U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-KSB

[X]  Annual report under Section 13 or 15(d) of the  Securities  Exchange Act of
     1934

     For the fiscal year ended December 31, 2000

[_]  Transition report under Section 13 or 15(d) of the Securities  Exchange Act
     of 1934

     For the transition period from _______________ to ________________

Commission file number: 0-28360

                            IBW Financial Corporation
                 (Name of Small Business Issuer in its Charter)


       District of Columbia                             52-1943477
  (State or other jurisdiction              (I.R.S. Employer Identification No.)
of incorporation or organization)


                  4812 Georgia Avenue, NW, Washington, DC 20011
               (Address of Principal Executive Offices) (Zip Code)


Issuer's Telephone Number:  (202) 722-2000

Securities registered under Section 12(b) of the Act:  None

Securities registered under Section 12(g) of the Act:  Common Stock, par value
$1.00 per share

Check whether the Issuer;  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant  was required to file such reports;  and (2) has been
subject to such filing requirements for the past 90 days.

Yes [X]   No [_]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will 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-KSB or any
amendment to this Form 10-KSB. [_]

The  issuer's  revenues  for the  fiscal  year  ended  December  31,  2000  were
approximately $23,295,000.

The aggregate market value of the outstanding Common Stock held by nonaffiliates
as of March 5, 2001 was approximately $4,832,115 (based on the most recent trade
known to the Company). See "Market for Common Stock and Dividends").

As of March 5, 2001, the number of outstanding shares of the Common Stock, $1.00
par value, of IBW Financial Corporation was 668,360.

                       DOCUMENTS INCORPORATED BY REFERENCE

              Portions of the Company's definitive Proxy Statement
       for the Annual Meeting of Shareholders to be held on April 24, 2001
                are incorporated by reference in part III hereof.


<PAGE>


         Forward-looking   statements  - This   report   and   the   information
incorporated by reference herein, contains forward-looking statements within the
meaning of the Securities Exchange Act of 1934, as amended, including statements
of goals,  intentions,  and expectations as to future trends,  plans,  events or
results of Company  operations  and  policies  and  regarding  general  economic
conditions.  In some cases,  forward looking statements can be identified by use
of words such as "may," "will,"  "anticipates,"  believes,"  "expects," "plans,"
"estimates,"  "potential,  "continue,"  "should"  and similar  words or phrases.
These  statements are based upon current and  anticipated  economic  conditions,
nationally and in the Company's market, interest rates and interest rate policy,
competitive  factors,  and  other  conditions  which  by their  nature,  are not
susceptible to accurate  forecast,  and are subject to significant  uncertainty.
Because of these  uncertainties and the assumptions on which this discussion and
the  forward-looking  statements are based, actual future operations and results
in the future may differ  materially  from those indicated  herein.  Readers are
cautioned against placing undue reliance on any such forward-looking statements.
The Company  does not  undertake  to update any  forward-looking  statements  to
reflect occurrences or events which may not have been anticipated as of the date
of such statements.

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

         IBW  Financial  Corporation,   a  District  Columbia  corporation  (the
"Company"), was organized in December 1994 in connection with the reorganization
of  Industrial  Bank of  Washington  ("IBW"),  a District of Columbia  chartered
commercial  bank,  to act as the one bank holding  company for IBW following the
reorganization.  On July 1, 1995, the reorganization of IBW was consummated, and
IBW was  converted  from a District  of  Columbia  chartered  bank to a national
banking  association,  under the name Industrial Bank, National Association (IBW
and Industrial Bank, National Association, generally referred to collectively as
the  "Bank"),  the main office of the Bank was  relocated  from the  District of
Columbia to Oxon Hill, Maryland,  and the Company became the holding company for
the Bank.

         The Bank,  all of the shares of which are owned by the Company,  is the
sole subsidiary of the Company.

         The Bank  was  organized  in  August  1934 as a  District  of  Columbia
chartered  commercial  bank  by a  group  of  African-American  businessmen  and
educators  for the purpose of  providing  quality  financial  services,  with an
emphasis on home mortgages and automobile financing, to the underserved minority
population  of the  District of  Columbia.  Over the past sixty five years,  the
Company has grown from one office in the  District of Columbia  and  $250,000 in
assets to seven  offices in the  District  of  Columbia,  two  offices in Prince
George's  County,  Maryland and  approximately  $268 million in total assets and
$22.1 million of  shareholders'  equity at December 31, 2001.  The Bank is among
the largest  African-American  commercial  banks in the nation,  and the largest
African-American owned commercial bank based in the Washington D.C. metropolitan
area.

         The Bank  provides a broad range of  commercial  and  consumer  lending
services,  including  auto loans,  home equity loans,  home  improvement  loans,
credit cards and personal loans. Over two-thirds of the Bank's loan portfolio is
real estate mortgage related,  including residential,  commercial and investment
properties.  In order to expand the ability of the Bank to offer a wide  variety
of  competitively  priced mortgage  products to the residents of the District of
Columbia  and  surrounding  areas,  the Bank has arranged to sell certain of its
mortgage loans into the secondary  market,  enabling the Bank to make additional
loans,  and loans with wider  repayment and interest rate options,  available to
the community.  Additionally,  the Bank offers a wide variety of loans geared to
meet the needs of small businesses in the Bank's market area, including accounts
receivable lines of credit,  Small Business  Administration  loans and equipment
loans.

         The  Bank  also  provides  a full  range  of  deposit  services  to its
customers,  including personal checking, low activity student checking, interest
bearing NOW  accounts,  golden age  checking  accounts  for  seniors,  statement
savings  accounts,   money  market  accounts,   student   accounts,   investment
certificates,  IRA's and Christmas club accounts. Other deposit services include
24 hour banking  through use of  automated  teller  machines at five  convenient
locations.   As  a  part  of  the  Most,  Plus  and  Network  Exchange  Systems,
accountholders  can access ATM's across the United States at any time.  Also the
Bank provides a convenient bank by mail service, direct  deposit/electronic fund
transfers,  cash management services, safe deposit boxes, night depository,  tax
deposits, wire transfers and telebanc systems.



                                       2
<PAGE>

         In  November  2000 the Bank  received  approval  for  establishment  of
branches  inside the Wal-Mart  stores  located at 8755 Branch  Avenue,  Clinton,
Maryland  and 11930 Acton Lane,  Waldorf,  Maryland.  It is expected  that these
branches will open in the second quarter of 2001.

Formal Agreement

         On August 25,  1998,  the Bank  entered  into a Formal  Agreement  (the
"Agreement") with the Office of the Comptroller of the Currency (the "OCC"). The
Agreement  requires  the Bank to undertake  certain  actions  within  designated
timeframes,  and to operate in compliance with the provisions thereof during its
term.

         Among the actions  required by the  Agreement  are the  following:  (i)
Within thirty days, the Bank shall employ an independent  management  consultant
to perform a study of the Bank's management structure and staffing requirements,
including a report  identifying  staffing  requirements,  job  descriptions  and
evaluations for senior officers, and evaluating  organizational  structure.  The
Board of Directors  (the "Board") is required to adopt within thirty days of the
receipt of the report,  a plan to  eliminate  any  deficiencies  in  management,
staffing, or supervision of management; (ii) The Board is required to take steps
to obtain  current and  satisfactory  credit  information  on loans without such
information,  and to insure that proper collateral  documentation is maintained.
Management  may not grant,  renew,  alter,  restructure or extend a loan without
proper  documentation and analysis of credit,  purpose and anticipated source of
repayment.  In  absence  of such  information,  such loans may be made only upon
certification of a majority of the Board why obtaining such information would be
detrimental  to the best  interests of the Bank;  (iii)  Within  thirty days the
Board shall adopt a written  program to  eliminate  the basis of  criticism  for
assets rated "doubtful",  "substandard" or "other assets especially  mentioned;"
(iv) Within thirty days the Board shall establish a loan review system to assure
timely  identification  and  categorization  of problem  credits and implement a
process to insure the loan review function is independent; (v) Within sixty days
the Board shall review and revise the Bank's loan policy based upon the guidance
on Loan  Portfolio  Management  in the  Comptroller's  Manual for National  Bank
Examiners.  Within thirty days thereafter,  the Board shall develop a process to
ensure  accountability  for lending  personnel;  (vi) The Board shall notify the
Assistant Deputy Comptroller before all loan sales; (vii) Within sixty days, the
Board  shall  develop a written  program to improve  and  strengthen  collection
efforts;  (viii)  Within  ninety days the Board  shall  develop a profit plan to
improve and sustain the Bank's  earnings;  (ix) Within 120 days, the Board shall
adopt and implement a strategic plan for the Bank covering at least three years,
including  objectives for earnings  performance,  balance sheet mix, off-balance
sheet activities, liability structure, capital adequacy, reduction in the volume
of nonperforming  assets,  product line development and market segments intended
to be developed,  together with strategies to achieve those objectives;  (x) The
Board shall take all steps  necessary to correct any  violation of law,  rule or
regulation cited in any report of examination;  (xi) Within thirty days the Bank
shall submit a revised written project plan with respect to Year 2000 compliance
of the Bank's  information and environmental  systems,  including a testing plan
and, within sixty days, a remediation  contingency  plan in the event any system
is not compliant by the date set forth in the plan.

         Compliance  with the  Agreement is to be monitored by a committee  (the
"Committee")  of at least  three  directors,  none of whom is an employee of the
Bank or a family member of and employee.  The Committee,  presently  composed of
Mr.  King  (Chairman),  Mrs.  Fleming,  and Mr.  Chapman,  is required to submit
written progress reports on a monthly basis. The Agreement  requires the Bank to
make periodic reports and filings with the OCC.

         The  Agreement  does  not  contain  any  capital   directive  or  other
requirement  that the Bank increase its capital,  or maintain a minimum level of
capital in excess of generally applicable capital requirements.

                  As of January 22, 2001,  the Bank has submitted to the OCC all
of the written plans, policies, and other information required by the Agreement,
and all revisions  requested by the OCC, although certain  submissions were made
outside of the time limits required by the Agreement.  There can be no assurance
that its regulators will deem the Bank to be compliant  under the Agreement,  or
that they will not require additional compliance efforts. Failure to comply with
the provisions of the Formal  Agreement could subject the Bank and its directors
to  additional  enforcement  actions,  including  but not limited to a cease and
desist order,  a safety and  soundness  order or civil money  penalties.  If the
directors of the bank become subject to civil money  penalties or other actions,
the Company or the Bank may be  obligated to indemnify  such  directors.  If the
directors of the bank become subject to civil money  penalties or other actions,
the Company or the Bank may be obligated to indemnify such directors.


                                       3
<PAGE>

MARKET AREA AND COMPETITION

         The Bank's  primary  market area  consists of the District of Columbia,
and Prince George's County,  Maryland. The Washington  Metropolitan  Statistical
Area, (the "Washington MSA"), of which the Bank's market area forms a part, is a
highly  competitive  one,  in which a large  number of  regional  and  national,
majority owned and managed, multi-bank holding companies operate, in addition to
numerous small and medium sized community banks. Additionally, a large number of
thrift   institutions  and  non-bank  financial  service  providers,   including
insurance  companies,   brokerage  firms,  credit  unions,  mortgage  companies,
consumer  finance   companies,   mutual  funds  and  other  types  of  financial
institutions  compete in the Washington  MSA for investment  dollars and lending
business.  As a result of  changes  in federal  and state  banking  legislation,
competitors not already in the Bank's market may seek to enter such market.  The
District of  Columbia,  Maryland  and  Virginia  have each  enacted  legislation
permitting  banks  organized  or based in other  jurisdictions  to  establish or
acquire banks or branches in such jurisdictions.

         Notwithstanding  the  foregoing,  Prince  George's  County has been the
subject of hearings  before the House of  Representatives  Committee on Banking,
Finance and Urban  Affairs  regarding  the  relative  unavailability  of banking
services in that county.  Prince George's County,  which has a majority minority
population,  was found to have approximately half as many traditional banking or
thrift  branches  per  capita  as  neighboring  Montgomery  County,  which has a
majority  non-minority  population.  Prince  George's  was also  found to have a
substantially higher number of non-traditional  banking entities,  such as check
cashing  outlets.  The Company  believes that Prince  George's  County  provides
substantial opportunity for growth and expansion.

EMPLOYEES

         As of  December  31,  2000,  the  Bank  had 160  full  time  equivalent
employees.  None of the  Bank's  employees  are  represented  by any  collective
bargaining  group,  and the Bank believes that its employee  relations are good.
The Bank provides a benefit program which includes health and dental  insurance,
life and long term disability insurance and an employee stock ownership plan for
substantially  all full time  employees.  Annual  contributions  to the employee
stock  ownership  plan are  determined by the Board,  and amounted to $87,000 in
2000,  $52,500 in 1999 and $0 in 1998.  The Company does not have any  employees
who are not also employees of the Bank.

REGULATION

         The  following  summaries of statutes and  regulations  affecting  bank
holding  companies do not purport to be complete  discussions  of all aspects of
such statutes and  regulations  and are qualified in their entirety by reference
to the full text thereof.

         Holding  Company  Regulation.  The Company is a registered bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHCA").  As
a  registered  bank  holding  company,  the Company is required to file with the
Board of Governors  of the Federal  Reserve  (the  "Federal  Reserve") an annual
report,  certain periodic reports and such reports and additional information as
the  Federal  Reserve  may  require  pursuant  to the BHCA,  and is  subject  to
examination and inspection by the Federal Reserve.

         BHCA -  Activities  and Other  Limitations.  The BHCA  prohibits a bank
holding company from acquiring  direct or indirect  ownership or control of more
than 5% of the  voting  shares of any bank,  or  increasing  such  ownership  or
control of any bank, without prior approval of the Federal Reserve.

         The  BHCA  also  prohibits  a  bank  holding   company,   with  certain
exceptions, from acquiring more than 5% of the voting shares of any company that
is not a bank and from  engaging in any business  other than banking or managing
or  controlling  banks.  Under the BHCA,  the Federal  Reserve is  authorized to
approve the  ownership of shares by a bank holding  company in any company,  the
activities of which the Federal  Reserve has determined to be so closely related
to  banking  or to  managing  or  controlling  banks as to be a proper  incident
thereto. In making such determinations, the Federal Reserve is required to weigh
the  expected  benefit to the  public,  such as greater  convenience,  increased
competition or gains in efficiency,  against the possible adverse effects,  such
as undue concentration of resources, decreased or unfair competition,  conflicts
of interest or unsound banking practices.



                                       4
<PAGE>

         The  Federal   Reserve  has  by  regulation   determined  that  certain
activities are closely related to banking within the meaning of the BHCA.  These
activities  include:  making  or  servicing  loans  such as  would  be made by a
mortgage company,  consumer finance company,  credit card company,  or factoring
company; performing trust company functions;  performing certain data processing
operations;  providing  limited  securities  brokerage  services;  acting  as an
investment   or  financial   advisor;   ownership  or  operation  of  a  savings
association;  acting as an insurance  agent for certain types of  credit-related
insurance;  leasing  personal  property on a full-payout,  non-operating  basis;
providing tax planning and preparation services;  operating a collection agency;
and providing certain courier services.  The Federal Reserve also has determined
that certain other activities,  including real estate brokerage and syndication,
land  development,  property  management  and  underwriting  life  insurance not
related to credit transactions,  are not closely related to banking and a proper
incident thereto.

         Effective on March 11, 2000,  the Gramm  Leach-Bliley  Act of 1999 (the
"GLB Act") allows a bank holding company or other company to certify status as a
financial  holding  company,  which allows such company to engage in  activities
that are financial in nature,  that are  incidental to such  activities,  or are
complementary to such activities. The GLB Act enumerates certain activities that
are deemed financial in nature,  such as underwriting  insurance or acting as an
insurance principal, agent or broker, underwriting, dealing in or making markets
in securities,  and engaging in merchant banking under certain restrictions.  It
also  authorizes the Federal Reserve Board to determine by regulation what other
activities are financial in nature, or incidental or complementary  thereto. The
GLB Act allows a wider array of  companies  to own banks,  which could result in
companies with resources  substantially in excess of the Company's entering into
competition with the Company and the Bank.

         Commitments to Subsidiary  Banks.  Under Federal  Reserve  policy,  the
Company is expected to act as a source of financial  strength to the Bank and to
commit  resources to support the Bank in  circumstances  when it might not do so
absent such policy.

         Limitations of Acquisitions of Common Stock. The federal Change in Bank
Control  Act  prohibits  a person or group from  acquiring  "control"  of a bank
holding company unless the Federal Reserve has been given 60 days' prior written
notice of such  proposed  acquisition  and within  that time  period the Federal
Reserve  has not  issued a  notice  disapproving  the  proposed  acquisition  or
extending  for up to another 30 days the period  during which such a disapproval
may be issued. An acquisition may be made prior to expiration of the disapproval
period  if the  Federal  Reserve  issues  written  notice of its  intent  not to
disapprove the action. Under a rebuttable presumption established by the Federal
Reserve,  the  acquisition  of 10% or more of a class of voting  stock of a bank
holding  company with a class of securities  registered  under Section 12 of the
Exchange  Act  would,  under the  circumstances  set  forth in the  presumption,
constitute the acquisition of control.

