement Plan") which covers substantially all full-time employees. The
     Company's funding policy is based on actuarially calculated amounts to fund
     normal pension cost and any unfunded accrued liability. The Retirement Plan
     utilizes the projected unit credit actuarial cost method.

     The following table reconciles the beginning and ending balance of the
     Retirement Plan's benefit obligation, as computed by the Company's
     independent actuarial consultants as of December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                            2000                1999                1998
                                                       --------------     ---------------     ---------------
      <S>                                              <C>                <C>                 <C>
      Net benefit obligation at beginning of year      $    6,519,278     $     6,655,456     $     5,338,120
      Service cost                                            303,114             264,659             221,431
      Interest cost                                           531,945             459,402             423,837
      Actuarial loss (gain)                                   687,186            (642,010)            844,420
      Gross benefits paid                                    (251,880)           (218,229)           (172,352)
                                                       --------------     ---------------     ---------------
      Net benefit obligation at end of year            $    7,789,643     $     6,519,278     $     6,655,456
                                                       ==============     ===============     ===============
</TABLE>

                                       39
<PAGE>

               FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998


The following table reconciles the beginning of the Retirement Plan's plan
assets as of December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                    2000                1999                1998
                                                               --------------     ---------------     ---------------
       <S>                                                    <C>                <C>                 <C>
       Fair value of plan assets at beginning of year         $    8,718,547     $     8,415,415      $    7,296,169
       Actual return (loss) on plan assets                          (108,652)            521,361           1,291,598
       Benefits paid                                                (251,880)           (218,229)           (172,352)
                                                              --------------     ---------------      --------------
       Fair value of plan assets at end of year               $    8,358,015     $     8,718,547      $    8,415,415
                                                              ==============     ===============     ===============
</TABLE>

The following table presents information regarding the funded status of the
Retirement Plan as of December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                          2000                1999
                                                                   ----------------     -----------------
       <S>                                                         <C>                  <C>
       Funded status at the end of year                            $        568,372     $       2,199,269
       Unrecognized net actuarial gain                                     (790,908)           (2,158,294)
       Unrecognized prior service cost                                       47,908                57,468
       Unrecognized transition obligation                                   (91,972)             (147,145)
                                                                   ----------------     -----------------
       Net asset (liability) recognized at end of year             $       (266,600)    $         (48,702)
                                                                   ================     =================
</TABLE>

The following table presents the components of net periodic benefit cost for the
years ended December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                              2000                1999                1998
                                                         --------------     ---------------     ---------------
       <S>                                               <C>                <C>                 <C>
       Service cost                                      $    303,114       $     264,659       $     221,431
       Interest cost                                          531,945             459,402             423,837
       Expected return on assets                             (571,548)           (495,008)           (441,093)
       Amortization of:
          Transition obligation                               (55,173)            (55,173)            (55,173)
          Prior service cost                                    9,560               9,560               9,560
          Actuarial loss                                           --              11,219              14,754
                                                         ------------       -------------       -------------
       Net periodic benefit cost                         $    217,898       $     194,659       $     173,316
                                                         ============       =============       =============
</TABLE>

Actuarial assumptions used to determine the Retirement Plan's funded status were
as follows:

<TABLE>
<CAPTION>
                                                               2000        1999      1998
                                                               ----        ----      ----
       <S>                                                     <C>         <C>       <C>
       Discount rate                                           7.25%       7.50%     6.75%
       Rate of increase in compensation levels                 4.75%       4.75%     4.50%
       Expected long-term rate of return on assets             8.50%       8.50%     8.00%
</TABLE>

The Retirement Plan's investment portfolio consists of approximately 50% equity
securities, and 50% fixed income and other investments at December 31, 2000. The
majority of the Retirement Plan's assets are held by a related party who serves
as trustee. See note 15 for additional information.

                                       40
<PAGE>

               FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998


     Employee Death Benefit and Post-Retirement Non-Competition and Consultation
     Agreements

     The Company has in place Employee Death Benefit and Post-Retirement Non-
     Competition and Consultation Agreements (the "Agreements") covering two of
     its executive officers. The Agreements provide for certain benefits to be
     paid to the executive officers upon either their retirement (as defined in
     the Agreements) or their death. The Company's accrual (included in other
     liabilities) for these future benefits was approximately $970,000 and
     $930,000 at December 31, 2000 and 1999, respectively.

(11) Regulatory Restrictions

     The Company is regulated by the Board of Governors of the Federal Reserve
     System ("FRB"). The Bank is regulated by the Federal Deposit Insurance
     Corporation ("FDIC") and the State of North Carolina Office of the
     Commissioner of Banks.

     Subject to applicable law, the Boards of Directors of the Company and the
     Bank may each provide for the payment of dividends. Future declarations of
     cash dividends, if any, by the Company may depend upon dividend payments by
     the Bank to the Company. The Bank, as a North Carolina banking corporation,
     may pay dividends only out of undivided profits as determined pursuant to
     North Carolina General Statutes Section 53-87. However, regulatory
     authorities may limit payment of dividends by any bank when it is
     determined that such a limitation is in the public interest and is
     necessary to ensure the financial soundness of the bank.

     Under regulations of the Federal Reserve, banking affiliates are required
     to maintain certain average reserve balances which include both cash on
     hand and deposits with the Federal Reserve. These deposits are included in
     cash and cash equivalents in the accompanying balance sheets. At December
     31, 2000 and 1999 the Bank was required to maintain such balances at
     $12,039,000 and $12,896,000, respectively.

