================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)
[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

For the fiscal year ended December 31, 2000
                                              OR

[X]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from                to
                               --------------    -------------

                           Commission File No. 0-18279

                        TRI-COUNTY FINANCIAL CORPORATION
                        --------------------------------
             (Exact name of registrant as specified in its charter)


            MARYLAND                                          52-1652138
-------------------------------------                      ------------------
(State or other jurisdiction of                            (I.R.S. Employer
incorporation or organization)                             Identification No.)


3035 LEONARDTOWN ROAD, WALDORF, MARYLAND                           20601
----------------------------------------                         ----------
(Address of principal executive offices)                         (Zip Code)

       Registrant's telephone number, including area code: (301) 645-5601

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

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

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                     --------------------------------------
                                (Title of Class)

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

Indicate by check mark if disclosure of delinquent  filers  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. [ ]

The  registrant's  voting  stock is not  regularly  and  actively  traded in any
established  market and there are no  regularly  quoted bid and asked prices for
the registrant's common stock. As of March 26, 2001, the registrant believes the
approximate  trading  price  for  the  stock  to be  $26.25  per  share  for  an
approximate aggregate market value of voting stock held by non-affiliates of the
registrant of $16.7 million.  For purposes of this calculation  only, the shares
held  by  directors  and  executive  officers  of  the  registrant  and  by  any
stockholder  beneficially  owning more than 5% of the  registrant's  outstanding
common stock are deemed to be shares held by affiliates.

Number of shares of Common Stock outstanding as of March 26, 2001:  773,053

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions of Proxy Statement for 2001 Annual Meeting of Stockholders.  (Part
     III)

================================================================================


<PAGE>


                                     PART I

ITEM 1.  BUSINESS
-----------------

Tri-County  Financial  Corporation  (the  "Company")  is a bank holding  company
organized in 1989 under the laws of the State of Maryland. It presently owns all
the outstanding shares of capital stock of the Community Bank of Tri-County (the
"Bank"), a Maryland-chartered commercial bank. The Bank was originally organized
in 1951 as Tri-County Federal Savings and Loan Association of Waldorf, a federal
mutual  savings and loan  association,  and in 1986 converted to a federal stock
savings bank and adopted the name  Tri-County  Federal  Savings  Bank.  The Bank
converted  to a  Maryland-chartered  commercial  bank and  adopted  its  current
corporate  title in 1997. The Company  engages in no significant  activity other
than  holding  the stock of the Bank and  operating  the  business  of the Bank.
Accordingly,  the  information  set forth in this  report,  including  financial
statements and related data, relates primarily to the Bank and its subsidiaries.

The Bank serves the  southern  Maryland  area  through its main office and eight
branches located in Waldorf,  Bryans Road, Dunkirk,  Leonardtown,  La Plata, and
California,  Maryland.  The Bank is engaged in the commercial and retail banking
business  as  authorized  by the banking  statutes of the State of Maryland  and
applicable  Federal  regulations,  including  the  acceptance of demand and time
deposits,   and  the   origination  of  loans  to   individuals,   associations,
partnerships  and  corporations.  The Bank's real estate  financing  consists of
residential  first and second  mortgage  loans,  home equity lines of credit and
commercial  mortgage  loans.  Commercial  lending  consists of both  secured and
unsecured  loans.  The Bank is a member of the Federal  Reserve and Federal Home
Loan Bank ("FHLB") Systems and its deposits are insured up to applicable  limits
by Savings Association  Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation ("FDIC").

The Company's  executive offices are located at 3035 Leonardtown Road,  Waldorf,
Maryland.  Its telephone  number is (301)  645-5601.  The Bank also  maintains a
website at www.communitybktricounty.com.
           ----------------------------

MARKET AREA

The Bank  considers its principal  lending and deposit market area to consist of
the  Southern  Maryland  counties of  Charles,  Calvert  and St.  Mary's.  These
counties have experienced  significant  population growth during the past decade
due to their  proximity to the rapidly  growing  Washington,  D.C. and Baltimore
metropolitan  areas.  Southern  Maryland is  generally  considered  to have more
affordable  housing than many other  Washington and Baltimore  area suburbs.  In
addition,  the area has  experienced  rapid  growth in  businesses  and  federal
facilities  located in the area. Major federal  facilities  include the Patuxent
Naval Air  Station in St.  Mary's  county.  The  Patuxent  Naval Air Station has
undergone  significant  expansion in the last several  years and is projected to
continue to expand for several more years.

LENDING ACTIVITIES

GENERAL.  The Bank offers a wide variety of consumer and commercial  loans.  The
Bank's lending activities include  residential and commercial real estate loans,
construction loans, land acquisition and development loans, equipment financing,
and commercial and consumer  demand and  installment  loans.  Most of the Bank's
customers are residents of, or businesses located in the southern Maryland area.
The Bank's  primary  market for  commercial  loans  consists of small and medium
sized  businesses  located in southern  Maryland.  The Bank  believes  that this
market is  responsive  to the Bank's  ability to provide  personal  service  and
flexibility. The Bank attracts customers for its consumer lending products based
upon its ability to offer service, flexibility, and competitive pricing, as well
as  by  leveraging  other  banking  relationships  such  as  soliciting  deposit
customers for loans.

The Bank's  previous  savings and loan  charter  restricted  its ability to hold
certain loan types in its portfolio.  As a result,  prior to its conversion to a
state chartered commercial bank, the Bank's loan portfolio was primarily made up
of residential mortgage loans. Since conversion, the Bank has moved to diversify
its lending by adding a larger  portion of commercial  real estate,  commercial,
and  consumer   loans  to  its   portfolio.   Management   believes   that  this


                                       2
<PAGE>


diversification of the loan portfolio will increase the Bank's overall long-term
financial  performance.  Management  recognizes  that  these new loan  types may
increase the Bank's risk of losses due to loan default.

RESIDENTIAL  FIRST MORTGAGE LOANS.  Prior to its conversion to a commercial bank
on March 29,  1997,  residential  first  mortgages  made up the  majority of the
Bank's loan portfolio.  Since that date,  residential  first mortgage loans have
represented a progressively smaller portion of the Bank's loan portfolio.  Since
December 31, 1996,  residential  first  mortgage  loans have increased in dollar
amount to $68.0 million from $63.7 million, while falling as a percentage of the
loan portfolio to 38.9% from 56.3%.

Residential first mortgage loans made by the Bank are generally long-term loans,
amortized on a monthly basis,  with  principal and interest due each month.  The
initial  contractual loan payment period for residential  loans typically ranges
from 10 to 30 years.  The Bank's  experience  indicates  that real estate  loans
remain  outstanding for  significantly  shorter  periods than their  contractual
terms. Borrowers may refinance or prepay loans at their option, without penalty.
The Bank originates both fixed- and adjustable-rate residential first mortgages.

The  Bank  emphasizes  the  origination  of  adjustable-rate  mortgages  for its
portfolio.  The Bank offers mortgages which are adjustable on a one-, three- and
five-year  basis  generally  with  limitations  on  upward  adjustments  of  two
percentage  points per year and six percentage points over the life of the loan.
The Bank markets adjustable-rate loans with rate adjustments based upon a United
States  Treasury bill index. As of December 31, 2000, the Bank had $34.9 million
in loans using a U.S.  Treasury bill index.  In the past,  the Bank also offered
adjustable-rate  mortgage loans based upon other indices  including various cost
of funds  indices.  These  adjustable  rate loans  totaled  $175  thousand as of
December 31, 2000. The Bank also offers long-term,  fixed-rate loans. Fixed-rate
loans may be packaged and sold in the secondary market, primarily to the Federal
Home Loan Mortgage Corporation ("FHLMC"),  private mortgage correspondents,  the
Federal  National  Mortgage  Association  ("FNMA") and the Mortgage  Partnership
Finance program of the FHLB of Atlanta, or are exchanged for FHLMC participation
certificates or FNMA mortgage-backed securities.  Depending on market conditions
the Bank may elect to retain the right to  service  the loans sold for a payment
based upon a percentage,  (generally  0.25% of the  outstanding  loan  balance).
These servicing rights may be sold to other qualified servicers.  As of December
31, 2000,  the Bank serviced  $64.8 million in  residential  mortgage  loans for
various organizations.

The retention of  adjustable-rate  mortgage  loans in the Bank's loan  portfolio
helps reduce the negative  effects of increases in interest  rates on the Bank's
net interest income. Under certain conditions,  however, the annual and lifetime
limitations  on interest  rate  adjustments  may limit the increases in interest
rates on these loans. There are also unquantifiable  credit risks resulting from
potential  increased  costs  to  the  borrower  as  a  result  of  repricing  of
adjustable-rate  mortgage  loans.  It is probable that during  periods of rising
interest  rates,  the risk of default  on  adjustable-rate  mortgage  loans will
increase  due to the upward  adjustment  of interest  cost to the  borrower.  In
addition,   depending  on  market  conditions,  the  initial  interest  rate  on
adjustable-rate  loans is  generally  lower  than that on a  fixed-rate  loan of
similar credit quality and size.

The  Bank  makes  loans  up to 95% of  appraised  value  or  sales  price of the
property,  whichever is less, to qualified  owner-occupants upon the security of
single-family  homes.  Non-owner  occupied one- to  four-family  loans and loans
secured by other than  residential  real  estate are  generally  permitted  to a
maximum  70%  loan-to-value  of the  appraised  value  depending  on the overall
strength of the application.  The Bank currently requires that substantially all
residential  loans  with  loan-to-value  ratios in  excess of 80% carry  private
mortgage  insurance  to lower the Bank's  exposure to  approximately  80% of the
value of the property.

All  improved  real estate  which serves as security for a loan made by the Bank
must be insured,  in the amount and by such  companies as may be approved by the
Bank,  against  fire,  vandalism,  malicious  mischief and other  hazards.  Such
insurance  must be  maintained  through  the  entire  term of the loan and in an
amount not less than that amount  necessary  to pay the Bank's  indebtedness  in
full.

COMMERCIAL REAL ESTATE AND OTHER NON-RESIDENTIAL REAL ESTATE LOANS. The Bank has
increased  its emphasis on loans for the permanent  financing of commercial  and
other improved real estate  projects,  including,  to a limited  extent,  office
buildings,  as well as churches and other special purpose projects. As a result,
commercial  real estate


                                       3
<PAGE>

loans  increased  $12.3 million or 41.0% during 2000. The primary  security on a
commercial  real estate loan is the real  property and the leases which  produce
income  for  the  real  property.  Commercial  real  estate  loans  amounted  to
approximately  $42.2  million or 24.1% of the Bank's loan  portfolio at December
31, 2000. The Bank generally  limits its exposure to a single borrower to 15% of
the Bank's  capital and  frequently  participates  with other  lenders on larger
projects.  Loans secured by commercial real estate are generally  limited to 80%
of appraised value and have an initial  contractual  loan payment period ranging
from three to 20 years.  Virtually  all of the  Bank's  commercial  real  estate
loans, as well as its  construction  loans discussed  below, are secured by real
estate located in the Bank's primary market area.

Loans  secured by  commercial  real estate are larger and involve  greater risks
than one- to four-family  residential  mortgage loans. Because payments on loans
secured by such  properties are often  dependent on the successful  operation or
management  of the  properties,  repayment  of such  loans may be  subject  to a
greater  extent to adverse  conditions in the real estate market or the economy.
The  Bank   restricts  its   commercial   real  estate   lending   primarily  to
owner-occupied buildings which will, to some extent, be occupied by the borrower
as opposed to speculative  rental projects.  As a result of the greater emphasis
that the Bank places on commercial  real estate loans under its business plan as
a commercial  bank, the Bank is increasingly  exposed to the risks posed by this
type of lending.

CONSTRUCTION AND LAND DEVELOPMENT  LOANS. The Bank offers  construction loans to
individuals and building  contractors  primarily for the construction of one- to
four-family    dwellings.     Loans    to    individuals    primarily    consist
construction/permanent  loans which have fixed  rates,  payable  monthly for the
construction  period and are  followed by a 30-year,  fixed- or  adjustable-rate
permanent  loan. The  construction/permanent  loans provide for  disbursement of
loan funds based on draw requests  submitted by the builder during  construction
and site  inspections  by  independent  inspectors.  The Bank  will  also make a
construction  loan if the borrower has a  commitment  from another  lender for a
permanent loan at the completion of the construction. These loans typically have
terms of six months.  The application  process includes the same items which are
required for other  mortgage  loans and also  requires the borrower to submit to
the  Bank  accurate  plans,  specifications,  and  costs of the  property  to be
constructed. These items are used as a basis to determine the appraised value of
the subject property.

The Bank also provides  construction and land development loans to home building
and real estate development companies. Generally, these loans are secured by the
real  estate  under  construction  as well as by  guarantees  of the  principals
involved.  Draws are made upon satisfactory  completion of pre-defined stages of
construction  or  development.  The Bank  will  lend up to 80% of the  appraised
value.

The Bank  also  offers  builders  lines of  credit,  which are  revolving  notes
generally  secured  by real  property.  Outstanding  builders  lines  of  credit
amounted to  approximately  $5.6 million at December 31, 2000. The Bank offers a
builder's  master note program in which the builder receives a revolving line of
credit at a market  rate and the Bank  obtains  security  in the form of a first
lien on home sites under construction.

In  addition,  the  Bank  offers  loans  for  the  purpose  of  acquisition  and
development of land, as well as loans on  undeveloped,  subdivided lots for home
building by individuals.  Land  acquisition and development  loans,  included in
construction  loans discussed above,  totaled $5.8 million at December 31, 2000.
Bank policy  provides  that zoning and permits  must be in place prior to making
development loans.

The Bank's ability to originate all types of construction and development  loans
is  heavily  dependent  on  the  continued  demand  for  single  family  housing
construction  in the Bank's market areas. In the event the demand for new houses
in the Bank's  market  areas were to decline,  the Bank may be forced to shift a
portion of its lending emphasis. There can be no assurance of the Bank's ability
to continue growth and profitability in its construction  lending  activities in
the event of such a decline.

Construction  and land development  loans are inherently  riskier than providing
financing on owner occupied real estate. The Bank's risk of loss is dependent on
the  accuracy  of the  initial  estimate  of the market  value of the  completed
project as well as the  accuracy  of the cost  estimates  made to  complete  the
project.  As these  projects  may take an extended  period of time to  complete,
market,  economic,  and regulatory conditions may change during the construction
or development period.


                                       4
<PAGE>
HOME EQUITY AND SECOND MORTGAGE  LOANS.  The Bank has maintained a growing level
of home equity and second  mortgage  loans in recent  years.  Home equity loans,
which totaled $12.9 million at December 31, 2000, are generally made in the form
of lines of credit with minimum amounts of $5,000, have terms of up to 20 years,
variable  rates priced at prime or some margin above prime and require an 80% or
90% loan-to-value  ratio (including any prior liens),  depending on the specific
loan program.  Second  mortgage loans which totaled $5.8 million at December 31,
2000 are  fixed-rate  loans which have  original  terms  between 5 and 15 years.
Loan-to-value  ratios of up to 80% or 90% are allowed  depending on the specific
loan program.

These  products  represent  a higher  risk of  default  than  residential  first
mortgages as in the event of  foreclosure,  the first  mortgage would need to be
paid off prior to collection of the second.  The Bank believes that its policies
and procedures are sufficient to mitigate the additional risk.

CONSUMER AND  COMMERCIAL  LOANS.  The Bank has developed a number of programs to
serve the needs of its  customers  with primary  emphasis  upon loans secured by
automobiles,  boats,  recreational vehicles and trucks and heavy equipment.  The
Bank also makes home  improvement  loans and offers both  secured and  unsecured
lines of credit.

The Bank also offers a variety of commercial loan services including term loans,
lines of  credit  and  equipment  financing.  The  Bank's  commercial  loans are
primarily  underwritten  on the basis of the  borrower's  ability to service the
debt from income.  Such loans are generally made for terms of five years or less
at interest rates which adjust periodically.

The higher  interest and shorter loan terms available on commercial and consumer
lending make these products attractive to the Bank. In particular,  the consumer
and  commercial  loan  portfolio  will  increase  its  yield as  interest  rates
increase.  Consumer and commercial business loans, however,  entail greater risk
than  residential  mortgage  loans,  particularly  in the case of consumer loans
which  are  unsecured  or  secured  by  rapidly   depreciable   assets  such  as
automobiles.  In such  cases,  any  repossessed  collateral  may not  provide an
adequate source of repayment of the outstanding  loan balance as a result of the
greater  likelihood of damage,  loss or depreciation.  The remaining  deficiency
often does not  warrant  further  substantial  collection  efforts  against  the
borrower. In addition, consumer loan collections are dependent on the borrower's
continuing  financial  stability,  and  thus  are more  likely  to be  adversely
affected by job loss, divorce, illness or personal bankruptcy.  Furthermore, the
application  of various  Federal  and state  laws  including  Federal  and state
bankruptcy and  insolvency  laws, may limit the amount which can be recovered on
such loans.  Such loans may also give rise to claims and  defenses by a consumer
loan borrower  against an assignee such as the Bank,  and a borrower may be able
to assert  against such  assignee  claims and defenses  which it has against the
seller of the underlying collateral.

                                       5
<PAGE>


LOAN  PORTFOLIO  ANALYSIS.  Set forth  below is  selected  data  relating to the
composition of the Bank's loan portfolio by type of loan on the dates indicated.
<TABLE>
<CAPTION>
                                                                    AT DECEMBER 31,
                                            ----------------------------------------------------------------
                                                     2000                   1999                  1998
                                            -------------------   -------------------     ------------------
                                              AMOUNT       %        AMOUNT       %          AMOUNT       %
                                            ---------    ------   ---------    ------     ---------    -----
                                                                  (DOLLARS IN THOUSANDS)
<S>                                         <C>          <C>      <C>          <C>        <C>          <C>
Real Estate Loans --
  Residential first mortgage .............  $  67,975    38.89%   $  66,263    44.42%     $  64,243    47.55%
  Commercial .............................     42,226    24.16       29,947    20.08         19,733    14.60
  Construction and land development /1/...     17,301     9.90       17,142    11.49         20,776    15.38
  Home equity and second mortgage ........     18,637    10.66       16,691    11.19         16,314    12.07
Commercial loans..........................     15,047     8.61       10,025     6.72          6,161     4.56
Consumer loans............................     13,610     7.79        9,102     6.10          7,889     5.84
                                            ---------   ------    ---------   ------      ---------   ------
         Total loans......................    174,796   100.00%     149,171   100.00%       135,117   100.00%
                                                        ======                ======                  ======
   Less:  Deferred loan fees..............        776                   808                     930
             Loan loss reserve............      1,930                 1,653                   1,540
                                            ---------             ---------               ---------
        Loans receivable, net.............  $ 172,090             $ 146,710               $ 132,646
                                            =========             =========               =========
<CAPTION>
                                                              AT DECEMBER 31,
                                            -----------------------------------------
                                                     1997                   1996
                                            -------------------   -------------------
                                              AMOUNT       %        AMOUNT       %
                                            ---------    ------   ---------    ------
                                                        (DOLLARS IN THOUSANDS)
<S>                                         <C>          <C>      <C>         <C>
Real Estate Loans --
  Residential first mortgage .............  $ 61,630     49.61%   $ 63,674    56.32%
  Commercial .............................    19,201     15.46      14,172    12.54
  Construction and land development /1/...    14,707     11.84      11,756    10.40
  Home equity and second mortgage ........    17,428     14.03      14,147    12.51
Commercial loans..........................     4,852      3.91       3,887     3.44
Consumer loans............................     6,420      5.17       5,422     4.80
                                            --------    ------    --------   ------
         Total loans......................   124,238    100.00%    113,058   100.00%
                                                        ======               ======
   Less:  Deferred loan fees..............     1,060                 1,086
             Loan loss reserve............     1,310                 1,120
                                            --------              --------
        Loans receivable, net.............  $121,867              $110,851
                                            ========              ========
<FN>
----------
1    Presented net of loans in process.
</FN>
</TABLE>


                                       6
<PAGE>

LOAN  ORIGINATIONS,  PURCHASES AND SALES.  The Bank  solicits loan  applications
through its branch network,  direct  solicitation  of customers,  referrals from
customers,  and marketing by commercial and residential  mortgage loan officers.
Loans are processed and approved  according to guidelines deemed appropriate for
each product type. Loan  requirements  such as income  verification,  collateral
appraisal, credit reports, etc. vary by loan type. Loan processing functions are
generally  centralized  except for small consumer loans. Loan approval authority
is  established   by  Board  policy  and  delegated  as  deemed   necessary  and
appropriate.  Loan approval  authorities  vary by individual  with the President
having approval authority up to $750,000, Senior Vice Presidents up to $400,000,
and Business Development officers up to $150,000. Authorities may be combined up
to $1,000,000.  For residential mortgage loans, the residential loan underwriter
may approve loans up to the conforming  loan limit of $255,000.  Selected branch
personnel  may approve  secured loans up to $75,000,  and unsecured  loans up to
$50,000.  A loan  committee  consisting  of the President and two members of the
Board,  ratify all real  estate  mortgages  and  approve  all loans in excess of
$1,000,000. Depending on the loan and collateral type, conditions for protecting
the Bank's  collateral  are  specified in the loan  documents.  Typically  these
conditions  might include  requirements to maintain hazard and title  insurance,
pay property taxes, and other conditions.

Depending on market conditions,  mortgage loans may be originated primarily with
the intent to sell to third parties such as FNMA or FHLMC. During the year 2000,
the Bank sold $2.5 million of mortgage  loans which were  originated  during the
year  generating  $85  thousand in gains.  In order to comply with  internal and
regulatory limits on loans to one borrower, the Bank routinely sells portions of
commercial  and  commercial  real estate loans to other  lenders.  The Bank also
routinely buys portions of loans,  whole loans,  or  participation  certificates
from other  lenders.  The Bank only  purchases  loans or portions of loans after
reviewing  loan  documents,   underwriting  support,  and  other  procedures  as
necessary.  Purchased  loans are  subject to the same  regulatory  and  internal
policy requirements as other loans in the Bank's portfolio.


LOANS TO ONE BORROWER.  Under Maryland law, the maximum amount which the Bank is
permitted to lend to any one borrower and their related  interests may generally
not exceed 10% of the Bank's unimpaired  capital and surplus which is defined to
include the Bank's capital,  surplus,  retained  earnings and 50% of its reserve
for  possible  loan  losses.  Under  this  authority,  the Bank  would have been
permitted  to lend up to $2.4  million to any one borrower at December 31, 2000.
By interpretive  ruling of the  Commissioner of Financial  Regulation,  Maryland
banks have the option of lending up to the amount that would be permissible  for
a  national  bank which is  generally  15% of  unimpaired  capital  and  surplus
(defined to include a bank's total capital for regulatory  capital purposes plus
any loan loss  allowances  not  included  in  regulatory  capital).  Under  this
formula,  the Bank would have been  permitted  to lend up to $3.7 million to any
one  borrower at December 31, 2000.  At December  31, 2000,  the largest  amount
outstanding to any one borrower and their related interests was $2.4 million.

LOAN COMMITMENTS.  The Bank does not normally negotiate standby  commitments for
the construction and purchase of real estate.  Conventional loan commitments are
granted  for a  one-month  period.  The total  amount of the Bank's  outstanding
commitments  to originate  loans at December 31, 2000,  was  approximately  $995
thousand,  excluding  undisbursed  portions of loans in process. It has been the
Bank's experience that few commitments expire unfunded.