         In addition,  with limited exceptions,  any "company" would be required
to obtain the approval of the Federal  Reserve  under the BHCA before  acquiring
25% (5% in the case of an acquiror  that is a bank  holding  company) or more of
the  outstanding  Common Stock of, or such lesser number of shares as constitute
control over, the Company.  Such approval would be contingent  upon, among other
things,  the acquiror  registering  as a bank  holding  company,  divesting  all
impermissible  holdings and ceasing any  activities not  permissible  for a bank
holding company.

         The Federal Reserve has adopted capital adequacy guidelines pursuant to
which it assesses the adequacy of an institution's capital. These guidelines are
substantially  identical  to those which are  applicable  to the Bank  discussed
below.

         Bank  Regulation.  The Bank is  subject  to  extensive  regulation  and
examination  by the Office of the  Comptroller  of  Currency  ("OCC") and by the
FDIC,  which  insures its deposits to the maximum  extent  permitted by law. The
federal laws and  regulations  which are applicable to national banks  regulate,
among  other  things,  the scope of their  business,  their  investments,  their
reserves against deposits, the timing of the availability of deposited funds and
the nature and amount of collateral for certain loans.  The laws and regulations
governing the Bank generally have been promulgated to protect depositors and the
deposit insurance funds, and not for the purpose of protecting stockholders.

         The GLB Act made  substantial  changes in the historic  restrictions on
non-bank activities of bank holding companies,  and allows affiliations  between
types of  companies  that were  previously  prohibited.  The GLB Act also allows
national  banks to engage in a wider  array of non  banking  activities  through
"financial subsidiaries."



                                       5
<PAGE>
         FDIC Insurance Premiums.  The Bank pays deposit insurance premiums as a
member of the Bank  Insurance  Fund of the FDIC,  under  the  FDIC's  risk-based
assessment system.  Under the FDIC's  regulations,  institutions are assigned to
one of three  capital  groups  based  solely on the  level of the  institution's
capital - "well capitalized,"  "adequately capitalized" and "undercapitalized" -
which would be defined in the same manner as the  regulations  establishing  the
prompt  corrective  action  system  under  Section  38 of  the  Federal  Deposit
Insurance  Act (the  "FDIA"),  as discussed  below.  These three groups are then
divided  into  three  subgroups  which  reflect  varying  levels of  supervisory
concern,  from those  which are  considered  to be  healthy  to those  which are
considered  to be of  substantial  supervisory  concern.  The  matrix so created
results in nine assessment risk  classifications,  with rates currently  ranging
from 0% to .31% of insured  deposits.  During 1996, the Bank incurred a one time
expense of approximately  $158,000 relating to the special assessment imposed on
deposits insured by the Savings Association  Insurance Fund of the FDIC ("SAIF")
in  connection  with the  recapitalization  of the SAIF  fund.  The Bank is also
required to pay an additional assessment in connection with the repayment of the
"Fico bonds"  issued in connection  with the  resolution of the savings and loan
crisis.

         Capital Adequacy Guidelines.  The Federal Reserve, the OCC and the FDIC
have all adopted risk based capital adequacy  guidelines  pursuant to which they
assess the  adequacy  of capital in  examining  and  supervising  banks and bank
holding  companies and in analyzing  bank  regulatory  applications.  Risk-based
capital  requirements,  determine  the  adequacy  of  capital  based on the risk
inherent in various classes of assets and off-balance sheet items.

         National banks are required to meet a minimum ratio of total qualifying
capital (the sum of core capital (Tier 1) and supplementary capital (Tier 2)) to
risk  weighted  assets of 8%. At least half of this amount (4%) should be in the
form of core capital. These requirements apply to the Bank and will apply to the
Company (a bank holding company) so long as its total assets equal  $150,000,000
or more.

         Tier 1 Capital  for  national  banks  generally  consists of the sum of
common  stockholders'  equity and perpetual preferred stock (subject in the case
of the latter to  limitations  on the kind and amount of such stock which may be
included as Tier 1 Capital),  less goodwill,  without  adjustment for unrealized
gain or loss on securities  classified as available for sale in accordance  with
FAS 115. Tier 2 Capital consists of the following:  hybrid capital  instruments;
perpetual preferred stock which is not otherwise eligible to be included as Tier
1 Capital;  term subordinated debt and  intermediate-term  preferred stock; and,
subject to limitations,  general allowances for loan losses. Assets are adjusted
under  the   risk-based   guidelines  to  take  into  account   different   risk
characteristics,  with the  categories  ranging from 0% (requiring no risk-based
capital)  for  assets  such as cash,  to 100% for the bulk of  assets  which are
typically  held  by a  bank  holding  company,  including  certain  multi-family
residential  and  commercial  real estate loans,  commercial  business loans and
consumer  loans.  Residential  first  mortgage  loans  on  one  to  four  family
residential  real  estate and certain  seasoned  multi-family  residential  real
estate loans, which are not 90 days or more past-due or non-performing and which
have been made in accordance with prudent underwriting  standards are assigned a
50%  level  in  the  risk-weighing  system,  as  are  certain   privately-issued
mortgage-backed  securities  representing  indirect  ownership  of  such  loans.
Off-balance  sheet items also are  adjusted to take into  account  certain  risk
characteristics.

         In  addition  to the  risk  based  capital  requirements,  the  OCC has
established  a minimum  3.0%  Leverage  Capital  Ratio  (Tier 1 Capital to total
adjusted assets)  requirement for the most highly-rated  national banks, with an
additional  cushion of at least 100 to 200 basis  points for all other  national
banks,  which effectively  increases the minimum Leverage Capital Ratio for such
other banks to 4.0% - 5.0% or more. Under the OCC's  regulations,  highest-rated
banks are those that the OCC determines  are not  anticipating  or  experiencing
significant  growth and have well diversified risk,  including no undue interest
rate risk exposure,  excellent asset quality, high liquidity, good earnings and,
in general, those which are considered a strong banking organization. A national
bank having less than the minimum  Leverage  Capital  Ratio  requirement  shall,
within 60 days of the date as of which it fails to comply with such requirement,
submit  to the  applicable  OCC  district  office  for  review  and  approval  a
reasonable  plan describing the means and timing by which the bank shall achieve
its minimum Leverage Capital Ratio  requirement.  A national bank which fails to
file such plan with the OCC is deemed to be  operating  in an unsafe and unsound
manner, and could subject the bank to a cease-and-desist order from the OCC. The
OCC's  regulations also provide that any insured  depository  institution with a
Leverage  Capital  Ratio that is less than 2.0% is deemed to be  operating in an
unsafe or unsound condition  pursuant to Section 8(a) of the FDIA and is subject
to potential termination of deposit insurance. However, such an institution will
not be subject to an enforcement proceeding thereunder, solely on account of its
capital  ratios,  if it has  entered  into and is in  compliance  with a written
agreement  with the OCC to increase its Leverage  Capital Ratio to such level as
the OCC deems  appropriate and to take such other action as may be necessary for
the institution to be operated in a safe and

                                       6
<PAGE>

sound manner. The OCC capital regulations also provide,  among other things, for
the issuance by the OCC or its  designee(s) of a capital  directive,  which is a
final  order  issued to a bank that  fails to  maintain  minimum  capital  or to
restore its capital to the minimum capital  requirement  within a specified time
period.   Such   directive  is  enforceable  in  the  same  manner  as  a  final
cease-and-desist order.

         At  December  31,  2000,  the Bank was in  compliance  with all minimum
federal  regulatory  capital  requirements  which are  generally  applicable  to
national  banks,  as well as the capital  requirements  of the  interim  capital
assistance.  As of such date, the Bank had a Tier 1 Risk Based Capital Ratio and
a Total  Risk  Based  Capital  Ratio  equal  to  approximately  15%  and  16.27%
respectively, and a Leverage Capital Ratio equal to approximately 7.30%.

         Prompt  Corrective  Action.  Under Section 38 of the FDIA,  the federal
banking agencies have promulgated substantially similar regulations to implement
a system of prompt  corrective  action.  Under the regulations,  a bank shall be
deemed to be: (i) "well  capitalized" if it has a Total Risk Based Capital Ratio
of 10.0% or more, a Tier 1 Risk Based  Capital Ratio of 6.0% or more, a Leverage
Capital Ratio of 5.0% or more and is not subject to any written capital order or
directive;  (ii)  "adequately  capitalized" if it has a Total Risk Based Capital
Ratio of 8.0% or more, a Tier 1 Risk Based  Capital  Ratio of 4.0% or more and a
Tier 1 Leverage Capital Ratio of 4.0% or more (3.0% under certain circumstances)
and does not meet the definition of "well capitalized;" (iii) "undercapitalized"
if it has a Total Risk Based Capital Ratio that is less than 8.0%, a Tier 1 Risk
based Capital  Ratio that is less than 4.0% or a Leverage  Capital Ratio that is
less  than  4.0%  (3.0%  under  certain   circumstances);   (iv)  "significantly
undercapitalized"  if it has a Total Risk Based  Capital Ratio that is less than
6.0%,  a Tier 1 Risk  Based  Capital  Ratio that is less than 3.0% or a Leverage
Capital Ratio that is less than 3.0%; and (v) "critically  undercapitalized"  if
it has a ratio of tangible  equity to total assets that is equal to or less than
2.0%.

         An institution  generally must file a written capital  restoration plan
which meets specified  requirements  with an appropriate  federal banking agency
within 45 days of the date the institution  receives notice or is deemed to have
notice that it is undercapitalized, significantly undercapitalized or critically
undercapitalized.  A federal  banking agency must provide the  institution  with
written  notice of  approval  or  disapproval  within 60 days after  receiving a
capital restoration plan, subject to extensions by the applicable agency.

         An institution  which is required to submit a capital  restoration plan
must  concurrently  submit a performance  guaranty by each company that controls
the  institution.  Such guaranty shall be limited to the lesser of (i) an amount
equal to 5.0% of the institution's  total assets at the time the institution was
notified  or  deemed to have  notice  that it was  undercapitalized  or (ii) the
amount  necessary at such time to restore the relevant  capital  measures of the
institution  to the levels  required for the  institution  to be  classified  as
adequately  capitalized.  Such a guaranty shall expire after the federal banking
agency notifies the institution that it has remained adequately  capitalized for
each of four consecutive calendar quarters. An institution which fails to submit
a written capital  restoration plan within the requisite  period,  including any
required performance  guaranty,  or fails in any material respect to implement a
capital  restoration plan, shall be subject to the restrictions in Section 38 of
the FDIA which are applicable to significantly undercapitalized institutions.

         A  "critically  undercapitalized   institution"  is  to  be  placed  in
conservatorship  or  receivership  within  90  days  unless  the  FDIC  formally
determines  that  forbearance  from such action would better protect the deposit
insurance fund. Unless the FDIC or other appropriate  federal banking regulatory
agency makes specific  further  findings and certifies  that the  institution is
viable and is not  expected to fail,  an  institution  that  remains  critically
undercapitalized on average during the fourth calendar quarter after the date it
becomes critically undercapitalized must be placed in receivership.  The general
rule and  current  position  of the OCC is that the FDIC  will be  appointed  as
receiver within 90 days after a bank becomes critically  undercapitalized unless
extremely  good cause is shown and an extension is agreed to between the OCC and
the FDIC. In general, good cause is defined as capital which has been raised and
is imminently  available for infusion into the Bank except for certain technical
requirements which may delay the infusion for a period of time beyond the 90 day
time period.

         Immediately upon becoming undercapitalized, an institution shall become
subject to the provisions of Section 38 of the FDIA,  which (i) restrict payment
of capital  distributions and management fees; (ii) require that the appropriate
federal  banking agency monitor the condition of the institution and its efforts
to restore its capital;  (iii) require submission of a capital restoration plan;
(iv)  restrict the growth of the  institution's  assets;  and (v) require  prior
approval of certain expansion proposals.  The appropriate federal banking agency
for an  undercapitalized  institution  also may take any number of discretionary
supervisory  actions  if the  agency  determines  that any of these  actions  is
necessary to resolve

                                       7
<PAGE>

the problems of the  institution  at the least  possible  long-term  cost to the
deposit insurance fund, subject in certain cases to specified procedures.  These
discretionary  supervisory  actions include:  requiring the institution to raise
additional  capital;   restricting   transactions  with  affiliates;   requiring
divestiture  of the  institution  or the sale of the  institution  to a  willing
purchaser;  and any other supervisory  action that the agency deems appropriate.
These and additional  mandatory and permissive  supervisory actions may be taken
with respect to significantly  undercapitalized and critically  undercapitalized
institutions.

         Additionally,  under  Section  11(c)(5) of the FDIA, a  conservator  or
receiver  may  be  appointed  for an  institution  where:  (i) an  institution's
obligations  exceed its assets;  (ii) there is  substantial  dissipation  of the
institution's  assets or  earnings  as a result of any  violation  of law or any
unsafe or unsound  practice;  (iii) the  institution  is in an unsafe or unsound
condition;  (iv) there is a willful violation of a  cease-and-desist  order; (v)
the  institution  is unable to pay its  obligations  in the  ordinary  course of
business;  (vi) losses or threatened  losses deplete all or substantially all of
an  institution's  capital,  and there is no  reasonable  prospect  of  becoming
"adequately capitalized" without assistance; (vii) there is any violation of law
or unsafe or unsound practice or condition that is likely to cause insolvency or
substantial  dissipation  of  assets  or  earnings,   weaken  the  institution's
condition,  or otherwise  seriously prejudice the interests of depositors or the
insurance fund; (viii) an institution ceases to be insured; (ix) the institution
is  undercapitalized  and  has  no  reasonable  prospect  that  it  will  become
adequately capitalized,  fails to become adequately capitalized when required to
do so, or fails to submit or materially implement a capital restoration plan; or
(x)  the   institution   is   critically   undercapitalized   or  otherwise  has
substantially insufficient capital.

         At December 31, 2000, the Bank was a "well capitalized" institution for
purposes of Section 38 of the FDIA.

         Regulatory  Enforcement  Authority.  The  enforcement  authority of the
federal banking regulators  includes,  among other things, the ability to assess
civil  money  penalties,  to issue  cease-and-desist  or  removal  orders and to
initiate    injunctive    actions    against    banking     organizations    and
institution-affiliated  parties.  In general,  these enforcement  actions may be
initiated  for  violations  of  laws  and  regulations  and  unsafe  or  unsound
practices.  Other  actions or  inactions  may provide the basis for  enforcement
action,   including   misleading  or  untimely  reports  filed  with  regulatory
authorities.

ITEM 2.  DESCRIPTION OF PROPERTY.

         The Bank  currently  operates  nine  offices,  seven in the District of
Columbia, and two in Prince George's County,  Maryland. The Bank owns its office
located at 4812 Georgia Avenue, N.W. and its branch offices located at 2000 11th
Street, NW and 45th and Blaine Streets,  NE. The Georgia Avenue office, which is
also the principal  executive office of the Company,  consists of a 6,000 square
foot stand alone building with drive-in facilities,  and a separate 2,000 square
foot building  housing the Bank's  operations  center next door. The 11th Street
office is housed in a 4,000 square foot  building,  and an adjacent 2,000 square
foot  building  houses the loan  operations  center.  The Blaine  Street  office
occupies an approximately 2,000 square foot stand alone building,  with drive-in
facilities,  near the Benning Road Metro Station.  The Bank leases the remainder
of its offices.  The 14th and U Streets office is located in a 1,922 square foot
storefront,  under a lease which  commenced in 1988, for a ten year term and one
optional ten year renewal term at a fixed rent of $28,830 per year. The Bank's F
Street  office  is  located  in a 1,273  square  foot  storefront  under a lease
commencing  in 1991,  for a ten year term at a current  annual  rent of $71,739,
subject to annual increases.  The American University office is located in a 962
square foot  storefront  under a five year lease,  which commenced in 1992, with
one five year renewal  option,  at a current annual rent of $25,588,  subject to
annual increase.  The Forestville,  Maryland office is located in a 2,696 square
foot  storefront with drive-in  facilities,  and is occupied under a lease which
commenced  in 1994 for a five year term at a current  annual  rental of $29,008,
subject to annual increase.  The Oxon Hill office,  the main office of the Bank,
is a 10,531 square foot,  two story  building with drive in  facilities,  and is
occupied rent free for a term extending  until June 10, 1999 and is subject to a
purchase  option at 95% of fair  market  value.  The Bank has  requested a lease
extension  from the FDIC.  The  Company is  responsible  for all  operating  and
maintenance expenses on the Oxon Hill property. The Brookland/Woodridge  office,
which opened in 1997,  is located in 2610 Rhode Island  Avenue,  NE and occupied
under a lease,  commencing in 1997,  with one five year renewal  options,  for a
five  year  term at a  current  annual  rental  of  $27,000,  subject  to annual
increases.