     The Company and the Bank are subject to various regulatory capital
     requirements administered by federal and state banking agencies. Failure to
     meet minimum capital requirements can initiate certain mandatory, and
     possibly additional discretionary, actions by regulators that, if
     undertaken, could have a direct material effect on the Company's
     consolidated financial statements. Quantitative measures established by
     regulation to ensure capital adequacy require the Company and the Bank to
     maintain minimum amounts and ratios, as set forth in the table below.
     Management believes, as of December 31, 2000, that the Company and the Bank
     meet all capital adequacy requirements to which they are subject.

     As of December 31, 2000, the Bank was considered to be "well capitalized"
     under FDIC standards. To be categorized as well capitalized the Bank must
     maintain minimum amounts and ratios, as set forth in the tables below.
     There are no conditions or events since December 31, 2000 that management
     believes have changed the category of the Bank.

                                       41
<PAGE>

               FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998


     The actual capital amounts and ratios for the Company are presented in the
     table below (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                               For
                                                                                             Capital
                                                                                             Adequacy
                                                         Amount            Ratio             Purposes
                                                      -----------     ------------        -------------
<S>                                                   <C>             <C>                 <C>
As of December 31, 2000:
------------------------
Total Capital (to Risk Weighted Assets)               $    94,114         13.29%             *8.00%
Tier 1 Capital (to Risk Weighted Assets)                   84,047         11.87%             *4.00%
Tier 1 Capital (to Average Assets)                         84,047          9.72%             *3.00%

As of December 31, 1999:
------------------------
Total Capital (to Risk Weighted Assets)               $    83,665         13.34%             *8.00%
Tier 1 Capital (to Risk Weighted Assets)                   75,601         12.06%             *4.00%
Tier 1 Capital (to Average Assets)                         75,601          9.12%             *3.00%
</TABLE>

     The actual capital amounts and ratios for the Bank are presented in the
     table below (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                For                     To Be Well
                                                                              Capital                Capitalized Under
                                                                              Adequacy               Prompt Corrective
                                             Amount        Ratio              Purposes               Action Provisions
                                          -----------  -----------          -------------           -------------------
<S>                                          <C>          <C>               <C>                     <C>
As of December 31, 2000:
------------------------
Total Capital (to Risk Weighted Assets)      $  85,944    12.31%               *8.00%                    *10.00%
Tier 1 Capital (to Risk Weighted Assets)        78,646    11.26%               *4.00%                    * 6.00%
Tier 1 Capital (to Average Assets)              78,646     9.17%               *3.00%                    * 5.00%

As of December 31, 1999:
------------------------
Total Capital (to Risk Weighted Assets)      $  76,386    13.17%               *8.00%                    *10.00%
Tier 1 Capital (to Risk Weighted Assets)        71,244    12.28%               *4.00%                    * 6.00%
Tier 1 Capital (to Average Assets)              71,244     8.67%               *3.00%                    * 5.00%
</TABLE>

(12) Commitments and Contingencies

     The Company is a party to financial instruments with off-balance sheet risk
     in the normal course of business to meet the financing needs of its
     customers. These financial instruments include commitments to extend
     credit, lines of credit and standby letters of credit. These instruments
     involve elements of credit risk in excess of amounts recognized in the
     accompanying consolidated financial statements.

* means greater than or equal to

                                       42
<PAGE>

               FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998


     The Company's risk of loss in the event of nonperformance by the other
     party to the commitment to extend credit, line of credit or standby letter
     of credit is represented by the contractual amount of these instruments.
     The Company uses the same credit policies on the borrower in making
     commitments under such instruments as it does for on-balance sheet
     instruments. The amount of collateral obtained, if any, is based on
     management's credit evaluation of the borrower. Collateral held varies, but
     may include accounts receivable, inventory, real estate and time deposits
     with financial institutions. Since many of the commitments are expected to
     expire without being drawn upon, the total commitment amounts do not
     necessarily represent future cash requirements.

     As of December 31, 2000 and 1999, outstanding financial instruments whose
     contract amounts represent credit risk were as follows:

<TABLE>
<CAPTION>
                                                                    2000                1999
                                                             -----------------    -----------------
<S>                                                          <C>                  <C>
Outstanding commitments to lend, unfunded loans
   and lines of credit                                       $     213,329,957    $     196,480,149
                                                             =================    =================

Standby and commercial letters of credit                     $       2,142,718    $       2,887,793
                                                             =================    =================
</TABLE>

     The Company's lending is concentrated primarily in central North Carolina
     and the surrounding communities in which it operates. Credit has been
     extended to certain of the Company's customers through multiple lending
     transactions; however, there is no concentration to any single customer or
     industry.

(13) Fair Value of Financial Instruments

     SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" (SFAS
     No. 107), requires the disclosure of estimated fair values for financial
     instruments. Quoted market prices, if available, are utilized as an
     estimate of the fair value of financial instruments. Because no quoted
     market prices exist for a significant part of the Company's financial
     instruments, the fair value of such instruments has been derived based on
     management's assumptions with respect to future economic conditions, the
     amount and timing of future cash flows and estimated discount rates.
     Different assumptions could significantly affect these estimates.
     Accordingly, the net realizable value could be materially different from
     the estimates presented below. In addition, the estimates are only
     indicative of individual financial instruments' values and should not be
     considered an indication of the fair value of the Company taken as a whole.
     The following methods and assumptions were used to estimate the fair value
     of each class of financial instrument:

     Cash and Due From Banks, Interest Bearing Deposits in Other Banks, and
     Federal Funds Sold

     The carrying amounts of cash and due from banks, interest bearing deposits
     in other banks and federal funds sold are equal to the fair value due to
     the liquid nature of these financial instruments.