                                       7
<PAGE>


MATURITY OF LOAN PORTFOLIO.  The following table sets forth certain  information
at December 31, 2000 regarding the dollar amount of loans maturing in the Bank's
portfolio  based on their  contractual  terms to maturity.  Demand loans,  loans
having no stated schedule of repayments and no stated  maturity,  and overdrafts
are reported as due in one year or less.
<TABLE>
<CAPTION>
                                                          DUE AFTER 1        DUE MORE
                                      DUE WITHIN           THROUGH 5          THAN 5
                                     1 YEAR AFTER         YEARS FROM        YEARS FROM
                                       DECEMBER            DECEMBER          DECEMBER
                                       31, 2000            31, 2000          31, 2000            TOTAL
                                      ----------          ----------        ----------           -----
                                                        (IN THOUSANDS)
<S>                                    <C>                <C>               <C>               <C>
Real estate loans --
   Residential first mortgages......   $    3,232         $   13,940        $   50,803        $   67,975
   Commercial ......................        2,621             10,508            29,097            42,226
   Construction.....................       12,552              1,410             3,339            17,301
   Home equity and second
     mortgage.......................       13,891              2,527             2,219            18,637
Commercial loans....................       15,047                 --                --            15,047
Consumer loans......................        3,760              9,850                --            13,610
                                       ----------         ----------        ----------        ----------
                                       $   51,103         $   38,235        $   85,458        $  174,796
                                       ==========         ==========        ==========        ==========
</TABLE>

The next table sets forth the dollar amount of all loans due after one year from
December 31, 2000 which have  predetermined  interest rates and have floating or
adjustable interest rates.
<TABLE>
<CAPTION>
                                                                  FLOATING OR
                                            FIXED RATES         ADJUSTABLE RATES           TOTAL
                                            -----------         ----------------           -----
                                                                (IN THOUSANDS)
          <S>                               <C>                 <C>                     <C>
          Real estate loans --
             Residential first mortgage...  $    31,198         $    33,545             $   64,743
             Commercial...................        2,910              36,695                 39,605
             Construction.................        4,749                  --                  4,749
             Home equity and second
               mortgage...................        4,746                  --                  4,746
          Consumer........................        9,850                  --                  9,850
                                            -----------         -----------             ----------
                                            $    53,453         $    70,240             $  123,693
                                            ===========         ===========             ==========

</TABLE>
DELINQUENCIES.  The Bank's collection  procedures provide that when a loan is 15
days delinquent,  the borrower is contacted by mail and payment is requested. If
the  delinquency  continues,  subsequent  efforts  will be made to  contact  the
delinquent borrower and obtain payment. If these efforts prove unsuccessful, the
Bank  will  pursue  appropriate  legal  action  including  repossession  of  the
collateral and other actions as deemed necessary. In certain instances, the Bank
will attempt to modify the loan or grant a limited  moratorium  on loan payments
to enable the borrower to reorganize his financial affairs.

NON-PERFORMING ASSETS AND ASSET CLASSIFICATION.  Loans are reviewed on a regular
basis and are placed on a non-accrual status when, in the opinion of management,
the collection of additional  interest is doubtful.  Residential  mortgage loans
are placed on non-accrual status when either principal or interest is 90 days or
more  past due  unless  they are  adequately  secured  and  there is  reasonable
assurance of full collection of principal and interest. Consumer loans generally
are  charged  off when the loan  becomes  over 120 days  delinquent.  Commercial
business and real estate loans are placed on non-accrual status when the loan is
90 days or more past due or when the loan's  condition puts the timely repayment
of principal  and interest in doubt.  Interest  accrued and unpaid at the time a
loan is placed


                                       8
<PAGE>

on non-accrual  status is charged against interest income.  Subsequent  payments
are either applied to the outstanding  principal balance or recorded as interest
income, depending on the assessment of the ultimate collectibility of the loan.

Real estate  acquired by the Bank as a result of  foreclosure or by deed in lieu
of foreclosure is classified as foreclosed  real estate until such time as it is
sold.  When such property is acquired,  it is recorded at its fair market value.
Subsequent to foreclosure,  the property is carried at the lower of cost or fair
value less selling costs. Additional write-downs as well as carrying expenses of
the  foreclosed  properties are charged to expenses in the current  period.  The
Bank had foreclosed real estate with a fair market value of  approximately  $176
thousand at December 31, 2000.

The  following  table  sets  forth   information  with  respect  to  the  Bank's
non-performing  loans for the periods  indicated.  During the periods shown, the
Bank had no  impaired  loans  within  the  meaning  of  Statement  of  Financial
Accounting Standards No. 114 and 118
<TABLE>
<CAPTION>
                                                                AT DECEMBER 31,
                                        -----------------------------------------------------------------
                                            2000        1999        1998           1997         1996
                                            ----        ----        ----           ----         ----
                                                              (DOLLARS IN THOUSANDS)

<S>                                     <C>          <C>          <C>           <C>          <C>
Restructured loans....................  $       --   $       --   $       --    $      --    $        --
                                        ----------   ----------   ----------    ---------    -----------

Accruing loans which are contractually
 past due 90 days or more:
  Real estate:
    Residential first mortgage........  $       --   $       --   $       --    $      --    $        --
    Commercial........................          --           --           --           --             --
    Construction and land
      development.....................          --           --           --           --             --
    Home equity and second
      mortgage........................         102          171          196          165            262
  Commercial .........................          --           --           --           --             --
  Consumer............................          --           --           --           --             79
                                        ----------   ----------   ----------    ---------    -----------
    Total.............................         102          171          196          165            341
                                        ----------   ----------   ----------    ---------    -----------

Loans accounted for on a nonaccrual
  basis:
  Real estate:
    Residential first mortgage........  $            $       20   $      126    $      34    $       358
    Commercial........................          --           --           --           --             --
    Construction and land
      development.....................          --           --           --           --             --
    Home equity and second
      mortgage........................          --           --           --           --             --
  Commercial .........................          --           --           85           30             --
  Consumer............................           7          198           58           95             --
                                        ----------   ----------   ----------    ---------    -----------
    Total.............................           7          218          269          159            358
                                        ----------   ----------   ----------    ---------    -----------
Total non-performing loans............  $      109   $      389   $      465    $     324    $       699
                                        ==========   ==========   ==========    =========    ===========

Non-performing loans to total
    loans.............................        0.06%        0.26%        0.34%        0.26%          0.62%
                                        ==========   ==========   ==========    =========    ===========

Allowance for loan losses
    to non-performing loans...........    1,770.55%       424.94%     331.18%      404.32%        160.23%
                                        ==========   ===========  ==========    =========    ===========
</TABLE>

                                       9
<PAGE>

During the year ended December 31, 2000,  gross  interest  income of $1 thousand
would have been recorded on loans  accounted  for on a non-accrual  basis if the
loans had been current throughout the period.  During the year 2000, the Company
recognized no interest on these loans.

At December 31, 2000, there were no loans outstanding not reflected in the above
table as to which known  information about possible credit problems of borrowers
caused  management to have serious doubts as to the ability of such borrowers to
comply with present loan repayment terms.

The following  table sets forth an analysis of activity in the Bank's  allowance
for possible loan losses for the periods indicated.
<TABLE>
<CAPTION>

                                                            YEAR ENDED DECEMBER 31,
                                        -----------------------------------------------------------------
                                            2000        1999        1998           1997         1996
                                            ----        ----        ----           ----         ----
                                                              (DOLLARS IN THOUSANDS)

<S>                                     <C>          <C>          <C>           <C>          <C>
Balance at Beginning of Period........  $    1,653   $    1,540   $    1,310    $   1,120    $       734
                                        ----------   ----------   ----------    ---------    -----------

Charge-Offs:
 Real estate:
   Residential first mortgages........          56           --           --           11             17
 Commercial ..........................          33          102           --           21             --
 Consumer.............................           6           32           10           18              5
                                        ----------   ----------   ----------    ---------    -----------
Total Charge-Offs.....................          95          134           10           50             22
                                        ----------   ----------   ----------    ---------    -----------

Recoveries:
 Real estate:
   Residential first mortgages........          --           --           --           --             --
 Commercial...........................          --           --           --           --             --
 Consumer.............................          12            7           --           --             --
                                        ----------   ----------   ----------    ---------    -----------
Total Recoveries......................          12            7           --           --             --
                                        ----------   ----------   ----------    ---------    -----------
Net Charge-Offs.......................          83          127           10           50             --

Provision for Possible Loan Losses....         360          240          240          240            408
                                        ----------   ----------   ----------    ---------    -----------

Balance at End of Period..............  $    1,930   $    1,653   $    1,540    $   1,310    $     1,120
                                        ==========   ==========   ==========    =========    ===========

Ratio of Net Charge-Offs to Average
  Loans Outstanding During
  the Period..........................        0.05 %       0.09%        0.01%        0.04%         0.02%
                                        ===========  ==========   ==========    =========    ==========
</TABLE>


                                       10
<PAGE>


The following  table allocates the allowance for loan losses by loan category at
the dates  indicated.  The  allocation  of the allowance to each category is not
necessarily  indicative  of future  losses and does not  restrict the use of the
allowance to absorb losses in any category.
<TABLE>
<CAPTION>
                                                                           AT DECEMBER 31,
                                            ----------------------------------------------------------------------------
                                                       2000                     1999                     1998
                                            -------------------------   -----------------------  ------------------------
                                                         PERCENT OF                PERCENT OF                 PERCENT OF
                                                        LOANS IN EACH             LOANS IN EACH              LOANS IN EACH
                                                         CATEGORY TO               CATEGORY TO                CATEGORY TO
                                              AMOUNT     TOTAL LOANS    AMOUNT     TOTAL LOANS    AMOUNT      TOTAL LOANS
                                            ---------   -------------  ---------  -------------  --------    -------------
                                                                         (DOLLARS IN THOUSANDS)
<S>                                         <C>            <C>         <C>            <C>        <C>            <C>
Real estate:
   Residential first mortgage.............  $     192      38.9%       $     632      44.4%      $     652      47.6%
   Commercial.............................        645      24.1              399      20.1             281       14.6
   Construction and land development......        285       9.9              164      11.5             211       15.4
   Home equity and second mortgage........        394      10.7              159      11.2             166       12.1
Commercial................................        138       8.6              178       6.7             117        4.5
Consumer..................................        276       7.8              121       6.1             113        5.8
                                            ---------     -----        ---------     -----       ---------      -----
        Total allowance for loan losses...  $   1,930     100.0%       $   1,653     100.0%      $   1,540      100.0%
                                            =========     =====        =========     =====       =========      =====
<CAPTION>

                                                                 AT DECEMBER 31,
                                            ---------------------------------------------------
                                                       1997                     1996
                                            -------------------------   -----------------------
                                                         PERCENT OF                PERCENT OF
                                                        LOANS IN EACH             LOANS IN EACH
                                                         CATEGORY TO               CATEGORY TO
                                              AMOUNT     TOTAL LOANS    AMOUNT     TOTAL LOANS
                                            ---------   -------------  ---------  -------------
                                                                         (DOLLARS IN THOUSANDS)
<S>                                         <C>            <C>         <C>            <C>
Real estate:
   Residential first mortgage.............  $     579      49.6%       $     559      56.3%
   Commercial.............................        255      15.5              240      12.6
   Construction and land development......        138      11.8              103      10.4
   Home equity and second mortgage........        164      14.0              124      12.5
Commercial................................         87       3.9               41       3.4
Consumer..................................         87       5.2               53       4.8
                                            ---------     -----        ---------     -----
        Total allowance for loan losses...  $   1,310     100.0%       $   1,120     100.0%
                                            =========     =====        =========     =====
</TABLE>


The Bank closely  monitors the loan  payment  activity of all its loans.  A loan
loss provision is provided by a monthly accrual.  The Bank periodically  reviews
the adequacy of the  allowance  for loan losses based on an analysis of the loan
portfolio,  the Bank's  historical loss experience,  economic  conditions in the
Bank's market area, and a review of selected  individual  loans. Loan losses are
charged  off against  the  allowance  when the  uncollectibility  is  confirmed.
Subsequent recoveries,  if any, are credited to the allowance. The Bank believes
it has  established  its existing  allowance for loan losses in accordance  with
generally accepted  accounting  principles and is in compliance with appropriate
regulatory guidelines.  However, the establishment of the level of the allowance
for loan losses is highly subjective and dependent on incomplete  information as
to the ultimate  disposition  of loans.  Accordingly,  there can be no assurance
that  actual  losses  may vary from the  amounts  estimated  or that the  Bank's
regulators will not request the Bank to significantly increase its allowance for
loan losses,  thereby  negatively  affecting the Bank's financial  condition and
earnings.


                                       11
<PAGE>


INVESTMENT ACTIVITIES

The Bank maintains a portfolio of investment  securities to provide liquidity as
well as a  source  of  earnings.  The  Bank's  investment  securities  portfolio
consists  primarily  of  mortgage-backed  and  other  securities  issued by U.S.
Government-sponsored  enterprises  ("GSEs")  including FHLMC, FNMA, SLMA and the
FHLB  System.   The  Bank  also  has  smaller   holdings  of  privately   issued
mortgage-backed securities, U.S. Treasury obligations, and other equity and debt
securities.  As a member of the Federal  Reserve and FHLB  Systems,  the Bank is
also required to invest in the stock of the Federal Reserve Bank of Richmond and
FHLB of Atlanta, respectively.

The following  table sets forth the carrying  value of the Company's  investment
securities  portfolio and FHLB of Atlanta and Federal  Reserve Bank stock at the
dates indicated. At December 31, 2000, their market value was $61.6 million.
<TABLE>
<CAPTION>
                                                                            AT DECEMBER 31,
                                                          --------------------------------------------------
                                                           2000                  1999                  1998
                                                           ----                 -----                 ------
                                                                            (IN THOUSANDS)
<S>                                                      <C>                 <C>                 <S>
Asset-backed securities:
   FHLMC and FNMA....................................    $  30,577           $  29,501           $  32,270
   Other.............................................       16,855              17,964              13,694
                                                         ---------           ---------           ---------
      Total asset-backed securities..................       47,432              47,465              45,964
FHLMC, FNMA, SLMA and FHLB notes.....................        7,912               7,619               9,045
FHLMC and FNMA stock.................................          764                 751               1,221
Money market funds...................................          753                 820                 293
Treasury bills.......................................          200                 198                 196
Other investments....................................        1,514               1,749               1,397
                                                         ---------           ---------           ---------
      Total investment securities....................       58,575              58,602              58,116
         FHLB and Federal Reserve Bank stock.........        3,036               2,288               2,005
                                                         ---------           ---------           ---------
      Total investment securities and FHLB and
        Federal Reserve Bank stock...................    $  61,611           $  60,890           $  60,121
                                                         =========           =========           =========

</TABLE>

The maturities and weighted average yields for investment  securities  available
for sale and held to maturity at December 31, 2000 are shown below.
<TABLE>
<CAPTION>
                                                                 AFTER ONE              AFTER FIVE
                                       ONE YEAR OR LESS     THROUGH  FIVE YEARS       THROUGH TEN YEARS          AFTER TEN YEARS
                                    --------------------    --------------------      -----------------        -------------------
                                    CARRYING     AVERAGE    CARRYING     AVERAGE      CARRYING AVERAGE         CARRYING    AVERAGE
                                      VALUE       YIELD       VALUE       YIELD         VALUE    YIELD          VALUE       YIELD
                                    --------     -------    --------     -------      -------- -------         --------    -------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                 <C>           <C>       <C>                       <C>                     <C>
Investment securities available
 for sale:
   Corporate equity securities...   $    764      3.93%     $      --        -- %     $      --    -- %       $    --      -- %
   Asset-backed securities.......         --        --             --        --           6,258   6.55%        41,174     7.12%
   Money market funds............        753      6.36%            --        --              --    --              --      --
   Obligations of U.S. government
     sponsored enterprises
     (GSEs)......................         --        --            912      7.02%          7,000   6.65%            --      --
                                    --------                ---------                 ---------               -------
     Total investment securities
        available for sale.......   $  1,517      5.20%     $     912      7.02%      $  13,258   6.60%       $41,174     7.12%
                                    ========      ====      =========      ====       =========   ====        =======     ====

Investment securities held-to-
 maturity:
      Treasury bills.............   $     --        --      $     200      4.69%      $      --    --         $    --      --
      Other investments..........      1,514      7.23%            --       --               --    --              --      --
                                    --------                ---------                 ---------               -------

     Total investment securities
        held-to-maturity.........   $  1,514      7.23%     $     200      4.69%      $      --    -- %       $    --      -- %
                                    ========      ====      =========      ====       =========   ====        =======     ====
</TABLE>

                                       12
<PAGE>

The Bank's  investment  policy  provides that  securities  that will be held for
indefinite  periods of time,  including  securities that will be used as part of
the Bank's asset/liability  management strategy and that may be sold in response
to changes in interest rates, prepayments and similar factors, are classified as
available for sale and accounted for at the fair value.  Management's  intent is
to hold securities reported at amortized cost to maturity.

Certain of the Company's securities are issued by private issuers (defined as an
issuer which is not a government or a government sponsored entity). Although the
Company  generally  limits its exposure to private issuers to total  investments
from any one issuer to less than 10% of equity, in certain cases the Company has
made higher investments. These investments are classified as available for sale,
and carrying value therefore equals market value. Details of such investments at
December 31, 2000 follow:
<TABLE>
<CAPTION>
                                                                     FAIR
ISSUER                                      MOODY'S RATING        MARKET VALUE
------                                      --------------        ------------
                                                                  (IN THOUSANDS)

<S>                                              <C>              <C>
Countrywide Home Loans, Inc...............       AAA              $     3,875
GE Capital Mortgage Services..............       AAA                    5,733
IMPAC.....................................       AAA                    2,065
                                                                  -----------
                                                                  $    11,673
                                                                  ===========
</TABLE>

For further information regarding the Company's investment securities,  see Note
2 of Notes to Consolidated Financial Statements.

DEPOSITS AND OTHER SOURCES OF FUNDS

GENERAL.  The funds needed by the Bank to make loans are primarily  generated by
deposit accounts solicited from the communities  surrounding its main office and
seven branches in the southern Maryland area.  Consolidated  total deposits were
$167,805,999  as of December 31, 2000. The Bank uses borrowings from the FHLB of
Atlanta and other sources to supplement funding from deposits.

DEPOSITS.   The  Bank's  deposit   products  include  regular  savings  accounts
(statements),  money market deposit accounts, demand deposit accounts,  interest
bearing demand deposit accounts,  IRA and SEP accounts,  Christmas club accounts
and certificates of deposit.  Variations in service charges,  terms and interest
rates are used to target specific markets.  Ancillary  products and services for
deposit customers include safe deposit boxes, money orders and travelers checks,
night depositories,  automated clearinghouse transactions, wire transfers, ATMs,
and telephone  banking.  The Bank is a member of several ATM networks.  The Bank
has occasionally  used deposit brokers to obtain funds. At year end, no brokered
deposits were held.

The following  table sets forth for the periods  indicated the average  balances
outstanding and average interest rates for each major category of deposits.
<TABLE>
<CAPTION>
                                                            FOR THE YEAR ENDED DECEMBER 31,
                                      -------------------------------------------------------------------------
                                             2000                        1999                      1998
                                      --------------------       ---------------------      -------------------
                                      AVERAGE      AVERAGE       AVERAGE       AVERAGE      AVERAGE     AVERAGE
                                      BALANCE       RATE         BALANCE         RATE       BALANCE       RATE
                                      -------      -------       -------       -------      -------     -------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                 <C>             <C>        <C>               <C>      <C>              <C>
Savings..........................   $     20,051    2.37%      $    23,774       2.32%    $     26,253     2.76%
Interest-bearing demand and money
   market accounts...............         59,720    3.58            46,663       2.82           31,602     2.51
Certificates of deposit..........         69,592    5.32            75,093       4.87           80,078     5.22
                                    ------------               -----------                ------------
    Total interest-bearing
      deposits...................        149,363    4.23           145,530       3.80          137,933     4.13
Non-interest-bearing demand
   deposits......................         10,691                     9,169                       7,819
                                    ------------               -----------                ------------
     Total average deposits......   $    160,324    3.94       $   154,699       3.57     $    145,752     3.91
                                    ============               ===========                ============
</TABLE>


                                       13
<PAGE>
The following table  indicates the amount of the Bank's  certificates of deposit
and other time deposits of more than $100,000 by time  remaining  until maturity
as of December 31, 2000.
                                                             CERTIFICATES
                        MATURITY PERIOD                      OF DEPOSIT
                        ---------------                      ------------
                                                             (IN THOUSANDS)

             Three months or less........................... $    2,566
             Three through six months.......................      3,836
             Six through twelve months......................      5,904
             Over twelve months.............................      2,551
                                                             ----------
                    Total................................... $   14,857
                                                             ==========

BORROWINGS.  Deposits are the primary source of funds for the Bank's lending and
investment  activities  and for its  general  business  purposes.  The Bank uses
advances from the FHLB of Atlanta to supplement its supply of lendable funds and
to meet deposit withdrawal  requirements.  Advances from the FHLB are secured by
the Bank's stock in the FHLB, a portion of the Bank's residential mortgage loans
and its eligible  investments.  Generally the Bank's  ability to borrow from the
FHLB of Atlanta is limited by its  available  collateral  and also by an overall
limitation of 35% of assets.  Other short-term debt consists of notes payable to
the U.S.  Treasury on  Treasury,  Tax and Loan  accounts.  Long-term  borrowings
consist of  adjustable-rate  advances  with rates based upon  LIBOR,  fixed-rate
advances,  and convertible advances.  Information about borrowings for the years
indicated (which consisted almost entirely of FHLB advances) is as follows:
<TABLE>
<CAPTION>
                                                                               AT OR FOR THE
                                                                            YEAR ENDED DECEMBER 31,
                                                                 ------------------------------------------
                                                                    2000               1999           1998
                                                                 ----------         ----------      ---------
                                                                               (DOLLARS IN THOUSANDS)

<S>                                                             <C>                 <C>             <C>
Long-term amounts outstanding at end of period...............   $  41,400           $  31,400       $ 16,496
Weighted average rate on outstanding long-term...............        5.91%               5.54%          5.66%
Short-term borrowings outstanding at end of period...........   $  13,551           $  13,398       $ 16,937
Weighted average rate on outstanding short-term..............        6.35%               5.55%          5.76%
Maximum outstanding short-term debt at any month end.........   $  35,100           $  16,500       $ 22,500
Average outstanding short-term debt .........................   $  25,810           $   9,129       $ 15,208
Approximate weighted average rate paid on short-term debt....        6.62%               5.39%          5.45%
<FN>
__________
(1)   Based on month-end balances.
</FN>
</TABLE>

For more  information  regarding the Bank's  borrowings,  see Note 7 of Notes to
Consolidated Financial Statements.

SUBSIDIARY ACTIVITIES

Under the Maryland Financial  Institutions Code,  commercial banks may invest in
service  corporations  and  in  other  subsidiaries  that  offer  the  public  a
financial,  fiduciary or insurance service.  In 1985, the Bank formed Tri-County
Federal  Finance One as a finance  subsidiary  for the purpose of issuing a $6.5
million  collateralized  mortgage  obligation.  In June 1999, the obligation was
satisfied,  allowing  the return of the  participation  certificates  serving as
collateral  to the Bank and closing  the  subsidiary.  In April  1997,  the Bank
formed a wholly owned subsidiary,  Community Mortgage Corporation of Tri-County,
to offer mortgage  banking and brokerage  services to the public.  To date, this
corporation  has been  inactive.  In August 1999, the Bank formed a wholly owned
subsidiary,  Tri-County  Investment  Corporation to hold and manage a portion of
the Bank's investment portfolio in the State of Delaware.

COMPETITION

The Bank faces  strong  competition  in the  attraction  of deposits  and in the
origination of loans.  Its most direct  competition for deposits and loans comes
from other banks,  savings and loan  associations,  and federal and state


                                       14
<PAGE>

credit  unions  located in its  primary  market  area.  There are  currently  15
FDIC-insured  depository institutions operating in the Tri-County area including
subsidiaries  of several  regional and  super-regional  bank holding  companies.
According  to  statistics  compiled  by the FDIC,  the Bank was ranked  sixth in
deposit market share in the Tri-County area as of June 30, 2000, the latest date
for  which  such  data is  available.  The  Bank  faces  additional  significant
competition for investors'  funds from mutual funds,  brokerage firms, and other
financial institutions.

The Bank  competes  for loans by providing  competitive  rates,  flexibility  of
terms,  and  service.  It competes  for  deposits by offering  depositors a wide
variety of account types,  convenient office locations,  and competitive  rates.
Other services  offered  include  tax-deferred  retirement  programs,  brokerage
services,  safe deposit boxes,  and  miscellaneous  services.  The Bank has used
direct mail, billboard and newspaper advertising to increase its market share of
deposits,  loans and other  services in its market  area.  It  provides  ongoing
training for its staff in an attempt to ensure high quality service.