         The  Company has  entered  into  leases for the  Clinton  and  Waldorf,
Maryland  Wal-Mart branches which were approved in November 2000, and which will
open in the second  quarter of 2001.  Each five year  lease  requires  an annual
payment of $24,000, and has two five year renewal options.

                                       8
<PAGE>

         The Company  believes  that its  existing  facilities  are  adequate to
conduct its business.

ITEM 3.  LEGAL PROCEEDINGS.

         The Company is involved in routine  legal  proceedings  in the ordinary
course of its business. In the opinion of management, final disposition of these
proceedings will not have a material  adverse effect on the financial  condition
or results of operations of the Company.

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 year ended December 31, 2000.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

MARKET FOR COMMON STOCK AND DIVIDENDS

         There does not currently  exist an organized  public trading market for
shares of Company's Common Stock. Trading in the Company's Common Stock has been
sporadic,  and consists of private trades conducted without brokers. The Company
is aware of approximately 2 trades of the Common Stock since January 1, 1999, at
$15 per share.  The last trade known to the Company was a trade of  500shares at
$15 per share on July 5, 2000. There may be other trades of which the Company is
either  not  aware,  or with  respect  to which the  Company is not aware of the
price. These trades and transactions do not necessarily reflect the intrinsic or
market values of the Common Stock.  As of December 31, 2000,  there were 668,360
shares  of  Common  Stock  outstanding,  held of  record  by  approximately  562
shareholders.

         During  2000,  the Company  resumed  the payment of regular  dividends,
which had been suspended during 1998 and 1999 as a result of additional expenses
incurred in respect of the  provision  for loan losses and  increased  levels of
non-performing and problem assets. There can be no assurance,  however, that the
Company  will  continue to have  earnings at a level  sufficient  to support the
payment of dividends,  or that it will in the future elect to pay dividends.  As
the Bank is the primary source of funds for payment of dividends by the Company,
the inability of the Bank to pay dividends could adversely affect the ability of
the Company to pay dividends.

         Dividends  on the  Common  Stock are  subject  to the prior  payment of
dividends on the Series A Preferred  Stock.  As of the date hereof,  there is no
default in the payment of dividend on the Series A Preferred Stock.

         Regulations  of the OCC place a limit on the  amount of  dividends  the
Bank may pay to the Company without prior approval. Prior approval of the OCC is
required to pay  dividends  which  exceed the Bank's net profits for the current
year plus its retained net profits for the  preceding two calendar  years,  less
required  transfers to surplus.  As of December 31, 2000 the Bank would not need
prior approval from OCC unless a declaration of dividends  exceeded  $2,041,000.
Under  District of Columbia law, the Company may generally pay cash dividends at
any time when it is not  insolvent  and where its net  assets  exceed its stated
capital  (the par value of all  outstanding  shares),  and where  payment of the
dividend  will not cause the Company to become  insolvent  or to have its stated
capital  exceed  its net  assets.  The  Federal  Reserve  and the OCC also  have
authority to prohibit a bank from paying dividends if the Federal Reserve or the
OCC deems such payment to be an unsafe or unsound practice.

         The Federal  Reserve has  established  guidelines  with  respect to the
maintenance  of  appropriate  levels  of  capital  by  registered  bank  holding
companies.  Compliance with such standards,  as presently in effect,  or as they
may be amended from time to time,  could  possibly limit the amount of dividends
that the Company may pay in the future.  In 1985,  the Federal  Reserve issued a
policy statement on the payment of cash dividends by bank holding companies.  In
the statement,  the Federal  Reserve  expressed its view that a holding  company
experiencing earnings weaknesses should not pay cash dividends exceeding its net
income,  or which  could  only be  funded  in ways  that  weakened  the  holding
company's financial health, such as by borrowing.



                                       9
<PAGE>

         As a depository  institution,  the deposits of which are insured by the
FDIC,  the Bank may not pay  dividends or distribute  any of its capital  assets
while it remains in default on any  assessment  due the FDIC. The Bank currently
is not in default under any of its obligations to the FDIC.

         Set  forth  below is  certain  financial  information  relating  to the
Company's dividend history for the past five fiscal years.

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                               ----------- ----------- ---------- ---------- -----------
                                                  2000        1999       1998       1997        1996
                                               ----------- ----------- ---------- ---------- -----------
<S>                                              <C>         <C>        <C>        <C>         <C>
Net income per common share                      $3.20       $2.50      $(2.03)     $2.44      $2.06
Dividends paid per common share                  $0.60       $0.15       $0.51      $0.60      $0.60
Ratio of dividends to net income available
to common shareholders                           18.76%      5.98%        N/A      24.59%      29.13%
</TABLE>

         The  payment of  dividends  by the  Company  depends  largely  upon the
ability  of the  Bank  to  declare  and pay  dividends  to the  Company,  as the
principal source of the Company's  revenue is dividends paid by the Bank. Future
dividends will depend primarily upon the Bank's earnings,  financial  condition,
and need for funds, as well as governmental policies and regulations  applicable
to the Company and the Bank.

RECENT SALES OF UNREGISTERED SHARES.

         During  the past  three  fiscal  years,  the  Company  has not sold any
securities without registration under the Securities Act of 1933.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS.

         The following  financial review presents a discussion of the results of
operations, an analysis of the asset and liability structure of the Company, and
its sources of liquidity and capital resources and should be read in conjunction
with the  consolidated  financial  statements.  All dollar amounts shown in this
management's  discussion  and analysis are in thousands,  except with respect to
per share data.

         General-The  Company's  net income  depends  primarily  on net interest
income,  which is the difference  between  interest  income on  interest-earning
assets  and  interest  expense  on  interest-bearing  liabilities.  Non-interest
income, such as customer deposit account services charges, late charges on loans
and other  sources of income  also impact net income.  The  Company's  operating
expenses,  other than interest expense,  consist principally of compensation and
employee  benefits,  occupancy,  data processing,  provision for loan losses and
other operating expenses.  The Company's net income is significantly affected by
general economic conditions in the Washington, DC metropolitan area and policies
of regulatory authorities.

RESULTS OF OPERATIONS

Years Ended December 31, 2000 and 1999

         Overview-Net  income was $2,162 for 2000  compared with $1,696 in 1999,
an increase of 27%.  Earnings per common share were $3.20 in 2000  compared with
$2.50 in 1999.  The  increase  in net income was  primarily  attributable  to an
increase of $1,164 in net interest  income,  a reversal of $259 in the provision
for loan  losses,  an  increase  of $366 in  non-interest  income,  offset by an
increase in non-interest  expenses of $1,222,  and an increase in taxes of $101.
Return on  average  assets was .80% for 2000,  up from .61% for 1999.  Return on
average equity was 11.66% for 2000, compared with 9.48% for 1999.


                                       10
<PAGE>

TABLE 1. FINANCIAL OVERVIEW

         The following table summarizes net income divided by average assets and
average  shareholders'  equity,  dividend pay-out ratio (dividends  declared per
common share divided by net income per common share) and shareholders' equity to
assets ratio (average  shareholders' equity divided by average total assets) for
each of the years listed below.

<TABLE>
<CAPTION>
                                                             2000          1999          1998           1997           1996
                                                        -------------------------------------------------------------------------
<S>                                                        <C>            <C>           <C>            <C>            <C>
Return on average assets                                      .80%           .61%         (.51%)          .57%           .56%
Return on average equity                                    11.66%          9.48%        (6.97%)         8.74%          8.06%
Dividend payout                                             18.76%          5.98%          N/A          24.59%         29.13%
Net income per share                                       $ 3.20         $ 2.50        ($2.03)        $ 2.44         $ 2.06
Ratio of dividends to net income                            18.76%          0.15%          N/A          24.59%         29.13%
Average shareholders' equity to average assets               6.83%          6.46%         7.37%          7.37%          7.06%
</TABLE>

         Net Interest  Income- Net interest  income is the  principal  source of
earnings for the Company.  It is affected by a number of factors  including  the
level,  pricing and  maturity of  interest-earning  assets and  interest-bearing
liabilities,   interest  rate  fluctuations,   and  asset  quality.  Information
concerning the Company's interest-earning assets,  interest-bearing liabilities,
net  interest   income,   and   interest   rate   spreads,   and  net  yield  on
interest-earning  assets  is  presented  in Table 2.  Changes  in the  Company's
interest  income and interest  expense  resulting from changes in interest rates
and in the volume of interest-earning  assets and  interest-bearing  liabilities
are presented in Table 3.


                                       11
<PAGE>

TABLE 2. AVERAGE BALANCE AND NET INTEREST INCOME ANALYSIS (1)

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                          ------------------------------------------------------------------------------------------
                                                        2000                          1999                          1998
                                          ------------------------------------------------------------------------------------------
                                                                 Amount                        Amount                       Amount
                                             Average   Average   Paid or   Average   Average   Paid or   Average   Average  Paid or
                                             Balance    Rate     Earned    Balance    Rate     Earned    Balance    Rate    Earned
                                                                             (dollars in thousands)
<S>                                          <C>        <C>     <C>        <C>        <C>     <C>        <C>        <C>     <C>
ASSETS

Loans, net                                   $115,689   9.23%   $ 10,676   $ 99,863   9.13%   $  9,115   $113,286   9.28%   $ 10,518
Taxable securities                            112,330   6.58%      7,387    130,684   5.61%      7,336    103,507   5.66%      5,858
Non-taxable securities (2)                     19,359   7.58%      1,467     13,016   8.08%      1,052     10,353   8.44%        874
Federal funds sold                              2,744   6.05%        166     12,657   4.70%        595     16,493   5.49%        905
Interest-bearing deposits held                    984   5.49%         54        914   4.38%         40      2,238   4.69%        105
                                             --------           --------   --------           --------   --------           --------
Total interest-earning assets                 251,106   7.87%   $ 19,750    257,134   7.05%   $ 18,138    245,877   7.43%     18,260

Cash and due from banks                        12,919                        12,169                        11,038
Bank premises and equipment, net                2,254                         2,441                         2,692
Other assets                                    5,297                         5,427                         3,831
                                             --------                      --------                      --------
Total assets                                 $271,576                      $277,171                      $263,438
                                             ========                      ========                      ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-bearing demand deposits             $ 27,233   0.55%   $    151   $ 29,853   1.60%   $    479     27,394   1.76%        481
Savings deposits                               60,802   2.26%      1,377     63,417   2.47%      1,566     65,474   2.70%      1,770
Time deposits                                  58,852   4.07%      2,396     69,477   3.53%      2,455     68,643   4.52%      3,104
                                             --------           --------   --------           --------   --------           --------
Total interest-bearing deposits               146,887   2.67%      3,924    162,747   2.77%      4,500    161,511   3.32%      5,355
Short-term borrowings                          42,336   5.41%      2,292     35,787   3.94%      1,409     25,011   4.33%      1,083
                                             --------           --------   --------           --------   --------           --------
Total interest-bearing liabilities            189,223   3.29%   $  6,216    198,534   2.98%   $  5,909    186,522   3.45%   $  6,438

Noninterest-bearing liabilities                62,006                        59,178                        56,031
Other liabilities                               1,807                         1,564                         1,472
Total liabilities                             253,036                       259,276                       244,025
                                             --------                      --------                      --------

Shareholder's equity                           18,540                        17,895                        19,413
                                             --------                      --------                      --------
Total liabilities and
   shareholders' equity                      $271,576                      $277,171                      $263,438
                                             ========                      ========                      ========

NET INTEREST INCOME AND NET YIELD
   ON INTEREST-EARNING ASSETS

Net interest income                                             $ 13,534                      $ 12,229                      $ 11,822
                                                                ========                      ========                      ========
Interest rate spread                                    4.58%                         4.07%                         3.98%
Net yield on average interest-earning assets            5.39%                         4.76%                         4.81%
Average interest-earning assets to
   average interest-bearing liabilities               132.70%                       129.52%                       131.82%
<FN>
1)   Yields on securities have been computed based upon the historical cost of such securities.  Non-accruing  loans are included in
     average balances.
2)   Yields on non-taxable securities are presented on a tax-equivalent basis using a 34% tax rate. Interest income and net interest
     income reported in the Company's  consolidated  statements of income were $19,251 and $13,035 for 2000, $17,780 and $11,871 for
     1999, and $17,963 and $11,525 for 1998.
</FN>
</TABLE>


                                       12
<PAGE>

TABLE 3. RATE/VOLUME ANALYSIS OF TAX EQUIVALENT NET INTEREST INCOME

         Net interest income is affected by changes in the average interest rate
earned  on  interest-earning  assets  and  the  average  interest  rate  paid on
interest-bearing  liabilities.  In addition,  net interest income is affected by
changes  in  the  volume  of   interest-earning   assets  and   interest-bearing
liabilities.  The  following  table  sets forth the  dollar  amount of  increase
(decrease) in interest income and interest expense resulting from changes in the
volume of  interest-earning  assets and  interest-bearing  liabilities  and from
changes  in yields and rates.  The  combined  effect of changes in both rate and
volume has been  allocated  proportionately  to the change due to volume and the
change due to rate.  Interest income on tax-exempt  securities is presented on a
taxable-equivalent basis.

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,                    YEAR ENDED DECEMBER 31,
                                                      -----------------------------------       ------------------------------------
                                                                2000 VS. 1999                               1999 VS. 1998
                                                          INCREASE (DECREASE) DUE TO                 INCREASE (DECREASE) DUE TO
                                                      -----------------------------------       ------------------------------------
(dollars in thousands)                                 Volume        Rate          Total         Volume         Rate         Total
<S>                                                   <C>           <C>           <C>           <C>           <C>           <C>
Loans                                                 $ 1,445       $   116       $ 1,561       $(1,250)      $  (153)      $(1,403)
Taxable securities                                     (1,030)        1,081            51         1,540           (62)        1,478
Non-taxable securities                                    512           (97)          415           225           (47)          178
Federal funds sold                                       (466)           37          (429)         (210)         (100)         (310)
Interest-bearing deposits                                   3            11            14           (62)           (3)          (65)
                                                      -------       -------       -------       -------       -------       -------
Total interest income                                     464         1,148         1,612           243          (365)         (122)

Deposits
Interest-bearing demand deposits                          (42)         (286)         (328)           46           (48)           (2)
Savings deposits                                          (65)         (124)         (189)          (57)         (147)         (204)
Time deposits                                            (375)          316           (59)           38          (687)         (649)
                                                      -------       -------       -------       -------       -------       -------
Total interest-bearing deposits                          (482)          (94)         (576)           27          (882)         (855)
Borrowings                                                258           625           883           467          (141)          326
                                                      -------       -------       -------       -------       -------       -------
Total interest-bearing liabilities                       (224)          531           307           494        (1,023)         (529)
                                                      -------       -------       -------       -------       -------       -------
Net interest income                                   $   688       $   617       $ 1,305       $  (251)      $   658       $   407
                                                      =======       =======       =======       =======       =======       =======
</TABLE>

         On a tax  equivalent  basis,  net  interest  income for 2000  increased
$1,305 or 11% over 1999. The increase was primarily  attributable to an increase
in average  interest-earning  assets and an increase in the net interest spread,
partially offset by an increase in rates paid on interest-earning liabilities.

         Average  interest-earning  assets  decreased by $6,028 or 2%, resulting
from an increase  in net loans of $15,826 or 16%,  an  increase  of  non-taxable
securities of $6,343,  or 49%, and an increase in interest  bearing  deposits of
$70 or 8%,  offset by decreases in taxable  securities  of $18,354 or 14% and in
federal funds sold of $9,913 or 78%.

         The interest  rate spread  increased  51 basis points or  approximately
13%, from 4.07% in 1999 to 4.58% in 2000. The increase is a result of a 82 basis
point increase in the average rate earned on interest-earning assets versus a 31
basis point increase in rates paid on average interest bearing liabilities.  The
yield on loans in 2000  increased  10 basis  points  from  1999.  The  yield and
average balances on  mortgage-backed  securities were 6.51% and $73,316 for 2000
and 5.89% and $72,926 for 1999, respectively.

         Interest-bearing  liabilities  decreased  $9,311 or 5%,  comprised of a
decrease  in  interest  bearing  demand  deposits,  time  deposits  and  savings
deposits,  partially offset by an increase in borrowings.  Short-term borrowings
(comprised  of repurchase  agreements  and federal  funds  purchased)  increased
$8,300 or 25%.