                                       43
<PAGE>

               FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998


   Investment Securities

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

   Loans Receivable

   For variable-rate loans that reprice frequently and with no significant
   credit risk, fair values are based on carrying values. The fair values of
   fixed rate loans are estimated by discounting the future cash flows using the
   current rates at which loans with similar terms would be made to borrowers
   with similar credit ratings and for the same remaining maturities. The
   Company has assigned no fair value to off-balance sheet financial instruments
   since they are short term in nature and subject to immediate repricing.

   Deposits

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

   Short-Term Borrowings

   The carrying amounts of short-term borrowings approximate fair values due to
   the fact these borrowings mature within 90 days.

   Long-Term Borrowings

   The fair value of long-term borrowings is the fair value at the last trade
   date of the respective years.

   Accrued Interest Receivable and Payable

   The carrying amount of accrued interest approximates fair value due to its
   short-term nature.

                                       44
<PAGE>

               FIDELITY BANCSHARES (N.C), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998

     The following table presents information for financial assets and
     liabilities as of December 31, 2000 and 1999 (in thousands):

<TABLE>
<CAPTION>
                                                                 2000                             1999
                                                    ------------------------------    -----------------------------
                                                                      Estimated                         Estimated
                                                      Carrying           fair           Carrying          fair
                                                        value            value            value           value
                                                    ------------    --------------    ------------    -------------
       <S>                                          <C>             <C>               <C>             <C>
       Financial assets:
          Cash and due from banks
            and interest bearing deposits
            in other banks                          $     62,836    $       62,836    $     72,258    $      72,258
          Federal funds sold                              28,850            28,850          22,600           22,600
          Investment securities
            available for sale                             8,799             8,799           7,749            7,749
          Investment securities held
            to maturity                                  142,905           142,797         135,006          132,844
          Federal Home Loan Bank of
            Atlanta stock                                  2,170             2,170           2,059            2,059
          Accrued interest receivable                      5,962             5,962           4,824            4,824
          Loans, net                                     607,520           606,519         546,006          546,198

       Financial liabilities:
          Deposits                                  $    772,520    $      773,721    $    716,014    $     716,375
          Short-term borrowings                           26,642            26,642          22,973           22,973
          Long-term borrowings                            23,000            19,849          23,000           19,550
          Accrued interest payable                         6,306             6,306           4,730            4,730
</TABLE>

(14) Parent Company Financial Data

          The Company's principal assets are its investments in the Bank and
          the Trust. Condensed financial statements for the parent company
          as of December 31, 2000 and 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
     CONDENSED BALANCE SHEETS                                          2000             1999
                                                                  -------------    -------------
     <S>                                                          <C>              <C>
                                  Assets

     Cash                                                         $      1,033     $        835
     Investments                                                         8,799            7,749
     Investment in subsidiaries                                         92,228           85,635
     Other assets                                                        1,630            1,470
                                                                  ------------     ------------
          Total assets                                            $    103,690     $     95,689
                                                                  ============     ============


                      Liabilities and Shareholders' Equity

     Long-term borrowings                                         $     23,711     $     23,711
     Deferred tax liability                                              2,466            2,083
     Shareholders' equity                                               77,513           69,895
                                                                  ------------     ------------
          Total liabilities and shareholders' equity              $    103,690     $     95,689
                                                                   ============     ===========

</TABLE>

                                       45
<PAGE>

               FIDELITY BANCSHARES (N.C), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME                                   2000              1999             1998
                                                            -------------     -------------     ------------
<S>                                                         <C>               <C>               <C>
Dividends from bank subsidiary                              $       2,875     $         920     $        920
Other dividends                                                       126               153              123
Interest expense on long-term borrowings                           (2,015)           (1,097)              --
Miscellaneous expenses                                               (169)             (109)            (296)
Income tax benefit (expense)                                          691               353               --
                                                            -------------     -------------     ------------
     Income before equity in undistributed earnings
        of subsidiaries                                             1,508               220              747

Equity in undistributed earnings of subsidiaries                    6,593             7,417            6,902
                                                            -------------     -------------     ------------

     Net income                                             $       8,101     $       7,637     $      7,649
                                                            =============     =============     ============
</TABLE>

<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS                               2000              1999             1998
                                                            -------------     -------------     ------------
<S>                                                         <C>               <C>               <C>
Cash flows from operating activities:
  Net income                                                $       8,101     $       7,637     $      7,649
  Equity in undistributed earnings subsidiaries                    (6,593)           (7,417)          (6,902)
  Increase in other liabilities                                       457                --               --
  Increase in other assets                                           (617)           (1,428)              (7)
                                                            -------------     -------------     ------------
     Net cash provided (used) by operating activities               1,348            (1,208)             740
                                                            -------------     -------------     ------------

Cash flows from investing activities:
  Capital investment in subsidiary (Trust)                             --              (711)              --
  Capital investment in subsidiary (Bank)                              --           (20,000)              --
  Return of capital on investment securities                           --                --              456
                                                            -------------     -------------     ------------
    Net cash provided (used) by investing activities                   --           (20,711)             456
                                                            -------------     -------------     ------------

Cash flows from financing activities:
   Increase in long-term borrowings                                    --            23,711               --
   Dividends paid                                                    (900)             (905)            (909)
   Purchase and retirement of common stock                           (250)             (480)              --
                                                            -------------     -------------     ------------
     Net cash provided (used) in financing activities              (1,150)           22,326             (909)
                                                            -------------     -------------     ------------

