CFS BANCSHARES, INC.





                 [PICTURE OF CFS BANCSHARES, INC. APPEARS HERE]












                               ANNUAL REPORT 2000


<PAGE>


                               MORE THAN YOU KNEW


                                TABLE OF CONTENTS





TO OUR SHAREHOLDERS...................................................  3

BOARD OF DIRECTORS....................................................  4

BANK OFFICERS.........................................................  5

MANAGEMENT'S DISCUSSION AND ANALYSIS..................................  6

SELECTED FINANCIAL DATA...............................................  13

INDEPENDENT AUDITORS' REPORT..........................................  15

CONSOLIDATED FINANCIAL STATEMENTS.....................................  16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................  22

CORPORATE INFORMATION.................................................  45




                     ....AND EVERYTHING YOU NEED IN A BANK.

<PAGE>


TO OUR SHAREHOLDERS

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

[Picture of Bunny Stokes, Jr.,
Chairman and Chief Executive Officer
Appears Here]
                                          CFS    Bancshares, Inc.  and  its
                                  subsidiary bank, Citizens Federal Savings
                                  Bank have enjoyed a successful year in  this
                                  economic environment. The economy is gradually
                                  slowing down and Federal Reserve policy makers
                                  will perhaps have enough evidence by early
                                  2001 to justify lowering short-term interest
                                  rates.
                                          Let me share  with you some of the
                                  goods  news based on our performance in the
                                  new millenium.  At September 30, 2000, the
                                  Company's total assets were $100,563,728 as
                                  compared to $96,104,373 at September 30, 1999,
                                  an increase of $4,459,355 or 4.64%. Our
                                  deposits totaled $76,334,441 at September 30,
                                  2000 compared to $75,180,323 at September 30,
                                  1999,  an  increase of $1,154,118 or 1.54%.
                                          We are moving  in the right direction.
                                  Our net income for the year ended September
                                  30, 2000 was $499,320 compared to $385,587 for
                                  the year ended September 30, 1999, an increase
                                  of $113,733 or 29.50%.
                                          Growing to over $100,000,000 in assets
is significant  to us because we are now ranked as the largest  African-American
owned financial institution in the state of Alabama.
         Based on our  liquidity  and capital  strength,  our board of directors
declared a divdiend  of $.75 per share to our  shareholders  as of  December  8,
2000.

This is a challenging time for community banks. Our mission in the new millenium
will be to:

          o    Profitably acquire and increase core deposits;

          o    Use  value-added  strategies to retain  customers and  strengthen
               relationships; and

          o    Seek ways to enhance  our  services  and expand our bank into new
               market areas.

         Our promise is to provide you with the best  service  possible.  We are
building for the future and want to thank you, our  shareholders  and customers,
for your loyal and continued support.

Sincerely,

/s/ Bunny Stokes, Jr.

Bunny Stokes, Jr.
Chairman of the Board and
Chief Executive Officer
                                        3


<PAGE>


                               BOARD OF DIRECTORS

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

                          [PICTURE OF BUNNY STOKES, JR.
                                  Chairman/CEO
                               Burlington, Alabama
                                  APPEARS HERE]



                                      [PICTURE OF CHARLES A. LETT
                                      Pastor, Calvary Missionary Baptist Church
                                      Selma, Alabama
                                      APPEARS HERE]
[PICTURE OF JOHN T. PORTER
Pastor, Emeritus
Sixth Avenue Baptist Church
Birmingham, Alabama
APPEARS HERE]

                                      [PICTURE OF JAMES W. COLEMAN
                                      Private Consultant
                                      Eutaw, Alabama
                                      APPEARS HERE]

[PICTURE OF BENJAMIN GREENE
Private Consultant
Birmingham, Alabama
APPEARS HERE]
                                      [PICTURE OF DR. ROSS E. GARDNER
                                      Board Certified Otolaryngologist
                                      Birmingham, Alabama
                                      APPEARS HERE]

[PICTURE OF ODDESSA WOOLFOLK
Private Consultant and Lecturer
Birmingham, Alabama
APPEARS HERE]


                                        4


<PAGE>


                                  BANK OFFICERS

--------------------------------------------------------------------------------
                                               [PICTURE OF BUNNY STOKES, JR.
                                               Chairman of the Board and
                                               Chief Executive Officer
                                               Burlington, Alabama
                                               APPEARS HERE]