                           SUPERVISION AND REGULATION

REGULATION OF THE BANK

GENERAL.  The Bank is a Maryland  commercial  bank and its deposit  accounts are
insured  by the  SAIF.  The Bank is a member  of the  Federal  Reserve  and FHLB
Systems.  The Bank is subject to  supervision,  examination  and  regulation  by
Commissioner   of   Financial   Regulation   of  the  State  of  Maryland   (the
"Commissioner")  and the Board of Governors of the Federal  Reserve  System (the
"FRB") and to Maryland and federal statutory and regulatory provisions governing
such matters as capital standards,  mergers and establishment of branch offices.
The  Bank  is  required  to  file  reports  with  the  Commissioner  and the FRB
concerning its activities and financial condition and will be required to obtain
regulatory  approvals  prior to entering  into certain  transactions,  including
mergers with, or acquisitions of, other depository institutions.

As an  institution  with  federally  insured  deposits,  the Bank is  subject to
various regulations promulgated by the FRB, including Regulation B (Equal Credit
Opportunity), Regulation D (Reserve Requirements), Regulation E (Electronic Fund
Transfers),  Regulation Z (Truth in Lending),  Regulation  CC  (Availability  of
Funds and Collection of Checks) and Regulation DD (Truth in Savings).

The system of regulation and  supervision  applicable to the Bank  establishes a
comprehensive framework for the operations of the Bank and is intended primarily
for the  protection of the FDIC and the  depositors of the Bank.  Changes in the
regulatory framework could have a material effect on the Bank and its respective
operations that in turn, could have a material effect on the Company.

FINANCIAL  MODERNIZATION  LEGISLATION.  On November 12, 1999,  President Clinton
signed  legislation  which  could have a  far-reaching  impact on the  financial
services industry. The Gramm-Leach-Bliley  ("G-L-B") Act authorizes affiliations
between  banking,  securities and insurance  firms and  authorizes  bank holding
companies and national banks to engage in a variety of new financial activities.
Under  the G-L-B  Act any bank  holding  company  whose  depository  institution
subsidiaries  have satisfactory  Community  Reinvestment Act ("CRA") records may
elect to become a financial  holding company if it certifies to the FRB that all
of  its   depository   institution   subsidiaries   are   well-capitalized   and
well-managed.  Financial  holding  companies may engage in any activity that the
FRB,  after  consultation  with the Secretary of the Treasury,  determines to be
financial in nature or incidental  to a financial  activity.  Financial  holding
companies  may also engage in  activities  that are  complementary  to financial
activities  and do not pose a  substantial  risk to the safety and  soundness of
their depository institution subsidiaries or the financial system generally. The
G-L-B Act specifies that activities that are financial in nature include lending
and investing  activities,  insurance and annuity  underwriting  and  brokerage,
financial,   investment  and  economic  advice,   selling  interests  in  pooled
investment vehicles,  securities underwriting,  engaging in activities currently
permitted to bank holding companies (including  activities in which bank holding
companies may currently  engage outside the United States) and merchant  banking
through  a  securities  or  insurance  underwriting   affiliate.   The  FRB,  in
consultation with the Department of Treasury,  may approve additional  financial
activities.


                                       15
<PAGE>

The G-L-B Act permits  well  capitalized  and well managed  national  banks with
satisfactory  CRA  records to invest in  financial  subsidiaries  that engage in
activities  that are  financial in nature (or  incidental  thereto) on an agency
basis.  National  banks that are among the 50 largest  insured banks and have at
least one issue of  investment  grade debt  outstanding  may invest in financial
subsidiaries  that  engage in  activities  as  principal  other  than  insurance
underwriting real estate development or merchant banking. All national banks are
given the authority to underwrite  municipal  revenue bonds. The aggregate total
consolidated  assets of a national bank's financial  subsidiaries may not exceed
the lesser of 45% of the bank's  total  consolidated  assets or $50  billion.  A
national  bank  would  be  required  to  deduct  its  investments  in  financial
subsidiaries  from its  regulatory  capital.  National  banks  must  also  adopt
procedures for protecting the bank against risks  associated  with the financial
subsidiary  and to preserve the  separate  corporate  identity of the  financial
subsidiary.  Financial  subsidiaries  of state and national banks (which include
any subsidiary engaged in an activity not permitted to a national bank directly)
would be treated as  affiliates  for  purposes of the  limitations  on aggregate
transactions  with affiliates in Sections 23A and 23B of the Federal Reserve Act
and for purposes of the antitying  restrictions of the Bank Holding Company Act.
State-chartered   banks  would  be  prohibited   from   investing  in  financial
subsidiaries unless they would be well capitalized after deducting the amount of
their  investment  from capital and observe the other  safeguards  applicable to
national banks.

The G-L-B Act imposes  functional  regulation on bank  securities  and insurance
activities.  Banks will only be exempt from  regulation  by the  Securities  and
Exchange Commission ("SEC") as securities brokers if they limit their activities
to those  described  in the G-L-B Act.  Banks that advise  mutual  funds will be
subject to the same SEC  regulation as other  investment  advisors.  Bank common
trust funds will be regulated as mutual funds if they are  advertised or offered
for sale to the general public.  National banks and their  subsidiaries  will be
prohibited  from  underwriting  'insurance  products other than those which they
were  lawfully  underwriting  as of  January  1,  1999 and are  prohibited  from
under-writing  title  insurance or tax-free  annuities.  National banks may only
sell title insurance in states in which  state-chartered banks are authorized to
sell title  insurance.  The G-L-B Act directs the  federal  banking  agencies to
promulgate  regulations governing sales practices in connection with permissible
bank sales of insurance.

The G-L-B Act imposes new requirements on financial institutions with respect to
customer  privacy.  The G-L-B Act  generally  prohibits  disclosure  of customer
information to  non-affiliated  third parties unless the customer has been given
the  opportunity  to object and has not objected to such  disclosure.  Financial
institutions  are  further  required  to  disclose  their  privacy  policies  to
customers annually. Financial institutions, however, will be required to comply,
with state law if it is more protective of customer  privacy than the G-L-B Act.
The G-L-B Act directs the federal  banking  agencies,  the National Credit Union
Administration,  the  Secretary of the  Treasury,  the SEC and the Federal Trade
Commission,  after  consultation  with the  National  Association  of  Insurance
Commissioners,  to  promulgate  implementing  regulations  within  six months of
enactment. The privacy provisions will become effective in July 2001.

The G-L-B Act contains  significant  revisions to the FHLB System. The G-L-B Act
imposes new capital  requirements  on the FHLBs and authorizes them to issue two
classes of stock with differing dividend rates and redemption requirements.  The
G-L-B Act deletes the current  requirement  that the FHLBs  annually  contribute
$300 million to pay interest on certain government obligations in favor of a 20%
of net  earnings  formula.  The G-L-B Act expands the  permissible  uses of FHLB
advances by community  financial  institutions (under $500 million in assets) to
include   funding   loans  to  small   businesses,   small   farms   and   small
agri-businesses.

The G-L-B Act  contains a variety of other  provisions  including a  prohibition
against ATM surcharges unless the customer has first been provided notice of the
imposition  and amount of the fee.  The G-L-B Act reduces the  frequency  of CRA
examinations for smaller institutions and imposes certain reporting requirements
on depository,  institutions that make payments to non-governmental  entities in
connection with the CRA.

CAPITAL  ADEQUACY.  The FRB  has  established  guidelines  with  respect  to the
maintenance of appropriate levels of capital by bank holding companies and state
member banks, respectively.  The regulations impose two sets of capital adequacy
requirements:  minimum leverage rules,  which require bank holding companies and
member banks to maintain a specified  minimum  ratio of capital to total assets,
and risk-based capital rules, which require the maintenance of specified minimum
ratios of capital to "risk-weighted" assets.



                                       16
<PAGE>

The  regulations  of the FRB require  bank  holding  companies  and state member
banks,  respectively,  to maintain a minimum  leverage ratio of "Tier 1 capital"
(as defined in the  risk-based  capital  guidelines  discussed in the  following
paragraphs)  to total assets of 3.0%.  Although  setting a minimum 3.0% leverage
ratio,  the  capital  regulations  state that only the  strongest  bank  holding
companies and banks,  with composite  examination  ratings of 1 under the rating
system used by the federal bank regulators,  would be permitted to operate at or
near such minimum level of capital.  All other bank holding  companies and banks
are expected to maintain a leverage ratio of at least 1% to 2% above the minimum
ratio,  depending on the  assessment  of an  individual  organization's  capital
adequacy by its primary regulator. Any bank or bank holding company experiencing
or anticipating  significant  growth would be expected to maintain  capital well
above the minimum  levels.  In addition,  the FRB has  indicated  that  whenever
appropriate,  and in  particular  when a bank  holding  company  is  undertaking
expansion,  seeking to engage in new  activities or otherwise  facing unusual or
abnormal  risks,  it will  consider,  on a case-by-case  basis,  the level of an
organization's   ratio  of  tangible  Tier  1  capital   (after   deducting  all
intangibles) to total assets in making an overall assessment of capital.

The risk-based capital rules of the FRB require bank holding companies and state
member banks, respectively,  to maintain minimum regulatory capital levels based
upon a weighting of their assets and off-balance sheet obligations  according to
risk. Risk-based capital is composed of two elements:  Tier 1 capital and Tier 2
capital.  Tier 1 capital  consists  primarily  of common  stockholders'  equity,
certain  perpetual  preferred stock (which must be  noncumulative in the case of
banks),   and  minority   interests  in  the  equity  accounts  of  consolidated
subsidiaries;  less all intangible assets, except for certain purchased mortgage
servicing rights and credit card relationships. Tier 2 capital elements include,
subject to certain  limitations,  the  allowance for losses on loans and leases;
perpetual  preferred stock that does not qualify as Tier 1 capital and long-term
preferred  stock with an original  maturity of at least 20 years from  issuance;
hybrid capital instruments,  including perpetual debt and mandatory  convertible
securities; and subordinated debt and intermediate-term preferred stock.

The  risk-based  capital  regulations  assign  balance  sheet  assets and credit
equivalent  amounts of off-balance  sheet  obligations to one of four broad risk
categories  based  principally on the degree of credit risk  associated with the
obligor.  The assets and off-balance sheet items in the four risk categories are
weighted  at 0%,  20%,  50% and  100%.  These  computations  result in the total
risk-weighted  assets. The risk-based capital  regulations require all banks and
bank holding  companies  to maintain a minimum  ratio of total  capital  (Tier 1
capital plus Tier 2 capital) to total risk-weighted  assets of 8%, with at least
4% as Tier 1 capital.  For the purpose of calculating  these ratios:  (i) Tier 2
capital  is  limited  to no more  than  100% of Tier 1  capital;  and  (ii)  the
aggregate amount of certain types of Tier 2 capital is limited. In addition, the
risk-based capital regulations limit the allowance for loan losses includable as
capital to 1.25% of total risk-weighted assets.

FRB regulations and guidelines additionally specify that state member banks with
significant  exposure to declines in the economic  value of their capital due to
changes in interest rates may be required to maintain higher risk-based  capital
ratios. The federal banking agencies,  including the FRB, have proposed a system
for  measuring  and  assessing  the exposure of a bank's net  economic  value to
changes in interest rates. The federal banking agencies, including the FRB, have
stated their intention to propose a rule establishing an explicit capital charge
for interest rate risk based upon the level of a bank's  measured  interest rate
risk  exposure  after  more   experience  has  been  gained  with  the  proposed
measurement  process.  FRB  regulations  do not  specifically  take into account
interest rate risk in measuring the capital adequacy of bank holding companies.

The FRB has issued  regulations  which  classify  state  member banks by capital
levels and which authorize the FRB to take various prompt corrective  actions to
resolve the  problems  of any bank that fails to satisfy the capital  standards.
Under such regulations,  a  well-capitalized  bank is one that is not subject to
any  regulatory  order or directive to meet any specific  capital level and that
has or exceeds the following capital levels: a total risk-based capital ratio of
10%, a Tier 1  risk-based  capital  ratio of 6%, and a leverage  ratio of 5%. An
adequately capitalized bank is one that does not qualify as well-capitalized but
meets or exceeds the following capital requirements:  a total risk-based capital
ratio of 8%, a Tier 1 risk-based  capital  ratio of 4%, and a leverage  ratio of
either  (i) 4% or (ii) 3% if the  bank  has the  highest  composite  examination
rating.  A bank not  meeting  these  criteria  is treated  as  undercapitalized,
significantly undercapitalized,  or critically undercapitalized depending on the
extent to which the bank's  capital  levels are below these  standards.  A state
member  bank that  falls  within  any of the three  undercapitalized  categories
established by


                                       17
<PAGE>

the prompt  corrective  action  regulation will be subject to severe  regulatory
sanctions.  As of December 31, 2000, the Bank was well capitalized as defined by
the FRB's regulations.

BRANCHING.  Maryland law provides that,  with the approval of the  Commissioner,
Maryland  banks may  establish  branches  within the State of  Maryland  without
geographic  restriction and may establish  branches in other states by any means
permitted  by the laws of such  state or by federal  law.  The  Riegle-Neal  Act
authorizes the FRB to approve interstate  branching de novo by state banks, only
in states which specifically allow for such branching.  The Riegle-Neal Act also
required the appropriate federal banking agencies to prescribe regulations which
prohibit any  out-of-state  bank from using the interstate  branching  authority
primarily  for the  purpose of deposit  production.  These  regulations  include
guidelines to ensure that interstate  branches  operated by an out-of-state bank
in a host  state  are  reasonably  helping  to  meet  the  credit  needs  of the
communities which they serve.

DIVIDEND  LIMITATIONS.  Pursuant to the Maryland  Financial  Institutions  Code,
Maryland banks may only pay dividends from undivided  profits or, with the prior
approval  of the  Commissioner,  their  surplus  in excess  of 100% of  required
capital stock. The Maryland  Financial  Institutions  Code further restricts the
payment of dividends by prohibiting a Maryland bank from declaring a dividend on
its shares of common  stock until its surplus fund equals the amount of required
capital  stock or, if the  surplus  fund  does not equal the  amount of  capital
stock, in an amount in excess of 90% of net earnings.

Without the  approval  of the FRB, a state  member bank may not declare or pay a
dividend if the total of all dividends  declared during the year exceeds its net
income  during the current  calendar  year and retained net income for the prior
two years. The Bank is further prohibited from making a capital  distribution if
it would not be adequately capitalized thereafter. In addition, the Bank may not
make a capital  distribution  that would  reduce its net worth  below the amount
required to maintain the liquidation  account established for the benefit of its
depositors at the time of its conversion to stock form.

DEPOSIT INSURANCE.  The Bank is required to pay semi-annual assessments based on
a percentage  of its insured  deposits to the FDIC for insurance of its deposits
by the Savings  Association  Insurance Fund ("SAIF").  Under the Federal Deposit
Insurance  Act,  the  FDIC  is  required  to  set  semi-annual  assessments  for
SAIF-insured  institutions to maintain the designated  reserve ratio of the SAIF
at 1.25% of estimated  insured  deposits or at a higher  percentage of estimated
insured  deposits  that the FDIC  determines  to be  justified  for that year by
circumstances  raising a significant  risk of  substantial  future losses to the
SAIF.

Under the risk-based  deposit  insurance  assessment system adopted by the FDIC,
the  assessment  rate  for an  insured  depository  institution  depends  on the
assessment risk classification assigned to the institution by the FDIC, which is
determined by the institution's capital level and supervisory evaluations. Based
on the data reported to  regulators  for the date closest to the last day of the
fourth month  preceding the  semi-annual  assessment  period,  institutions  are
assigned  to one of  three  capital  groups  --  "well  capitalized,  adequately
capitalized or  undercapitalized."  Within each capital group,  institutions are
assigned to one of three  subgroups on the basis of  supervisory  evaluations by
the institution's  primary  supervisory  authority and such other information as
the FDIC determines to be relevant to the institution's  financial condition and
the risk posed to the  deposit  insurance  fund.  Under the  current  assessment
schedule,  well-capitalized  banks  with the best  supervisory  ratings  are not
required  to pay any  premium for deposit  insurance.  All  SAIF-insured  banks,
however,  are  required  to pay  assessments  to the FDIC to help fund  interest
payments  on  certain  bonds  issued  by the  Financing  Corporation,  an agency
established by the federal government to finance takeovers of insolvent thrifts.

TRANSACTIONS  WITH  AFFILIATES.  A state member bank or its subsidiaries may not
engage in "covered  transactions"  with any one  affiliate in an amount  greater
than 10% of such bank's capital stock and surplus, and for all such transactions
with all affiliates a state non-member bank is limited to an amount equal to 20%
of  capital  stock  and  surplus.  All such  transactions  must also be on terms
substantially  the same, or at least as favorable,  to the bank or subsidiary as
those provided to a non-affiliate.  The term "covered  transaction" includes the
making of loans,  purchase of assets,  issuance of a guarantee and similar other
types of transactions. An affiliate of a state non-member bank is any company or
entity which controls or is under common control with the state  non-member bank
and, for purposes of the aggregate limit on transactions  with  affiliates,  any
subsidiary that would be deemed a


                                       18
<PAGE>

financial  subsidiary of a national  bank.  In a holding  company  context,  the
parent holding company of a state  non-member bank (such as the Company) and any
companies  which are controlled by such parent holding company are affiliates of
the state non-member bank. The BHCA further  prohibits a depository  institution
from extending  credit to or offering any other  services,  or fixing or varying
the consideration for such extension of credit or service, on the condition that
the customer obtain some  additional  service from the institution or certain of
its  affiliates  or not obtain  services  of a  competitor  of the  institution,
subject to certain limited exceptions.

LOANS TO  DIRECTORS,  EXECUTIVE  OFFICERS AND PRINCIPAL  STOCKHOLDERS.  Loans to
directors,  executive officers and principal  stockholders of a state non-member
bank  must be made on  substantially  the same  terms as  those  prevailing  for
comparable transactions with persons who are not executive officers,  directors,
principal stockholders or employees of the Bank unless the loan is made pursuant
to a compensation or benefit plan that is widely available to employees and does
not favor  insiders.  Loans to any  executive  officer,  director and  principal
stockholder  together  with  all  other  outstanding  loans to such  person  and
affiliated  interests  generally  may not exceed  15% of the  bank's  unimpaired
capital  and  surplus  and  all  loans  to  such  persons  may  not  exceed  the
institution's  unimpaired  capital and unimpaired  surplus.  Loans to directors,
executive officers and principal stockholders,  and their respective affiliates,
in  excess of the  greater  of  $25,000  or 5% of  capital  and  surplus  (up to
$500,000) must be approved in advance by a majority of the board of directors of
the bank with any "interested"  director not participating in the voting.  State
member banks are prohibited from paying the overdrafts of any of their executive
officers or directors. In addition,  loans to executive officers may not be made
on terms more favorable  than those afforded other  borrowers and are restricted
as to type, amount and terms of credit.

REGULATION OF THE COMPANY

GENERAL.  The Company,  as the sole  shareholder  of the Bank, is a bank holding
company and registered as such with the FRB. Bank holding  companies are subject
to  comprehensive  regulation  by the FRB under the Bank Holding  Company Act of
1956, as amended (the "BHCA"), and the regulations of the FRB. As a bank holding
company,  the Company is  required to file with the FRB annual  reports and such
additional  information  as the FRB  may  require,  and is  subject  to  regular
examinations by the FRB. The FRB also has extensive  enforcement  authority over
bank holding  companies,  including,  among other things,  the ability to assess
civil  money  penalties,  to issue  cease and  desist or  removal  orders and to
require  that  a  holding  company  divest  subsidiaries   (including  its  bank
subsidiaries).  In general,  enforcement actions may be initiated for violations
of law and regulations and unsafe or unsound practices.

Under the BHCA, a bank holding  company  must obtain FRB  approval  before:  (i)
acquiring, directly or indirectly,  ownership or control of any voting shares of
another bank or bank holding company if, after such acquisition, it would own or
control  more than 5% of such shares  (unless it already  owns or  controls  the
majority of such shares);  (ii) acquiring all or substantially all of the assets
of another bank or bank holding company;  or (iii) merging or consolidating with
another bank holding company.

Effective  September 29, 1995, the Riegle-Neal  Interstate Banking and Branching
Efficiency  of 1994 (the  "Riegle-Neal  Act")  authorized  the FRB to approve an
application of an adequately  capitalized  and  adequately  managed bank holding
company to acquire control of, or acquire all or substantially all of the assets
of, a bank  located in a state  other than such  holding  company's  home state,
without  regard to whether  the  transaction  is  prohibited  by the laws of any
state.  The FRB may not approve the  acquisition  of a bank that has not been in
existence for the minimum time period (not  exceeding  five years)  specified by
the statutory law of the host state.  The Riegle-Neal Act also prohibits the FRB
from  approving  such  an  application  if the  applicant  (and  its  depository
institution  affiliates)  controls or would control more than 10% of the insured
deposits  in the  United  States or 30% or more of the  deposits  in the  target
bank's home state or in any state in which the target  bank  maintains a branch.
The  Riegle-Neal  Act does not  affect  the  authority  of  states  to limit the
percentage  of  total  insured  deposits  in the  state  which  may be  held  or
controlled by a bank or bank holding  company to the extent such limitation does
not  discriminate   against   out-of-state  banks  or  bank  holding  companies.
Individual  states  may  also  waive  the  30%  state-wide  concentration  limit
contained in the Riegle-Neal  Act. Under Maryland law, a bank holding company is
prohibited from acquiring  control of any bank if the bank holding company would
control more than 30% of the total  deposits of all depository  institutions  in
the State of Maryland unless waived by the Commissioner of Financial Regulation.


                                       19
<PAGE>

Additionally,  the federal banking agencies are authorized to approve interstate
merger transactions  without regard to whether such transaction is prohibited by
the law of any state, unless the home state of one of the banks opted out of the
Riegle-Neal Act by adopting a law after the date of enactment of the Riegle-Neal
Act and prior to June 1, 1997 which applies  equally to all  out-of-state  banks
and expressly  prohibits merger transactions  involving  out-of-state banks. The
State of  Maryland  did not  pass  such a law  during  this  period.  Interstate
acquisitions of branches will be permitted only if the law of the state in which
the branch is located permits such  acquisitions.  Interstate mergers and branch
acquisitions  will also be  subject  to the  nationwide  and  statewide  insured
deposit concentration amounts described above.

The BHCA also prohibits a bank holding company,  with certain  exceptions,  from
acquiring direct or indirect  ownership or control of more than 5% of the voting
shares  of any  company  which is not a bank or bank  holding  company,  or from
engaging  directly  or  indirectly  in  activities  other than those of banking,
managing or controlling banks, or providing  services for its subsidiaries.  The
principal  exceptions to these prohibitions  involve certain non-bank activities
which,  by  statute  or by FRB  regulation  or order,  have been  identified  as
activities closely related to the business of banking or managing or controlling
banks. The list of activities permitted by the FRB includes, among other things,
operating a savings institution,  mortgage company, finance company, credit card
company or factoring  company;  performing  certain data processing  operations;
providing certain investment and financial advice; underwriting and acting as an
insurance agent for certain types of credit-related insurance;  leasing property
on a full-payout,  non-operating basis; selling money orders,  travelers' checks
and United States Savings Bonds; real estate and personal  property  appraising;
providing  tax  planning  and  preparation  services;  and,  subject  to certain
limitations, providing securities brokerage services for customers.