         Net increase in cash and cash equivalents                    198               407              287

Cash and cash equivalents at beginning of year                        835               428              141
                                                            -------------     -------------     ------------

Cash and cash equivalents at end of year                    $       1,033     $         835     $        428
                                                            =============     =============     ============
</TABLE>

                                       46
<PAGE>

               FIDELITY BANCSHARES (N.C), INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999 and 1998


(15) Related Parties

     The Company has entered into various service contracts with another bank
     holding company and its subsidiary (the "Corporation"). The Corporation has
     two significant shareholders, who are also significant shareholders of the
     Company. At December 31, 2000, the first significant shareholder
     beneficially owned 11,155 shares, or 39.74 percent, of the Company's
     outstanding common stock. At the same date, the second significant
     shareholder beneficially owned 3,123 shares, or 11.13 percent, of the
     Company's outstanding common stock.

     These two significant shareholders are directors and executive officers of
     the Corporation and at December 31, 2000, beneficially owned 2,524,468
     shares, or 28.64 percent, and 1,477,495 shares, or 16.76 percent,
     respectively, of the Corporation's outstanding Class A common stock, and
     649,188 shares, or 37.86 percent, and 199,052 shares, or 11.61 percent,
     respectively, of the Corporation's outstanding Class B common stock. The
     above totals include 487,557 Class A common shares, or 5.43 percent, and
     104,644 Class B common shares, or 6.10 percent, that are considered to be
     beneficially owned by both of the shareholders and, therefore, are included
     in each of their totals. A subsidiary of the Corporation is FCB.

     The following are expenses paid by the Company to the Corporation:

<TABLE>
<CAPTION>
                                                        2000                1999                 1998
                                                  ----------------    ----------------    -----------------
<S>                                               <C>                 <C>                 <C>

          Data and items processing               $      2,549,000    $      1,925,000    $       1,420,000
          Trustee fees                                      40,000              48,000               40,000
          Other                                            447,000           1,027,000              587,000
                                                  ----------------    ----------------    -----------------
                                                  $      3,036,000    $      3,000,000    $       2,047,000
                                                  ================    ================    =================
</TABLE>

     The Company also has a correspondent relationship with the Corporation.
     Correspondent account balances with the Corporation included in cash and
     due from banks and federal funds sold totaled $50,450,392 and $35,777,835
     at December 31, 2000 and 1999, respectively.

     During January 1998, the Bank sold rights to service mortgage loans to SBT.
     See note 4.

     During October 1998 and August 1999, the Company purchased five and seven
     branches, respectively, from FCB.  See note 2.

                                       47
<PAGE>

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

Not applicable.

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

The following table lists BancShares' current directors.

<TABLE>
<CAPTION>
                                 Position(s)
                               with BancShares         First                         Business experience for
       Name and age             and the Bank        elected (1)                          past five years
---------------------------  --------------------   ------------  --------------------------------------------------------------
<S>                          <C>                    <C>           <C>
        F. Ray Allen              Director             1992       President, Uwharrie Lumber Company, Troy, NC
           (41)                                                   (hardwood lumber manufacturer)

    Haywood A. Lane, Jr.        President and          1979       Officer and Director of BancShares and the Bank
           (64)                   Director

        D. Gary McRae             Director             1999       President & CEO, McRae Industries, Inc., Mt. Gilead, NC (boot
           (50)                                                   manufacture); President, New South Realty, Mt. Gilead, NC (real
                                                                  estate)

     Wallace H. Mitchell          Director             1968       Retired; Partner, Mitchell Farms; former Secretary-Treasurer
           (73)                                                   and General Manager, Mitchell Chevrolet Company,
                                                                  Fuquay-Varina, NC (automobile dealership)

     Sam C. Riddle, Jr.           Director             1979       Owner and former President, Riddle Equipment Company,
           (73)                                                   Inc., Carthage, NC (farm equipment dealer)

      Billy T. Woodard         Chief Executive         1970       Officer and Director of BancShares and the Bank
           (70)                  Officer and
                               Chairman of the
                             Board of Directors
</TABLE>

----------
(1)      Each individual currently serves as a director of both BancShares and
         the Bank. "First elected" indicates the year in which each individual
         first became a director of BancShares or, if before Fidelity's
         organization in 1987, a director of the Bank.

                                       48
<PAGE>

The following table lists BancShares' current executive officers.

<TABLE>
<CAPTION>
                                    Position(s)
                                  with BancShares             First                     Business experience for
       Name and age                 and the Bank             elected                        past five years
---------------------------  ---------------------------  --------------   --------------------------------------------------
<S>                          <C>                          <C>              <C>
      Billy T. Woodard        Chief Executive Officer         1970         Officer and Director of BancShares and the Bank
           (70)                 and Chairman of the
                                 Board of Directors

    Haywood A. Lane, Jr.       President and Director         1979         Officer and Director of BancShares and the Bank
           (64)
</TABLE>

ITEM 11 - EXECUTIVE COMPENSATION

Officer Compensation. The following table shows the cash and certain other
compensation paid to or deferred by certain executive officers of BancShares for
the years indicated. BancShares' executive officers also serve, and are
compensated, as officers of the Bank, and they receive no salaries or other
separate or additional compensation from BancShares for their services as
executive officers of BancShares.