[PICTURE OF CYNTHIA D. NALLS
Executive Vice Preisdent
Chief Operations Officer
APPEARS HERE]




                                               [PICTURE OF W. KENT MCGRIFF
                                               Executive Vice President
                                                 Chief Financial Officer
                                               APPEARS HERE]


                                        5



<PAGE>
Management Discussion
--------------------------------------------------------------------------------
And Analysis

PROFILE

CFS  Bancshares,  Inc.  ("CFS  Bancshares"  or "the  Company")  was organized by
Citizens Federal Savings Bank ("Citizens Federal" or "the Bank") to be a savings
and loan holding company. The Company was organized at the direction of the Bank
in  January  1998 to  acquire  all of the  capital  stock of the  Bank  upon the
consummation of the  reorganization of the Bank into the holding company form of
ownership,  which was  completed on June 30, 1998.  The  Company's  stock became
registered  under the  Securities  Exchange  Act of 1934 on June 30,  1998.  The
Company has no  significant  assets other than the corporate  stock of the Bank.
For that reason the  discussion  in the annual report  relates  primarily to the
operations of the Bank.

Citizens Federal Savings Bank was chartered by the Federal Home Loan Bank Board,
predecessor to the Office of Thrift Supervision (OTS) in September 1956, and has
been in operation  since that time. The Bank is a member of the Federal  Deposit
Insurance  Corporation (FDIC) with its deposit accounts insured up to applicable
limits by the Savings Association  Insurance Fund (SAIF) and of the Federal Home
Bank (FHLB). On March 28, 1983,  Citizens Federal's charter was restated when it
converted  from a  federal  mutual  savings  and loan  association  to a federal
capital  stock  association  through the sale and issuance of 130,000  shares of
common  stock.  On October 10, 1983,  the Bank  converted  from a federal  stock
savings and loan association to a federal stock savings bank.

Citizens Federal's operations are conducted from its main office headquarters at
1700 3rd Avenue North, Birmingham,  Alabama, and branch offices at 2100 Bessemer
Road, Birmingham, Alabama, and 213 Main Street, Eutaw, Alabama.

The Bank's primary  business is the promotion of thrift through the solicitation
of  savings  accounts  from  its  depositors  and the  general  public,  and the
promotion of home ownership through the granting of mortgage loans,  principally
to finance the purchase and/or  construction  of residential  dwellings and to a
lesser extent  non-residential  buildings  located within its principal  lending
area in Jefferson and Greene Counties, Alabama.

At the present time,  there is neither an established  market in which shares of
CFS Bancshares, Inc. capital stock are regularly traded nor any uniformly quoted
price for such  shares.  During 1989,  the Bank's board of directors  adopted an
Employee Stock Ownership Plan (ESOP) for the benefit of the Bank's employees. As
of September  30, 2000 the ESOP owned 30,790  shares or 23.69% of the  Company's
outstanding common stock.

Based on  recent  trades  known  to the  Company,  the  price  per  share of the
Company's stock is approximately  $18.50 per share. The stock of CFS Bancshares,
Inc. is traded only  sporadically and is not listed on any exchange.  There have
been less than 15 transactions during the past two years of which the Company is
aware,  all of which were at $18.50 per share. The Company paid annual dividends
of $.75 per share in December  1999 and 1998,  respectively.  A cash dividend of
$.75 per share was also declared by the board of directors of CFS  Bancshares on
November 16, 2000, payable to all stockholders of record as of December 8, 2000.
As of December 8, 2000 the Bank had 319 shareholders.

                                       6
<PAGE>

At September 30, 2000, the Company's total assets were  $100,563,728 as compared
to  $96,104,373  at September 30, 1999, an increase of $4,459,355 or 4.64%.  The
increase in total assets  resulted  from an increase in net loans  receivable of
$4,716,880  from  $43,521,160 at September 30, 1999, to $48,238,040 at September
30,  2000,  and a net  increase  in the Bank's  total  investment  portfolio  of
$4,369,974  from  $38,534,066 at September 30, 1999, to $42,904,040 at September
30,  2000.  The  increase  in loan and  investments  was  partially  offset by a
decrease in cash and cash equivalents of $4,095,096 from $7,689,451 at September
30,  1999,  to  $3,594,355  at  September  30,  2000.  The increase in net loans
receivable  resulted from an increase in the volume of loans granted  during the
year  including  the  purchase  of  adjustable  rate loans  serviced  by another
institution.  The Bank's primary emphasis  continues to be mortgage lending,  as
10.06  million  or 90.05% of the 11.17  million in loans  granted  or  purchased
during the year were mortgage loans.