         Provision for Loan Losses-The  Company  maintains an allowance for loan
losses to absorb  losses on  existing  loans  that may become  uncollectible.  A
reverse provision of $259 was recorded in 2000 compared to no provision for loan
losses in 1999. The reverse provision for loan losses is primarily  attributable
to the decrease in



                                       13
<PAGE>

the level of non-performing  assets,  which declined to 0.89% of total assets at
December  31,  2000,  as compared to 1.27% of total assets at December 31, 1999.
Management  believes  that the  allowance  for loan losses is adequate to absorb
potential  losses  inherent  in the loan  portfolio.  As losses on loans are not
statistically  predictable  and are dependent  upon  economic  conditions in the
Bank's marketplace,  future provisions or reversals for loan losses may decrease
or  increase  from the  levels  deemed  appropriate  for  2000.  There can be no
assurance, however, that future provisions for loan losses will not be required.

         Non-interest  Income-  Non-interest  income  increased  $366  or 11% to
$3,785 for 2000 from $3,419 for 1999.  The primary  components  of  non-interest
income is service charges on deposit and checking accounts,  and gains or losses
on sale of  securities.  Other fee income  increased  $234 or 27% and  primarily
represented  surcharges  on  non-depositors  utilizing  the Bank's ATM services.
Service charges on deposit accounts increased $90 or 3%.  Additionally,  $200 of
losses were  realized on the sale of  securities  in 2000 compared to a realized
loss on the sale of securities of $221 in 1999.

         Non-interest  Expense-  Non-interest  expense  for 2000 was  $14,273 an
increase of $1,222 or 9% over 1999. The composition of the increase  consists of
an increase of $1,143 in salary and  employee  benefits,  an increase of $222 in
furniture and equipment expenses,  an increase $95 in advertising  expenses,  an
increase  of  $82  in  data  processing,  and an  increase  of $36 in  occupancy
expenses,  offset by a decrease of $284 in other expenses The increase in salary
and benefits was due  primarily to a full staff this year  compared to vacancies
at several  positions  throughout  the Company in 1999,  and increase in officer
salaries in 2000 compared to officers salaries being frozen during 1999.

         Provision for Income Taxes- The provision for income taxes for 2000 was
$644,  compared to $543 for 1999,  reflecting  an increase of $101 or 19% an due
primarily to higher  income  before  taxes.  The  effective tax rate was 23% for
2000, compared to 24% for 1999.

ASSET/LIABILITY MANAGEMENT

         Interest rate sensitivity gap ("gap") analysis  measures the difference
between the assets and liabilities  repricing or maturing within  specified time
periods.   An   asset-sensitive   position   indicates   that   there  are  more
rate-sensitive  assets than  rate-sensitive  liabilities  repricing  or maturing
within a specified time period,  which would generally imply a favorable  impact
on net interest income in periods of rising interest rates and a negative impact
in periods of falling  interest  rates.  A  liability-sensitive  position  would
generally  imply a negative  impact in net interest  income in periods of rising
interest rates and a positive impact in periods of falling rates.

         Table 4 presents an analysis of the Company's  interest-sensitivity gap
position at December 31, 2000.  Asset  prepayments and liability decay rates are
estimated  based on the  Company's  experience.  Non-maturity  deposits  such as
savings,  Now accounts and money markets do not have a stipulated  maturity.  As
such the  Company  is  reflecting  the  largest  decrease  experienced  in these
non-maturity  deposits.  Based on this  experience,  $4,250 per  quarter for all
non-maturity  deposits was applied,  as approximately  $17 million of these core
deposits  reflected the largest decrease during the past four year period.  Time
deposits are allocated according to their contractual maturities.  As summarized
in Table 4, the  Company's  one-year  cumulative  gap ratio is 64%. This portion
reflects a  liability-sensitive  position  where more  liabilities  than  assets
re-price during the one-year period.

         Generally,  a  liability-sensitive  position would result in an adverse
impact on net income during a period of rising  interest  rates,  and a positive
impact on net interest income in a period of declining interest rates.

         Gap analysis has  limitations  because it cannot  measure the effect of
interest rate movements and competitive  pressures on the repricing and maturity
characteristics  of  interest-earning   assets  and  liabilities   indicated  as
repricing  within a stated  period  may in fact  reprice at  different  times at
different volumes. Further, in the event of change in interest rates, prepayment
and early  withdrawal  levels  would  likely  deviate  significantly  from those
assumed in calculating Table 4.


                                       14
<PAGE>

TABLE 4. RATE SENSITIVITY ANALYSIS

<TABLE>
<CAPTION>
                                                                    4 TO 12        WITHIN                     OVER 5
(dollars in thousands)                               0-90 DAYS       MONTH         12 MO.      1-5 YEARS       YEARS        TOTALS
<S>                                                  <C>           <C>           <C>           <C>           <C>          <C>
 Loans (1) (2)                                       $  24,536     $  18,740     $  43,276     $  51,522     $  35,803    $ 130,601
 Investment Securities (3)                               4,229        12,924        17,153        72,957        31,732      121,842
 Fedral funds Sold                                          --            --            --            --            --           --
 Interest Bearing Bank Balances:                           673           632         1,305            --            --        1,305
                                                     ---------     ---------     ---------     ---------     ---------    ---------
 TOTAL EARNING ASSETS                                $  29,438     $  32,296     $  61,734     $ 124,479     $  67,535    $ 253,748
                                                     =========     =========     =========     =========     =========    =========
Percent of total earnings assets                         11.60%        12.73%        24.33%        49.06%        26.61%      100.00%
Interest-bearing liabilities
Time COD's of $100M or more                          $   2,995     $   6,083     $   9,078     $   4,635     $      --    $  13,713
 Savings,Now, MMDA'S and other time deposit              4,250        12,750        17,000        76,158            --       93,158
 Time COD'S less than $100M                             11,026        17,710        28,736         4,132            --       32,868
 Borrowed funds                                         42,033            --        42,033            --            --       42,033
                                                     ---------     ---------     ---------     ---------     ---------    ---------
TOTAL INTEREST BEARING LIABILITIES                   $  60,304     $  36,543     $  96,847     $  84,925     $      --    $ 181,772
                                                     =========     =========     =========     =========     =========    =========

 Interest-sensitivity gap                            $ (30,866)    $  (4,247)    $ (35,113)    $  39,554     $  67,535    $  71,976
 Cumulative interest-sensitivity gap                 $ (30,866)    $ (35,113)    $ (35,113)    $   4,441     $  71,976    $  71,976
Ratio of earning assets to interest-bearing
   liabilities (gap ratio)                               48.82%        88.38%        63.74%       146.58%           --       139.60%
Cumulative ratio of earnings assets to interest-
   bearing liabilities (cumulative gap ratio)            48.82%        63.74%        63.74%       102.44%       139.60%      139.60%
Cumulative interest-sensitivity gap as a
   percent of total assets                              (11.43%)      (13.01%)      (13.01%)       (1.64%)       26.66%       26.66%
                                                     =========     =========     =========     =========     =========    =========
<FN>
(1)      Non-accruing loans are excluded from loan totals.
(2)      Loans have been included based on their contractual maturities.
(3)      Mortgage-backed  securities have been included based on their  estimated  remaining  maturities,  utilizing the most recent
         quarter pay-down experience and prorated outward. Fourth quarter 2000 pay-down experience was $3,230.  However,  $35,709 in
         mortgage back securities have an expected  average life of three years or less and $30,645 have an expected average life of
         more than three years
</FN>
</TABLE>


                                       15
<PAGE>

TABLE 5. FINANCIAL CONDITION

         Table  5 sets  forth  information  concerning  the  composition  of the
Company's  assets,  liabilities and  shareholders'  equity at December 31, 2000,
1999, and 1998.

<TABLE>
<CAPTION>
                                                              ----------------------------------------------------------------------
                                                                2000       PERCENT      1999        PERCENT       1998       PERCENT
                                                              ----------------------------------------------------------------------
                                                                                         (dollars in thousands)
<S>                                                           <C>           <C>        <C>           <C>        <C>           <C>
ASSETS

     Loans, net                                               $128,047      47.77%     $102,998      38.84%     $104,469      38.70%
     Investment securities                                     121,842      45.45%      137,970      52.03%      131,384      48.66%
     Federal funds sold                                             --       0.00%        1,700       0.64%       13,150       4.87%
     Interest-bearing deposits                                      --
         in other banks                                          1,305       0.49%          988       0.37%          405       0.15%
                                                              --------     ------      --------     ------      --------     ------

     TOTAL EARNINGS ASSETS                                     251,194      93.71%      243,656      91.88%      249,408      92.38%

     Cash and due from banks                                    10,896       4.07%       13,733       5.18%       12,565       4.66%
     Bank premises and equipment                                 2,073       0.77%        2,389       0.90%        2,542       0.94%
     Other assets                                                3,883       1.45%        5,416       2.04%        5,463       2.02%
                                                              --------     ------      --------     ------      --------     ------
     TOTAL ASSETS                                             $268,046     100.00%     $265,194     100.00%     $269,978     100.00%
                                                              ========     ======      ========     ======      ========     ======

LIABILITIES AND SHAREHOLDERS' EQUITY

     Demand deposits                                          $ 63,207      23.58%     $ 60,739      22.90%     $ 58,870      21.81%
     Savings, NOW and MMDA                                      93,159      34.75%      100,632      37.95%      105,995      39.25%
     Time deposits $100,000 or more                             13,713       5.12%       16,329       6.16%       21,317       7.90%
     Other time deposits                                        32,868      12.26%       34,774      13.11%       37,946      14.06%
                                                              --------     ------      --------     ------      --------     ------

     TOTAL DEPOSITS                                            202,947      75.71%      212,474      80.12%      224,127      83.02%
     Short term borrowings                                      42,033      15.68%       33,733      12.72%       26,611       9.85%
     Accrued expenses and other liabilities                        930       0.35%        1,496       0.56%        1,323       0.49%
                                                              --------     ------      --------     ------      --------     ------

     TOTAL LIABILITIES                                         245,910      91.74%      247,703      93.40%      252,062      93.36%
     Shareholders' equity                                       22,136       8.26%       17,491       6.60%       17,917       6.64%
                                                              --------     ------      --------     ------      --------     ------

     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY               $268,046     100.00%     $265,194     100.00%     $269,979     100.00%
                                                              ========     ======      ========     ======      ========     ======
</TABLE>


         Overview-  Total  assets  increased  $2,852 from  December  31, 1999 to
December  31,2000.  The increase was  attributable to net increase of $25,049 in
loans, offset by a decrease in investments of $16,128 and a decrease in cash and
due from banks of $2,837.  This net increase in assets was funded by an increase
in short term borrowings of $8,300,  and an increase of $4,645 in  stockholders'
equity, offset by a $9,527 decrease in deposits..

         Loans- Net loans  outstanding  at December 31, 2000 were  $128,047,  an
increase  of $25,049 or 24%,  from year end 1999.  The  composition  of the loan
portfolio is summarized in Table 6. The increase in loans consisted primarily of
an increase in commercial real estate loans of $18,647, an increase of $3,787 in
residential 1 to 4 family loans, an increase of $1,188 in installment loans, and
an increase in commercial loans of $912.


                                       16
<PAGE>

TABLE 6. LOAN PORTFOLIO COMPOSITION

         The  following  table  shows  the  composition  of the  Company's  loan
portfolio by type of loan at the dates indicated.

<TABLE>
<CAPTION>
                                                                        December 31,
                               -----------------------------------------------------------------------------------------------------
  (DOLLARS IN THOUSANDS)          2000    PERCENT     1999     PERCENT     1998     PERCENT    1997     PERCENT      1996    PERCENT
                               -----------------------------------------------------------------------------------------------------
<S>                            <C>        <C>       <C>        <C>       <C>         <C>     <C>        <C>       <C>        <C>
Commercial                     $ 10,958     8.28%   $ 10,046     9.32%   $ 16,568    12.52%  $ 23,145    19.51%   $ 28,232    25.61%
Residential 1 to 4 family        56,613    42.78%     52,826    49.00%     51,097    38.61%    52,077    43.89%     52,876    47.96%
Commercial real estate           58,772    44.41%     40,125    37.22%     33,560    25.36%    38,499    32.45%     24,442    22.17%
Installment loans                 5,991     4.53%      4,803     4.46%      8,388     6.34%     4,925     4.15%      4,692     4.26%
                               --------   ------    --------   ------    --------   ------   --------   ------    --------   ------
Total                          $132,334   100.00%   $107,800   100.00%   $109,613    82.83%  $118,646   100.00%   $110,242   100.00%
                               ========   ======    ========   ======    ========   ======   ========   ======    ========   ======
</TABLE>

TABLE 7. MATURITY OF LOAN PORTFOLIO - FIXED RATE AND VARIABLE RATE

        Table 7 summarizes the  contractual  maturity of the Company's fixed and
floating rate loans,  at December 31, 2000.  Non accrual loans are excluded from
the presentation.

<TABLE>
<CAPTION>
                                         AFTER ONE YEAR
                               ONE YEAR   THROUGH FIVE   AFTER FIVE
(dollars in thousands)         OR LESS        YEARS         YEARS         TOTAL
<S>                           <C>           <C>           <C>           <C>
 Fixed rate                   $ 29,922      $ 51,522      $ 35,803      $117,247
 Variable rate                  13,354            --            --        13,354
                              --------      --------      --------      --------
Total                         $ 43,276      $ 51,522      $ 35,803      $130,601
                              ========      ========      ========      ========
</TABLE>


TABLE 8. INVESTMENT PORTFOLIO MATURITY SCHEDULES

        Table 8  summarizes  the  maturity  and average  yield of the  Company's
investment portfolio at December 31, 2000. Yields on non-taxable securities have
been computed on a tax equivalent basis using a 34% tax rate

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                                  After One But Within   After Five But Within
  (dollars in thousands)         Within One Year       Five Years              Ten Years        After Ten Years
-----------------------------------------------------------------------------------------------------------------
                                  Amount   Yield     Amount   Yield         Amount    Yield      Amount   Yield
<S>                                <C>     <C>      <C>        <C>         <C>         <C>      <C>        <C>
U.S. Treasury                      $998    5.90%    $    --                $    --              $    --
U.S. Government agencies             --      --      19,776    6.46%        11,395     7.39%         --
State and political subdivisions     --      --       1,560    7.10%         1,054     7.40%    $19,283    8.05%
Other                                --      --       1,397    6.69%            --                   --
Mortgage-backed securities           --      --          --      --             --       --          --      --
                                   ----    ----     -------    ----        -------     ----     -------    ----
Total                              $998    5.90%    $22,733    6.52%       $12,449     7.39%    $19,283    8.05%
                                   ====    ====     =======    ====        =======     ====     =======    ====
<CAPTION>
-----------------------------------------------------------------------------

  (dollars in thousands)           Mortgage Backed            Total
-----------------------------------------------------------------------------
<S>                               <C>         <C>      <C>          <C>
                                    Amount   Yield      Amount     Yield

U.S. Treasury                      $    --             $    998     5.90%
U.S. Government agencies                --               31,171     6.78%
State and political subdivisions        --               21,897     7.95%
Other                                   --                1,397     6.69%
Mortgage-backed securities          66,379    6.79%      66,379     6.79%
                                  --------    ----     --------     ----
Total                             $ 66,379    6.79%    $121,842     6.99%
                                  ========    ====     ========     ====
</TABLE>

         Securities-  The carrying value of the Company's  securities  portfolio
decreased  $16,128 or 12% from  $137,970 at December  31,  1999,  to $121,842 at
December 31, 2000. The proceeds from the net decline in the investment portfolio
were  used  primarily  to fund  loan  growth.  The  decrease  in the  investment
portfolio  consisted of decreases of $12,030 mortgage backed securities,  $9,002
in U.S.  Government  and Agency  securities,  offset by an increase of $4,668 in
state and  political  subdivision  and other  securities  of $236.  The yield on
taxable  securities  increased  from  5.61% for 1999 to 6.58% for 2000.  The tax
equivalent  yield for  non-taxable  securities  decreased from 8.08% for 1999 to
7.58% for 2000. The mortgage-backed  securities portfolio had a weighted average
remaining maturity of 2.86 years at December 31, 2000, compared to 3.56 years at
December 31, 1999  (utilizing  Bloomberg's  street  consensus).  The  collateral
underlying all the mortgage-backed securities is guaranteed by one of



                                       17
<PAGE>

the "quasi-governmental"  agencies, and therefore maintains a risk weight of 20%
for risk based  capital  purposes.  Management's  analysis  of  mortgage-related
securities  includes,  but is not limited to, the  average  lives,  seasonality,
coupon and historic behavior  (including  prepayment history) of each particular
security  over its life,  as affected  by various  interest  rate  environments.
Stress  tests are  performed  on each  security on a quarterly  basis as part of
Management's  ongoing  analysis.  At December  31,  2000,  based on stress tests
performed  by  Management,  a 300 basis point  increase and decrease in interest
rates  would  result  in  an  approximate   decrease  of  6%  and  4%  increase,
respectively,  in the present carrying value of these  securities.  There are no
issuers of securities other than governmental agencies, whose securities held by
the  Company,  have a book value in excess of 10% of the  Company  shareholders'
equity.  The Company's  securities  portfolio is also presented in Note 3 to the
consolidated financial statements.