                           SUMMARY COMPENSATION TABLE
                           --------------------------

<TABLE>
<CAPTION>
                                                                               Annual compensation
                                                        -----------------------------------------------------------------

                                                                                        Other annual        All other
                Name and                                    Salary          Bonus       compensation       compensation
           principal position                Year            (1)             ($)             (2)               (3)
-----------------------------------------   --------    ---------------   -----------   --------------    ---------------
<S>                                         <C>         <C>               <C>           <C>               <C>
Billy T. Woodard                             2000           $  247,000         $   -          $    --         $   10,428
Chairman and Chief Executive Officer         1999              233,000             -               --              9,973
of BancShares and the Bank                   1998              220,817        50,000               --              9,194

Haywood A. Lane, Jr.                         2000           $  204,000         $   -          $    --         $   10,350
President                                    1999              190,000             -               --              9,525
of BancShares and the Bank                   1998              174,075        40,000               --              8,622
</TABLE>

----------

(1)      Includes amounts deferred at the election of each named officer
         pursuant to the Bank's Section 401(k) plan.
(2)      In addition to compensation paid in cash, BancShares' executive
         officers receive certain personal benefits from the Bank. The value of
         non-cash benefits received each year by each named officer did not
         exceed 10% of his cash compensation for that year.
(3)      For 2000, consists of the Bank's contribution to the Section 401(k)
         plan for the account of each named officer ($8,028 for Mr. Woodard and
         $7,950 for Mr. Lane) and fees received for services as directors of the
         Bank ($2,400 for Mr. Woodard and $2,400 for Mr. Lane).

Post-Retirement Noncompetition and Consultation Agreements. During 1986, the
Bank entered into Post-Retirement Noncompetition and Consultation Agreements
with Billy T. Woodard and Haywood A. Lane, Jr. Each Agreement, as amended on
January 1, 1999, provides that upon the officer's retirement from full time
employment with the Bank, he will serve as a consultant to the Bank and will
receive monthly payments ($8,738 for Mr. Woodard and $7,125 for Mr. Lane) for a
period of ten years. In the event of the officer's death prior to the expiration
of the ten-year period, any remaining monthly payments will be paid to the
officer's designated beneficiary or estate. If the officer dies prior to
retirement, his designated beneficiary or estate will receive those payments for
a period of ten years following his death.

                                       49
<PAGE>

Pension Plan. The following table shows, for various numbers of years of service
and levels of compensation, the estimated benefits payable to a participant at
normal retirement age under the Bank's qualified defined benefit pension plan
(the "Pension Plan") based on federal tax laws in effect on January 1, 2000.

<TABLE>
<CAPTION>
                                                                            Years of service
                                             -------------------------------------------------------------
                          Final average
                           compensation       10 years        20 years        30 years         40 years
                         -----------------   ------------    ------------   -------------    -------------
                         <S>              <C>              <C>             <C>              <C>
                         $    50,000      $     6,969      $   13,937      $   20,906       $   27,390
                              75,000           11,594          23,187          34,781           45,077
                             100,000           16,219          32,437          48,656           62,765
                             125,000           20,844          41,687          62,531           80,452
                             150,000           25,469          50,936          76,406           98,140
                             175,000           30,094          60,187          90,281          115,827
                             200,000           34,235          68,469         102,704          131,664
                             225,000           34,235          68,469         102,704          131,664
                             250,000           34,235          68,469         102,704          131,664
</TABLE>

Benefits shown in the table are computed as straight life annuities beginning at
age 65 and are not subject to a deduction for Social Security benefits or any
other offset amounts. A participant's compensation covered by the pension plan
includes base salary, bonuses, overtime pay, and earnings deferred by the
participant's own contribution pursuant to the Bank's Section 401(k) plan (but
excluding any special bonuses, any directors' fees, the Bank's matching
contributions to the Section 401(k) plan, or any other incidental compensation).
Benefits are calculated based on each participant's "final average
compensation," which is defined as the participant's average earnings during the
five highest consecutive earning years of the last ten complete calendar years
as a participant. However, under current tax laws, $170,000 is the maximum
amount of annual compensation for 2000 that can be included for purposes of
calculating a participant's final average compensation, and the maximum annual
benefit that may be paid to a retiring participant is $135,000. The maximum
years of credited service which may be counted in calculating benefits under the
Pension Plan is 40 years. The estimated years of service and the estimated final
average compensation, respectively, as of December 31, 2000, for each of the
executive officers named in the Summary Compensation Table above are as follows:
Billy T. Woodard -- 40 years and $160,000; and Haywood A. Lane, Jr. -- 38 years
and $156,095.

Compensation of Directors. Each director of BancShares and the Bank (including
directors who also are employees) currently receives a fee of $600 for
attendance at each meeting of BancShares' or the Bank's Board of Directors, and
members of the Executive Committee of the Board of Directors (with the exception
of Billy T. Woodard and Haywood A. Lane, Jr.) receive a fee of $500 for
attendance at each meeting of the Committee. No fees are paid to any directors
for attendance at any other committee meetings.

Directors are reimbursed for expenses of travel to and from all meetings. Only
one fee is paid for joint meetings of the Boards of BancShares and the Bank and
for any committee meetings held on the same day as a meeting of one of the
Boards.