Effective with the enactment of the G-L-B Act on November 12, 1999, bank holding
companies whose financial institution subsidiaries are well capitalized and well
managed and have  satisfactory  Community  Reinvestment Act records can elect to
become  "financial  holding  companies"  which will be  permitted to engage in a
broader  range of  financial  activities  than are  currently  permitted to bank
holding  companies.  Financial  holding  companies are  authorized to engage in,
directly  or  indirectly,  financial  activities.  A  financial  activity  is an
activity that is: (i) financial in nature;  (ii)  incidental to an activity that
is financial in nature; or (iii)  complementary to a financial activity and that
does not pose a safety  and  soundness  risk.  The G-L-B Act  includes a list of
activities that are deemed to be financial in nature.  Other activities also may
be decided by the Federal  Reserve Board to be financial in nature or incidental
thereto if they meet  specified  criteria.  A  financial  holding  company  that
intends  to engage in a new  activity  to acquire a company to engage in such an
activity  is required  to give prior  notice to the FRB. If the  activity is not
either specified in the G-L-B Act as being a financial  activity or one that the
FRB has  determined by rule or  regulation to be financial in nature,  the prior
approval of the FRB is required.

The Maryland  Financial  Institutions Code prohibits a bank holding company from
acquiring  more than 5% of any class of voting  stock of a bank or bank  holding
company without the approval of the Commissioner of Financial  Regulation except
as  otherwise  expressly  permitted by federal law or in certain  other  limited
situations.  The Maryland Financial Institutions Code additionally prohibits any
person from acquiring  voting stock in a bank or bank holding company without 60
days' prior notice to the  Commissioner if such acquisition will give the person
control of 25% or more of the voting stock of the bank or bank  holding  company
or will  affect the power to direct or to cause the  direction  of the policy or
management  of the bank or bank  holding  company.  Any doubt  whether the stock
acquisition  will affect the power to direct or cause the direction of policy or
management  shall be resolved in favor of  reporting  to the  Commissioner.  The
Commissioner may deny approval of the acquisition if the Commissioner determines
it to be  anti-competitive  or to threaten  the safety or soundness of a banking
institution. Voting stock acquired in violation of this statute may not be voted
for five years.

DIVIDENDS.  The FRB  has  issued  a  policy  statement  on the  payment  of cash
dividends by bank holding companies,  which expresses the FRB's view that a bank
holding  company should pay cash dividends only to the extent that the company's
net income for the past year is sufficient to cover both the cash  dividends and
a rate of earning retention that is consistent with the company's capital needs,
asset quality and overall  financial  condition.  The FRB also indicated that it
would be inappropriate for a company  experiencing serious financial problems to
borrow funds to pay dividends.  Furthermore,  under the prompt corrective action
regulations  adopted by the FRB pursuant to


                                       20
<PAGE>

FDICIA, the FRB may prohibit a bank holding company from paying any dividends if
the holding company's bank subsidiary is classified as "undercapitalized".

Bank holding  companies are required to give the FRB prior written notice of any
purchase  or  redemption  of its  outstanding  equity  securities  if the  gross
consideration  for the  purchase  or  redemption,  when  combined  with  the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of the their consolidated retained earnings. The
FRB may  disapprove  such a purchase or  redemption  if it  determines  that the
proposal  would  constitute  an unsafe or unsound  practice or would violate any
law,  regulation,  FRB order, or any condition  imposed by, or written agreement
with, the FRB.

CAPITAL REQUIREMENTS.  The FRB has established capital requirements,  similar to
the capital  requirements  for state  member  banks  described  above,  for bank
holding  companies  with  consolidated  assets of $150  million  or more.  As of
December 31, 2000,  the  Company's  levels of  consolidated  regulatory  capital
exceeded the FRB's minimum requirements.

PERSONNEL

As of December 31, 2000, the Bank had 82 full-time employees and seven part-time
employees.  The  employees  are  not  represented  by  a  collective  bargaining
agreement. The Bank believes its employee relations are good.

ITEM 2.  PROPERTIES
-------------------

The following  table sets forth the location of the Bank's  offices,  as well as
certain  additional  information  relating to these  offices as of December  31,
2000.
<TABLE>
<CAPTION>
                                    YEAR
                                   FACILITY                    LEASED              APPROXIMATE
 OFFICE                            COMMENCED                     OR                  SQUARE
LOCATION                           OPERATION                    OWNED                FOOTAGE
--------                           ---------                   ------              -----------
<S>                                  <C>                        <C>                   <C>
MAIN OFFICE
3035 Leonardtown Road                1974                       Owned                16,500
Waldorf, Maryland

BRANCH OFFICES
502 Great Mills Road (1)             1974                       Owned                 1,000
Lexington Park, Maryland

Rt. 235 and Maple Road (1)           1992                       Owned                 2,500
Lexington Park, Maryland

Route 5 and Lawrence Avenue          1961                       Owned                 2,500
Leonardtown, Maryland

Potomac Square (2)                   1990                      Leased                24,200
729 North 301 Highway
La Plata, Maryland

10321 Southern Md. Blvd.             1991                      Leased                 1,400
Dunkirk, Maryland

8010 Matthews Road                   1996                       Owned                 2,500
Bryans Road, Maryland

20 St. Patrick's Drive (3)           1998                   Leased (Land)             2,840
Waldorf, Maryland                                         Owned (Building)

                                       21
<PAGE>
                                    YEAR
                                   FACILITY                    LEASED              APPROXIMATE
 OFFICE                            COMMENCED                     OR                  SQUARE
LOCATION                           OPERATION                    OWNED                FOOTAGE
--------                           ---------                   ------              -----------

Charles County Community College     1997                      Leased                  126
8730 Mitchell Road
La Plata, Maryland

10195 Berry Road                     1999                      Leased                  600
Waldorf, Maryland
<FN>
__________
(1)      The Bank  purchased  land early in 1992, and built a new Lexington Park
         branch  office  which  opened in  August  1992.  The Bank is  currently
         leasing out the former office space and is actively seeking to sell the
         site.
(2)      Includes land purchased in February 1993 as potential branch location.
(3)      The Bank purchased  the location in 1998.  The building is owned by the
         Bank with the land on a lease basis.
</FN>
</TABLE>

ITEM 3.  LEGAL PROCEEDINGS
--------------------------

Neither  the  Company,  the Bank,  nor any  subsidiary  is  engaged in any legal
proceedings of a material nature at the present time. From time to time the Bank
is a party to legal proceedings in the ordinary course of business.


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

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of the fiscal year ended December 31, 2000.


                                     PART II

ITEM 5. MARKET FOR THE  REGISTRANT'S  COMMON STOCK AND RELATED  SECURITY  HOLDER
        MATTERS
--------------------------------------------------------------------------------

Although the Company's stock is not traded or listed on a public exchange, stock
does change  hands over the course of the year.  The Company  attempts to keep a
record of persons who have expressed an interest in buying or selling the Common
Stock and will make this information available to persons seeking to sell or buy
shares, as the case may be. During 2000, a total of 22,349 shares traded, with a
high price of $31.00 and a low price of $25.00.  The weighted  average price was
$27.46.  The number of  stockholders  at December 31, 2000 was 550 and the total
outstanding  shares were  777,180.  On January 31, 2001,  the Board of Directors
declared a $0.40 per share cash dividend to be  distributed  on April 9, 2001 to
holders  of record as of March 26,  2001.  On  February  3,  2000,  the Board of
Directors  declared a $.30 per share cash dividend which was  distributed  April
14, 2000 to holders of record as of March 14,  2000.  On January 22,  1999,  the
Board of Directors  declared a $0.20 per share cash  dividend,  payable on April
17, 1999 to shareholders of record on March 17, 1999.

The  Company's  ability  to  pay  dividends  is  governed  by the  policies  and
regulations  of the FRB which  prohibit the payment of dividends  under  certain
circumstances  involving  the bank holding  company's  financial  condition  and
capital  adequacy.  The Company's  ability to pay dividends is also dependent on
the receipt of dividends from the Bank.

Federal  regulations impose certain  limitations on the payment of dividends and
other capital  distributions by the Bank. The Bank's ability to pay dividends is
governed by the Maryland Financial  Institutions Code and the regulations of the
FRB. Under the Maryland Financial Institution Code, a Maryland bank (1) may only
pay dividends from undivided  profits or, with prior  regulatory  approval,  its
surplus  in excess of 100% of  required  capital  stock and (2) may not  declare
dividends  on its common  stock  until its  surplus  funds  equals the amount of
required

                                       22
<PAGE>


capital  stock or, if the  surplus  fund  does not equal the  amount of  capital
stock, in an amount in excess of 90% of net earnings.

Without the  approval  of the FRB, a state  member bank may not declare or pay a
dividend if the total of all dividends  declared during the year exceeds its net
income  during the current  calendar  year and retained net income for the prior
two years. The Bank is further prohibited from making a capital  distribution if
it would not be adequately capitalized thereafter. In addition, the Bank may not
make a capital  distribution  that would  reduce its net worth  below the amount
required to maintain the liquidation  account established for the benefit of its
depositors at the time of its conversion to stock form.

                                       23
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------

The  following  table  presents  consolidated  selected  financial  data for the
Company and its  subsidiaries for each of the periods  indicated.  Dividends and
earnings per share have been adjusted to give retroactive effect to stock splits
and stock dividends accounted for as stock splits.
<TABLE>
<CAPTION>
                                                                      YEAR  ENDED DECEMBER 31,
                                                ---------------------------------------------------------------
                                                  2000         1999         1998         1997           1996
                                                --------     --------     --------     --------       --------
                                                         (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                            <C>          <C>          <C>          <C>            <C>
OPERATIONS DATA:
Net Interest Income.........................   $   8,862    $    8,412   $    8,125   $    7,616    $   7,604
Provision for Loan Losses...................         360           240          240          240          408
Noninterest Income..........................       1,373         1,271        1,421          931          798
Noninterest Expense.........................       6,332         6,726        5,467        4,877        5,350
Net Income..................................       2,336         2,153        2,382        2,057        1,320

SHARE DATA:
Basic Net Income Per Common Share...........   $    2.98    $     2.75   $     3.00   $     2.53    $    1.65
Diluted Net Income Per Common Share.........        2.85          2.59         2.79         2.37         1.53
Cash Dividends Paid  Per  Common Share......        0.30          0.20        0.125         0.10         0.10
Weighted Average Common
   Shares  Outstanding:
        Basic...............................     784,605       782,950      793,458      811,694      799,804
        Diluted.............................     821,139       832,283      853,145      867,503      862,026

FINANCIAL CONDITION DATA:
Total Assets................................   $ 248,339    $  222,897   $  206,863   $  191,188    $ 178,146
Loans Receivable, Net.......................     172,090       146,710      132,646      121,867      110,851
Total Deposits..............................     167,806       155,742      151,815      142,276      135,534
Long and Short Term Debt....................      54,951        44,798       33,434       29,202       24,733
Total Stockholders' Equity..................      23,430        21,115       20,975       19,086       17,077

PERFORMANCE RATIOS:
Return on Average Assets....................        1.00%         1.00%        1.20%        1.13%        0.77%
Return on Average Equity....................       10.65         10.23        11.87        11.53         7.94
Net Interest Margin.........................        3.98          4.11         4.21         4.21         4.32
Efficiency Ratio............................       61.86         64.81        57.27        57.07        68.04
Dividend Payout Ratio.......................       10.13          7.29         4.10         3.62         5.35

CAPITAL RATIOS:
Average Equity to Average
  Assets....................................         9.37%        9.79%       10.10%        9.79%        9.70%
Leverage Ratio..............................         9.61         9.86        10.28         9.68         9.88
Total Risk-Based Capital Ratio..............        13.53        17.23        18.27        17.38        17.47

ASSET QUALITY RATIOS:
Allowance for Loan Losses to
  Total Loans...............................         1.10%        1.11%        1.14%        1.05%        0.99%
Nonperforming Loans to Total Loans..........         0.06         0.26         0.34         0.26         0.62
Allowance for Loan Losses to
  Nonperforming Loans.......................      1770.55       424.94       331.18       404.32       160.23
Net Charge-offs to Average Loans............         0.05         0.09         0.01         0.04         0.02

</TABLE>

                                       24
<PAGE>


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

OVERVIEW

Since its conversion from a savings bank charter in 1997, the Bank has sought to
increase total assets as well as the percentage of assets represented by certain
targeted loan types. The Bank feels that its ability to offer fast, flexible and
local  decision-making  in the commercial,  commercial real estate, and consumer
loan areas will continue to attract significant new loans and spur asset growth.
Since December 31, 1997, total loan assets have increased by $50 million or 41%,
with increases concentrated in commercial real estate,  commercial, and consumer
lending.  The Bank's local focus and targeted marketing is also directed towards
increasing  its  balances of consumer  and  business  deposit  accounts  such as
interest-bearing  and  non-interest  bearing  checking  accounts,  money  market
accounts,  and  other  transaction-oriented  accounts.  The Bank  believes  that
increases  in these  account  types will  lessen the Bank's  dependence  on time
deposits such as certificates of deposit to fund loan growth.

For the year  2000,  the  Company  earned  $2.3  million,  an  increase  of $183
thousand,  or 8.5%, over 1999.  Earnings were positively  affected by the Bank's
continued   success  in  building  its  loan  portfolio  while  controlling  its
non-performing  loans.  The Company has also  continued  to build its fee income
sources,  primarily by increasing  its  transaction  account fee volume from the
levels  experienced  in 1999 and 1998. The Company also benefited from a gain on
investment sales compared to the two prior years. These gains offset a continued
decline  in loan sale and loan fee  income  which is a result  of the  continued
higher interest rate  environment  experienced in 2000 compared to the prior two
years.  This higher rate  environment has led to a decline in residential  first
mortgage loan volume and the income associated with it.

FORWARD-LOOKING STATEMENTS

When used in this  discussion  and elsewhere in this Annual Report on Form 10-K,
the words or phrases "will likely  result," "are expected to," "will  continue,"
"is anticipated,"  "estimate,"  "project" or similar expressions are intended to
identify  "forward-looking   statements"  within  the  meaning  of  the  Private
Securities  Litigation  Reform Act of 1995. The Company  cautions readers not to
place undue reliance on any such forward-looking statements, which speak only as
of the date made, and to advise readers that various factors, including regional
and national economic conditions,  unfavorable  judicial decisions,  substantial
changes in levels of market  interest  rates,  credit and other risks of lending
and investment  activities and competitive  and regulatory  factors could affect
the Company's financial performance and could cause the Company's actual results
for future periods to differ materially from those anticipated or projected.

The Company does not undertake  and  specifically  disclaims  any  obligation to
update any  forward-looking  statements to reflect  occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000,  1999
AND 1998

GENERAL. For the year ended December 31, 2000, the Company reported consolidated
net income of  $2,336,196  ($2.98  basic and $2.85  diluted  earnings per share)
compared to consolidated net income of $2,153,490 ($2.75 basic and $2.59 diluted
earnings per share) for the year ended December 31, 1999, and  consolidated  net
income of $2,381,847  ($3.00 basic and $2.79 diluted earnings per share) for the
year ended  December 31, 1998.  The increase in net income for 2000  compared to
1999 was attributable to continued  improvement in net interest income.  For the
year ended  December 31, 2000, net interest  income was  $8,862,072  compared to
$8,412,151  for the year ended  December  31,  1999,  an increase of $449,921 or
5.4%.  This  increase was  partially  offset by an increase in the provision for
loan  losses to  $360,000  for the year ended  December  31,  2000  compared  to
$240,000 for 1999,  an increase of $120,000 or 50%.  The Company also  increased
total  non-interest  income to  $1,372,928  in 2000 from  $1,271,464 in 1999, an
increase of $101,524 or 8.0%.  Non-interest expenses increased to $6,331,864 for
the year ended December 31, 2000,  compared to $6,276,125 an increase of $55,739
or 0.9%.  Income before income taxes  increased to $3,543,196 for the year ended
December 31, 2000,  compared to $3,167,490 for the year ended December 31, 1999,
an increase of $375,706 or 11.9%.


                                       25
<PAGE>

For the year ended December 31, 1999, the Company earned $2,153,490  compared to
$2,381,847  for the prior year,  a decrease of  $228,357 or 9.6%.  Net  interest
income,  however,  increased to $8,412,151  for the year ended December 31, 1999
compared to  $8,124,948  for the year ended  December 31,  1998,  an increase of
$287,203 or 3.5%.  Non-interest  income fell to $1,271,464  for 1999 compared to
$1,420,536  for  1998,  a  decrease  of  $149,072  or  10.5%.  This  decline  is
attributable  to the  higher  interest  rate  environment  experienced  in  1999
compared to 1998 which significantly reduced income related to residential first
mortgage  originations and sales.  Non-interest  expenses totaled $6,276,125 for
1999, an increase of $809,488 or 14.8% over 1998.

NET INTEREST  INCOME.  The primary  component of the Company's net income is its
net interest income which is the difference  between income earned on assets and
interest  paid on the deposits and  borrowings  used to fund them.  Net interest
income is  determined  by the spread  between the yields earned on the Company's
interest-earning  assets and the rates paid on  interest-bearing  liabilities as
well as the  relative  amounts of such  assets  and  liabilities.  Net  interest
income, divided by average interest-earning assets, represents the Company's net
interest margin.

Consolidated  net  interest  income for the year  ended  December  31,  2000 was
$8,862,072  compared  to  $8,412,151  for the year ended  December  31, 1999 and
$7,884,948 for the year ended  December 31, 1998.  The $449,121  increase in the
most  recent  year was due to an  increase  of  $2,436,232  in  interest  income
partially  offset by an increase of $1,986,311 in interest  expense for the same
period.  For the year  ended  December  31,  1999  compared  to the prior  year,
interest income  increased by $131,655 while interest  expense fell by $155,548.
Changes  in the  components  of net  interest  income  due to changes in average
balances of assets and  liabilities  compared to changes in net interest  income
caused by changes in interest  rates are  presented in the rate volume  analysis
below.  During 2000,  the Company's  interest rate spread  declined as the rates
paid on deposits and borrowings increased faster than the rates earned on assets
increased.  This was caused by the  relatively  shorter  period for deposits and
borrowings  to reprice as rates  increase  compared to assets.  In addition,  in
2000, the Company increased its reliance on advances and other borrowings, which
have a higher interest rate cost compared to deposits.

The  following  table  presents  information  on  the  average  balances  of the
Company's interest-earning assets and interest-bearing  liabilities and interest
earned or paid thereon for the past three  fiscal  years.  Average  balances are
computed on the basis of month-end balances.

<TABLE>
<CAPTION>

                                                                       FOR THE YEAR ENDED DECEMBER 31,
                                      ----------------------------------------------------------------------------------------------
                                                 2000                               1999                             1998
                                      -----------------------------     -----------------------------     --------------------------
                                                            AVERAGE                           AVERAGE                        AVERAGE
                                      AVERAGE               YIELD/      AVERAGE                YIELD/     AVERAGE             YIELD/
                                      BALANCE  INTEREST      COST       BALANCE   INTEREST     COST       BALANCE   INTEREST   COST
                                      -------  --------     -------     -------   --------    -------     -------   --------  ------
                                                                         (DOLLARS IN THOUSANDS)
<S>                                  <C>       <C>            <C>       <C>       <C>           <C>       <C>        <C>       <C>
Interest-earning assets:
  Loan portfolio (1).............    $159,989  $13,950        8.72 %    $138,140  $11,563       8.37%     $129,375   $11,638   9.00%
  Cash and investment
    securities...................      62,673    4,340        6.92        66,379    4,290       6.46        63,609     4,084   6.42
                                     --------  -------                  --------  -------                 --------   -------
     Total interest-earning
       assets....................     222,662   18,290        8.21       204,519   15,853       7.75       192,984    15,722   8.15
                                     --------  -------      ------      --------  -------     ------      --------   -------  -----
Interest-bearing liabilities:
  Savings deposits and escrow....    $160,324  $ 6,315        3.94%     $154,699  $ 5,529       3.59%     $145,752   $ 5,694   3.91%
  FHLB advances and other
    borrowings...................      49,664    3,113        6.26        35,859    1,912       5.33        33,294     1,903   5.72
                                     --------  -------                  --------  -------                 --------   -------
     Total interest-bearing
       liabilities...............    $209,988    9,428        4.49      $190,558    7,441       3.92      $179,046     7,597   4.24
                                     ========  -------      ------      ========  -------     ------      ========   -------  -----
Net interest income..............              $ 8,862                            $ 8,412                            $ 8,125
                                               =======                            =======                            =======
Interest rate spread.............                             3.72%                             3.83%                          3.91%
                                                            ======                            ======                          ======
Net yield on interest-earning
  assets.........................                             3.98%                             4.11%                          4.21%
                                                            ======                            ======                          ======
Ratio of average interest-
  earning assets to average
  interest-bearing liabilities...                           106.0%                            105.1%                          107.8%
                                                            =====                             =====                           =====
<FN>
----------
(1) Average balance includes non-accrual loans.
</FN>
</TABLE>


                                       26
<PAGE>

The table below sets forth  certain  information  regarding  changes in interest
income and  interest  expense of the Bank for the  periods  indicated.  For each
category of interest-earning asset and interest-bearing  liability,  information
is provided on changes  attributable to (1) changes in volume (changes in volume
multiplied by old rate);  and (2) changes in rate (changes in rate multiplied by
old volume). Changes in rate-volume (changes in rate multiplied by the change in
volume) have been allocated to changes due to volume.
<TABLE>
<CAPTION>
                                                                   YEAR ENDED  DECEMBER 31,
                                               ------------------------------------------------------------
                                                1999       VS.     2000            1998     VS.       1999
                                               -------------------------          -------------------------
                                                   INCREASE (DECREASE)               INCREASE (DECREASE)
                                                         DUE TO                            DUE TO
                                               -------------------------          -------------------------
                                               VOLUME     RATE     TOTAL          VOLUME    RATE      TOTAL
                                               ------     -----    -----          ------    ----      -----
                                                                      (IN THOUSANDS)
<S>                                            <C>       <C>       <C>           <C>       <C>      <C>
Interest income:
   Loan portfolio...........................   $ 1,905   $   482   $ 2,387       $   734   $  (809) $    (75)
   Interest-earning cash and
     investment portfolio...................      (257)      306        49           181        26       206
                                               -------   -------   -------       -------   -------  --------
Total interest-earning assets...............   $ 1,648   $   788   $ 2,436       $   915   $  (783) $    131
                                               -------   -------   -------       -------   -------  --------

Interest expense:
   Savings deposits and escrow..............   $   222   $   564   $   786       $   321   $  (486) $   (165)
   FHLB advances and other
     borrowings.............................       864       336     1,200           137      (128)        9
                                               -------   -------   -------       -------   -------- --------
Total interest-bearing liabilities..........   $ 1,086   $   896   $ 1,986       $  (614)  $   (39) $   (156)
                                               =======   =======   =======       =======   =======  ========
</TABLE>


PROVISION FOR LOAN LOSSES. Provision for loan losses for the year ended December
31, 2000 was $360,000  compared to $240,000 for each of the two preceding years.
The increase in provision  for loan losses is reflective of the increases in the
size of the Bank's loan portfolio as well as increased  emphasis on certain loan
types which have inherently  higher credit risks than residential first mortgage
lending.  At December 31, 2000 the  allowance  for loan loss  equaled  1,771% of
non-accrual  and past due loans  compared to 425% and 331% at December  31, 1999
and 1998,  respectively.  During the year ended  December 31, 2000,  the Company
recorded net  charge-offs of $83 thousand  (0.05% of average loans)  compared to
$127 thousand (0.09% of average loans) and $10 thousand (0.01% of average loans)
in net charge-offs during the years ended December 31, 1999 and 1998.

NON-INTEREST  INCOME.  Non-interest  income increased to $1,372,988 for the year
ended December 31, 2000 compared to $1,271,464,  for the prior year, an increase
of 8.0%.  Non-interest income for the year ended December 31, 1999 represented a
decline of 10.5% from the  December  31, 1998 total of  $1,420,536.  The overall
totals of non-interest income are indicative of two ongoing  developments in the
Company's  operations.  The first is the  continuing  decline  in the  Company's
residential  first  mortgage  origination  and sale activity over the last three
years.  In the year ended  December 31,  1998,  the Company  recorded  income on
originating and selling  residential  first mortgage loans of $416,838.  For the
next two years,  1999 and 2000,  this income  declined  to $238,215  and $85,716
respectively,  declines of $178,6223 and $106,168. These declines were 42.9% and
64.0% from prior year levels in 1999 and 2000. The decline in residential  first
mortgage  originations  and sales  also  affected  loan  appraisal,  credit  and
miscellaneous  charges ("loan  fees").  Loan fees declined from $223,326 for the
year ended  December  31,  1998 to  $182,494  and  $76,326  for the years  ended
December 31, 1999 and 2000 respectively. These declines totaled $40,832 or 18.3%
for 1999 compared to 1998 and $106,168 or 58.2% for 2000 compared to 1999. While
the Bank will continue to make residential mortgage loans, it believes that this
portion of its business will continue to decline in importance to its operations
and provide less income  relative to its targeted loan areas of commercial  real
estate, commercial loans, consumer, and second mortgage lending.