TABLE 9. LOAN LOSS AND RECOVERY EXPERIENCE

         Asset Quality -See Note 1 to the consolidated  financial statements for
a discussion of the  Company's  policy for  establishing  the allowance for loan
losses.  Table 9. Sets forth the activity in the  allowance  for loan losses for
the last five years.

<TABLE>
<CAPTION>
                                                                                        Year ended December 31,
                                                                     --------------------------------------------------------------
                                                                        2000          1999         1998         1997          1996
                                                                     --------------------------------------------------------------
                                                                                            (dollars in thousands)
<S>                                                                  <C>           <C>          <C>          <C>          <C>
Total loans outstanding at year end                                  $ 132,334     $ 107,800    $ 109,613    $ 118,646    $ 110,242
Average loans outstanding during year                                  115,689        99,863      113,286      111,856      100,950

Allowance for loan losses at beginning of year                           4,272         4,700        1,702        1,266        1,177
Loans charged off:

   Commercial                                                              611           466        1,571          451          637
   Real estate mortgage                                                     83           198            0          256           52
   Installment loans to individuals                                         56           150          249          182           69
                                                                     ---------     ---------    ---------    ---------    ---------
Total charge-offs                                                          750           814        1,820          889          758

Recoveries of loans previously charged-off
   Commercial                                                              270           332          151           81          286
   Real estate mortgage                                                      3            20            0            0           25
   Installment loans to individuals                                         44            34           64           49           26
                                                                     ---------     ---------    ---------    ---------    ---------
Total recoveries                                                           317           386          215          130          337

Net charge-offs                                                            433           428        1,605          759          421
(Reversals) Additions to allowance charged to operations                  (259)            0        4,603        1,195          510
                                                                     =========     =========    =========    =========    =========
Allowance for loan losses at end of period                           $   3,580     $   4,272    $   4,700    $   1,702    $   1,266

Ratios of net charge-offs during year
   to average outstanding loans during year                               0.37%         0.43%        1.42%        0.68%        0.42%

Ratio of allowance for possible loan losses to total loans                2.71%         3.96%        4.29%        1.43%        1.15%
</TABLE>


                                       18
<PAGE>

TABLE 10. ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

        Table 10 sets for the  allocation of the allowance for loan losses as of
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>
                                                                           YEAR ENDED DECEMBER 31,
                                        --------------------------------------------------------------------------------------------
                                         2000    PERCENT    1999    PERCENT    1998    PERCENT    1997    PERCENT    1996    PERCENT
                                        --------------------------------------------------------------------------------------------
                                                                           (dollars in thousands)
<S>                                     <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>
Commercial (1)                          $1,956    54.64%   $1,927    45.11%   $3,461    73.64%   $1,378    80.96%   $1,075    84.91%
Real estate mortgage                       512    14.30%      543    12.71%      406     8.64%      117     6.87%       89     7.03%
Consumer                                   175     4.89%      173     4.05%      280     5.96%      182    10.69%       92     7.27%
Unallocated                                937    26.17%    1,629    38.13%      553    11.76%       25     1.47%       10      .79%
                                        ------   ------    ------   ------    ------   ------    ------   ------    ------   ------
Total                                   $3,580   100.00%   $4,272   100.00%   $4,700   100.00%   $1,702   100.00%   $1,266   100.00%
                                        ======   ======    ======   ======    ======   ======    ======   ======    ======   ======
<FN>
(1) Includes commercial real estate loans.
</FN>
</TABLE>

         The  allowance  for loan losses was $3,580 at  December  31,  2000,  as
compared to $4,272 December 31, 1999. The ratio of the allowance for loan losses
to total loans at December 31, 2000 and 1999 was 2.71% and 3.96%,  respectively.
At December 31, 2000, non-performing assets to total assets was .89% compared to
1.27% at December  31,1999.  Net charge-offs  only increased $5 to $433 for 2000
from $428 for 1999. A reverse  provision for loan losses of $259 was recorded in
2000, compared to no provision expense for 1999.  Additionally,  the unallocated
portion of the allowance  decreased to $937 from $1,629 at year-end  2000.  Also
see comment referring to non-performing assets.

         The level of the  allowance for loan losses is determined by management
on the basis of various  assumptions  and  judgments.  These include  levels and
trends of past due and non-accrual loans, trends in volume and changes in terms,
effects  of policy  changes,  experience  and depth of  management,  anticipated
economic conditions in the Washington,  DC metropolitan area,  concentrations of
credit, the composition of the loan portfolio,  prior loan loss experience,  and
the ongoing and periodic reviews of the loan portfolio by the Company's internal
and external loan review  function.  For impaired loans the Company  establishes
reserves in accordance  with SFAS 114 and SFAS 118, and for  non-impaired  loans
uses an allocation  approach  which relies on historical  loan loss  experience,
adjusted to reflect current conditions and trends.

         Although   management  believes  that  it  uses  the  best  information
available  to make such  determinations  that the  allowance  for loan losses is
adequate at December  31,  2000,  future  adjustments  to the  allowance  may be
necessary,  and net income could be  significantly  affected,  if  circumstances
and/or economic  conditions  differ  substantially  from the assumptions used in
making the initial  determination.  Any  downturn  in the real estate  market or
general economic conditions in the Washington, DC metropolitan area could result
in the  Company  experiencing  increased  levels of  non-performing  assets  and
charge-offs,  significant provisions for loan losses, and significant reductions
in net income. Additionally, various regulatory agencies periodically review the
Company's  allowance for loan losses.  Such agencies may require the recognition
of additions to the allowance based on their judgments of information  available
to them at the time of their examination.  In light of the foregoing,  there can
be no assurance that management's determination as to the future adequacy of the
allowance for loan losses will prove accurate,  or that additional  provision of
charge-offs will not be required.


                                       19
<PAGE>

TABLE 11 - NON-PERFORMING ASSETS

         Table 11 sets forth information concerning non-performing assets.

<TABLE>
<CAPTION>
                                                                                        YEAR ENDED DECEMBER 31,
                                                                      --------------------------------------------------------------
                                                                         2000          1999         1998         1997         1996
                                                                      --------------------------------------------------------------
                                                                                         (dollars in thousands)
<S>                                                                   <C>             <C>          <C>          <C>          <C>
Non-accrual loans (1)                                                 $   1,733       $2,819       $5,003       $  852       $2,006
Loans past due 90 days or more and still accruing                           659          275        1,474          753        1,267
Foreclosed properties                                                        --          265          525          522        1,310
                                                                      ---------       ------       ------       ------       ------

Total                                                                 $   2,392       $3,359       $7,002       $2,127       $4,583
                                                                      =========       ======       ======       ======       ======

Non-performing assets to gross loans and foreclosed
       properties at period end                                            1.81%        3.11%        6.36%        1.78%        4.11%
Non-performing loans to total loans                                        1.81%        2.87%        5.91%        1.35%        2.97%
Non-performing assets to total assets at period end                        0.89%        1.27%        2.59%        0.85%        1.94%
<FN>
(1)      Loans are placed on non-accrual status when in the opinion of management the collection of additional  interest is unlikely
         or a specific loan meets the criteria for non-accrual  status  established by regulatory  authorities.  No interest is take
         into income on non-accrual loans unless received in cash. A loan remains on non-accrual status until the loan is current to
         both principal and interest and the borrower  demonstrates the ability to pay and remain current,  or the loan becomes well
         secured  and is in the  process  of  collection.  The gross  interest  income  that would  have been  recorded  in 2000 for
         non-accrual loans at December 31,1999 had the loans been current in accordance with their original terms was $197. See Note
         1 to the consolidated financial statements. The Bank charges loans against the allowance for loan losses when it determines
         that  principal and interest or portions  thereof  become  uncollectible.  This is  determined  through an analysis of each
         individual credit,  including the financial condition and repayment capacity of the borrower, and of the sufficiency of the
         collateral, if any.
</FN>
</TABLE>

     Non-performing  assets at year-end 2000 were $2,392,  a decrease of $967 or
29% from year-end 1999. The decrease was primarily  attributable to Management's
continued  review  of the  loan  portfolio  and in  light  of  developments  and
improvements  in individual  loans since  December 31, 1999.  Non-accrual  loans
totaled  $1,733 for year-end  2000 and  consisted of $1,615 in real estate loans
and $118 in commercial  loans. This represented a decrease of $1,086 or 38% from
year-end 1999. As of December 31, 2000, loans past due 90 days or more and still
accruing  totaled  $659,  an  increase  of  $384  or  140%.  At  year-end  2000,
non-performing  assets  represented  11% of  total  capital  compared  to 19% at
year-end 1999. Additionally,  at year-end 2000,  non-performing assets and loans
with possible credit problems totaled $9,669 or 44% of total capital compared to
$9,946 or 57% at year-end 1999.

     At December 31, 2000, there were $7,277 of loans not reflected in the table
above,  where known  information  about  possible  credit  problems of borrowers
caused  management  to have doubts as to the  ability of the  borrower to comply
with  present loan  repayment  terms and that may result in  disclosure  of such
loans in the  future.  Included  in the total  are  twenty-one  loans,  totaling
$6,788,  fully  collateralized by real estate, four of which represent $3,497 of
the total.  The remaining  $489 consists of six commercial  loans,  one at $297,
secured primarily by accounts receivable and various business equipment.

         Deposits,  Other Sources of Funds and Liquidity- Deposits are generally
the most important  source of the Company's  funds for lending,  investing,  and
other  business  purposes.   Deposit  inflows  and  outflows  are  significantly
influenced  by  general  interest  rates,  market  conditions,  and  competitive
factors.  Total  deposits  decreased by $9,527 or 4%, from  December 31, 1999 to
December 31, 2000.

         During 1997,  the Company  began  raising  funds by selling  securities
under  agreements to  repurchase.  These fixed coupon  overnight  agreements are
accounted for as financing  transactions,  and the obligations to repurchase the
securities are reflected as a liability in the  consolidated  balance sheet.  At
December  31, 2000,  $41,133 of  repurchase  agreements  with an average rate of
5.40% were outstanding.

         In connection with the series of transaction  with the RTC, the Company
borrowed $1,000 from the RTC. These funds were contributed to the capital of the
Bank. For additional information regarding this borrowing refer to Note 8 to the
consolidated financial statements.



                                       20
<PAGE>

         The Company's  principal sources of funds are deposits,  repayments and
maturities of loans and  securities,  proceeds  from the sale of securities  and
funds  provided by  operations.  The Company's  sources and uses of cash for the
years  ended  December  31,  2000  and 1999 are  presented  in the  consolidated
statement of cash flows.  The Company  anticipates  that it will have sufficient
funds available to meet current and future commitments.

 TABLE 12. TIME DEPOSIT MATURITY SCHEDULE

         Table 12 presents  certain  information  related to the Company's  time
deposits.

<TABLE>
<CAPTION>
                                                                              At December 31, 2000
                                                ------------------------------------------------------------------------------
                                                                             (dollars in thousands)
                                                3 Months or Less    4 to 6 Months   7 to 12 Months   Over 12 Months     Total
<S>                                             <C>                 <C>             <C>              <C>               <C>
Time certificates of deposit of $100M or more   $          2,995    $       4,331   $        1,752   $        4,635    $13,713
Time certificates of deposit less than $100M              11,026            8,810            8,900            4,132     32,868
                                                ----------------    -------------   --------------   --------------    -------
Total (1)                                                $14,021          $13,141          $10,652          $ 8,767    $46,581
<FN>
1) Excludes $7,836 in money market demand deposits.
</FN>
</TABLE>

         Shareholder's  Equity and Other  Matters - The payment of  dividends by
the  Company  depends  largely  upon the  ability of the Bank to declare and pay
dividends to the Company,  as the principal  source of the Company's  revenue is
dividends  paid by the Bank.  Future  dividends  will depend  primarily upon the
Bank's  earnings,   financial  condition,   and  need  for  funds,  as  well  as
governmental  policies and  regulations  applicable to the Company and the Bank.
Refer  to  Note  9 to  the  consolidated  financial  statements  for  additional
information related to the Company's dividend paying authority.

         The  Company  and the Bank are  subject to certain  regulatory  capital
requirements. Management believes, as of December 31, 2000, that the Company and
the Bank meet all the capital  adequacy  requirements to which they are subject.
As of December 31,  2000,  the most recent  notification  from the Office of the
Comptroller  of  Currency  categorized  the Bank as well  capitalized  under the
regulatory  framework  for  prompt  corrective  action.  Refer to Note 10 to the
consolidated  financial  statements for additional related to regulatory capital
requirements.

         Effect of Inflation - The consolidated financial statements and related
data  presented   herein  have  been  prepared  in  accordance  with  accounting
principles generally accepted in the United States which require the measurement
of financial  position and results of operations in terms of historical  dollars
(except investment securities) without considering the relative purchasing power
of money over time  because of  inflation.  Unlike  most  industrial  companies,
virtually  all of the assets and  liabilities  of a  financial  institution  are
monetary in nature. As a result,  interest rates have a more significant  impact
on a financial  institution's  performance than the effects of general levels of
inflation.  Interest rates do not  necessarily  move in the same direction or in
the same magnitude as the price of goods and services.  In the current  interest
rate environment,  liquidity,  maturity structure,  and quality of the Company's
assets and liabilities are critical to the maintenance of acceptable performance
levels.

         Formal  Agreement  with the OCC. On August 25,  1998,  the Bank entered
into a Formal Agreement (the  "Agreement") with the Office of the Comptroller of
the Currency (the "OCC").  The Agreement  requires the Bank to undertake certain
actions  within  designated  timeframes  from the date the agreement was entered
into, and to operate in compliance with the provisions  thereof during its term.
See Item 1 for additional information regarding the Formal Agreement.


                                       21
<PAGE>

ITEM 7. FINANCIAL STATEMENTS.

                          INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors
of IBW Financial Corporation and subsidiary
4812 Georgia Avenue, NW
Washington, DC 20011

We have audited the  accompanying  consolidated  balance sheets of IBW Financial
Corporation  and subsidiary (the "Company") as of December 31, 2000 and 1999 and
the related consolidated  statements of income, changes in shareholders' equity,
and cash flows for the years then  ended.  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.

As discussed in Note 2 to the financial  statements,  at December 31, 2000,  IBW
Financial Corporation's  subsidiary,  the Industrial Bank, National Association,
is operating under a formal  agreement with the Office of the Comptroller of the
Currency  (the "OCC") dated  August  25,1998,  that  requires it to meet certain
prescribed actions in accordance with OCC specified deadlines.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of IBW  Financial
Corporation  and  subsidiary  at December 31, 2000 and 1999,  and the results of
their  operations  and their cash  flows for the years then ended in  conformity
with accounting principals generally accepted in the United States.

/s/  Stegman & Company

Baltimore, Maryland
January 22, 2001


                                       22
<PAGE>

IBW FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                        2000                1999
<S>                                                                                                   <C>                 <C>
ASSETS
    Cash and cash equivalents:
       Cash and due from banks                                                                        $  10,896           $  13,733
        Federal funds sold                                                                                   --               1,700
                                                                                                      ---------           ---------

                      Total cash and cash equivalents                                                    10,896              15,433
                                                                                                      ---------           ---------

   Interest-bearing deposits in other banks                                                               1,305                 988

   Securities available-for-sale, at fair value                                                         121,842             137,970

   Loans receivable - net of allowance for loan losses
     of $3,580 and $4,272                                                                               128,047             102,998
   Other real estate owned - net                                                                             --                 265
   Bank premises and equipment - net                                                                      2,073               2,389
   Accrued interest receivable                                                                            2,010               1,665
   Deferred income taxes                                                                                    553               2,235
   Other assets                                                                                           1,320               1,251
                                                                                                      ---------           ---------
                     Total Assets                                                                     $ 268,046           $ 265,194
                                                                                                      =========           =========

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES:
    Noninterest bearing deposits                                                                      $  63,207           $  60,739
    Interest bearing deposits                                                                           139,740             151,735
                                                                                                      ---------           ---------

                      Total deposits                                                                    202,947             212,474

    Short term borrowings                                                                                42,033              33,733
    Other liabilities                                                                                       930               1,496
                                                                                                      ---------           ---------

                      Total liabilities                                                                 245,910             247,703

Shareholders' Equity:
     Preferred stock - $1 par value; 1,000,000 (500,000 voting and
        500,000 nonvoting) authorized; 20,000 Series A nonvoting                                            500                 500
        issued and outstanding, stated at liquidation value
    Common stock - $1 par value; 1,000,000 shares authorized;
       668,360 issued and outstanding                                                                       668                 668
    Capital surplus                                                                                       5,051               5,051
    Retained earnings                                                                                    14,770              13,034
    Accumulated other comprehensive income                                                                1,147              (1,762)
                                                                                                      ---------           ---------

                      Total shareholders' equity                                                         22,136              17,491
                                                                                                      ---------           ---------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                            $ 268,046           $ 265,194
                                                                                                      =========           =========
</TABLE>


See notes to consolidated financial statements.