                                       50
<PAGE>

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Principal Shareholders. As of March 15, 2001, persons known to BancShares to own
beneficially or of record more than 5% of BancShares' voting securities were as
follows:

<TABLE>
<CAPTION>
                                                                            Amount and
                                                                            nature of
                                      Name and address                      beneficial          Percentage
                                     of beneficial owner                  ownership (1)         of class
                         ---------------------------------------------   -----------------    -------------
                         <S>                                             <C>                  <C>
                         Frank B. Holding                                   11,155 (2)              39.74%
                         Smithfield, North Carolina

                         Lewis R. Holding                                    3,023 (3)              10.77%
                         Lyford Cay, Bahamas

                         North State Trustees (4)                           8,480 (4)               30.21%
                         Charlotte, North Carolina
</TABLE>

----------

(1)      Except as otherwise noted, each named individual exercises sole voting
         and investment power with respect to all shares.

(2)      Includes 3,978 shares held by Mr. F. Holding's adult children and with
         respect to which shares he disclaims beneficial ownership.

(3)      Includes an aggregate of 1,696 shares held by or in trust for Mr. L.
         Holding's adult daughter and with respect to which shares he disclaims
         beneficial ownership. Of the listed shares, an aggregate of 1,645
         shares also are shown as beneficially owned by North State Trustees.

(4)      Consists of shares held by two irrevocable grantor trusts (the "1976
         Trust," the "1979 Trust," and the "1990 Trust") with respect to which
         Carmen P. Holding Ames currently is the sole beneficiary. Ms. Ames has
         sole power to direct the voting, and shared power (with the six
         trustees) to direct the disposition, of 345 shares held by the 1976
         Trust and 1,000shares held by the 1979 Trust. The written agreement
         pertaining to the 1990 Trust provides that, in connection with their
         voting of 6,735 shares held by the trust, the trustees will consult
         with the then current beneficiaries who are at least 40 years of age,
         but that the trustees will not be bound by the voting preference of any
         such beneficiary. Of the listed shares, an aggregate of 1,345 shares
         also are shown as beneficially owned by Mr. L. Holding.

Management Ownership. The beneficial ownership of BancShares' voting securities
as of March 15, 2001, by its current directors individually, and by all current
directors and executive officers as a group, was as follows:

<TABLE>
<CAPTION>
                                                                            Amount and
                                                                            nature of
                                           Name of                          beneficial         Percentage
                                       beneficial owner                   ownership (1)         of class
                         ---------------------------------------------   -----------------    -------------
                         <S>                                             <C>                  <C>
                         F. Ray Allen                                          102 (2)             .36%
                         Biscoe, NC

                         Haywood A. Lane, Jr.                                  143                 .51%
                         Raleigh, NC

                         D. Gary McRae                                          10                 .04%
                         Mount Gilead, NC

                         Wallace H. Mitchell                                   100                 .36%
                         Fuquay-Varina, NC

                         Sam C. Riddle, Jr.                                     87 (3)             .31%
                         Carthage, NC

                         Billy T. Woodard                                      720 (4)            2.57%
                         Fuquay-Varina, NC

                         All directors and executive officers                1,162                4.15%
                         as a group (7 persons, all of whom
                         are named above)
</TABLE>

                                      51

<PAGE>

----------

(1)      Except as otherwise noted, each named individual, and individuals
         included in the group, exercise sole voting and investment power with
         respect to all shares.
(2)      Includes 40 shares held by Mr. Allen jointly with his spouse, and 40
         shares held by a corporation of which he may be deemed to be a control
         person, and with respect to which shares Mr. Allen exercises shared
         voting and investment power.
(3)      Includes 22 shares held by Mr. Riddle jointly with his spouse and with
         respect to which shares he exercises shared voting and investment
         power.
(4)      Includes 391 shares held by Mr. Woodard's spouse and adult children and
         with respect to which shares he may be deemed to exercise shared voting
         and investment power.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Bank has had, and expects to have in the future, banking transactions in the
ordinary course of business with certain of the directors, executive officers,
principal shareholders of BancShares and the Bank, and their associates. Loans
included in those transactions during 2000 were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons, and such loans did not involve
more than the normal risk of collectibility or present other unfavorable
features. See note 4 of notes to consolidated financial statements included in
Item 8.

The Bank is party to a contract with FCB, pursuant to which FCB provides to the
Bank and BancShares various data and item processing services, securities
portfolio management services, management consulting services and trustee
services for the Bank's pension plan and Section 401(k) plan. The Bank also
purchases business forms, equipment and supplies, together with certain other
services, through FCB. Aggregate fees paid by the Bank to FCB for all such
services during 2000 totaled approximately $3.0 million. The following are fees
paid by the Company to FCB:

<TABLE>
<CAPTION>
                                                               2000               1999                1998
                                                          ---------------    ---------------    -----------------
        <S>                                           <C>                    <C>                <C>
        Data and items processing                     $       2,549,000          1,925,000          1,420,000
        Trustee fees                                             40,000             48,000             40,000
        Other                                                   447,000          1,027,000            587,000
                                                          ---------------    ---------------    -----------------
                                                      $       3,036,000          3,000,000          2,047,000
                                                          ===============    ===============    =================
</TABLE>

The Company also has a correspondent relationship with the FCB. Correspondent
account balances with FCB included in cash and due from banks and federal funds
sold totaled $50,450,392 and $35,777,835 at December 31, 2000 and 1999,
respectively.

The Bank's relationship with FCB under the agreement will continue during 2001.
Frank B. Holding and Lewis R. Holding, principal shareholders of BancShares, are
directors, executive officers and principal shareholders of First Citizens
BancShares, Inc., the bank holding company for FCB.