Deposits totaled  $76,334,441at  September 30, 2000,  compared to $75,180,323 at
September 30, 1999,  an increase of  $1,154,118  or 1.54%.  The increase was the
result of an increase of 3.13 million in jumbo  certificates  of deposit and was
partially  offset by modest declines in all other  categories of deposits.  FHLB
advances at September 30, 2000,  increased by  $3,100,000  from  $11,850,000  at
September  30,  1999,  to  $14,950,000.   The  increased  borrowings  include  a
$3,000,000  advance to fund the purchase of adjustable  rate loans during August
2000. The Bank's one to four family  residential  mortgage  portfolio  serves as
collateral for the FHLB advances.

Non-performing  assets, which include non-accrual loans and real estate acquired
by foreclosure  (REO) increased  $402,298 or 18.10% from $1,438,950 at September
30, 1999, to $1,841,248 at September 30, 2000, as  non-accrual  loans  increased
from  $1,391,680 at September 30, 1999, to $1,755,011 at September 30, 2000, and
REO  increased  by $38,967 from  $47,270 at  September  30, 1999,  to $86,237 at
September  30,  2000.   Due  to  the  increase  in  the  number  and  amount  of
non-performing  loans,  management  recorded  an  addition  of  $50,000  to  the
allowance for loan losses during the year ended September 30, 2000. At September
30,  2000,  non-performing  assets  represented  1.44%  of  total  assets  while
non-accrual loans represented  3.46% of gross loans  outstanding,  each of which
represents  an increase  from  September 30, 1999,  when  non-performing  assets
represented  1.50% of total assets while  non-accrual  loans were 3.03% of gross
loans outstanding.

Interest rate levels,  the health of the economy  (particularly  the real estate
economy), securities transactions and the amount of non-performing assets affect
the Bank's financial condition and results of operations.

Comparison of years ended September 30, 2000 and September 30, 1999


GENERAL


Net income for the year ended  September  30,  2000,  was  $499,320  compared to
$385,587  for the year ended  September  30,  1999,  an  increase of $113,733 or
29.50%. The increase is primarily the result of decreases in provisions for loan
losses and an increase in net interest  income.  The  provision  for loan losses
decreased  from  $45,000  for the  fiscal  year ended  September  30,  1999,  to
($104,500) for the 2000 fiscal year.  During the year ended  September 30, 2000,
the Bank collected $154,500 of loans which had been previously charged off. This
recovery  was  offset by  additions  to the  allowance  of $50,000 to create the
negative provision in 2000. The Bank's operating results depend largely upon its
net interest margin,  which is the difference between the income earned on loans
and  investments,  and the interest  expense  paid on deposits  and  borrowings,
divided by average total interest


                                       7
<PAGE>

earning  assets.  The net interest margin is affected by the economic and market
factors  that  influence  interest  rates,  loan demand and deposit  flows.  The
interest rate margin increased from 3.56% for the year ended September 30, 1999,
to 3.58% for the year ended September 30, 2000.


INTEREST INCOME


Net interest  income before  provision for loan losses  increased by $180,103 or
6.00% from  $3,003,472 for the year ended  September 30, 1999, to $3,183,575 for
the 2000  fiscal  year.  Interest  and fees on loans for the  fiscal  year ended
September 30, 2000,  were  $3,910,135  and  $3,974,970 for the fiscal year ended
September 30, 1999, a decline of $64,835 or 1.63%.  Interest and dividend income
on  investment  securities  and interest  income on mortgage  backed  securities
increased by $234,460 and $262,055,  respectively, from $312,138 and $1,863,885,
respectively  for fiscal 1999 to $546,598 and $2,125,940,  respectively  for the
2000 fiscal year end.  The  increases  resulted  from  increases  in the average
balance  outstanding of investment  securities and mortgage backed securities as
well as increases in the average rate of interest  received on those  respective
security  groups.  Combined  interest  income on  federal  funds  sold and other
interest income  increased by $21,000 or 20.19% when compared to fiscal year end
1999 as the  result  of an  increase  of  approximately  92 basis  points in the
average yield in federal funds and interest bearing deposits.