                                       23
<PAGE>

IBW FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                        2000                 1999
<S>                                                                                                   <C>                  <C>
INTEREST INCOME:
    Interest and fees on loans                                                                        $ 10,676             $  9,115
    U.S. Treasury securities                                                                                63                   90
    Obligations of U.S. Government agencies and corporations                                             2,377                2,886
    Collateralized mortgage obligations                                                                  4,775                4,283
    Obligations of states and political subdivisions                                                     1,053                  694
    Bank balances and other securities                                                                     141                   99
    Federal funds sold                                                                                     166                  613
                                                                                                      --------             --------

                      Total interest income                                                             19,251               17,780
                                                                                                      --------             --------

INTEREST EXPENSE:
    Time certificates over $100,000                                                                        654                  844
    Other savings and time deposits                                                                      3,270                3,656
    Short term borrowings                                                                                2,292                1,409
                                                                                                      --------             --------

                      Total interest expense                                                             6,216                5,909
                                                                                                      --------             --------

NET INTEREST INCOME                                                                                     13,035               11,871
                                                                                                      --------             --------

(REVERSAL OF) PROVISION FOR LOAN LOSSES                                                                   (259)                  --
                                                                                                      --------             --------

NET INTEREST INCOME AFTER (REVERSAL OF) PROVISION FOR LOAN LOSSES                                       13,294               11,871
                                                                                                      --------             --------

NONINTEREST INCOME:
    Service charges on deposit and checking accounts                                                     2,710                2,620
    Other fee income                                                                                     1,086                  852
    Loss on sales of investment securities                                                                (200)                (221)
    Other income                                                                                           189                  168
                                                                                                      --------             --------

                      Total noninterest income                                                           3,785                3,419
                                                                                                      --------             --------

NONINTEREST EXPENSE:
    Salaries and employee benefits                                                                       8,122                6,979
    Occupancy                                                                                              719                  755
    Furniture and equipment                                                                              1,010                  788
    Data processing                                                                                        785                  703
    Advertising                                                                                            259                  164
    Other                                                                                                3,378                3,662
                                                                                                      --------             --------

                      Total noninterest expense                                                         14,273               13,051
                                                                                                      --------             --------
</TABLE>


                                       24
<PAGE>

IBW FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------

<TABLE>
<S>                                                                                                <C>                      <C>
INCOME BEFORE INCOME TAXES                                                                         $  2,806                 $  2,239

INCOME TAX PROVISION                                                                                    644                      543
                                                                                                   --------                 --------

NET INCOME                                                                                         $  2,162                 $  1,696
                                                                                                   ========                 ========

BASIC AND DILUTED NET INCOME PER COMMON SHARE                                                      $   3.20                 $   2.50
                                                                                                   ========                 ========


WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING                                                       668,360                  668,360
                                                                                                   ========                 ========
</TABLE>

See notes to consolidated financial statements.


                                       25
<PAGE>

IBW FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                            ACCUMULATED
                                                                                                               OTHER
                                                          PREFERRED     COMMON       CAPITAL    RETAINED   COMPREHENSIVE
                                                            STOCK       STOCK        SURPLUS    EARNINGS       INCOME       TOTAL
<S>                                                       <C>          <C>          <C>         <C>           <C>          <C>
BALANCE, JANUARY 1, 1999                                  $    500     $    668     $  5,051    $ 11,463      $    235     $ 17,917

   Net income                                                   --           --           --       1,696            --        1,696
   Other comprehensive income, net of tax
     (unrealized gains on securities                            --           --           --                        --
     available-for-sale of $2,088, net of
      reclassification adjustment for gains
      of $91 included in net income)                            --           --           --          --        (1,997)      (1,997)
                                                                                                                           --------

          Total comprehensive income (loss)                     --           --           --          --            --         (301)

Cash dividends paid:
    Preferred stock $1.25 per share                                                                  (25)                       (25)
     Common stock $0.15 per share                               --           --           --        (100)           --         (100)
                                                          --------     --------     --------    --------      --------     --------

BALANCE, DECEMBER 31, 1999                                     500          668        5,051      13,034        (1,762)      17,491

   Net income                                                                                      2,162            --        2,162
   Other comprehensive income, net of tax
     (unrealized losses on securities
     available-for-sale of $3,040, net of
      reclassification adjustment for losses                    --           --           --                        --           --
      of $131 included in net income)                                                                            2,909        2,909
                                                                                                                           --------

          Total comprehensive income                                                                                          5,071

Cash dividends paid:
    Preferred stock $1.25 per share                                                                  (25)                       (25)
     Common stock $0.60 per share                               --           --           --        (401)           --         (401)
                                                          --------     --------     --------    --------      --------     --------

BALANCE, DECEMBER 31, 2000                                $    500     $    668     $  5,051    $ 14,770      $  1,147     $ 22,136
                                                          ========     ========     ========    ========      ========     ========
</TABLE>

See notes to consolidated financial statements.


                                       26
<PAGE>

IBW FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                         2000                 1999
<S>                                                                                                    <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                                                         $  2,162            $  1,696
    Adjustments to reconcile net income
         to net cash provided by operating activities:
        Depreciation                                                                                        431                 404
        Amortization of goodwill and intangibles                                                            161                 162
        (Reversal of) Provision for loan losses                                                            (259)                 --
        Deferred income taxes                                                                               186                  48
        Accretion/amortization of premium                                                                   327               1,151
        (Gain) loss on sale of real estate owned                                                             (1)                  8
        Loss on sale of investment securities                                                               200                 221
        (Reversal) Provision for loss on real estate owned                                                   --                 108
        Interest capitalized on securities                                                                   --                (390)
        (Increase) Decrease in accrued interest receivable                                                 (345)                259
        (Increase) Decrease in other assets                                                                (426)                350
        (Decrease) increase in accrued expenses and other liabilities                                      (566)                173
                                                                                                       --------            --------

                      Net cash provided by operating activities                                           1,870               4,190
                                                                                                       --------            --------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Proceeds from principal payments on securities available-for-sale                                    12,864              25,453
    Proceeds from maturities of investment securities available-for-sale                                 12,646              26,008
    Proceeds from sale of investment securities available-for-sale                                       20,997              33,483
    Purchase of investment securities available-for-sale                                                (26,304)            (95,541)
    Net increase in interest-bearing deposits in banks                                                     (317)               (583)
    Net (increase) decrease in loans                                                                    (24,790)              1,471
    Additions to bank premises and equipment, net                                                          (116)               (251)
    Proceeds from sale of real estate owned                                                                 266                 144
                                                                                                       --------            --------

                      Net cash used in investing activities                                              (4,754)             (9,816)
                                                                                                       --------            --------
</TABLE>


See notes to consolidated financial statements


                                       27
<PAGE>

IBW FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                       2000                  1999
<S>                                                                                                  <C>                   <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
    Net decrease in deposits                                                                         $ (9,527)             $(11,653)
    Net increase in short term borrowings                                                               8,300                 7,122
    Dividends paid                                                                                       (426)                 (125)
                                                                                                     --------              --------

                       Net cash used in financing activities                                           (1,653)               (4,656)
                                                                                                     --------              --------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                                              (4,537)              (10,282)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                                         15,433                25,715
                                                                                                     --------              --------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                                             $ 10,896              $ 15,433
                                                                                                     --------              --------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

        Income taxes                                                                                 $    591              $    125
                                                                                                     --------              --------

        Interest                                                                                     $  6,168              $  5,995
                                                                                                     --------              --------

NON CASH TRANSACTIONS:

        Transfers of loans to other real estate owned                                                $     --              $     40
                                                                                                     --------              --------
</TABLE>


See notes to consolidated financial statements.


                                       28
<PAGE>

IBW FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

IBW Financial  Corporation (the "Corporation") is a one bank holding company for
its wholly owned subsidiary, Industrial Bank, National Association (the "Bank").
The  accounting  and  reporting  policies  of  IBW  Financial   Corporation  and
subsidiary (the "Company") conform to accounting  principles  generally accepted
in the United States and prevailing  practices within the banking industry.  The
following summarizes the significant accounting policies.

Consolidation - The consolidated  financial  statements  include the accounts of
the  Corporation and the Bank. All significant  inter-company  transactions  and
balances have been eliminated.

Use of Estimates - The  preparation of financial  statements in accordance  with
accounting   principles   generally  accepted  in  the  United  States  requires
management to make estimates and assumptions that affect the amounts reported in
the financial  statements and  accompanying  notes.  Actual results could differ
from those estimates.  In addition,  there are inherent risks and  uncertainties
related to the operation of a financial institution, such as credit and interest
rate risk. The possibility exists that because of changing economic  conditions,
unforeseen  changes  could  occur and have an  adverse  effect on the  Company's
financial position.

Investment Securities - The Company may segregate its investment securities into
the following three categories:  trading,  held-to-maturity,  and available-for-
sale.  Trading  securities are purchased and held principally for the purpose of
reselling them within a short period of time.  Their unrealized gains and losses
are  included  in  earnings.   Securities  classified  as  held-to-maturity  are
accounted  for at  amortized  cost,  and  require  the  Company to have both the
positive intent and ability to hold these securities to maturity. Securities not
classified  as  either  trading  or   held-to-maturity   are  considered  to  be
available-for-sale. Unrealized gains and losses on available-for-sale securities
are excluded from earnings and reported,  net of deferred  taxes, as accumulated
other  comprehensive  income,  a separate  component  of  shareholders'  equity.
Realized  gains or losses on the sale of investment  securities  are reported in
earnings and determined using the adjusted cost of the specific security sold.

Loans - Loans are reported at the principal  amount  outstanding net of deferred
fees and costs and the allowance for possible loan losses.  Interest on loans is
accrued at the  contractual  rate based upon the principal  amount  outstanding.
Loan fees and related direct loan origination  costs are deferred and recognized
over the life of the loan as an  adjustment  to the yield of the loan as part of
interest  income.  Loans are placed on non-accrual  status when management deems
the  collectibility of interest is doubtful.  Interest  ultimately  collected is
recorded in the period  received.  Accruals  are resumed on loans only when they
are brought  fully  current with respect to interest and  principal and when, in
the judgment of management,  the loan is estimated to be fully collectible as to
both principal and interest.

Allowance  for Loan Losses - The  allowance  for loan losses is  maintained at a
level  believed by  management  to be adequate to provide for known and inherent
risks in the loan  portfolio and  commitments  to extend  credit.  The Company's
policy  for  determination  of the  adequacy  of the  allowance  is  based on an
evaluation of past loan loss experience;  current economic  conditions;  volume,
growth, and composition of the loan portfolio;  and other relevant factors.  The
allowance is increased by provisions for loan losses charged  against income and
recoveries and reduced by charge-offs. The Company's policy measuring impairment
on  impaired  loans is based on the fair value of the  collateral.  The  Company
considers a loan impaired when, based on current  information and events,  it is
probable that the Company will be unable to collect all amounts due according to
the contractual terms of the loan agreement.  The Company's policy considers all
current  information,  including the borrower's ability to repay, the fair value
of the collateral,  and other pertinent  information in determining if a loan is
impaired.  The Company  generally  considers  residential  real estate loans and
installment loans to be smaller balance  homogenous loans,  which are aggregated
and  collectively  evaluated for  measurement of impairment.  The amount of loan
losses the Company may ultimately realize could differ from these estimates.


                                       29
<PAGE>

The  allowance  for  loan  losses  consists  of an  allocated  component  and an
unallocated component.  The components of allowance for loan losses represent an
estimation done pursuant to either Statement of Financial  Accounting  Standards
("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 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.

Bank  Premises and  Equipment - Premises and  equipment  are stated at cost less
accumulated   depreciation.   Depreciation   is  charged  to   operations  on  a
straight-line  basis over the estimated  useful lives of assets which range from
approximately three to forty years.

Other Real Estate Owned - Other real estate owned represents properties acquired
through  foreclosures or other  proceedings in satisfaction of indebtedness.  At
the date of  acquisition  such property is recorded at the lower of cost or fair
value.  Subsequent to  acquisition,  the property is carried at the lower of the
fair value, less estimated costs to sell, or its new cost basis.  Write-downs to
fair value, less estimated costs to sell, at the date of acquisition are charged
to the allowance for losses.  Declines in fair value,  operating  expenses,  and
gains or losses on the  disposition  of other real  estate are  reported  in non
interest expense. The amounts the Company will ultimately realize on disposition
of these properties could differ from management's current estimates.

Earnings  Per Share  ("EPS") - Net income  available to common  shareholders  is
adjusted to give effect for dividends on preferred  stock.  Net income available
to common  shareholders  for basic and diluted EPS purposes is $2,137 and $1,671
for the years ended December 31, 2000 and 1999 respectively.  Earnings per share
is computed based on the weighted  average  number of common shares  outstanding
during the year (668,360 for both 2000 and 1999).  Basic and diluted EPS are the
same, as the Corporation had no dilutive common stock equivalents outstanding as
of December 31, 2000 or 1999 and for the years then ended.

Income  Taxes  -  The  Corporation  and  its  wholly  owned  subsidiary  file  a
consolidated  federal  income  tax  return.   Deferred  income  tax  assets  and
liabilities are computed annually for differences  between  financial  statement
and tax  basis of  assets  and  liabilities  that  will  result  in  taxable  or
deductible  amounts  in the  future  based on the  enacted  tax  laws and  rates
applicable to periods in which the  differences  are expected to affect  taxable
income. Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized.  Income tax expense is the tax
payable or refundable  for the period  adjusted for the change during the period
in deferred tax assets and liabilities.

Intangibles - At December 31, 2000 and 1999,  other assets included  goodwill of
$463,  and $517,  net of  accumulated  amortization  of $358,and  $304, and core
deposit intangibles of $154, and $260, net of accumulated  amortization of $696,
and $590,  respectively.  Goodwill is being amortized over fifteen years and the
core deposit intangibles over eight years, both on the straight-line basis.

Statement  of Cash Flows - For  purposes of the  consolidated  statement of cash
flows, cash equivalents are highly liquid  investments with original  maturities
of three  months or less.  Included  in cash and due from  banks  were  required
deposits at the Federal Reserve Bank of $5,500 and $6,564,  at December 31, 2000
and 1999, respectively.


                                       30
<PAGE>

New Accounting  Pronouncements - Statement of Financial Accounting Standards 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 flow 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,  2001,  the  statement's
effective  date. The impact of adopting the provisions of this statement did not
have any effect on the Company's financial  position,  results of operations and
cash flows.

Reclassifications - Certain reclassifications have been made to the prior year's
consolidated financial statements to conform to the 2000 presentation.

2.       FORMAL AGREEMENT

On August 25, 1998, the Bank entered into a Formal  Agreement (the  "Agreement")
with the Office of the  Comptroller  of the Currency  (the OCC).  The  Agreement
requires the Bank to undertake certain actions within designated timeframes from
the date the Agreement was entered into,  and to operate in compliance  with the
provisions thereof during its term.

Among the actions required by the Agreement are the following: (i) Within thirty
days,  the Bank shall employ an independent  management  consultant to perform a
study of the Bank's management structure and staffing requirements,  including a
report identifying staffing  requirements,  job descriptions and evaluations for
senior officers, and evaluating organizational structure. The Board of Directors
(the  Board) is  required  to adopt  within  thirty  days of the  receipt of the
report,  a plan to  eliminate  any  deficiencies  in  management,  staffing,  or
supervision  of  management;  (ii) The Board is required to take steps to obtain
current and satisfactory  credit  information on loans without such information,
and to insure that proper collateral documentation is maintained. Management may
not  grant,  renew,   alter,   restructure  or  extend  a  loan  without  proper
documentation  and  analysis  of  credit,  purpose  and  anticipated  source  of
repayment.  In  absence  of such  information,  such loans may be made only upon
certification of a majority of the Board why obtaining such information would be
detrimental to the best interest of the Bank; (iii) Within thirty days the Board
shall adopt a written  program to eliminate  the basis of  criticism  for assets
rated  "doubtful",  "substandard" or "other assets  especially  mentioned;" (iv)
Within  thirty  days the Board shall  establish  a loan review  system to assure
timely  identification  and  categorization  of problem  credits and implement a
process to insure the loan review function is independent; (v) Within sixty days
the Board shall review and revise the Bank's loan policy based upon the guidance
on Loan  Portfolio  Management  in the  Comptroller's  Manual for National  Bank
Examiners.  Within thirty days thereafter,  the Board shall develop a process to
ensure  accountability  for lending  personnel;  (vi) The Board shall notify the
Assistant Deputy Comptroller before all loan sales; (vii) Within sixty days, the
Board  shall  develop a written  program to improve  and  strengthen  collection
efforts;  (viii)  Within  ninety days the Board  shall  develop a profit plan to
improve and sustain the Bank's  earnings;  (ix) Within 120 days, the Board shall
adopt and implement a strategic plan for the Bank covering at least three years,
including  objectives for earnings  performance,  balance sheet mix, off-balance
sheet activities, liability structure, capital adequacy, reduction in the volume
of non-performing  assets, product line development and market segments intended
to be developed,  together with strategies to achieve those objectives;  (x) The
Board shall take all steps  necessary to correct any  violation of law,  rule or
regulation cited in any report of examination;  (xi) Within thirty days the Bank
shall submit a revised written project plan with respect to Year 2000 compliance
of the Bank's  information and environmental  systems,  including a testing plan
and, within sixty days, a remediation  contingency plan in the event any systems
are not compliant by the date set forth in the plan.