The Bank's contract with FCB was negotiated at arms-length and was approved by
BancShares' Board of Directors. Based on its comparison in previous years of the
terms of the contract with terms available to it from other providers of the
services being obtained from FCB, management of the Bank believes the terms of
its contract with FCB, including prices, are no less favorable to the Bank than
could be obtained from an unrelated provider.

                                       52
<PAGE>

PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS OF FORM 8-K
(a)
1.       The following consolidated financial statements of Fidelity BancShares
         (N.C.), Inc. and subsidiaries, and Independent Auditors' Report
         thereon, are included in Item 8 of this Report.

         Independent Auditors' Report

         Consolidated Balance Sheets as of December 31, 2000 and 1999
         Consolidated Statements of Income for each of the years

                  in the three year period ended December 31, 2000
         Consolidated Statements of Changes in Shareholders' Equity for each
                  of the years in the three year period ended December 31, 2000
         Consolidated Statements of Cash Flows for each of the years in the

                  three year period ended December 31, 2000
         Notes to Consolidated Financial Statements

2.       Financial statement schedules are omitted because of the absence of
         conditions under which they are required or because the required
         information is contained in the consolidated financial statements or
         related notes thereto which are included in Item 8 of this Report.

3.  Exhibits

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

3.1      BancShares' Certificate of Incorporation (incorporated herein by
         reference to Exhibit 3.1 of BancShares' Registration Statement No.
         333-62225 filed with the SEC on August 26, 1998)
3.2      BancShares' By-laws (incorporated herein by reference to Exhibit 3.2 of
         BancShares' Registration Statement No. 333-62225 filed with the SEC on
         August 26, 1998)
4.1      Initial Trust Agreement of FIDBANK Capital Trust I, as amended
         (incorporated herein by reference to Exhibit 4.1 of BancShares'
         Registration Statement No. 333-62225 filed with the SEC on August 26,
         1998)
4.2      Certificate of Trust of FIDBANK Capital Trust I (incorporated herein by
         reference to Exhibit 4.2 of BancShares' Registration Statement No.
         333-62225 filed with the SEC on August 26, 1998)
4.3      Form of Amended and Restated Trust Agreement of FIDBANK Capital Trust I
         (incorporated herein by reference to Exhibit 4.3 of BancShares'
         Amendment No. 3 to Registration Statement No. 333-62225 filed with the
         SEC on May 25, 1999)
4.4      Form of Capital Security Certificate for FIDBANK Capital Trust I
         (incorporated herein by reference to Exhibit 4.4 of BancShares'
         Amendment No. 3 to Registration Statement No. 333-62225 filed with the
         SEC on May 25, 1999)
4.5      Form of Guarantee Agreement (incorporated herein by reference to
         Exhibit 4.5 of BancShares' Amendment No. 3 to Registration Statement
         No. 333-62225 filed with the SEC on May 25, 1999)
4.6      Form of Junior Subordinated Indenture between BancShares and Bankers
         Trust Company, as Debenture Trustee (incorporated herein by reference
         to Exhibit 4.6 of BancShares' Amendment No. 3 to Registration Statement
         No. 333-62225 filed with the SEC on May 25, 1999)
4.7      Form of Junior Subordinated Debenture (incorporated herein by reference
         to Exhibit 4.7 of BancShares' Amendment No. 3 to Registration Statement
         No. 333-62225 filed with the SEC on May 25, 1999)
*10.1    Employee Death Benefit and Post-Retirement Noncompetition and
         Consultation Agreement between Billy T. Woodard and The Fidelity Bank
         (incorporated by reference to Exhibit 10.1 of BancShares' Registration
         Statement No. 333-62225 filed with the SEC on August 26, 1998)
*10.2    First Amendment to Employee Death Benefit and Post-Retirement
         Noncompetition and Consultation Agreement between Billy T. Woodard and
         The Fidelity Bank (incorporated by reference to Exhibit 10.2 of
         BancShares' Registration Statement No. 333-62225 filed with the SEC on
         August 26, 1998)
*10.3    Employee Death Benefit and Post-Retirement Noncompetition and
         Consultation Agreement between Haywood A. Lane, Jr., and The Fidelity
         Bank (incorporated by reference to Exhibit 10.3 of BancShares'
         Registration Statement No. 333-62225 filed with the SEC on August 26,
         1998)
*10.4    First Amendment to Employee Death Benefit and Post-Retirement
         Noncompetition and Consultation Agreement between Haywood A. Lane, Jr.,
         and The Fidelity Bank (incorporated by reference to Exhibit 10.4 of
         BancShares' Registration Statement No. 333-62225 filed with the SEC on
         August 26, 1998)
*10.6    Second Amendment to Employee Death Benefit and Post-Retirement
         Noncompetition and Consultation Agreement between Billy T. Woodard and
         The Fidelity Bank (incorporated by reference to Exhibit 10.6 of
         BancShares' Amendment No. 2 to Registration Statement No. 333-62225
         filed with the SEC on April 23, 1999)
*10.7    Second Amendment to Employee Death Benefit and Post-Retirement
         Noncompetition and Consultation

                                       53
<PAGE>

         Agreement between Haywood A. Lane, Jr., and The Fidelity Bank
         (incorporated by reference to Exhibit 10.7 of BancShares' Amendment No.
         2 to Registration Statement No. 333-62225 filed with the SEC on April
         23, 1999)
21.1     List of subsidiaries (incorporated herein by reference to Exhibit 21.1
         of BancShares' Registration Statement No. 333-62225 filed with the SEC
         on August 26, 1998)

----------

* Denotes a management contract or compensatory contract or arrangement.