Declines  in  non-interest  income  related  to the  origination  and  sales  of
residential  first mortgage loans were partially  offset by increases in service
charges and fees. Service charges and fees are primarily generated by the Bank's
ability  to attract  and  retain  transaction-based  deposit  accounts.  Service
charges and fees  increased to $996,884 for the year ended  December 31, 2000 as
compared to $811,991 and  $600,067 in the two prior years.  The increase for


                                       27
<PAGE>

the year ended December 31, 2000 from the prior year was $184,893 or 22.8% while
the  increase  for the year  ended  December  31,  1999 from the prior  year was
$211,924 or 35.3%.  The Company  hopes to  increase  its service  charge and fee
revenues in the future by increasing the level of transaction-based accounts.

Other changes in non-interest income from the prior two years included a gain on
the sale of  investments  of  $184,704  for the year  ended  December  31,  2000
compared to small  losses in the prior two years.  Finally,  other  non-interest
income declined  slightly from 1999. For the year ended December 31, 2000, other
non-interest income was $29,358, a decline from the prior year total of $39,369.
Other  non-interest  income  for the year  ended  December  31,  1998  primarily
consisted of gain on the sale of  foreclosed  property and a gain on the sale of
land due to a condemnation award from the State of Maryland in connection with a
road project.

NON-INTEREST  EXPENSES.  Non-interest  expenses for the year ended  December 31,
2000  totaled  $6,331,864,  an  increase of $55,739 or 0.9% from the prior year.
Salary and employee benefits  increased by 1.2% to $3,643,865 for the year ended
December 31, 2000 compared to $3,600,119  for the prior year. The small increase
reflects a stabilization  in the size of the Company's  workforce,  an effort by
management to control certain  discretionary  employee costs such as the cost of
the Company's Employee Stock Ownership Plan ("ESOP") program and other measures.
Occupancy expense increased to $615,809 compared to $540,667 and $494,113 in the
two prior years. This increase was due to certain needed repairs and maintenance
at several of the Company's  locations.  ATM and deposit  expenses  increased to
$340,534  for the year 2000 from  $287,178 and $255,645 for the prior two years.
Data processing  expense also increased to $255,792 from the prior year total of
$215,227,  an increase of 18.9%.  The  increase in ATM and deposit  expenses and
data processing  expense is reflective of the Company's  additional  transaction
based deposit accounts.  Advertising  decreased from 1999 levels to $246,619 for
the year ended  December  31, 2000  compared to $280,044 and $162,133 in the two
prior years.

INCOME TAX  EXPENSE.  During the year  ended  December  31,  2000,  the  Company
recorded income tax expense of $1,207,000 compared to expenses of $1,014,000 and
$1,457,000  in the two prior years.  The  Company's  effective tax rates for the
years ended  December 31, 2000,  1999,  and 1998 were 34.1%,  32.0%,  and 37.9%,
respectively.  As  explained  further  in Note 8 to the  Consolidated  Financial
Statements,  interest  income  earned  by  the  Bank's  subsidiary,   Tri-County
Investment  Corporation,   is  not  subject  to  state  income  tax.  Tri-County
Investment  Corporation  was established by the Bank in 1999 and has reduced the
effective tax rate for the years ended December 31, 2000 and 1999. The Company's
effective tax rate was further reduced in 1999 by the exercise of  non-incentive
stock options by certain directors.

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2000 AND 1999

The Company's total assets increased  $25,442,176,  or 11.4%, to $248,339,456 as
of December 31, 2000 from  $222,897,280  at December  31, 1999.  The increase in
assets was  primarily  due to an  increase in the loan  portfolio  which grew to
$172,090,088  at December 31, 2000 from  $146,710,367  at December 31, 1999. The
increase in the loan portfolio were  concentrated  in the loan types targeted by
management in its long-term business plan to increase the financial  performance
of the  Company.  The  Company  experienced  its  greatest  loan  growth  in the
commercial  mortgage loan portfolio which grew  $12,278,787 or 41.0% during 2000
to  $42,226,137.  Commercial  mortgages  constituted  24.2%  of  total  loans at
December 31, 2000. The Company also  registered  strong growth in its commercial
and consumer loan portfolios which grew 50.1% and 49.5%, respectively.  Although
residential  first  mortgage  lending  continues  to be a major  portion  of the
Company's loan portfolio,  it has declined as a percentage of the loan portfolio
from 44.4% at December 31, 1999 to 38.9% at December 31, 2000,  while increasing
slightly in dollar terms for the same period to $67,975,177  from $66,263,457 at
December 31, 1999.

Investments and  interest-bearing  deposits totaled  $67,586,227 at December 31,
2000 compared to  $63,953,051  for December 31, 1999. The increase of $3,633,176
or 4.7% is the result of earnings on the portfolio  combined  with  increases in
the portfolio's market value partially offset by principal paydowns.  Management
expects that future growth in the  investment  portfolio  will be limited as the
Company will use  principal  paydowns and calls to increase the size of its loan
portfolio.


                                       28
<PAGE>

Deposits increased to $167,805,999 at December 31, 2000 compared to $155,741,800
for the prior  year.  The total  increase  of 7.8% was  concentrated  in certain
transaction-based account types.  Non-interest-bearing demand deposits increased
to $12,537,649 at December 31, 2000 from the prior year's total of  $10,102,479,
an increase of $2,435,170 or 24.1%.  Interest-bearing  demand deposits increased
to $20,551,420 at year end compared with $19,041,881,  an increase of $1,509,539
or 7.9%.  Money market  deposits  increased to  $44,965,316 at December 31, 2000
from  $34,669,161  at  December  31, 1999 for the prior year end, an increase of
$10,296,155 or 29.7%.  Certificates of deposit balances increased to $71,199,037
at December 31, 2000 compared to $70,501,000  for the prior year, an increase of
$698,037  or 1.0%.  These  increases  in  deposit  balances  were  offset by the
declines  in savings  deposits to  $18,552,577  from  $21,427,279  a decrease of
$2,874,702 or 13.4%.

In order to fund the loan  portfolio  increases  noted  above,  the Company also
increased  short- and long-term  debt.  Short-term  debt  increased  slightly to
$13,550,903 at December 31, 2000 compared to $13,398,378  for the prior year, an
increase  of  $152,525 or 1.1%.  Long-term  debt  increased  to  $41,400,000  at
December 31, 2000, an increase of $10,000,000, or 31.9%.

The Company experienced a $2,314,439, or 11.0%, increase in stockholders' equity
for the year ended December 31, 2000. The increase in  stockholders'  equity was
attributable  to the retention of earnings  from the period less cash  dividends
combined with  comprehensive  income of $603,569,  option  exercises and smaller
amounts of ESOP activity.  These  increases in equity were  partially  offset by
repurchases of common stock totaling $479,217.

ASSET/LIABILITY MANAGEMENT

Net interest income,  the primary component of the Company's net income,  arises
from the difference between the yield on interest-earning assets and the cost of
interest-bearing  liabilities  and  the  relative  amounts  of such  assets  and
liabilities.  The Company manages its assets and liabilities by coordinating the
levels of and gap between  interest-rate  sensitive  assets and  liabilities  to
control  changes in net interest  income and in the economic value of its equity
despite changes in market interest rates.

Among other tools used to monitor  interest  rate risk is a "gap"  report  which
measures the dollar difference between the amount of interest-earning assets and
interest-bearing  liabilities  subject to repricing  within a given time period.
Generally,  during a period of rising  interest  rates,  a negative gap position
would adversely affect net interest income, while a positive gap would result in
an  increase  in net  interest  income,  while,  conversely,  during a period of
falling  interest  rates,  a negative  gap would  result in an  increase  in net
interest income and a positive gap would adversely  affect net interest  income.
The following  sets forth the Bank's  interest rate  sensitivity at December 31,
2000:


                                       29
<PAGE>
<TABLE>
<CAPTION>
                                                                                 OVER 1
                                                              OVER 3 TO         THROUGH 5         OVER 5
                                            0-3 MONTHS        12 MONTHS           YEARS            YEARS
                                            ----------        ---------           -----            -----
                                                                (AMOUNTS IN THOUSANDS)
<S>                                         <C>               <C>               <C>              <C>
Assets:
Cash and due from banks...................  $       646       $        --       $       --       $        --
Interest-bearing deposits.................        5,975                --               --                --
Securities................................       21,100             6,809           22,163             8,503
Loans held for sale.......................           --                --               --                --
Loans.....................................       53,060            27,919           76,632            14,479
Fixed assets..............................           --                --               --             4,495
Other assets..............................           --                --               --             6,558
                                            -----------       -----------       ----------       -----------

Total Assets..............................  $    80,781       $    34,728       $   98,795       $    34,035
                                            ===========       ===========       ==========       ===========

Liabilities:
Non-interest bearing deposits.............  $    12,538       $        --       $       --       $        --
Interest-bearing demand deposits..........       20,551                --               --                --
Money Market Deposits.....................       44,965                --               --                --
Savings...................................       18,553                --               --                --
Certificates of Deposit...................        9,458            41,962           19,393               385
Short-term debt...........................       13,551                --               --                --
Long-term debt............................           --                --           26,400            15,000
Other liabilities.........................           --                --               --             2,153
                                            -----------       -----------       ----------       -----------

Total Liabilities.........................  $   119,616       $    41,962       $   45,793       $    17,538
                                            ===========       ===========       ==========       ===========

Gap.......................................  $   (38,835)      $    (7,234)      $   53,002       $    16,497
Cumulative Gap............................  $   (38,835)      $   (46,070)      $    6,932       $    23,429
Cumulative Gap as % of total assets.......       (15.64)%          (18.55)%           2.79%             9.43%
</TABLE>


The foregoing  analysis assumes that the Bank's assets and liabilities move with
rates at  their  earliest  repricing  opportunities  based  on  final  maturity.
Mortgage-backed securities are assumed to mature during the period in which they
are  estimated to prepay and it is assumed that loans and other  securities  are
not called  prior to  maturity.  Certificates  of deposit and IRA  accounts  are
presumed to reprice at maturity. NOW and savings accounts are assumed to reprice
within three months  although it is the Company's  experience that such accounts
may be less sensitive to changes in market rates.

LIQUIDITY AND CAPITAL RESOURCES

The Company  currently has no business  other than that of the Bank and does not
currently have any material funding commitments. The Company's principal sources
of liquidity are cash on hand and dividends  received from the Bank. The Bank is
subject to various regulatory restrictions on the payment of dividends.

The Bank's  principal  sources of funds for  investments  and operations are net
income,  deposits from its primary market area,  principal and interest payments
on loans,  interest received on investment securities and proceeds from maturing
investment securities. Its principal funding commitments are for the origination
or  purchase  of loans  and the  payment  of  maturing  deposits.  Deposits  are
considered  the  primary  source of funds  supporting  the  Bank's  lending  and
investment activities. The Bank also uses borrowings from the FHLB of Atlanta to
supplement  deposits.  The  amount  of FHLB  advances  available  to the Bank is
limited to the lower of 35% of Bank assets or the amount supportable by eligible
collateral  including FHLB stock,  current residential first mortgage loans, and
certain securities.


                                       30
<PAGE>

The Bank's most liquid assets are cash, cash equivalents,  and  interest-bearing
deposits  which  are  comprised  of cash on hand,  amounts  due  from  financial
institutions,  and  interest-bearing  deposits.  The  levels of such  assets are
dependent on the Bank's  operating  financing and  investment  activities at any
given time. The variations in levels of cash and cash equivalents are influenced
by deposit flows and anticipated future deposit flows.

Cash, cash equivalents,  and interest-bearing  deposits as of December 31, 2000,
totaled  $6,621,131,  an increase of $88,548  (1.2%) from the  December 31, 1999
total of  $6,532,583.  This increase was in  interest-bearing  deposits at other
financial institutions which totaled $5,975,314 at December 31, 2000 compared to
$3,063,279 at the end of 1999. Cash on hand declined to $645,817 from $3,469,304
at December 31, 1999.

The  Company's  principal  sources  of cash flows are its  financing  activities
including  deposits and  borrowings  and  issuances of shares on the exercise of
stock  options or  allocations  of shares to  participant  accounts in the ESOP.
During  the year  2000,  financing  activities  provided  $21.6  million in cash
compared  to $14.6  million  during  1999 and $13.2  million  during  1998.  The
increase in cash flows from financing  activities  during the most recent period
was principally due to a net increase in deposits of $12.1 million.  The Company
also receives cash from its operating  activities which provided $4.1 million in
cash during 2000, compared to cash flows of $4.4 million and $1.3 million during
1999 and 1998,  respectively.  The decrease in operating  cash flows during 2000
was primarily due to lower sales of loans originated for resale.

The Company's principal use of cash has been in investing  activities  including
its investments in loans for portfolio,  investment securities and other assets.
During the year ended  December  31,  2000,  the  Company  used a total of $28.5
million in its investing  activities compared to $16.5 million in 1999 and $14.3
million in 1998.  The principal  reason for the greater use of cash in investing
activities  during 2000 was an increase in loans originated for portfolio and in
interest-bearing deposits at other banks which offset decreases in proceeds from
sales, redemptions or principal collections on available-for-sale securities and
principal collections on loans.

Federal  banking  regulations  require  the  Company  and the  Bank to  maintain
specified levels of capital.  At December 31, 2000 the Company was in compliance
with these  requirements  with a  leverage  ratio of 9.4%,  a Tier 1  risk-based
capital ratio of 12.5% and total risk-based  capital ratio of 13.5%. At December
31,  2000,  the Bank met the  criteria  for  designation  as a  well-capitalized
depository institution under FRB regulations.

IMPACT OF INFLATION AND CHANGING PRICES

The consolidated  financial  statements and notes thereto  presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial  position and operating results in terms of
historical  dollars without  considering the changes in the relative  purchasing
power of money over time due to  inflation.  Unlike most  industrial  companies,
nearly all of the Company's assets and liabilities are monetary in mature.  As a
result,  interest rates have a greater impact on the Company's  performance than
do the effects of general levels of inflation. Interest rates do not necessarily
move in the same  direction  or to the same  extent  as the  prices of goods and
services.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------

Not applicable since the registrant is a small business issuer.


                                       31
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

The Company's financial  statements and supplementary data appear in this Annual
Report beginning on the page immediately following Item 14 hereof.

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 REGISTRANT
------------------------------------------------------------

The information contained under the section captioned "Proposal I -- Election of
Directors" in the Company's  definitive  proxy  statement for the Company's 2001
Annual Meeting of Stockholders (the "Proxy Statement") is incorporated herein by
reference.

The executive officers of the Company are as follows:

MICHAEL L. MIDDLETON (53 years old) is President and Chief Executive  Officer of
the  Company  and the Bank.  He joined  the Bank in 1973 and  served in  various
management  positions  until  1979 when he  became  president  of the Bank.  Mr.
Middleton  is a  Certified  Public  Accountant  and holds a Masters of  Business
Administration.  As  President  and Chief  Executive  Officer  of the Bank,  Mr.
Middleton is responsible  for the overall  operation of the Bank pursuant to the
policies and procedures established by the Board of Directors.  Mr. Middleton is
a member of the  Rotary  Club of  Waldorf  and is a Paul  Harris  Fellow.  Since
December 1995, Mr. Middleton has served on the Board of Directors of the Federal
Home Loan Bank of Atlanta  and also  serves as its Board  Representative  to the
Council of Federal Home Loan Banks. In January 2000, Mr. Middleton was appointed
to the National Association of Home Builders Mortgage Roundtable.

C. MARIE BROWN (58 years old) has been  employed with the Bank for over 27 years
and has served as Chief Operating  Officer since 1999.  Prior to her appointment
as Chief  Operating  Officer,  Ms. Brown served as Senior Vice  President of the
Bank.  She is a supporter of the  Handicapped  and Retarded  Citizens of Charles
County,  of  Zonta  and  serves  on  various  administrative  committees  of the
Hughesville  Baptist  Church and the board of the Charles  County Chapter of the
American Red Cross.

H.  BEAMAN  SMITH (55 years old) was the  Treasurer  of the  Company in 1998 and
became  Secretary-Treasurer  in  January  1999  and has been  the  president  of
Accoware, a computer software company, since 1989. Prior to that time, Mr. Smith
was a  majority  owner of the  Smith's  Family  Honey  Company  in Bryans  Road,
Maryland.  Mr. Smith is a Vice President of Fry Plumbing  Company of Washington,
D.C., a Trustee of the Ferguson  Foundation,  a member of the Bryans Road Sports
Council and the Treasurer of the Mayaone Association.

GREGORY C.  COCKERHAM  (46 years old) joined the Bank in  November  1988 and has
served as Senior Vice President of Lending since 1996.  Prior to his appointment
as Senior Vice President,  Mr.  Cockerham  served as Vice President of the Bank.
Mr.  Cockerham has been in banking for 22 years. He is a Paul Harris Fellow with
the Rotary  Club of Charles  County  and serves on various  civic  boards in the
County.

WILLIAM J. PASENELLI (42 years old) joined the Bank as Chief  Financial  Officer
in April 2000. Prior to joining the Bank, Mr. Pasenelli had been Chief Financial
Officer of Acacia Federal Savings Bank, Annandale,  Virginia,  with which he had
been employed since 1987. Mr. Pasenelli is a member of the American Institute of
Certified Public Accountants,  the DC Institute of Certified Public Accountants,
and other civic groups.


                                       32
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION
--------------------------------

The information contained under the section captioned "Proposal I -- Election of
Directors  -- Executive  Compensation"  in the Proxy  Statement is  incorporated
herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

         (A)  SECURITY OWNERSHIP OF CERTAIN OWNERS

The information required by this item is incorporated herein by reference to the
sections captioned  "Proposal I -- Election of Directors" and "Voting Securities
and Principal Holders Thereof" of the Proxy Statement.

         (B)  SECURITY OWNERSHIP OF MANAGEMENT

Information  required by this item is  incorporated  herein by  reference to the
section captioned "Proposal I -- Election of Directors" of the Proxy Statement.

         (C)  CHANGES IN CONTROL

Management of the Company knows of no arrangements,  including any pledge by any
person of securities of the Company,  the operation of which may at a subsequent
date result in a change in control of the registrant.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

The information required by this item is incorporated herein by reference to the
section captioned  "Proposal I -- Election of Directors" and "Transactions  with
the Company and the Bank" of the Proxy Statement.


                                     PART IV

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

         (A)  LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
              ----------------------------------------------

         (1)  Financial Statements.  The following is a list of the consolidated
financial statements which are being filed as part of this Annual Report on Form
10-K.
                                                                            Page

         Independent Auditors' Report                                        F-1
         Consolidated Balance Sheets as of December 31, 2000 and 1999        F-2
         Consolidated Statements of Income for the Years Ended December
           31, 2000, 1999 and 1998                                           F-3
         Consolidated  Statements  of  Changes  in  Stockholders' Equity
           for the Years  Ended December 31, 2000, 1999 and 1998             F-4
         Consolidated  Statements of Cash Flows for the Years Ended
           December 31, 2000, 1999 and 1998                                  F-5
         Notes to Consolidated Financial Statements                          F-7


         (2) Financial Statement Schedules. All schedules for which provision is
made in the  applicable  accounting  regulations  of the Securities and Exchange
Commission are omitted because of the absence of conditions under which they are
required or because the  required  information  is included in the  consolidated
financial statements and related notes thereto.



                                       33
<PAGE>


         (3) Exhibits. The following is a list of exhibits filed as part of this
Annual Report on Form 10-K and is also the Exhibit Index.

              3.1    Articles of Incorporation of Tri-County Financial
                     Corporation*
              3.2    Bylaws of Tri-County Financial Corporation
             10.1  + Tri-County  Financial  Corporation  1995 Stock Option and
                     Incentive Plan, as amended
             10.2  + Tri-County   Financial   Corporation  1995  Stock  Option
                     Plan  for Non-Employee Directors, as amended
             10.3  + Employment Agreements with Michael L. Middleton, as
                     amended,  C. Marie Brown, as amended, and Gregory C.
                     Cockerham **
             10.4  + Guaranty  Agreements with Michael L.  Middleton,  C. Marie
                     Brown and Gregory C. Cockerham
             10.5  + Executive Incentive Compensation Plan
             10.6  + Employment Agreement with William J. Pasenelli
             10.7  + Retirement Plan for Directors
             10.8  + Split Dollar Agreements with Michael L. Middleton and
                     C. Marie Brown
             21      Subsidiaries of the Registrant
             23      Consent of Stegman & Company
            ____________
            +    Management  contract or compensatory  plan required to be filed
                 as an exhibit pursuant to Item 14(c).
            *    Incorporated  by  reference  to  the   registrant's   Form  S-4
                 Registration Statement No. 33-31287.
            **   Incorporated  by reference to the  registrant's  Form 10-K for
                 the fiscal year ended December 31, 1998.



          (b)     REPORTS  ON FORM 8-K.  No  reports on Form 8-K have been filed
                  --------------------
                  during the last  quarter of the  fiscal  year  covered by this
                  report.

          (c)     EXHIBITS.  The exhibits required by Item 601 of Regulation S-K
                  --------
                  are either filed as part of this Annual Report on Form 10-K or
                  incorporated by reference herein.

          (d)     FINANCIAL   STATEMENTS  AND  SCHEDULES  EXCLUDED  FROM  ANNUAL
                  --------------------------------------------------------------
                  REPORT.  There are no other financial statements and financial
                  ------
                  statement schedules which were excluded from the Annual Report
                  pursuant to Rule 14a-3(b)(1) which are required to be included
                  herein.



                                       34

<PAGE>



                       [LETTERHEAD OF STEGMAN & COMPANY]






Stockholders and Board of Directors
Tri-County Financial Corporation
Waldorf, Maryland


        We  have  audited  the  accompanying   consolidated  balance  sheets  of
Tri-County  Financial  Corporation  as of December  31,  2000 and 1999,  and the
related consolidated  statements of income,  changes in stockholders' equity and
cash flows for each of the three years in the period  ended  December  31, 2000.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

        We conducted our audits in accordance with auditing standards  generally
accepted in the United States.  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 consolidated financial position of
Tri-County  Financial  Corporation  as of December  31,  2000 and 1999,  and the
results  of its  operations  and cash  flows for each of the three  years in the
period  ended  December 31,  2000,  in  conformity  with  accounting  principles
generally accepted in the United States.