Compliance   with  the  Agreement  is  to  be  monitored  by  a  committee  (the
"Committee")  of at least  three  directors,  none of whom is an employee of the
Bank or a family member of an employee. The Committee, presently composed



                                       31
<PAGE>

of four directors,  is required to submit written  progress reports on a monthly
basis. The Agreement requires the Bank to make periodic reports and filings with
the OCC.

The Agreement does not contain any capital  directive or other  requirement that
the Bank increase its capital,  or maintain a minimum level of capital in excess
of generally applicable regulatory capital requirements.

As of January 22,  2001,  the Bank has  submitted  to the OCC all of the written
plans,  policies  and  other  information  required  by the  Agreement,  and all
revisions  requested by the OCC, although certain  submissions were made outside
of the time limits required by the Agreement.

There can be no assurance  that the Bank's  regulators  will deem the Bank to be
compliant  under  the  Agreement,  or that  they  will  not  require  additional
compliance efforts. Failure to comply with the provisions of the Agreement could
subject the Bank and its directors to additional enforcement actions,  including
but not limited to a cease and desist  order,  a safety and  soundness  order or
civil money  penalties.  If the  directors  of the Bank become  subject to civil
money  penalties or other  actions,  the Company or the Bank may be obligated to
indemnify such directors.

3.       INVESTMENT SECURITIES

At December 31, 2000 and 1999, the amortized cost and approximate  fair value of
securities available-for-sale were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                        DECEMBER 31, 2000
                                                           -------------------------------------------------------------------------
                                                              AMORTIZED          UNREALIZED           UNREALIZED          ESTIMATED
                                                                 COST               GAINS               LOSSES            FAIR VALUE
<S>                                                            <C>                 <C>                 <C>                <C>
U.S. Treasury Notes                                            $    999            $     --            $     (1)          $    998
U.S. Government Agencies                                         30,192               1,028                 (49)            31,171

Mortgage-Backed Securities:
    Pass-through securities:
        Guaranteed by GNMA                                           19                   1                  --                 20
        Issued by FNMA and FHLMC                                      5                  --                  --                  5

Collateralized Mortgage Obligations:
        Collateralized by FNMA, FHLMC and
            GNMA mortgage-backed securities                      66,289                 388                (323)            66,354

Securities issued by states and political subdivision:
        General obligations                                      13,232                 339                 (42)            13,529
        Revenue obligations                                       5,509                 263                 (18)             5,754
        Taxable obligations                                       2,477                 137                  --              2,614

Equity Securities                                                 1,380                  17                  --              1,397
                                                               --------            --------            --------           --------

TOTAL                                                          $120,102            $  2,173            $   (433)           121,842
                                                               ========            ========            ========           ========

Weighted average interest rate                                     6.99%
                                                               ========
</TABLE>


                                       32
<PAGE>

The  following is a summary of the amortized  cost and  estimated  fair value of
investment securities  available-for-sale by contractual maturity as of December
31, 2000.  Expected  maturities will differ from contractual  maturities because
borrowers may have the right to call or prepay  obligations with or without call
or prepayment penalties (in thousands).

<TABLE>
<CAPTION>
                                                                                                       DECEMBER 31, 2000
                                                                                            ----------------------------------------
                                                                                                                         ESTIMATED
                                                                                              AMORTIZED                    FAIR
                                                                                                 COST                      VALUE
<S>                                                                                            <C>                        <C>
Due in one year or less                                                                        $    999                   $    998
Due after one year through five years                                                            22,311                     22,734
Due five through ten years                                                                       11,738                     12,449
Due after ten years                                                                              18,741                     19,282
Pass through securities                                                                              24                         25
Collateralized mortgage obligations                                                              66,289                     66,354
                                                                                               --------                   --------

Total                                                                                          $120,102                   $121,842
                                                                                               ========                   ========
</TABLE>

Proceeds from the sale of securities available-for-sale were $24,381 and $33,483
for the year ended  December  31, 2000 and 1999,  respectively,  and resulted in
realized losses of $220 for 2000 and $221 for 2000 and 1999 respectively.

Securities  of $3,613 and $4,757 at December 31, 2000 and 1999,  were pledged as
collateral  for public  deposits  and for other  purposes  required  by law.  At
December  31,  2000  and  1999,  the  carrying  value of  securities  underlying
repurchase agreements was $63,369 and $33,940, respectively.

4.       LOANS RECEIVABLE

Loans receivable consist of the following (in thousands) at December 31:

<TABLE>
<CAPTION>
                                                                                                      2000                    1999
<S>                                                                                                 <C>                     <C>
Real estate loans:
    Collateralized by residential property:
        First mortgages                                                                             $ 55,304                $ 50,748
        Second mortgages                                                                               1,307                   2,078
    Collateralized by non-residential properties                                                      58,772                  40,125
Commercial                                                                                            10,958                  10,046
Installment                                                                                            5,993                   4,803
                                                                                                    --------                --------

     Total                                                                                           132,334                 107,800

Less:
    Deferred fees and costs, net                                                                         707                     530
    Allowance for loan losses                                                                          3,580                   4,272
                                                                                                    --------                --------

Net loans                                                                                           $128,047                $102,998
                                                                                                    ========                ========
</TABLE>


                                       33
<PAGE>

Major loan concentrations are as follows (in thousands):

<TABLE>
<CAPTION>
                                                             2000          1999
<S>                                                        <C>           <C>
Church loans collateralized by real estate                 $16,020       $12,786
Installment loans to churches                                   51            36
Commercial loans to churches                                   710           240
                                                           -------       -------
Total loans to churches                                    $16,781       $13,062
                                                           =======       =======
</TABLE>

Substantially  all of the Bank's  loans have been made to  borrowers  within the
Washington,  DC  metropolitan  area.  Accordingly,  the  ability  of the  Bank's
borrowers to repay their loans is dependent upon the economy in the  Washington,
DC metropolitan area.

A summary of  transactions  in the  allowance  for loan losses is as follows (in
thousands) at December 31:

<TABLE>
<CAPTION>
                                                              2000        1999
<S>                                                         <C>         <C>
Balance, beginning of year                                  $ 4,272     $ 4,700

           (Reversal of ) Provision for loan losses            (259)         --
           Recoveries                                           317         386
           Charge-offs                                         (750)       (814)
                                                            -------     -------

Balance, end of year                                        $ 3,580     $ 4,272
                                                            =======     =======
</TABLE>

At December 31, 2000 and 1999, loans that were considered to be impaired totaled
$1,350 and $2,819,  respectively.  The related  allowance  allocated to impaired
loans was $318 and  $1,520 at  December  31,  2000 and 1999,  respectively.  The
average balance of impaired loans for the years ended December 31, 2000 and 1999
was $2,187 and $3,934,  respectively.  Interest  income that was not recorded on
impaired  loans for the years ended  December  31,  2000 and 1999,  was $197 and
$274, respectively.

5.       BANK PREMISES AND EQUIPMENT

The  major  categories  of  bank  premises  and  equipment  are as  follows  (in
thousands):

<TABLE>
<CAPTION>
                                                          2000            1999
<S>                                                     <C>             <C>
Bank premises                                           $ 2,389         $ 2,389
Furniture, fixtures, and equipment                        3,645           3,530
                                                        -------         -------

TOTAL                                                   $ 6,034         $ 5,919

Less accumulated depreciation                            (3,961)         (3,530)
                                                        -------         -------

Bank premises and equipment, net                        $ 2,073         $ 2,389
                                                        =======         =======
</TABLE>

Depreciation  expense for the years ended December 31, 2000 and 1999 is $431 and
$404, respectively.


                                       34
<PAGE>

6.       DEPOSITS

Deposits consist of the following (in thousands) at December 31, 2000:

<TABLE>
<CAPTION>
                                                                       DEMAND           SAVINGS             TIME             TOTAL
<S>                                                                   <C>               <C>               <C>               <C>
Individuals, partnerships, and corporations                           $ 59,837          $ 85,323          $ 51,894          $197,054
U.S. government                                                             82                --             2,190             2,272
States and political subdivisions                                           --                --               333               333
Certified and official checks                                            3,288                --                --             3,288
                                                                      --------          --------          --------          --------

Total                                                                 $ 63,207          $ 85,323          $ 54,417          $202,947
                                                                      ========          ========          ========          ========

Weighted average interest rate                                                              1.75%             4.45%
                                                                                        ========          ========
</TABLE>

Deposits consist of the following (in thousands) at December 31, 1999:

<TABLE>
<CAPTION>
                                                                       DEMAND           SAVINGS             TIME              TOTAL
<S>                                                                   <C>               <C>               <C>               <C>
Individuals, partnerships, and corporations                           $ 57,537          $ 90,567          $ 58,744          $206,848
U.S. Government                                                             62                --             2,095             2,157
States and political subdivisions                                           --                --               329               329
Certified and official checks                                            3,140                --                --             3,140
                                                                      --------          --------          --------          --------

Total                                                                 $ 60,739          $ 90,567          $ 61,168          $212,474
                                                                      ========          ========          ========          ========

Weighted average interest rate                                                              1.69%             3.76%
                                                                                        ========          ========
</TABLE>

Demand deposits  represent  non-interest-bearing  deposit  accounts.  Individual
certificates of deposit of $100 or more at December 31, 2000 and 1999,  totaling
$13,713 and $16,329,  respectively,  are included in time deposits. The bank has
no brokered deposits.

At December 31, 2000,  the scheduled  maturities of Time Deposits are as follows
(in thousands):

<TABLE>
<CAPTION>
                                                                AVERAGE RATE
<S>                                             <C>                 <C>
2001                                            $45,651             4.46%
2002                                              2,686             4.93%
2003                                              4,072             4.32%
2004                                              2,008             3.81%
                                                -------
                                                $54,417
                                                =======
</TABLE>

7.       SHORT-TERM BORROWINGS

At December 31, 2000 and 1999,  securities  sold under  agreements to repurchase
were $41,133 and $32,733  respectively.  These are fixed coupon  agreements that
are treated as financing  transactions,  and the  obligations  to repurchase are
reflected as a liability in the consolidated  balance sheets.  The amount of the
securities   underlying  the  Agreements  remains  in  the  asset  account.  The
securities  are held in a segregated  account by the  Company's  custodian.  The
securities  underlying the  repurchase  agreements at December 31, 2000 and 1999
had  a  fair  value  of  $63,369  and  $33,940,  respectively.  All  outstanding
repurchase  agreements  at December 31, 2000 and 1999 matured on January 1, 2000
and 1999,  respectively.  The outstanding  repurchase  agreements had an average
interest rate of



                                       35
<PAGE>

5.40% and 2.45% at December 31, 2000 and 1999, respectively. The average balance
and the average interest rate for the year ended December 31, 2000 and 1999 were
$39,176  and 5.30% and  $34,787 and 3.91%,  respectively.  For 1999,  short-term
borrowings include the $1,000 note payable and was paid on July 3, 2000.

The company has a line of credit  arrangement with the Federal Home Loan Bank of
Atlanta (the "FHLB")  under which it may borrow up to $25,000 at interest  rates
based upon current market conditions,  of which $900 was outstanding at December
31,  2000.  The  Company  has  pledged,  under a blanket  lien,  all  qualifying
residential  mortgage loans as collateral under the borrowing agreement with the
FHLB.

8.       NOTE PAYABLE

In  connection  with the  acquisition/assumption  of  certain  Resolution  Trust
Corporation ("RTC") assets and liabilities in 1994, the Corporation and the Bank
executed an Interim Capital Assistance Agreement ("RTC Agreement") with the RTC.
In accordance  with the  provisions of the Agreement and the related  Promissory
Note,  the  Corporation  borrowed  $1,000  from the RTC.  As required by the RTC
Agreement,   the  Corporation  invested  all  the  proceeds  in  the  Bank.  The
Corporation  pledged to the RTC all the issued and outstanding shares of capital
stock of the Bank to secure the Promissory  Note. The note accrued interest at a
variable rate based on the 13-week U.S. Treasury Bill rate, reset quarterly. The
interest  rate at December 31, 1999,  was 4.49%.  The note was repaid on July 3,
2000.

9.       SHAREHOLDERS' EQUITY

Shareholders'  equity  increased  $4,645 or 26% to $22,136 at December  31, 2000
from $17,491 at December 31, 1999. The increase is  attributable  to an increase
of $2,909 in the unrealized gain on available-for-sale  securities,  net of tax,
and an increase in retained  earnings of $1,736.  Regulations of the OCC place a
limit on the amount of  dividends  the Bank may pay to the  Corporation  without
prior  approval.  Prior  approval of the OCC is required to pay dividends  which
exceed the Bank's net profits for the current year plus its retained net profits
for the preceding two calendar years, less required transfers to surplus.  As of
December  31,  2000 the Bank  would not need  prior  approval  from OCC unless a
declaration of dividends exceeded $2,041.

10.      REGULATORY MATTERS

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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Corporation  and the Bank to maintain  minimum amounts and ratios of
total and Tier 1  capital,  as  defined  in the  regulations,  to  risk-weighted
assets,  as defined,  and of Tier 1 Capital,  as defined,  to average assets, as
defined.  Management believes, as of December 31, 2000, that the Corporation and
Bank meet all the capital adequacy requirements to which they are subject.

As of December 31, 2000, the most recent  notification  from the OCC categorized
the  Bank  as  well  capitalized  under  the  regulatory  framework  for  prompt
corrective  action. To be categorized as adequately  capitalized,  the Bank must
maintain  minimum  total  risk-based,  Tier 1 risk-  based,  and Tier 1 leverage
ratios, as set forth in the table below. There are no conditions or events since
that  notification  that  management  believes  have  changed the  institution's
category.