(b) Reports on Form 8-K. During the fourth quarter of 2000 BancShares filed no
    Form 8-K Current Reports.

----------

                                       54
<PAGE>

                                  SIGNATURES

      In accordance with 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.

                                 FIDELITY BANCSHARES (N.C.), INC.

Dated:  March 29, 2001           By:      __________________________________
                                          Billy T. Woodard
                                          Chairman and Chief Executive Officer

      In accordance with Section 13 or 15(d) 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>
_____________________________       Chairman and Chief Executive Officer        March ___, 2001
Billy T. Woodard                    (principal executive officer)


_____________________________       Chief Financial Officer and Treasurer       March ___, 2001
Mary A. Woodard                     (principal financial and accounting
                                    Officer)

_____________________________       President and Director                      March ___, 2001
Haywood A. Lane, Jr.


_____________________________       Director                                    March ___, 2001
F. Ray Allen


_____________________________       Director                                    March ___, 2001
D. Gary McRae


_____________________________       Director                                    March ___, 2001
Wallace H. Mitchell


_____________________________       Director                                    March ___, 2001
Sam C. Riddle, Jr.
</TABLE>

                                       55
<PAGE>

                                  EXHIBIT INDEX

3.1      BancShares' Certificate of Incorporation (incorporated herein by
         reference to Exhibit 3.1 of BancShares' Registration Statement No.
         333-62225 filed with the SEC on August 26, 1998)
3.2      BancShares' By-laws (incorporated herein by reference to Exhibit 3.2 of
         BancShares' Registration Statement No. 333-62225 filed with the SEC on
         August 26, 1998)
4.1      Initial Trust Agreement of FIDBANK Capital Trust I, as amended
         (incorporated herein by reference to Exhibit 4.1 of BancShares'
         Registration Statement No. 333-62225 filed with the SEC on August 26,
         1998)
4.2      Certificate of Trust of FIDBANK Capital Trust I (incorporated herein by
         reference to Exhibit 4.2 of BancShares' Registration Statement No.
         333-62225 filed with the SEC on August 26, 1998)
4.3      Form of Amended and Restated Trust Agreement of FIDBANK Capital Trust I
         (incorporated herein by reference to Exhibit 4.3 of BancShares'
         Amendment No. 3 to Registration Statement No. 333-62225 filed with the
         SEC on May 25, 1999)
4.4      Form of Capital Security Certificate for FIDBANK Capital Trust I
         (incorporated herein by reference to Exhibit 4.4 of BancShares'
         Amendment No. 3 to Registration Statement No. 333-62225 filed with the
         SEC on May 25, 1999)
4.5      Form of Guarantee Agreement (incorporated herein by reference to
         Exhibit 4.5 of BancShares' Amendment No. 3 to Registration Statement
         No. 333-62225 filed with the SEC on May 25, 1999)
4.6      Form of Junior Subordinated Indenture between BancShares and Bankers
         Trust Company, as Debenture Trustee (incorporated herein by reference
         to Exhibit 4.6 of BancShares' Amendment No. 3 to Registration Statement
         No. 333-62225 filed with the SEC on May 25, 1999)
4.7      Form of Junior Subordinated Debenture (incorporated herein by reference
         to Exhibit 4.7 of BancShares' Amendment No. 3 to Registration Statement
         No. 333-62225 filed with the SEC on May 25, 1999)
*10.1    Employee Death Benefit and Post-Retirement Noncompetition and
         Consultation Agreement between Billy T. Woodard and The Fidelity Bank
         (incorporated by reference to Exhibit 10.1 of BancShares' Registration
         Statement No. 333-62225 filed with the SEC on August 26, 1998)
*10.2    First Amendment to Employee Death Benefit and Post-Retirement
         Noncompetition and Consultation Agreement between Billy T. Woodard and
         The Fidelity Bank (incorporated by reference to Exhibit 10.2 of
         BancShares' Registration Statement No. 333-62225 filed with the SEC on
         August 26, 1998)
*10.3    Employee Death Benefit and Post-Retirement Noncompetition and
         Consultation Agreement between Haywood A. Lane, Jr., and The Fidelity
         Bank (incorporated by reference to Exhibit 10.3 of BancShares'
         Registration Statement No. 333-62225 filed with the SEC on August 26,
         1998)
*10.4    First Amendment to Employee Death Benefit and Post-Retirement
         Noncompetition and Consultation Agreement between Haywood A. Lane, Jr.,
         and The Fidelity Bank (incorporated by reference to Exhibit 10.4 of
         BancShares' Registration Statement No. 333-62225 filed with the SEC on
         August 26, 1998)
*10.6    Second Amendment to Employee Death Benefit and Post-Retirement
         Noncompetition and Consultation Agreement between Billy T. Woodard and
         The Fidelity Bank (incorporated by reference to Exhibit 10.6 of
         BancShares' Amendment No. 2 to Registration Statement No. 333-62225
         filed with the SEC on April 23, 1999)
*10.7    Second Amendment to Employee Death Benefit and Post-Retirement
         Noncompetition and Consultation Agreement between Haywood A. Lane, Jr.,
         and The Fidelity Bank (incorporated by reference to Exhibit 10.7 of
         BancShares' Amendment No. 2 to Registration Statement No. 333-62225
         filed with the SEC on April 23, 1999)
21.1     List of subsidiaries (incorporated herein by reference to Exhibit 21.1
         of BancShares' Registration Statement No. 333-62225 filed with the SEC
         on August 26, 1998)

----------

* Denotes a management contract or compensatory contract or arrangement.

----------

                                       56