                                                           /s/ Stegman & Company




Baltimore, Maryland
February 15, 2001

                                      F-1

<PAGE>







                        TRI-COUNTY FINANCIAL CORPORATION

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999

                                     ASSETS
<TABLE>
<CAPTION>

                                                                                          2000                       1999
                                                                                      ------------               ------------
<S>                                                                                   <C>                       <C>
Cash and due from banks                                                               $    645,817              $   3,469,304
Interest-bearing deposits with banks                                                     5,975,314                  3,063,279
Investment securities available-for-sale - at fair value                                56,860,996                 56,655,300
Investment securities held-to-maturity - at amortized cost                               1,714,367                  1,946,772
Stock in Federal Home Loan Bank and Federal Reserve Bank - at cost                       3,035,550                  2,287,700
Loans held for sale                                                                        355,000                    773,099
Loans receivable - net of allowance for loan losses
   of $1,929,531 and $1,653,290, respectively                                          172,090,088                146,710,367
Premises and equipment, net                                                              4,495,431                  4,516,386
Foreclosed real estate                                                                     176,626                    176,626
Accrued interest receivable                                                              1,353,658                  1,146,520
Other assets                                                                             1,636,609                  2,151,927
                                                                                      ------------               ------------

        TOTAL ASSETS                                                                  $248,339,456               $222,897,280
                                                                                      ============               ============

                                              LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
   Noninterest-bearing deposits                                                       $ 12,537,649               $ 10,102,479
   Interest-bearing deposits                                                           155,268,350                145,639,321
                                                                                      ------------               ------------
        Total deposits                                                                 167,805,999                155,741,800
   Short-term borrowings                                                                13,550,903                 13,398,378
   Long-term debt                                                                       41,400,000                 31,400,000
   Accrued expenses and other liabilities                                                2,152,732                  1,241,719
                                                                                      ------------               ------------

        Total liabilities                                                              224,909,634                201,781,897
                                                                                      ------------               ------------

STOCKHOLDERS' EQUITY:
   Common stock - par value $.01; authorized - 15,000,000 shares;
      issued 777,680 and 788,173 shares, respectively                                        7,777                      7,882
   Surplus                                                                               7,500,865                  7,447,240
   Retained earnings                                                                    16,175,708                 14,555,324
   Accumulated other comprehensive (loss) income                                          (114,929)                  (718,498)
   Unearned ESOP shares                                                                   (139,599)                  (176,565)
                                                                                      ------------               ------------

        Total stockholders' equity                                                      23,429,822                 21,115,383
                                                                                      ------------               ------------

        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                    $248,339,456               $222,897,280
                                                                                      ============               ============

</TABLE>

See notes to consolidated financial statements.



                                       F-2
<PAGE>



                        TRI-COUNTY FINANCIAL CORPORATION

                        CONSOLIDATED STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                    2000                  1999               1998
                                                               --------------       ---------------    ------------
<S>                                                            <C>                  <C>                 <C>
INTEREST INCOME:
   Interest and fees on loans                                  $13,950,200          $11,562,846         $11,637,672
   Taxable interest and dividends on investment securities       4,237,326            4,197,132           3,941,744
   Interest on deposits with banks                                 102,036               93,352             142,259
                                                               -----------          -----------         -----------
           Total interest income                                18,289,562           15,853,330          15,721,675
                                                               -----------          -----------         -----------

INTEREST EXPENSE:
   Interest on deposits                                          6,314,871            5,528,672           5,693,385
   Interest on short-term borrowings                             1,694,473              501,644             958,119
   Interest on long-term debt                                    1,418,146            1,410,863             945,223
                                                               -----------          -----------         -----------

           Total interest expense                                9,427,490            7,441,179           7,596,727
                                                               -----------          -----------         -----------

NET INTEREST INCOME                                              8,862,072            8,412,151           8,124,948

PROVISION FOR LOAN LOSSES                                          360,000              240,000             240,000
                                                               -----------          -----------         -----------

NET INTEREST INCOME AFTER PROVISION
   FOR LOAN LOSSES                                               8,502,072            8,172,151           7,884,948
                                                               -----------          -----------         -----------

NONINTEREST INCOME:
   Loan appraisal, credit, and miscellaneous charges                76,326              182,494             223,326
   Net gains on sale of loans                                       85,716              238,215             416,838
   Net gain (loss) on sales of investment securities               184,704                 (605)               (391)
   Service charges and fees                                        996,884              811,991             600,067
   Other income                                                     29,358               39,369             180,696
                                                               -----------          -----------         -----------
           Total noninterest income                              1,372,988            1,271,464           1,420,536
                                                               -----------          -----------         -----------

NONINTEREST EXPENSE:
   Salaries and employee benefits                                3,643,865            3,600,119           3,114,748
   Occupancy expense                                               615,809              540,667             494,113
   ATM and deposit expenses                                        340,532              287,178             255,645
   Advertising                                                     246,619              280,044             162,133
   Data processing expense                                         255,792              215,227             259,025
   Depreciation of furniture, fixtures, and equipment              241,714              231,240             204,230
   Other expenses                                                  987,533            1,121,650             976,743
                                                               -----------          -----------         -----------
           Total noninterest expense                             6,331,864            6,276,125           5,466,637
                                                               -----------          -----------         -----------

INCOME BEFORE INCOME TAXES                                       3,543,196            3,167,490           3,838,847

Income tax expense                                               1,207,000            1,014,000           1,457,000
                                                               -----------          -----------         -----------

NET INCOME                                                     $ 2,336,196          $ 2,153,490         $ 2,381,847
                                                               ===========          ===========         ===========

INCOME PER COMMON SHARE:
   Basic earnings per share                                         $2.98               $2.75               $3.00
   Diluted earnings per share                                        2.85                2.59                2.79

</TABLE>


See notes to consolidated financial statements.


                                       F-3
<PAGE>


                        TRI-COUNTY FINANCIAL CORPORATION

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
<TABLE>
<CAPTION>

                                                                                     Accumu-
                                                                                     lated
                                                                                     Other
                                                                                    Compre-
                                                                                     hensive      Unearned
                                             Common     Paid-in        Retained      Income         ESOP
                                              Stock     Capital        Earnings      (Loss)        Shares           Total
                                             ------    ----------     -----------    ---------    ---------     -----------
<S>                                          <C>       <C>            <C>           <C>           <C>           <C>
BALANCES, JANUARY 1, 1998                    $7,827    $6,574,162     $12,104,129   $  442,032    $(194,385)    $18,933,765
  Comprehensive income:
     Net income                                 -           -           2,381,847         -            -          2,381,847
     Unrealized gains on investment
       securities net of tax of $129,980        -           -                -         206,582         -            206,582
                                                                                                                -----------
        Total comprehensive income              -           -                -            -            -          2,588,429
  Cash dividend - $0.125 per share              -           -             (97,627)        -            -            (97,627)
  5% stock dividend                             310       693,962        (694,272)        -            -               -
  Cash paid in lieu of stock dividend
   for fractional shares                        -           -              (4,871)        -            -             (4,871)
  Exercise of stock options                      58        41,777            -            -            -             41,835
  Repurchase of common stock                   (200)        -            (473,436)        -            -           (473,636)
  Net change in unearned ESOP shares           (102)        -                -            -         (12,498)        (12,600)
                                             ------    ----------     -----------   ----------    ---------     -----------

BALANCES, DECEMBER 31, 1998                   7,893     7,309,901      13,215,770      648,614     (206,883)     20,975,295
  Comprehensive income:
   Net income                                   -           -           2,153,490         -            -          2,153,490
   Unrealized loss on investment
     securities net of tax of $770,187          -           -                -      (1,367,112)        -         (1,367,112)
                                                                                                                -----------
        Total comprehensive income                                                                                  786,378
  Cash dividend - $0.20 per share               -           -            (157,034)        -            -           (157,034)
  Excess of fair market value over cost
   of leveraged ESOP shares released            -          11,401            -            -            -             11,401
  Exercise of stock options                     222       125,938            -            -            -            126,160
  Repurchase of common stock                   (248)        -            (656,902)        -            -           (657,150)
  Net change in unearned ESOP shares             15         -                -            -          30,318          30,333
                                             ------    ----------     -----------   ----------    ---------     -----------

BALANCES, DECEMBER 31, 1999                   7,882     7,447,240      14,555,324     (718,498)    (176,565)     21,115,383
  Comprehensive income:
   Net income                                   -           -           2,336,196         -            -          2,336,196
   Unrealized gain on investment
     securities net of tax of $310,083          -           -                -         603,569         -            603,569
                                                                                                               ------------
        Total comprehensive income                                                                                2,939,765
  Cash dividend - $0.30 per share               -           -            (236,595)        -            -           (236,595)
  Excess of fair market value over cost
   of leveraged ESOP shares released            -          12,964            -            -            -             12,964
  Exercise of stock options                      50        40,661            -            -            -             40,711
  Repurchase of common stock                   (173)        -            (479,217)        -            -           (479,390)
  Net change in unearned ESOP shares             18         -                -            -          36,966          36,984
                                             ------    ----------     -----------    ---------    ---------     -----------

BALANCES, DECEMBER 31, 2000                  $7,777    $7,500,865     $16,175,708    $(114,929)   $(139,599)    $23,429,822
                                             ======    ==========     ===========    =========    =========     ===========
</TABLE>


See notes to consolidated financial statements.


                                       F-4
<PAGE>



                        TRI-COUNTY FINANCIAL CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                             2000                1999              1998
                                                                         -------------      -------------      -------------
<S>                                                                     <C>                <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                          $  2,336,196       $  2,153,490        $  2,381,847
      Adjustments to reconcile net income to net cash
       provided by operating activities:
        Provision for loan losses                                            360,000            240,000             240,000
        Depreciation and amortization                                        348,110            336,383             301,238
        Amortization of premium/discount on mortgage-
           backed securities and investments                                 (86,909)          (236,443)             33,346
        Deferred income tax benefit                                         (118,000)           (68,000)           (131,000)
        (Increase) decrease  in accrued interest receivable                 (207,138)           183,585            (206,043)
        Decrease in deferred loan fees                                       (31,732)          (122,180)           (130,320)
        Increase in accrued expenses and other liabilities                   911,013            690,273              14,765
        Decrease (increase) in other assets                                  323,234           (276,747)           (539,020)
        Loss (gain) on disposal of premises and equipment                     -                   3,256             (66,813)
        (Gain) loss on sale of investment securities                        (184,704)               605                 391
        Origination of loans held for sale                                (1,966,774)        (9,268,298)        (23,740,825)
        Proceeds from sale of loans held for sale                          2,470,589         11,000,111          23,589,839
        Gain on sales of loans                                               (85,716)          (238,215)           (416,839)
        Gain on sale of foreclosed real estate                                -                  -                  (61,654)
                                                                        ------------       ------------        ------------

           Net cash provided by operating activities                       4,068,169          4,397,820           1,268,912
                                                                        ------------       ------------        ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Net (increase) decrease in interest-bearing deposits with banks       (2,912,035)         1,089,537           1,017,014
    Purchase of investment securities available-for-sale                 (18,235,337)       (74,254,708)        (90,192,914)
    Proceeds from sale, redemption or principal payments
      of investment securities available-for-sale                         19,212,629         71,673,801          87,391,528
    Purchase of investment securities held-to-maturity                      (893,649)        (1,697,520)         (3,110,963)
    Proceeds from maturities or principal payments
      of investment securities held-to-maturity                            1,128,333          1,890,569           2,127,218
    Net purchase of FHLB stock and Federal Reserve Bank stock               (747,850)          (282,350)           (281,350)
    Loans originated or acquired                                         (70,415,720)       (62,475,059)        (54,084,255)
    Principal collected on loans                                          44,707,731         48,239,092          42,431,995
    Purchase of premises and equipment                                      (327,155)          (551,968)           (478,661)
    Proceeds from sales of premises and equipment                             -                  12,150             117,251
    Proceeds from disposition of foreclosed real estate                       -                  -                  825,060
    Acquisition from foreclosed real estate                                   -                (122,910)             -
                                                                        ------------       ------------        ------------

           Net cash used in investing activities                         (28,483,053)       (16,479,366)        (14,238,077)
                                                                        ------------       ------------        ------------
</TABLE>

                                       F-5
<PAGE>

TRI-COUNTY FINANCIAL CORPORATION

Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                                             2000                1999              1998
                                                                         -------------      -------------      -------------
<S>                                                                     <C>                <C>                 <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
    Net increase in deposits                                            $ 12,064,199       $  3,926,436       $ 9,539,287
    Net increase (decrease) in short-term borrowings                         152,525         (3,539,504)        4,414,672
    Dividends paid                                                          (236,595)          (157,034)         (102,498)
    Exercise of stock options                                                 40,711            126,160            41,835
    Net change in unearned ESOP shares                                        49,948             41,734           (12,600)
    Repurchase of common stock                                              (479,391)          (657,150)         (473,636)
    Proceeds from long-term debt                                          30,000,000         35,000,000             -
    Payments of long-term debt                                           (20,000,000)       (20,096,450)         (182,160)
                                                                        ------------       ------------       -----------

           Net cash provided by financing activities                      21,591,397         14,644,192        13,224,900
                                                                        ------------       ------------       -----------

(DECREASE) INCREASE  IN CASH AND
    CASH EQUIVALENTS                                                      (2,823,487)         2,562,646           255,735

CASH AND CASH EQUIVALENTS AT
    BEGINNING OF YEAR                                                      3,469,304            906,658           650,923
                                                                        ------------       ------------       -----------


CASH AND CASH EQUIVALENTS AT
    END OF YEAR                                                         $    645,817       $  3,469,304       $   906,658
                                                                        ============       ============       ===========

Supplementary cash flow information:
    Cash paid during the year for:
      Interest                                                          $  8,737,746        $7,368,462        $ 7,942,034
      Income taxes                                                           925,000         1,288,882          1,502,868
    Transfers from loans receivable to
      foreclosed real estate                                                   -                53,716            763,406
</TABLE>


See notes to consolidated financial statements.

                                       F-6
<PAGE>




                        TRI-COUNTY FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998



1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

            Basis of Presentation and Consolidation
            ---------------------------------------

                 The consolidated  financial  statements include the accounts of
Tri-County Financial Corporation and its wholly owned subsidiary, Community Bank
of Tri-County (the "Bank") and the Bank's wholly owned subsidiaries,  Tri-County
Investment  Corporation and Tri-County  Federal Finance One  (collectively,  the
"Company").  All significant  intercompany balances and transactions between the
parent   corporations   and  their   subsidiaries   have  been   eliminated   in
consolidation. The accounting and reporting policies of the Company conform with
accounting  principles  generally  accepted in the United  States and to general
practices within the banking industry.  Certain reclassifications have been made
to amounts previously reported to conform with classifications made in 2000.

            Use of Estimates
            ----------------

                 In preparing  consolidated  financial  statements in conformity
with accounting  principles generally accepted in the United States,  management
is required to make estimates and assumptions  that affect the reported  amounts
of assets  and  liabilities  as of the date of the  balance  sheet and  reported
amounts of revenues and expenses  during the reporting  period.  Actual  results
could differ from those  estimates.  Material  estimates  that are  particularly
susceptible to significant  change in the near term relate to the  determination
of the  allowance for loan losses,  and the valuation of foreclosed  real estate
and deferred tax assets.

            Nature of Operations
            --------------------

                 The Company, through its bank subsidiary, conducts full service
commercial banking operations throughout the Southern Maryland area. Its primary
financial  deposit  products  are  savings,  transaction,  and term  certificate
accounts.  Its primary  lending  products  are  mortgage  loans on  residential,
construction  and  commercial  real  estate and various  types of  consumer  and
commercial lending.

            Significant Group Concentrations of Credit
            ------------------------------------------

                 Most of the  Company's  activities  take place in the  Southern
Maryland area  comprising  St. Mary's,  Charles,  and Calvert  counties.  Note 2
discusses the types of securities  the Company  invests in. Note 3 discusses the
type of lending  that the  Company  engages  in. The  Company  does not have any
significant concentration to any one customer or industry.


                                       F-7
<PAGE>

            Cash and Cash Equivalents
            -------------------------

                 For purposes of the consolidated  statements of cash flows, the
Company  considers all highly liquid debt instruments  with original  maturities
when purchased of three months or less to be cash equivalents. These instruments
are presented as cash and due from banks.

            Investment Securities
            ---------------------

                 Investment  securities that are held  principally for resale in
the near term are  classified  as trading  assets and are recorded at fair value
with changes in fair value recorded in earnings. Debt securities that management
has the positive intent and ability to hold to maturity are classified as "held-
to-maturity"  and recorded at amortized cost.  Securities not classified as held
to maturity or trading,  including equity  securities with readily  determinable
fair values are classified as  "available-for-sale"  and recorded at fair value,
with  unrealized  gains and losses  excluded  from  earnings and reported net of
deferred  taxes  in  other   comprehensive   income,  a  separate  component  of
stockholders' equity.

                 Purchase  premiums and  discounts  are  recognized  in interest
income using the interest method over the terms of the  securities.  Declines in
the fair value of held-to-maturity and available-for-sale securities below their
cost that are deemed to be other than  temporary  are  reflected  in earnings as
realized losses. Gains and losses on the sales of securities are recorded on the
trade date and are determined using the specific identification method.

                 The  Company  invests  in  Federal  Home Loan Bank and  Federal
Reserve Bank stock which are considered restricted as to marketability.

            Loans Held for Sale
            -------------------

                 Loans  originated and intended for sale in the secondary market
are carried at the lower of cost or estimated fair value, in the aggregate.  Net
unrealized  losses,  if any,  are  recognized  through a valuation  allowance by
charges to income.

            Loans Receivable
            ----------------

                 The Company grants mortgage,  commercial, and consumer loans to
customers.  A substantial  portion of the loan portfolio is represented by loans
throughout  Southern  Maryland.  The ability of the  Company's  debtors to honor
their  contracts  is  dependent  upon  the  real  estate  and  general  economic
conditions in this area.

                 Loans that  management  has the intent and  ability to hold for
the  foreseeable  future or until  maturity or payoff  generally are reported at
their  outstanding  unpaid  principal  balances  adjusted for  charge-offs,  the
allowance for loan losses,  and any deferred fees or costs on originated  loans.
Interest income is accrued on the unpaid  principal  balance.  Loan  origination
fees, net of certain direct origination costs, are deferred and recognized as an
adjustment of the related loan yield using the interest method.


                                       F-8
<PAGE>

                 The accrual of interest on  mortgage  and  commercial  loans is
discontinued  at the time the loan is 90 days  delinquent  unless  the credit is
well secured and in the process of collection. Personal loans are charged-off no
later than 120 days past due. In all cases,  loans are placed on  nonaccrual  or
charged-off  at an earlier  date if  collection  of  principal  or  interest  is
considered doubtful.

                 All  interest  accrued  but not  collected  from loans that are
placed on nonaccrual or charged-off is reversed  against  interest  income.  The
interest on these loans is  accounted  for on the  cash-basis  or  cost-recovery
method,  until  qualifying for return to accrual.  Loans are returned to accrual
status when all principal  and interest  amounts  contractually  due are brought
current and future payments are reasonably assured.

            Allowance for Loan Losses
            -------------------------

                 The  allowance  for loan  losses is  established  as losses are
estimated  to have  occurred  through a  provision  for loan  losses  charged to
earnings. Loan losses are charged against the allowance when management believes
that the uncollectibility of a loan balance is confirmed. Subsequent recoveries,
if any, are credited to the allowance.

                 The  allowance  for loan losses is evaluated on a regular basis
by  management  and  is  based  upon   management's   periodic   review  of  the
collectibility  of the loans in light of historical  experience,  the nature and
volume of the loan portfolio,  adverse situations that may affect the borrower's
ability to repay,  estimated  value of any underlying  collateral and prevailing
economic  conditions.  This  evaluation is inherently  subjective as it requires
estimates  that are  susceptible  to  significant  revision as more  information
becomes available.

                 The  allowance  for loan  losses may  consist  of an  allocated
component and an  unallocated  component.  The  components of allowance for loan
losses  represent an  estimation  done pursuant to either SFAS No. 5 "Accounting
for Contingencies", or SFAS No. 114 "Accounting by Creditors for Impairment of a
Loan".  The allocated  component of the  allowance  for credit  losses  reflects
expected  losses  resulting  from analysis  developed  through  specific  credit
allocations  for individual  loans and historical  loss experience for each loan
category. The specific credit allocations are based on a regular analysis of all
loans over a fixed-dollar amount where the internal credit rating is at or below
a predetermined  classification.  The historical loan loss element is determined
statistically  using a loss migration analysis that examines loss experience and
the related internal gradings of loans charged-off.  The loss migration analysis
is performed  quarterly and loss factors are updated  regularly  based on actual
experience.  The  allocated  component of the  allowance  for credit losses also
includes management's  determination of the amounts necessary for concentrations
and changes in portfolio mix and volume.

                 The unallocated portion, if any, of the allowance is determined
based on  management's  assessment of general  economic  conditions,  as well as
specific  economic  factors  in the  individual  markets  in which  the  Company
operates.  This determination  inherently  involves a higher risk of uncertainty
and considers  current risk factors that may not have yet manifested  themselves
in the  Company's  historical  loss  factors  used to  determine  the  allocated
component of the allowance  and it recognizes  knowledge of the portfolio may be
incomplete.


                                       F-9
<PAGE>

                 A  loan  is  considered   impaired   when,   based  on  current
information  and  events,  it is  probable  that the  Company  will be unable to
collect the  scheduled  payments of principal or interest  when due according to
the contractual terms of the loan agreement. Factors considered by management in
determining  impairment  include  payment  status,  collateral  value,  and  the
probability of collecting  scheduled  principal and interest  payments when due.
Loans that experience  insignificant  payment delays and payment  shortfalls are
reviewed  on  a  case-by-case  basis,  taking  into  consideration  all  of  the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay,  the borrower's prior payment record,  and the
amount  of the  shortfall  in  relation  to the  principal  and  interest  owed.
Impairment is measured on a loan by loan basis for commercial  and  construction
loans by either the present value expected  future cash flows  discounted at the
loan's effective  interest rate, the loan's obtainable market price, or the fair
value of the  collateral  if the loan is collateral  dependent.  Large groups of
smaller   homogeneous   loans  are   collectively   evaluated  for   impairment.
Accordingly,  the Company does not separately  identify  individual consumer and
residential loans for impairment disclosures.

            Mortgage Servicing Assets
            -------------------------

                 Mortgage  servicing  assets are  recognized as separate  assets
when rights are  acquired  through  purchase  or through  sale of  mortgages  or
mortgage  servicing rights.  Capitalized  servicing rights are reported in other
assets and are amortized into noninterest  income in proportion to, and over the
period of, the estimated future net servicing income of the underlying financial
assets.  Servicing assets are evaluated for impairment based upon the fair value
of the rights as  compared  to  amortized  cost.  Impairment  is  determined  by
stratifying  rights by  predominant  characteristics,  when  available,  such as
interest  rates and terms.  Fair value is  determined  using  prices for similar
assets with similar  characteristics,  when available,  or based upon discounted
cash flows using market based  assumptions.  Impairment is recognized  through a
valuation  allowance for an individual stratum, to the extent that fair value is
less than the capitalized amount for the stratum.

            Premises and Equipment
            ----------------------

                 Land is carried at cost.  Premises and equipment are carried at
cost, less accumulated  depreciation  computed by the straight-line  method over
the estimated useful lives of the assets which are as follows:

                 Buildings and improvements                      15 - 50 years
                 Furniture and equipment                          5 - 15 years
                 Automobiles                                           5 years

            Foreclosed Real Estate
            ----------------------

                 Assets acquired  through,  or in lieu of, loan  foreclosure are
held  for  sale  and  are  initially  recorded  at  fair  value  at the  date of
foreclosure,   establishing  a  new  cost  basis.   Subsequent  to  foreclosure,
valuations are  periodically  performed by management and the assets are carried
at the lower of  carrying  amount or fair value less cost to sell.  Revenue  and
expenses from operations and changes in the valuation  allowance are included in
noninterest expense.


                                       F-10
<PAGE>

            Income Taxes
            ------------

                 The Company files a consolidated federal income tax return with
its  subsidiaries.  Deferred tax assets and liabilities are determined using the
liability (or balance  sheet)  method.  Under this method,  the net deferred tax
asset or  liability  is  determined  based on the tax  effects of the  temporary
differences  between the book and tax bases of the various  balance sheet assets
and liabilities and gives current recognition to changes in tax rates and laws.

            Earnings Per Share
            ------------------

                 Basic earnings per common share represents  income available to
common  stockholders  divided by the weighted  average  number of common  shares
outstanding  during the period.  Diluted earnings per share reflects  additional
common  shares that would have been  outstanding  if potential  dilutive  common
shares had been issued,  as well as any  adjustment  to income that would result
from the assumed  issuance.  Potential  common  shares that may be issued by the
Company relate solely to outstanding stock options, and are determined using the
treasury stock method.

            Stock-Based Compensation
            ------------------------

                 Stock based  compensation  is  recognized  using the  intrinsic
value method.  For  disclosure  purposes,  pro forma net income and earnings per
share effects are provided as if the fair value method had been applied.