                                       36
<PAGE>

The  Corporation's and the Bank's required and actual capital amounts and ratios
at  December  31,  2000 and  1999,  are set  forth in the  following  table  (in
thousands):

<TABLE>
<CAPTION>
                                                                                                               TO BE CATEGORIZED AS
                                                                                                              WELL CAPITALIZED UNDER
                                                                                      FOR CAPITAL               PROMPT CORRECTIVE
                                                           ACTUAL                   ADEQUACY PURPOSES           ACTION PROVISIONS
                                                     -------------------           -------------------         -------------------
                                                     AMOUNT        RATIO           AMOUNT        RATIO         AMOUNT        RATIO
<S>                                                  <C>            <C>            <C>            <C>         <C>            <C>
As of December 31, 2000
    Total capital
       (to risk-weighted assets):
            Corporation                              $22,070        16.43%         10,746         8.00%           N/A          N/A
            Bank                                      21,880        16.27          10,758         8.00        $13,448        10.00%
    Tier I capital
       (to risk-weighted assets)
            Corporation                               20,367        15.16           5,373         4.00            N/A          N/A
            Bank                                      20,176        15.00           5,379         4.00          8,069         6.00
    Tier I capital
       (to average assets)
            Corporation                               20,367         7.37          11,056         4.00            N/A          N/A
            Bank                                      20,176         7.30          11,051         4.00         13,813         5.00

As of December 31, 1999
    Total capital
       (to risk-weighted assets)
            Corporation                              $19,408        16.80%          9,243         8.00%           N/A          N/A
            Bank                                      19,457        16.81           9,339         8.00        $11,674        10.00%
    Tier I capital
       (to risk-weighted assets)
            Corporation                               17,922        15.52           4,622         4.00            N/A          N/A
            Bank                                      18,135        15.53           4,670         4.00          7,004         6.00
    Tier I capital
       (to average assets)
            Corporation                               17,922         6.61          10,852         4.00            N/A          N/A
            Bank                                      18,135         6.70          10,835         4.00         13,543         5.00
</TABLE>

11.      INCOME TAXES

The provision for income taxes  consists of the following (in thousands) for the
years ended December 31:

<TABLE>
<CAPTION>
                                                        2000           1999
<S>                                                     <C>            <C>
Current:
    Federal income tax                                  $458           $495
    State and local income tax                            --             --
                                                        ----           ----

                                                         458            495

Deferred:
    Federal income tax                                   186             48
                                                        ----           ----

Total                                                   $644           $543
                                                        ====           ====
</TABLE>



                                       37
<PAGE>

The  components  of the  deferred  tax  expense  resulting  from  net  temporary
differences are as follows (in thousands) for the years ended December 31:

<TABLE>
<CAPTION>
                                                           2000         1999
<S>                                                       <C>          <C>
Depreciation                                              $ (31)       $  16
Provisions for losses on loans and other
    real estate owned                                       302          111
Deferred loan fees                                          (66)         (34)
Other                                                       (19)         (45)
                                                          -----        -----

Total                                                     $ 186        $  48
                                                          =====        =====
</TABLE>


The following  reconciles  the federal  statutory  income tax rate of 34% to the
effective income tax rate (in thousands) for the years ended December 31:

<TABLE>
<CAPTION>
                                                                             2000                              1999
                                                                     AMOUNT         PERCENT           AMOUNT          PERCENT
<S>                                                                  <C>              <C>              <C>              <C>
Federal tax expense at statutory rate                                $ 954            34.0%            $ 761            34.0%
State tax expense, net  of federal tax
   benefit                                                              --               0%               --               0%
Tax-exempt interest                                                   (300)           (10.7)%           (217)           (9.6)%
Other                                                                  (10)           (0.3)%              (1)              0%
                                                                     -----            ----             -----            ----

Total                                                                $ 644            23.0%            $ 543            24.4%
                                                                     =====            ====             =====            ====
</TABLE>


                                       38
<PAGE>

The  tax  effects  of  items  comprising  the  Company's   deferred  tax  assets
(liabilities) at December 31, 2000 and 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                    2000                    1999
<S>                                                                                <C>                    <C>
Deferred tax assets:
    Allowance for losses on loans and other real
        estate owned                                                               $   912                $ 1,214
    Deferred loan fees                                                                 263                    197
   Other                                                                                84                     65
Unrealized loss available-for-sale securities                                           --                    911
                                                                                   -------                -------
        Total deferred tax assets                                                    1,259                  2,387
                                                                                   =======                =======

Deferred tax liabilities:
   Unrealized gain on available-for-sale securities                                   (585)                    --
   Depreciation                                                                       (104)                  (135)
   Other                                                                               (17)                   (17)
                                                                                   -------                -------
        Total deferred tax liabilities                                                (706)                  (152)
                                                                                   -------                -------

        Net deferred tax assets                                                    $   553                $ 2,235
                                                                                   =======                =======
</TABLE>

12.  PROFIT SHARING PLAN

The Company has a profit  sharing plan,  qualifying  under Section 401(K) of the
Internal Revenue Code, for those employees who meet the eligibility requirements
set for in the  plan.  The plan  does  not  require  the  Company  to match  the
participants' contributions.  The Company contributions to the plan were $152 in
2000 and $106 in 1999.

13.      EMPLOYEE STOCK OWNERSHIP PLAN

In 1986,  the Bank  implemented  an Employee  Stock  Ownership  Plan (ESOP) that
covers substantially all full-time  employees.  Annual contributions to the plan
are  determined by the Company's  Board of Directors.  Contributions  of $87 and
$52, were made for 2000 and 1999,  respectively.  At December 31, 2000 and 1999,
the ESOP held 54,720, or 8.2% of the outstanding  shares of the Company's common
stock.

14.      COMMITMENTS AND CONTINGENCIES

In the normal course of business,  there are outstanding various commitments and
contingent  liabilities,  such as commitments  to extend  credit,  which are not
shown in the accompanying  consolidated  financial statements.  The Company does
not  anticipate  any  material  losses  as a result  of these  transactions.  At
December 31, 2000 and 1999 the Bank had  outstanding  commitments  to fund loans
for  approximately  $27,713  and  $16,731,   respectively.  The  Bank  also  has
outstanding  standby  letters  of credit at  December  31,  2000 and 1999 in the
amount of $387 and $882,  respectively.  Such commitments and standby letters of
credit are subject to the Bank's normal  underwriting  standards.  Since many of
the commitments are expected to expire without being  completely drawn upon, the
total commitment amounts do not necessarily represent future cash requirements.

At December 31, 2000, the Bank was committed for future minimum annual  payments
under noncancelable long-term lease agreements for the rental of office space as
follows (in thousands):

<TABLE>
<S>                                                    <C>
                  2001                                 $ 293
                  2002                                   152
                  2003                                   141
                  2004                                   131
                  2005                                    94
                                                       -----
                  Total                                $ 811
                                                       =====
</TABLE>


                                       39
<PAGE>

Rent  expense for the years ended  December 31, 2000 and 1999 was $291 and $303,
respectively.

15.      ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company has determined the fair value of its financial instruments using the
following assumptions:

Cash  and  Cash  Equivalents,   Interest-Bearing   Deposits,   Accrued  Interest
Receivable and Payable, and Repurchase Agreements - The fair value was estimated
to equal the  carrying  value due to the  short-term  nature of these  financial
instruments.

Securities - The fair value was estimated based on quoted market prices,  dealer
quotes and prices obtained from independent pricing services.

Loans - The fair value was estimated by  discounting  the estimated  future cash
flows using current rates on loans with similar  credit risks and terms.  It was
assumed  that no  prepayments  would occur due to the  short-term  nature of the
portfolio  (five  years  or  less)  and  based  upon  the  Company's  historical
experience.

Deposits - The fair value of demand and savings  deposits was estimated to equal
the carrying  value due to the short-term  nature of the financial  instruments.
The fair value of time  deposits was  estimated  by  discounting  the  estimated
future cash flows using current rates on time deposits with similar maturities.

Note Payable -The fair value was estimated based on rates currently available to
the Bank for borrowings with similar terms and remaining maturities.

Commitments  to Fund Loans and Standby  Letters of Credit - The  majority of the
Bank's  commitments  to grant loans and standby  letters of credit are generally
unassignable  by either  the Bank or the  borrower,  they only have value to the
bank and the borrower.

The fair value estimates presented are based on pertinent  information available
as of December 31, 2000 and 1999. However,  considerable judgment is required to
interpret market data to develop the estimates of fair value.  Accordingly,  the
estimates  presented  are not  necessarily  indicative  of the amounts  that the
Company  could  realize in a current  market  transaction.  The use of different
market assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.

<TABLE>
<CAPTION>
(IN THOUSANDS)                                                 DECEMBER 31, 2000                           DECEMBER 31, 1999
                                                         ------------------------------             ------------------------------
                                                           CARRYING            FAIR                     CARRYING             FAIR
                                                             VALUE             VALUE                      VALUE              VALUE
<S>                                                        <C>                <C>                        <C>                <C>
Assets:
    Cash and cash equivalents                              $ 10,896           $ 10,896                   $ 15,433           $ 15,433
    Interest-bearing deposits                                 1,305              1,305                        988                988
    Investment securities                                   121,842            121,842                    137,970            137,970
    Loans                                                   128,047            128,680                    102,998            102,093
    Accrued interest receivable                               2,010              2,010                      1,665              1,665

Liabilities:
    Deposits                                               $202,947           $202,809                   $212,474           $212,477
    Short term borrowings                                    42,033             42,033                     33,733             32,733
    Accrued interest payable                                    484                484                        449                449
</TABLE>

16.      RELATED PARTY TRANSACTIONS

In the  normal  course  of  banking  business,  loans are made to  officers  and
directors.  At December  31, 2000 and 1999,  these loans  totaled $449 and $508,
respectively.



                                       40
<PAGE>

17.      OTHER EXPENSES

Other  expenses  in  the  Consolidated  Statements  of  Operations  include  the
following:

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31
                                                         -----------------------
In thousands                                                2000         1999
                                                           ------       ------
<S>                                                        <C>          <C>
Director fees                                              $  265       $  286
Professional fees                                             306          399
Loan collection and repossession expenses                     391          216
Bank security                                                 320          319
Other                                                       2,096        2,442
                                                           ------       ------

Total Other Expenses                                       $3,378       $3,662
                                                           ======       ======
</TABLE>


                                       41
<PAGE>

18.      PARENT COMPANY FINANCIAL INFORMATION

The summarized financial statements of IBW Financial Corporation (parent company
only) as of December  31, 2000 and 1999,  and for the years ended  December  31,
2000 and 1999, follow (in thousands):

<TABLE>
<CAPTION>
                                                            2000          1999
<S>                                                       <C>          <C>
Assets:
    Deposits with subsidiary                              $     10     $    325
    Interest bearing deposits in banks                          --          296
    Securities available-for-sale                              144          144
    Other assets                                                61           61
    Investment in subsidiary - method equity                21,933       17,688
                                                          --------     --------
        Total Assets                                      $ 22,148     $ 18,514
                                                          ========     ========

Liabilities and Shareholders' Equity:
    Liabilities:
        Borrowings                                        $     --     $  1,000
        Other                                                   12           23
                                                          --------     --------
            Total Liabilities                                   12        1,023
                                                          --------     --------

Shareholders' Equity
    Preferred stock                                            500          500
    Common stock                                               668          668
    Capital surplus                                          5,051        5,051
    Retained earnings                                       14,770       13,034
    Accumulated other comprehensive income                   1,147       (1,762)
                                                          --------     --------

            Total Shareholders' Equity                      22,136       17,491
                                                          --------     --------
Total Liabilities and Shareholders' Equity                $ 22,148     $ 18,514
                                                          ========     ========
</TABLE>


                                       42
<PAGE>

<TABLE>
<CAPTION>
Statements of Income                                                                         2000                 1999
<S>                                                                                         <C>                 <C>
Dividends from subsidiary and other income                                                  $   841             $   218
Expenses                                                                                         20                  38
                                                                                            -------             -------
Income before undistributed net earnings of subsidiary                                          821                 180
Equity in undistributed net earnings of subsidiary                                            1,341               1,516
                                                                                            -------             -------

Net income                                                                                  $ 2,162             $ 1,696
                                                                                            =======             =======

Statements of Cash Flows

Cash Flows from Operating Activities:
    Net income                                                                              $ 2,162             $ 1,696
    Adjustments to reconcile net income to net
        cash provided by operating activities:
        Equity in undistributed net earnings of subsidiary                                   (1,336)             (1,516)
          Other                                                                                 (11)                (15)
                                                                                            -------             -------

                Net cash provided by operating activities                                       815                 165
                                                                                            =======             =======

Cash Flows from Investing Activities:
    Maturity (Purchase) of interest bearing deposits                                            296                 (11)
                                                                                            -------             -------

                Net cash provided by (used in) investing activities                             296                 (11)
                                                                                            -------             -------

Cash Flows from Financing Activities:
    Repayment of short-term borrowings                                                       (1,000)                 --
    Payment of dividends                                                                       (426)               (125)

                Net cash used in financing activities                                        (1,426)               (125)
                                                                                            =======             =======

(Decrease) Increase in Deposits with Subsidiary                                                (315)                 29

Deposits with Subsidiary, Beginning of the Year                                                 325                 296
                                                                                            -------             -------

Deposits with Subsidiary, Ending of the Year                                                $    10             $   325
                                                                                            =======             =======
</TABLE>


                                       43
<PAGE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.

         On  November  15,  1999,  the Company  dismissed  Deloitte & Touche LLP
("D&T") as its certifying  accountant.  D&T performed the audit of the Company's
financial  statements  for the years ended  December  31, 1997 and 1998.  During
these  periods and for the period from  January 1, 1999 to  November  15,  1999,
there  were no  disagreements  between  the  Company  and D&T on any  matter  of
accounting principles or practices,  financial statement disclosure, or auditing
scope or procedure, which would have caused D&T to make reference to such matter
in connection with its audit reports on the Company's financial statements.  For
each of the years ended December 31, 1997 and 1998, D&T issued unqualified audit
reports on the Company's financial statements. Neither audit report contained an
adverse  opinion or  disclaimer of opinion,  or was modified as to  uncertainty,
audit scope or accounting practice.  However, at the completion of the audit for
the year ended  December 31, 1998, D&T advised the Company in its judgement that
a material  weakness  existed in the  systems of  internal  controls  related to
credit card receivables.

         On November  15,  1999,  the Company  engaged of Stegman and Company to
audit the Company's financial  statements for fiscal year 1999 as its certifying
accountant.  The  Company  solicited  bids for audit  services  from a number of
firms.  The appointment of Stegman was recommended by the Audit Committee of the
Board of  Directors  and  approved by the  Oversight  Committee  of the Board of
Directors on November 15, 1999. There were no consultations  between the Company
and Stegman regarding the application of accounting principles to any matter, or
as to any type of  opinion  that  might be  issued  on the  Company's  financial
statements.

                                    PART III

ITEM 9.  DIRECTORS,   EXECUTIVE   OFFICERS,   PROMOTERS  AND  CONTROL   PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

         The information  required by this Item is incorporated by reference to,
the  material  appearing  at  pages  4 to 7of  the  Company's  definitive  proxy
statement for the Annual Meeting of Shareholders to be held on April 24, 2001.

ITEM 10.  EXECUTIVE COMPENSATION.

         The information  required by this Item is incorporated by reference to,
the  material  appearing  at  pages 6 and 7 of the  Company's  definitive  proxy
statement for the Annual Meeting of Shareholders to be held on April 24, 2001.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The information  required by this Item is incorporated by reference to,
the  material  appearing  at  pages  2 to 3 of the  Company's  definitive  proxy
statement for the Annual Meeting of Shareholders to be held on April 24, 2001.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information  required by this Item is incorporated by reference to,
the material appearing at page 7 of the Company's definitive proxy statement for
the Annual Meeting of Shareholders to be held on April 24, 2001.


                                       44
<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

<TABLE>
<CAPTION>
Exhibit No.       Description of Exhibits
-----------       -----------------------
<S>               <C>
3(a)              Certificate of Incorporation of the Company, as amended (1)
3(b)              Bylaws of the Company (2)
4(a)              Specimen certificate for the common stock, $1 par value, of the Company (3)
4(b)              Designation of the Series A Non-Voting Preferred Stock (4)
11                Statement Regarding Computation of Per Share Earnings
21                Subsidiaries of the Registrant

         The sole  subsidiary of the  Registrant is  Industrial  Bank,  National
         Association, a national banking association organized under the laws of
         the United States

99                Supplemental Annual Report Materials

-----------------------------
<FN>
(1)      Incorporated by reference to Exhibit 1 to the Company's Current Report on Form 8-K, dated September 25, 1997.
(2)      Incorporated by reference to Exhibit 2(b) to the Company's Registration Statement on Form 10-SB
(3)      Incorporated by reference to Exhibit 3 to the Company's Registration Statement on Form 10-SB
(4)      Incorporated by reference to Exhibit 2 to the Company's Current Report on Form 8-K, dated September 25, 1997.
</FN>
</TABLE>

(B)  REPORTS ON FORM 8-K

         No reports on Form 8-K were filed during the fourth quarter of 2000.


                                       45
<PAGE>

                                   SIGNATURES

         In accordance  with Section 13 of the Securities  Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                      IBW FINANCIAL CORPORATION


March 16, 2001                        By:  /s/ B. Doyle Mitchell, Jr.
                                          ---------------------------------
                                          B. Doyle Mitchell, Jr., President

         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>
                  SIGNATURE                          POSITION                           DATE
<S>                                         <C>                                         <C>

 /s/ Clinton W. Chapman                     Chairman of the Board of Directors          March 16, 2001
------------------------------------
Clinton W. Chapman

 /s/ George S. Windsor                      Vice Chairman of the Board of Directors     March 16, 2001
------------------------------------
George S. Windsor

 /s/ B. Doyle Mitchell, Jr.                 President, Chief Executive Officer          March 16, 2001
------------------------------------        and Director (Principal Executive Officer)
B. Doyle Mitchell, Jr.


 /s/ Massie S. Fleming                      Director                                    March 16, 2001
------------------------------------
Massie S. Fleming

 /s/ Robert R. Hagans                       Director                                    March 16, 2001
------------------------------------
Robert R. Hagans

                                            Secretary and Director                      March __, 2001
------------------------------------
Benjamin L. King


 /s/ Cynthia T. Mitchell                    Director                                    March 16, 2001
------------------------------------
Cynthia T. Mitchell

                                            Director                                    March __, 2001
------------------------------------
Emerson A. Williams


 /s/ Thomas A. Wilson                       Senior Vice President, Treasurer            March 16, 2001
------------------------------------        (Principal Financial and
Thomas A. Wilson, Jr.                       Accounting Officer)
</TABLE>