            New Accounting Standards
            ------------------------

                 Statement of Financial  Accounting Standards No. 133 ("SFAS No.
133"), Accounting for Derivative Instruments and Hedging Activities,  as amended
by SFAS No. 137, Accounting for Derivative  Instruments and Hedging Activities -
Deferral of the Effective  Date of FASB Statement No. 133,  requires  derivative
instruments  be  carried  at fair  value on the  balance  sheet.  The  statement
continues to allow derivative  instruments to be used to hedge various risks and
sets forth specific  criteria to be used to determine when hedge  accounting can
be used.  The statement  also provides for  offsetting  changes in fair value or
cash  flows of both the  derivative  and the  hedged  asset or  liability  to be
recognized in earnings in the same period; however, any changes in fair value or
cash flows that represent the ineffective  portion of a hedge are required to be
recognized in earnings and cannot be deferred.  For derivative  instruments  not
accounted for as hedges,  changes in fair value are required to be recognized in
earnings.

                 The  Company  adopted  the  provisions  of this  statement,  as
amended,  for its quarterly and annual reporting  beginning January 1, 2000, the
statement's  effective  date.  The impact of  adopting  the  provisions  of this
statement  had no  effect  on  the  Company's  financial  position,  results  of
operations  and cash flows because the Company did not engage in any  activities
covered by the relevant statements.


                                       F-11
<PAGE>

2.    INVESTMENT SECURITIES

            The  amortized  cost and estimated  fair values of  securities  with
gross unrealized losses and gains are:
<TABLE>
<CAPTION>
                                                                          December 31, 2000
                                                     ----------------------------------------------------------------------
                                                                         Gross             Gross            Estimated
                                                       Amortized        Unrealized       Unrealized           Fair
                                                         Cost             Gains            Losses             Value
                                                     -----------     -------------     -------------      --------------
<S>                                                  <C>                <C>              <C>               <C>
   Securities available-for-sale:
      Mutual funds                                   $   753,116        $   -            $   -             $   753,116
      Government Sponsored
       Enterprises (GSE's)                             8,000,000            -              88,397            7,911,603
      Asset-backed securities issued by:
       GSE's                                          30,894,088         139,721          456,854           30,576,955
       Other                                          16,890,571          32,527           68,100           16,854,997
                                                     -----------        --------         --------          -----------

   Total debt securities available-for-sale           56,537,775         172,247          613,350           56,096,672

   Corporate equity securities                           509,010         255,314             -                 764,324
                                                     -----------        --------         --------          -----------
   Total securities available-for-sale               $57,046,785        $427,561         $613,350          $56,860,996
                                                     ===========        ========         ========          ===========

   Securities held-to-maturity:
      Obligations of U.S. government
       agencies                                      $   200,000        $   -            $   -             $   200,000
      Other investments                                1,514,367            -                -               1,514,367
                                                     -----------        --------         --------          -----------

   Total securities held-to-maturity                 $ 1,714,367        $   -            $   -             $ 1,714,367
                                                     ===========        ========         ========          ===========
<CAPTION>
                                                                          December 31, 1999
                                                     ----------------------------------------------------------------------
                                                                         Gross             Gross            Estimated
                                                       Amortized        Unrealized       Unrealized           Fair
                                                         Cost             Gains           Losses              Value
                                                     -----------     -------------     -------------      --------------
<S>                                                  <C>                <C>              <C>               <C>
   Securities available-for-sale:
      Mutual funds                                  $    820,125         $   -           $    -              $   820,125
      Government Sponsored
       Enterprises (GSE's)                             8,000,000             -              381,073            7,618,927
   Asset-backed securities issued by:
        GSE's                                         30,126,266          102,799           727,988           29,501,077
        Other                                         18,191,069           42,643           269,637           17,964,075
                                                     -----------         --------        ----------          -----------

   Total debt securities available-for-sale           57,137,460          145,442         1,378,698           55,904,204

   Corporate equity securities                           511,206          239,890             -                  751,096
                                                    ------------         --------        ----------          -----------

   Total securities available-for-sale               $57,648,666         $385,332        $1,378,698          $56,655,300
                                                     ===========         ========        ==========          ===========
</TABLE>

                                       F-12
<PAGE>
<TABLE>
<CAPTION>
                                                                          December 31, 1999
                                                     ----------------------------------------------------------------------
                                                                         Gross             Gross            Estimated
                                                       Amortized        Unrealized       Unrealized           Fair
                                                         Cost              Gains           Losses             Value
                                                     -----------     -------------     -------------      --------------
<S>                                                  <C>                <C>              <C>               <C>
   Securities held-to-maturity:
      Obligations of U.S. government
        securities                                    $  197,719       $   -              $    -              $  197,719
      Other investments                                1,749,053           -                   -               1,749,053
                                                      ----------       ----------          --------           ----------

   Total securities held-to-maturity                  $1,946,772       $   -               $   -              $1,946,772
                                                      ==========       ==========          ========           ==========
</TABLE>

            At December 31, 2000 and 1999, U.S.  Government  obligations  with a
carrying  value of $200,000 and $197,719,  respectively,  were pledged to secure
public unit  deposits  and for other  purposes  required or permitted by law. At
December 31, 2000 securities  with a carrying value of $50,646,000  were pledged
as collateral for advances from the Federal Home Loan Bank of Atlanta.

            The  scheduled  maturities of securities at December 31, 2000 are as
follows:
<TABLE>
<CAPTION>
                                                                 Available-for-Sale               Held to Maturity
                                                           -----------------------------       ---------------------------
                                                            Amortized           Fair             Amortized        Fair
                                                               Cost             Value              Cost           Value
                                                           -------------     -----------       -------------    ----------
            <S>                                             <C>              <C>                 <C>            <C>
            Within one year                                 $   753,116      $   753,116         $  970,716     $  970,716
            Over one year through five years                  1,000,000          999,961            734,103        734,103
            Over five years through ten years                 7,000,000        6,911,642              9,548          9,548
                                                            -----------      -----------         ----------     ----------
                                                              8,753,116        8,664,719          1,714,367      1,714,367
            Mortgage-backed securities                       47,784,659       47,431,953             -              -
                                                            -----------      -----------         ----------     ----------

                                                            $56,537,775      $56,096,672         $1,714,367     $1,714,367
                                                            ===========      ===========         ==========     ==========
</TABLE>

            Proceeds from the sales of investment securities  available-for-sale
during 2000, 1999, and 1998 were $186,900, $200,000, and $408,500, respectively.
Gross gains in the years ending December 31, 2000, 1999, and 1998 were $184,704,
$-0-, and $2,111. Gross losses for the years ending December 31, 2000, 1999, and
1998 were $-0-, $605, and $391, respectively.

            Asset-backed securities are comprised of mortgage-backed  securities
as well as  mortgage  derivative  securities  such  as  collateralized  mortgage
obligations and real estate mortgage investment conduits.  In certain cases, the
Bank will purchase  securities of a single private issuer,  defined as an issuer
which is not a government or government  sponsored  entity,  in total amounts in
excess of 10% of stockholders' equity. The Bank only does so when satisfied that
such  concentrations  pose no threat to the  Bank's  safety  or  soundness.  The
following  summarizes  securities  positions and the quality of private  issuers
where  those  positions  were in  excess  of 10% of  stockholders'  equity as of
December 31, 2000 and 1999:


                                       F-13
<PAGE>
<TABLE>
<CAPTION>


                                                                      2000                              1999
                                                           -------------------------           ----------------------
                                                            Carrying        Moody's            Carrying       Moody's
                                                              Value         Rating              Value         Rating
                                                           ------------     --------           ---------      -------

            <S>                                             <C>               <C>              <C>              <C>
            Country Wide Home Loans                         $ 3,874,885       AAA              $3,581,472       AAA
            GE Capital Mortgage Services                      5,733,391       AAA               3,800,897       AAA
            IMPAC                                             2,064,577       AAA               2,286,222       AAA
                                                            -----------                        ----------

                                                            $11,672,853                        $9,668,591
                                                            ===========                        ==========
</TABLE>

3.    LOANS RECEIVABLE

            Loans  receivable  at  December  31,  2000 and 1999  consist  of the
following:
<TABLE>
<CAPTION>
                                                                                      2000                       1999
                                                                                  ------------              ------------
            <S>                                                                   <C>                       <C>
            Commercial real estate                                                $ 42,226,137              $ 29,947,350
            Residential real estate                                                 67,975,177                66,263,457
            Residential construction                                                17,301,263                17,142,072
            Second mortgage loans                                                   18,637,062                16,691,345
            Lines of credit - commercial                                            15,046,074                10,024,782
            Consumer loans                                                          13,609,934                 9,102,409
                                                                                  ------------              ------------
                                                                                   174,795,647               149,171,415
                                                                                  ------------              ------------

            Less:
              Deferred loan fees                                                       776,028                   807,758
              Allowance for loan losses                                              1,929,531                 1,653,290
                                                                                  ------------              ------------
                                                                                     2,705,559                 2,461,048
                                                                                  ------------              ------------

                       Total                                                      $172,090,088              $146,710,367
                                                                                  ============              ============
</TABLE>

                 The  following  table sets forth the activity in the  allowance
for loan losses:
<TABLE>
<CAPTION>
                                                                      2000                  1999                1998
                                                                   ----------            ----------           -----------

      <S>                                                          <C>                   <C>                  <C>
      Balance, January 1                                           $1,653,290            $1,540,551           $1,310,365

        Add:
          Provision charged to operations                             360,000               240,000              240,000
          Recoveries                                                   12,034                 6,790                  275
        Less:
          Charge-offs                                                  95,793               134,051               10,089
                                                                   ----------            ----------           ----------

      Balance, December 31                                         $1,929,531            $1,653,290           $1,540,551
                                                                   ==========            ==========           ==========
</TABLE>

            No loans included  within the scope of SFAS No. 114 were  identified
as being impaired at December 31, 2000 or 1999 and for the years then ended.


                                       F-14
<PAGE>
            Loans on which the  recognition  of interest has been  discontinued,
which  were  not  included  within  the  scope  of SFAS  No.  114,  amounted  to
approximately  $7,000,  $218,000,  and $269,000 at December 31, 2000,  1999, and
1998,  respectively.  If interest income had been recognized on nonaccrual loans
at their stated rates during 2000,  1999, and 1998,  interest  income would have
been increased by approximately $913,  $27,000,  and $21,000,  respectively.  No
income was recognized for these loans in 2000, 1999 and 1998.

            Included  in loans  receivable  at December  31,  2000 and 1999,  is
$536,005 and $1,379,274 due from officers and directors of the Bank. Activity in
loans outstanding to officers and directors is summarized as follows:
<TABLE>
<CAPTION>
                                                                                     2000                         1999
                                                                                   ----------                 ----------

            <S>                                                                    <C>                        <C>
            Balance, beginning of year                                             $1,379,274                 $1,347,263

            Changes due to retirement or addition
              of directors, net                                                      (916,170)                    -

            New loans made during year                                                131,636                    908,424

            Repayments made during year                                               (58,735)                  (876,413)
                                                                                   ----------                 ----------

            Balance, end of year                                                   $  536,005                 $1,379,274
                                                                                   ==========                 ==========
</TABLE>
4.    LOAN SERVICING

            Loans  serviced for others and not  reflected in the balance  sheets
are  $64,754,825  and  $62,016,171 at December 31, 2000 and 1999,  respectively.
Servicing loans for others generally  consists of collecting  mortgage payments,
maintaining  escrow accounts,  disbursing  payments to investors and foreclosure
processing.  Loan servicing income is recorded on the accrual basis and includes
servicing fees from investors and certain charges collected from borrowers, such
as late payment fees.  Mortgage  servicing rights capitalized during 2000, 1999,
and 1998 totaled $45,365, $142,201, and $438,406, respectively.

            Amortization  of  mortgage   servicing   rights  totaled   $144,000,
$103,097,  and  $61,577,  respectively.  Net  servicing  rights  assets  totaled
$486,956,  $585,591,  and  $546,487  at  December  31,  2000,  1999,  and  1998,
respectively.


                                       F-15
<PAGE>


5.    PREMISES AND EQUIPMENT

            A summary of premises and equipment at December 31, 2000 and 1999 is
as follows:
<TABLE>
<CAPTION>
                                                                                      2000                       1999
                                                                                   ----------                 ----------

               <S>                                                                 <C>                        <C>
               Land                                                                $1,533,412                 $1,439,224
               Building and improvements                                            3,011,967                  2,964,425
               Furniture and equipment                                              2,318,860                  2,133,436
               Automobiles                                                            103,144                    103,144
                                                                                   ----------                 ----------

                 Total cost                                                         6,967,383                  6,640,229
            Less accumulated depreciation                                           2,471,952                  2,123,843
                                                                                   ----------                 ----------

                 Premises and equipment, net                                       $4,495,431                 $4,516,386
                                                                                   ==========                 ==========
</TABLE>

            Certain bank facilities are leased under various  operating  leases.
Rent  expense was  $168,921,  $175,949,  and  $161,167  in 2000,  1999 and 1998,
respectively.  Future minimum rental commitments under noncancellable leases are
as follows:

                                2001                                $179,175
                                2002                                 134,188
                                2003                                 127,188
                                2004                                 127,188
                                2005                                 127,188
                                Thereafter                           193,475
                                                                    --------

                                    Total                           $888,402
                                                                    ========

6.    DEPOSITS

            Deposits outstanding at December 31 consist of:
<TABLE>
<CAPTION>
                                                                                    2000                        1999
                                                                                 ------------               ------------

            <S>                                                                  <C>                        <C>
            Noninterest-bearing demand                                           $ 12,537,649               $ 10,102,479
                                                                                 ------------               ------------
            Interest-bearing:
              Demand                                                               20,551,420                 19,041,881
              Money market deposits                                                44,965,316                 34,669,161
              Savings                                                              18,552,577                 21,427,279
              Certificates of deposit                                              71,199,037                 70,501,000
                                                                                 ------------               ------------

            Total interest-bearing                                                155,268,350                145,639,321
                                                                                 ------------               ------------

                 Total deposits                                                  $167,805,999               $155,741,800
                                                                                 ============               ============
</TABLE>

            The aggregate  amount of time deposits in  denominations of $100,000
or more at  December  31,  2000  and  1999  were  $14,857,000  and  $13,734,000,
respectively.

                                       F-16
<PAGE>

            At December 31, 2000, the scheduled  maturities of time deposits are
as follows:

                               2001                                $51,420,396
                               2002                                 11,031,813
                               2003                                  4,524,591
                               2004                                  2,154,620
                               2005                                  1,682,159
                               Thereafter                              385,458
                                                                   -----------

                                                                   $71,199,037
                                                                   ===========
7.    LONG-TERM DEBT AND OTHER BORROWINGS

            The Bank's long-term debt consists of advances from the Federal Home
Loan Bank of Atlanta. These include fixed rate, adjustable rate, and convertible
advances. The Bank's fixed rate,  non-convertible,  long-term debt of $5,000,000
at  December  31, 2000  matures in 2002.  At  December  31,  2000 and 1999,  the
interest  rates on fixed rate,  non-convertible,  long-term  debt were 6.25% and
5.98%, respectively.

            The Bank's fixed rate, convertible, long-term debt of $30,000,000 at
December 31, 2000  matures  through  2010.  This debt is callable by the issuer,
after an initial period ranging from three months to five years.  These advances
become  callable on dates  ranging from 2001 to 2005.  Depending on the specific
instrument,  the instrument is callable  either  continuously  after the initial
period  (Bermuda  option)  or  only  at  the  date  ending  the  initial  period
(European). At December 31, 2000 and 1999 the interest rates on this debt ranged
from 4.67% to 6.25% and 4.92% and 5.13%, respectively.  At December 31, 2000 and
1999 the weighted average interest rates on fixed rate,  convertible,  long-term
debt were 5.63% and 4.99%, respectively.

            The Bank's  adjustable  rate,  long-term  debt at December  31, 2000
matures in 2002. This debt adjusts  quarterly based upon a margin over the three
month London  Interbank Offer Rate ("LIBOR").  Margins range from 29 to 31 basis
points.  The debt has minimum  interest  rates ranging from 5.31% to 5.51%.  The
debt has maximum  rates  ranging  from 7.50% to 7.81%.  At December 31, 2000 and
1999, the interest rates on adjustable rate, long-term debt ranged from 6.94% to
6.96% and 5.88% to 6.18%,  respectively.  At  December  31,  2000 and 1999,  the
weighted  average rate on adjustable  rate,  long-term debt was 6.94% and 6.02%,
respectively.

            The contractual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
                                                                December 31,
                                                                     2000                                          1999
                                            -----------------------------------------------------------        -----------
                                              Fixed       Adjustable       Fixed Rate
                                               Rate          Rate          Convertible         Total              Total
                                            ----------    ----------       -----------      -----------        -----------
   <S>                                      <C>           <C>              <C>              <C>                <C>
   Due in 2002                              $5,000,000    $6,400,000       $     -          $11,400,000        $11,400,000
   Due in 2004                                  -               -            5,000,000        5,000,000             -
   Due in 2005                                  -               -           10,000,000       10,000,000         10,000,000
   Thereafter                                   -               -           15,000,000       15,000,000         10,000,000
                                            ----------    ----------       -----------      -----------        -----------
   Total long-term debt                     $5,000,000    $6,400,000       $30,000,000      $41,400,000        $31,400,000
                                            ==========    ==========       ===========      ===========        ===========
</TABLE>

                                       F-17
<PAGE>


            The Bank also has daily advances outstanding which are classified as
short-term borrowings.  These advances are repayable at the Bank's option at any
time and reprice daily.  These advances  totaled  $12,975,000  and $3,000,000 at
December 31, 2000 and 1999, respectively.

            Under the terms of an Agreement for Advances and Security  Agreement
with Blanket Floating Lien, the Company maintains eligible collateral consisting
of 1 - 4 unit residential first mortgage loans,  discounted at 75% of the unpaid
principal  balance,  equal to 100% at December  31, 2000 and 1999,  of its total
outstanding  long and short term Federal Home Loan Bank advances.  These amounts
were $65,169,000 and $59,200,000 at December 31, 2000 and 1999, respectively. In
addition to eligible  mortgage loans, the Bank has also pledged its Federal Home
Loan Bank stock of  $2,961,300  and  $2,220,000  at December  31, 2000 and 1999,
respectively,  and  securities  with a carrying value of $50,646,000 at December
31, 2000, as collateral for these advances.

            Other  short-term  borrowings  consists of notes payable to the U.S.
Treasury,  which are Federal treasury tax and loan deposits accepted by the Bank
and  remitted on demand to the Federal  Reserve  Bank.  At December 31, 2000 and
1999, such borrowings  were $575,903 and $398,378,  respectively.  The Bank pays
interest on these  balances at a slight  discount to the Federal funds rate. The
notes  are  secured  by  investment   securities   with  an  amortized  cost  of
approximately   $912,535  and   $1,112,406   at  December  31,  2000  and  1999,
respectively.

            Information relating to short-term borrowings is as follows:
<TABLE>
<CAPTION>
                                                                                               At or for the
                                                                                            Year Ended December 31,
                                                                                       -------------------------------
                                                                                          2000                 1999
                                                                                       -----------         -----------
            <S>                                                                        <C>                 <C>
            Short-term borrowings outstanding at end of period                         $13,550,903         $13,398,378
            Weighted average rate on outstanding short-term                                   6.35%               5.55%
            Maximum oustanding short-term debt at any month end                         35,100,000          16,500,000
            Average outstanding short-term debt                                         25,810,000           9,129,000
            Approximate weighted average rate paid on short-term debt                         6.62%               5.39%
</TABLE>

8.    INCOME TAXES

            Income tax expense was as follows:
<TABLE>
<CAPTION>
                                                                      2000                1999                  1998
                                                                   ----------           ----------           ----------
            <S>                                                    <C>                  <C>                  <C>
            Current:
               Federal                                             $1,307,000           $  973,000           $1,317,000
               State                                                   18,000              109,000              271,000
                                                                   ----------           ----------           ----------
                                                                    1,325,000            1,082,000            1,588,000
                                                                   ----------           ----------           ----------

            Deferred:
               Federal                                                (97,000)             (56,000)            (107,000)
               State                                                  (21,000)             (12,000)             (24,000)
                                                                   ----------           ----------           ----------
                                                                     (118,000)             (68,000)            (131,000)
                                                                   ----------           ----------           ----------
            Total income tax expense                               $1,207,000           $1,014,000           $1,457,000
                                                                   ==========           ==========           ==========
</TABLE>

                                       F-18
<PAGE>

            Total  income tax  expense  differed  from the  amounts  computed by
applying the federal  income tax rate of 34% to income  before income taxes as a
result of the following:
<TABLE>
<CAPTION>
                                                    2000                        1999                          1998
                                         --------------------------     -----------------------      -----------------------
                                                        Percent of                  Percent of                    Percent of
                                                         Pretax                      Pretax                         Pretax
                                           Amount         Income         Amount       Income           Amount       Income
                                         ----------   ------------      ----------  -----------      ----------   ----------
<S>                                      <C>              <C>           <C>            <C>           <C>             <C>
Expected income tax expense at
  federal tax rate                       $1,205,000       34.0%         $1,077,000     34.0%         $1,307,000      34.0%
State taxes, net of federal benefit           -             .0              62,000      1.9             178,000       4.6
Nondeductible expenses                       14,000         .4              14,000       .4               5,400        .1
Deduction for stock options exercised         -             .0             (90,000)    (2.9)               -           .0
Other                                       (12,000)       (.3)            (49,000)    (1.4)            (33,400)      (.8)
                                         ----------       ----          ----------     ----          ----------      ----
      Total income tax expense           $1,207,000       34.1%         $1,014,000     32.0%         $1,457,000      37.9%
                                         ==========       ====          ==========     ====          ==========      ====
</TABLE>

            The net  deferred  tax  assets in the  accompanying  balance  sheets
include the following components:
<TABLE>
<CAPTION>
                                                                                       2000                       1999
                                                                                     --------                   --------
            <S>                                                                      <C>                        <C>
            Deferred tax assets:
               Deferred fees                                                         $ 48,073                   $ 74,199
               Allowance for loan losses                                              577,486                    423,906
               Deferred compensation                                                   83,510                     78,168
               Unrealized loss on investment
                 securities available-for-sale                                         52,000                    362,083
                                                                                     --------                   --------

                   Total deferred assets                                              761,069                    938,356
                                                                                     --------                   --------

            Deferred tax liabilities:
               FHLB stock dividends                                                   152,896                    152,896
               Depreciation                                                            97,708                     83,633
                                                                                     --------                   --------

                   Total deferred liabilities                                         250,604                    236,529
                                                                                     --------                   --------

            Net deferred assets                                                      $510,465                   $701,827
                                                                                     ========                   ========
</TABLE>

            Retained earnings at December 31, 2000,  include  approximately $1.2
million of bad debt  deductions  allowed for federal  income tax  purposes  (the
"base year tax reserve") for which no deferred  income tax has been  recognized.
If, in the future,  this  portion of  retained  earnings is used for any purpose
other than to absorb bad debt losses,  it would  create  income for tax purposes
only and  income  taxes  would be  imposed  at the then  prevailing  rates.  The
unrecorded income tax liability on the above amount was  approximately  $458,000
at December 31, 2000.


                                       F-19
<PAGE>



            Prior  to  January  1,  1996,  the  Bank  computed  its tax bad debt
deduction  based upon the  percentage of taxable income method as defined by the
Internal  Revenue  Code.  The bad debt  deduction  allowable  under this  method
equaled 8% of taxable income determined without regard to the bad debt deduction
and with certain  adjustments.  The tax bad debt deduction differed from the bad
debt expense used for financial accounting purposes.

            In August 1996,  the Small  Business Job  Protection Act (the "Act")
repealed the  percentage of taxable  income  method of accounting  for bad debts
effective for years beginning after December 31, 1995. The Act required the Bank
to change  its  method of  computing  reserves  for bad debts to the  experience
method. This method is available to banks with assets less than $500 million and
allows  the Bank to  maintain a tax  reserve  for bad debts and to take bad debt
deductions for reasonable  additions to the reserve. As a result of this change,
the Bank has to  recapture  into income a portion of its  existing  tax bad debt
reserve. This recapture occurs ratably over a six-taxable year period, beginning
with the 1998 tax year. For financial  reporting  purposes,  this recapture does
not result in additional tax expense as the Bank  adequately  provided  deferred
taxes in prior  years.  Furthermore,  this  change  does not require the Bank to
recapture its base year tax reserve.

9.    COMMITMENTS AND CONTINGENCIES

            The Company is party to financial instruments with off-balance-sheet
risk in the  normal  course  of  business  to meet  the  financing  needs of its
borrowers.  These financial  instruments are commitments to extend credit. These
instruments may, but do not necessarily,  involve, to varying degrees,  elements
of credit  and  interest  rate risk in excess of the  amount  recognized  in the
balance  sheets.  The  Company's  exposure  to  credit  loss  in  the  event  of
nonperformance by the other party to the financial  instrument is represented by
the contractual  amount of those  instruments.  The Company uses the same credit
policies in making commitments as it does for on-balance-sheet loans receivable.

            As of  December  31, 2000 and 1999,  in addition to the  undisbursed
portion  of  loans   receivable   approximately   $3,708,000   and   $3,763,000,
respectively,   the  Company  had  outstanding  loan  commitments  approximating
$995,000 and $530,512, respectively.

            Standby letters of credit written are conditional commitments issued
by the Company to  guarantee  the  performance  of a customer to a third  party.
These  guarantees  are  issued  primarily  to  support  construction   borrowing
arrangements.  The  credit  risk  involved  in  issuing  letters  of  credit  is
essentially the same as that involved in extending loan facilities to customers.
The Company  holds cash or a secured  interest in real estate as  collateral  to
support those  commitments  for which  collateral is deemed  necessary.  Standby
letters of credit outstanding  amounted to $6,255,640 and $5,556,000 at December
31, 2000 and 1999, respectively.

10.   STOCK OPTION AND INCENTIVE PLAN

            The Company  has a stock  option and  incentive  plan to attract and
retain  personnel  and provide  incentive to employees to promote the success of
the business. At December 31, 2000, 120,946 shares of stock have been authorized
for grants of options for this plan. The exercise  price for options  granted is
set at the discretion of the Board, but is not less than the market value of the
shares as of the date of grant.  An option's  maximum  term is ten years and the
options generally vest immediately upon issuance.


                                       F-20
<PAGE>

            The Company  applies APB Opinion 25 and related  Interpretations  in
accounting for the stock option plan. Accordingly, no compensation cost has been
recognized.  Had  compensation  cost for the  Company's  stock  option plan been
determined  based upon fair values at the grant dates for awards  under the plan
consistent with the method  prescribed by SFAS No. 123, the Company's net income
and  earnings  per share  would  have  been  adjusted  to the pro forma  amounts
indicated below:
<TABLE>
<CAPTION>
                                                                                2000                        1999
                                                                              ----------                 ----------
      <S>                                    <C>                              <C>                        <C>
      Net income                             As reported                      $2,336,119                 $2,153,490
                                             Pro forma                         2,270,079                  1,990,645

      Basic earnings per share               As reported                          2.98                      2.75
                                             Pro forma                            2.89                      2.54

      Diluted earnings per share             As reported                          2.85                      2.59
                                             Pro forma                            2.76                      2.39
</TABLE>

            For the purpose of computing the pro forma amounts  indicated above,
the fair  value of each  option  on the date of  grant is  estimated  using  the
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions used for the grants:
<TABLE>
<CAPTION>
                                                                                    2000                 1999
                                                                                  --------             ---------

            <S>                                                                    <C>                  <C>
            Dividend yield                                                          0.75%                0.75%
            Expected volatility                                                    15.00%               15.00%
            Risk-free interest rate                                                 5.85%                5.72%
            Expected lives (in years)                                                 10                   10
            Weighted average fair value                                           $12.28               $11.51
</TABLE>

The following tables summarize activity in the plan:
<TABLE>
<CAPTION>
                                                     2000                     1999                        1998
                                             ---------------------   ----------------------       --------------------
                                                         Weighted                  Weighted                   Weighted
                                                         Average                   Average                    Average
                                                         Exercise                  Exercise                   Exercise
                                             Shares       Price       Shares        Price         Shares       Price
                                             ------      --------     ------       --------       ------      --------

<S>                                          <C>          <C>         <C>           <C>           <C>        <C>
Outstanding at beginning of year             91,184       $12.61      101,818       $12.61        85,566     $ 9.19
Granted                                       9,179        26.66       14,143        25.24        22,006      24.18
Exercised                                    (7,790)       14.61      (24,369)        7.61        (7,627)      5.69
Recission of exercise                           -            .00          -            .00         1,873       6.50
Forfeitures                                  (1,537)       25.25         (408)       26.60          -           .00
                                             ------                   -------                    -------

Outstanding at end of year                   91,036        16.89       91,184        15.85       101,818      12.61
                                             ======                   =======                    =======
</TABLE>

                                       F-21
<PAGE>
<TABLE>
<CAPTION>
                                 Options Outstanding                               Options Exercisable
                         -------------------------------------             -------------------------------------
                                                  Weighted                                         Weighted
                            Number               Remaining                     Number               Average
                         Outstanding             Contractual                 Exercisable            Exercise
                           12/31/00                 Life                      12/31/00                Price
                         ------------          ---------------             -------------          --------------

                              <S>                  <C>                           <C>                  <C>
                              50,279               5 years                       50,279               $10.28
                                 775               7 years                          775                21.51
                              26,128               8 years                       26,128                24.31
                               8,151               9 years                        8,151                26.60
                               5,703              10 years                        5,703                26.70
</TABLE>

11.   EMPLOYEE BENEFIT PLANS

            The Bank has an Employee  Stock  Ownership  Plan (ESOP) which covers
substantially all of the Bank's employees. The ESOP acquires stock of the Bank's
parent corporation,  Tri-County Financial Corporation.  The Company accounts for
its ESOP in  accordance  with AICPA  Statement  of Position  93-6.  Accordingly,
unencumbered  shares held by the ESOP are treated as  outstanding  in  computing
earnings  per share.  Shares  issued to the ESOP but pledged as  collateral  for
loans  obtained  to  provide  funds to acquire  the  shares  are not  treated as
outstanding  in  computing  earnings  per share.  Dividends  on ESOP  shares are
recorded as a reduction of retained  earnings.  The ESOP may acquire in the open
market up to 195,700 shares. At December 31, 2000, the Plan owns 60,035 shares.

            The  Company  also has a 401(k)  plan.  Employee  contributions  are
matched by the Bank at a ratio  determined  annually by the Board of  Directors,
currently one-half of an employee's 6% elective deferral. All employees who have
completed  one year of service and have reached the age of 21 are covered  under
this defined  contribution plan.  Contributions are determined at the discretion
of management and the Board of Directors. For the years ended December 31, 2000,
1999, and 1998, the Company charged $175,000,  $342,000,  and $186,000,  against
earnings to fund the Plans.

12.   DIVIDENDS

            On January  31,  2001,  the Board of  Directors  declared a $.40 per
share cash dividend to be  distributed  on April 9, 2001 to holders of record as
of March 26, 2001. On February 3, 2000,  the Board of Directors  declared a $.30
per share  cash  dividend  which was  distributed  April 14,  2000 to holders of
record as of March  14,  2000.  On  January  22,  1999,  the Board of  Directors
declared a $.20 per share cash dividend which was distributed  April 17, 2000 to
holders of record March 17, 2000.

13.   REGULATORY MATTERS

            The Company and the Bank are subject to various  regulatory  capital
requirements administered by the federal and state banking agencies.  Failure to
meet minimum capital  requirements can initiate  certain  mandatory and possible
additional discretionary actions by regulators that, if undertaken, could have a
direct  material  effect on the Company's and the Bank's  financial  statements.
Under  capital  adequacy  guidelines  and the  regulatory  framework  for prompt
corrective  action,  the Bank must meet specific capital guidelines that involve
quantitative   measures   of  the  Bank's   assets,   liabilities   and  certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's  capital  amounts  and  classification  are also  subject to  qualitative
judgments  by the  regulators  about  components,  risk  weightings,  and  other
factors.


                                       F-22
<PAGE>
            Quantitative  measures  established  by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts and ratios
(set forth in the table  below) of tangible  and core capital (as defined in the
regulations)  to total adjusted assets (as defined),  and of risk-based  capital
(as defined) to risk-weighted assets (as defined).  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 most recent  notification  from the
Federal Reserve  categorized the Bank as  well-capitalized  under the regulatory
framework for prompt corrective  action. To be categorized as  well-capitalized,
the Bank must maintain minimum total risk-based,  Tier 1 risk-based,  and Tier 1
leverage  ratios as set forth in the table.  There are no  conditions  or events
since that notification  that management  believes have changed the Company's or
the Bank's category.

            The Company's and the Bank's actual  capital  amounts and ratios for
2000 and 1999 are presented in the tables below:  (dollar amounts in thousands)
<TABLE>
<CAPTION>

                                                                                                     To be Considered
                                                                                                     Well Capitalized
                                                                         Required for                 Under Prompt
                                                                       Capital Adequacy             Corrective Action
                                                  Actual                   Purposes                    Provisions
                                         -------------------         -------------------         --------------------
                                         Amount        Ratio         Amount      Ratio           Amount        Ratio
                                         ------      -------         ------      ------          ------       -------
<S>                                      <C>          <C>            <C>          <C>            <C>           <C>
At December 31, 2000:
   Total capital (to risk-
   weighted assets):
     The Company                         $25,475      13.53%         $15,069      8.0%
     The Bank                             25,227      13.40%          15,069      8.0%           $18,837       10.0%

   Tier 1 capital (to risk-
   weighted assets):
     The Company                          23,545      12.50%           7,535      4.0%
     The Bank                             23,182      12.31%           7,535      4.0%            11,302        6.0%

   Tier 1 capital (to
   average assets):
     The Company                          23,545       9.61%           9,803      4.0%
     The Bank                             23,182       9.46%           9,803      4.0%            12,254        5.0%

At December 31, 1999:
   Total capital (to risk-
   weighted assets):
     The Company                          23,486      17.23%         $10,906      8.0%
     The Bank                             22,936      16.82%          10,906      8.0%            13,633       10.0%

   Tier 1 capital (to risk-
   weighted assets):
     The Company                          21,833      16.02%           5,453      4.0%
     The Bank                             21,283      15.61%           5,453      4.0%             8,179        6.0%

   Tier 1 capital (to
   average assets):
     The Company                          21,833       9.86%           8,857      4.0%
     The Bank                             21,283       9.61%           8,857      4.0%            11,072        5.0%

</TABLE>

                                       F-23
<PAGE>


14.   EARNINGS PER SHARE

            The  calculations  of basic and  diluted  earnings  per share are as
follows:
<TABLE>
<CAPTION>
                                                                              2000            1999               1998
                                                                          ------------    -------------      -------------
<S>                                                                        <C>              <C>               <C>
Basic earnings per share:
   Net income                                                              $2,336,196       $2,153,490        $2,381,847
   Average common shares outstanding                                          784,605          782,950           793,458
   Net income per common share - basic                                          $2.98            $2.75             $3.00

Diluted earnings per share:
   Net income                                                               2,336,196        2,153,490         2,057,204
   Average common shares outstanding                                          784,605          782,950           811,694
   Stock option adjustment                                                     36,534           49,333            55,809
   Average common shares outstanding - diluted                                821,139          832,283           867,503
   Net income per common share - diluted                                        $2.85            $2.59             $2.37
</TABLE>

15.   FAIR VALUE OF FINANCIAL INSTRUMENTS

            The estimated fair value amounts have been determined by the Company
using available  market  information and  appropriate  valuation  methodologies.
However,  considerable judgment is necessarily required to interpret market data
to develop the estimates of fair value.  Accordingly,  the  estimates  presented
herein are not  necessarily  indicative of the amounts the Company could realize
in a current market  exchange.  The use of different market  assumptions  and/or
estimation  methodologies may have a material effect on the estimated fair value
amounts.  Therefore,  any  aggregate  unrealized  gains or losses  should not be
interpreted  as a forecast of future  earnings or cash flows.  Furthermore,  the
fair values disclosed  should not be interpreted as the aggregate  current value
of the Company.
<TABLE>
<CAPTION>
                                                        December 31, 2000                       December 31, 1999
                                                 --------------------------------        ---------------------------------
                                                                    Estimated                                   Estimated
                                                    Carrying            Fair                Carrying             Fair
                                                    Amount             Value                Amount               Value
                                                 ------------      -------------         ------------        -------------
<S>                                             <C>               <C>                    <C>                  <C>
Assets:
   Cash and cash equivalents                    $      645,817    $      645,817         $   3,469,304        $  3,469,304
   Interest-bearing deposits
      with banks                                     5,975,314         5,975,314             3,063,279           3,063,279
   Investment securities and
      stock in FHLB and FRB                         61,610,913        61,610,913            61,883,138          60,889,772
   Loans receivable, net                           174,795,647       175,551,335           146,710,367                -
   Loans held for sale                                 355,000           355,000               773,099             773,099
Liabilities:
   Savings, NOW and money
      market accounts                               96,251,723        96,251,723            84,530,443          84,530,443
   Time certificates                                71,199,037        71,209,125            70,501,000          70,439,300
   Long-term debt and other borrowed funds          54,950,903        55,187,033            44,798,378          46,058,410
</TABLE>

        At  December  31,  2000 and  1999,  the  Company  had  outstanding  loan
commitments  and standby  letters of credit of $6.4  million  and $6.1  million,
respectively.  Based on the short-term lives of these  instruments,  the Company
does not believe that the fair value of these instruments differs  significantly
from their carrying values.



                                       F-24
<PAGE>
            Valuation Methodology
            ---------------------

                 Cash and Cash Equivalents - For cash and cash equivalents,  the
carrying amount is a reasonable estimate of fair value.

                 Investment  Securities - Fair values are based on quoted market
prices or dealer quotes.  If a quoted market price is not available,  fair value
is estimated using quoted market prices for similar securities.

                 Mortgage-Backed  Securities  - Fair  values are based on quoted
market prices or dealer quotes. If a quoted market price is not available,  fair
value is estimated using quoted market prices for similar securities.

                 Loans  Receivable  and  Loans  Held for  Sale - For  conforming
residential  first-mortgage  loans,  the  market  price for loans  with  similar
coupons and maturities was used. For nonconforming loans with maturities similar
to conforming  loans,  the coupon was adjusted for credit risk.  Loans which did
not have quoted market prices were priced using the discounted cash flow method.
The discount rate used was the rate currently offered on similar products. Loans
priced using the discounted cash flow method included  residential  construction
loans,  commercial  real estate loans,  and consumer  loans.  The estimated fair
value  of  loans  held for  sale is  based  on the  terms  of the  related  sale
commitments.

                 Deposits  -  The  fair  value  of  checking  accounts,   saving
accounts,  and money  market  accounts  was the amount  payable on demand at the
reporting date.

                 Time  Certificates  - The fair value was  determined  using the
discounted  cash flow method.  The discount rate was equal to the rate currently
offered on similar products.

                 Long-Term  Debt and Other  Borrowed  Funds - These were  valued
using the discounted  cash flow method.  The discount rate was equal to the rate
currently offered on similar borrowings.

                 The  fair  value  estimates   presented  herein  are  based  on
pertinent  information available to management as of December 31, 2000 and 1999.
Although management is not aware of any factors that would significantly  affect
the estimated  fair value  amounts,  such amounts have not been  comprehensively
revalued  for  purposes  of these  financial  statements  since  that  date and,
therefore,  current  estimates of fair value may differ  significantly  from the
amount presented herein.


                                       F-25
<PAGE>



16.   CONDENSED FINANCIAL STATEMENTS - PARENT COMPANY ONLY

            Financial  information   pertaining  only  to  Tri-County  Financial
Corporation is as follows:

      Balance Sheets:
<TABLE>
<CAPTION>
                                                           ASSETS

                                                                                             2000                 1999
                                                                                          -----------          -----------

       <S>                                                                                <C>                  <C>
       Cash - noninterest-bearing                                                         $   204,937          $       151
       Cash - interest-bearing                                                                280,000              719,068
       Accounts receivable                                                                     79,645               40,247
       Investment securities available-for-sale                                                34,679               28,002
       Investment in wholly owned subsidiary                                               23,067,087           20,564,441
                                                                                          -----------          -----------

            TOTAL ASSETS                                                                  $23,666,348          $21,351,909
                                                                                          ===========          ===========

<CAPTION>
                                            LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                                             2000                 1999
                                                                                          -----------          -----------

       <S>                                                                                <C>                  <C>
   Current liabilities                                                                    $   236,526          $   236,526

   Stockholders' equity:
     Common stock                                                                               7,777                7,882
     Surplus                                                                                7,500,865            5,968,801
     Retained earnings                                                                     16,175,708           16,033,763
     Unearned ESOP shares                                                                    (139,599)            (176,565)
     Accumulated other comprehensive income                                                  (114,929)            (718,498)
                                                                                          -----------          -----------
            TOTAL LIABILITIES AND STOCKHOLDERS'
               EQUITY                                                                     $23,666,348          $21,351,909
                                                                                          ===========          ===========
</TABLE>
   Condensed Statements of Income:
<TABLE>
<CAPTION>

                                                                                    Year Ended December 31,
                                                                         ---------------------------------------------
                                                                            2000            1999              1998
                                                                         -----------      ----------        ----------

<S>                                                                      <C>              <C>               <C>
   Dividends from subsidiary                                             $  500,000       $1,000,000        $  750,000
   Interest income                                                           27,510           42,675            13,882
   Loss on sale of investment securities                                       -                (605)             (391)
   Amortization and miscellaneous expenses                                  (90,391)         (97,844)          (76,671)
                                                                         ----------       ----------        ----------

   Income (loss) before income taxes and equity
     in undistributed net income of subsidiary                              437,119          944,226           686,820
   Federal and state income tax benefit                                        -              21,000            10,350
   Equity in undistributed net income of subsidiary                       1,899,077        1,188,264         1,684,677
                                                                         ----------       ----------        ----------

   NET INCOME                                                            $2,336,196       $2,153,490        $2,381,847
                                                                         ==========       ==========        ==========
</TABLE>

                                       F-26
<PAGE>



Condensed Statements of Cash Flows:
<TABLE>
<CAPTION>
                                                                            2000            1999              1998
                                                                         ----------      ----------        ----------
<S>                                                                      <C>             <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                            $2,336,196      $2,153,490        $2,381,847
   Adjustments to reconcile net income to net
      cash provided by operating activities:
      Increase in investment in wholly owned subsidiary                  (1,899,077)     (1,188,264)       (1,684,677)
      Loss on sale of investment securities                                    -                605               391
      Increase in current assets                                            (39,398)        (28,513)          (10,350)
      Increase in current liabilities                                          -            186,893             9,696
                                                                         ----------      ----------        ----------

            Net cash provided by operating activities                       397,721       1,124,211           696,907
                                                                        -----------      ----------        ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Net (increase) decrease interest-bearing deposits                        439,068        (677,177)           77,829
   Purchase of investment securities available-for-sale                      (6,677)         (3,637)         (633,861)
   Maturity or redemption of investment
      securities available-for-sale                                            -            200,000           408,500
                                                                         ----------      ----------        ----------

            Net cash provided (used) by investing activities                432,391        (480,814)         (147,532)
                                                                         ----------      ----------        ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Dividends paid                                                          (236,595)       (157,034)         (102,498)
   Exercise of stock options                                                 53,676         126,160            41,835
   Net change in ESOP loan                                                   36,984          41,734           (12,600)
   Redemption of common stock                                              (479,391)       (657,150)         (473,636)
                                                                         ----------      ----------        ----------

            Net cash used in financing activities                          (625,326)       (646,290)         (546,899)
                                                                         ----------      ----------        ----------

INCREASE (DECREASE) IN CASH                                                 204,786          (2,893)            2,476

CASH AT BEGINNING OF YEAR                                                       151           3,044               568
                                                                         ----------      ----------        ----------

CASH AT END OF YEAR                                                      $  204,937      $      151        $    3,044
                                                                         ==========      ==========        ==========
</TABLE>


                                       F-27
<PAGE>

17.   QUARTERLY FINANCIAL RESULTS (UNAUDITED)

           A summary of selected  consolidated  quarterly financial data for the
two years ended December 31, 2000 is reported as follows:
<TABLE>
<CAPTION>
                                                   2000                                             1999
                              ----------------------------------------------    ------------------------------------------------
                               Fourth      Third        Second       First        Fourth      Third      Second       First
                               Quarter     Quarter      Quarter     Quarter      Quarter     Quarter     Quarter      Quarter
                               -------     -------      -------     --------     -------     -------     -------      -------
<S>                           <C>         <C>         <C>         <C>           <C>         <C>         <C>          <C>

Interest and dividend income  $4,829,400  $4,637,439  $4,487,475  $4,335,248    $4,027,289  $3,954,875  $3,953,604   $3,917,562
Interest expenses              2,619,502   2,470,503   2,289,364   2,048,121     1,992,563   1,873,664   1,805,625    1,769,327
                              ----------  ----------  ----------  ----------    ----------  ----------  ----------   ----------

Net interest income            2,209,898   2,166,936   2,198,111   2,287,127     2,034,726   2,081,211   2,147,979    2,148,235
Provision for loan loss           90,000      90,000      90,000      90,000        60,000      60,000      60,000       60,000
                              ----------  ----------  ----------  ----------    ----------  ----------  ----------   ----------
Net interest income after
  provision for loan loss      2,119,898   2,076,936   2,108,111   2,197,127     1,974,726   2,021,211   2,087,979    2,088,235
Noninterest income               470,936     300,658     309,275     292,119       302,599     282,440     341,283      345,142
Noninterest expense            1,580,431   1,553,978   1,631,991   1,565,464     1,838,168   1,533,172   1,574,817    1,329,968

Income before income taxes     1,010,403     823,616     785,395     923,782       439,157     770,479     854,445    1,103,409
Provision for income taxes       352,000     279,000     276,000     300,000         7,248     271,752     315,000      420,000
Net income                       658,403     544,616     509,395     623,782       431,909     498,727     539,445      683,409

Earnings per common share:
   Basic                           $0.85       $0.69       $0.65       $0.79         $0.56       $0.72       $0.60       $0.87
                                   =====       =====       =====       =====         =====       =====       =====       =====

   Diluted                         $0.82       $0.66       $0.62       $0.75         $0.54       $0.67       $0.57       $0.81
                                   =====       =====       =====       =====         =====       =====       =====       =====

</TABLE>


                                       F-28

<PAGE>

                                          SIGNATURES

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

                                    TRI-COUNTY FINANCIAL CORPORATION


Date: March 28, 2001                By: /s/ Michael L. Middleton
                                        ----------------------------------------
                                        Michael L. Middleton
                                        President and Chief Executive Officer
                                        (Duly Authorized Representative)


         Pursuant to the  requirement  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.


By: /s/ Michael L. Middleton                By: /s/ William J. Pasenelli
    -------------------------------             --------------------------------
    Michael L. Middleton                        William J. Pasenelli
    (Director, President and Chief              (Chief Financial and Accounting
     Executive Officer)                         Officer

Date: March 28, 2001                        Date: March 28, 2001


By: /s/ C. Marie Brown                      By: /s/ Herbert N. Redmond, Jr.
    -------------------------------             --------------------------------
    C. Marie Brown                              Herbert N. Redmond, Jr.
    (Director and Chief Operating Officer)      (Director)

Date: March 28, 2001                        Date: March 28, 2001


By: /s/ Beaman Smith                        By: /s/ W. Edelen Gough, Jr.
    -------------------------------             --------------------------------
    Beaman Smith                                W. Edelen Gough, Jr.
    (Director and Secretary/Treasurer)          (Director)

Date: March 28, 2001                        Date: March 28, 2001


By: /s/ Louis P. Jenkins, Jr.               By: /s/ Catherine A. Askey
    -------------------------------             --------------------------------
    Louis P. Jenkins, Jr.                       Catherine A. Askey
    (Director)                                  (Director)

Date: March 28, 2001                        Date: March 28, 2001