INTEREST EXPENSE


Total interest expense increased by $272,577 from $3,251,540 for the fiscal year
ended  September 30, 1999, to $3,524,117 for the fiscal year ended September 30,
2000,  an increase of 8.38%.  The  increase  resulted  from  increases in market
interest  rates  which  impact  the rates paid on the  Bank's  interest  bearing
liabilities  and from  increases  in the  average  balance of  interest  bearing
liabilities  outstanding.  (See table of selected  financial data for additional
detail).  The average rate paid on interest bearing liabilities  increased by 13
basis points from 3.93% for the fiscal year ended  September  30, 1999, to 4.06%
for the 2000 fiscal year.


OTHER INCOME


Total other income decreased  $82,731 or 15.37% for the year ended September 30,
2000 compared to the fiscal year ended  September 30, 1999. The primary  changes
between the 2000  fiscal  year and the 1999  fiscal  year  occurred in the other
category  and in gains and losses on the sale of  investment  securities.  Other
income  declined from $99,889 for the year ended  September 30, 1999, to $46,293
for the 2000 fiscal year, a decrease of $53,596. During the 1999 fiscal year the
Bank recognized approximately $50,000 from the recapture of a litigation reserve
while there was no such item during the 2000 fiscal  year.  Gains on the sale of
investment  securities  declined  $33,611  from a gain of $27,486 for the fiscal
year ended September 30, 1999, to a loss of $6,125 for the 2000 fiscal year.


OTHER EXPENSE


Total other expense  consists of salaries and employee  benefits,  occupancy and
equipment expense,  FDIC deposit insurance,  data processing expense,  legal and
professional services, advertising and other expenses. The costs of carrying and
administering  non-performing  assets is also included in other  expense.  Other
expense  increased by $73,858 or 2.55% from $2,894,360 for the fiscal year ended
September  30,  1999,  to  $2,968,218  for the 2000  fiscal  year.  Two  expense
categories,  other and professional services,  increased by $135,167 and $81,753
respectively

                                       8
<PAGE>

from $345,673 and $172,103,  respectively for the year ended September 30, 1999,
to $480,840 and $253,856, respectively for the 2000 fiscal year. The increase in
other  includes  increases in franchise  and property tax of $57,576;  bad check
expense of  $19,996;  contributions  of $16,357;  and write downs of  foreclosed
assets of $8,180 for the fiscal year ended  September  30, 2000,  as compared to
fiscal  1999.  The increase in  franchise  and  property  tax resulted  from the
revamping  of Alabama  franchise  tax law  because  prior law had been  declared
unconstitutional,  and from an increase in property  tax  resulting  from recent
revaluation  of property  values.  The  increase in  professional  services  was
primarily  the  result  of an  unsuccessful  bid by the Bank for an  institution
offered for sale by the FDIC and from legal expenses associated with the workout
of two classified loans.

Comparison of years ended September 30, 1999 and September 30, 1998

GENERAL

Net  income for the year ended  September  30,  1999 was  $385,587  compared  to
$218,950  for the year ended  September  30,  1998 an  increase  of  $166,637 or
76.11%. The increase is primarily the result of decreases in provisions for loan
losses and operating expenses and an increase in other income. The provision for
loan losses decreased from $176,000 for the fiscal year ended September 30, 1998
to $45,000 for the 1999 fiscal  year as the amount of loans  classified  as loss
declined.  The Bank's  operating  results  depend  largely upon its net interest
margin  which  is  the  difference  between  the  income  earned  on  loans  and
investments,  and the interest expense paid on deposits and borrowings,  divided
by average total interest earning assets. The net interest margin is affected by
the economic and market factors that influence  interest rates,  loan demand and
deposit flows.  The interest rate margin increased from 3.44% for the year ended
September 30, 1998 to 3.56% for the year ended September 30, 1999.


INTEREST INCOME


Net interest  income before  provision  for loan losses  decreased by $14,730 or
 .49% from $3,018,202 for the year ended September 30, 1998 to $3,003,472 for the
1999 fiscal year.  Average  market  interest  rates during the fiscal year ended
September 30, 1999 were lower than those during the fiscal year ended  September
30,  1998 and as a result  there were  declines  both in  interest  received  on
interest earning assets and interest paid on interest bearing liabilities during
the 1999 fiscal year when compared to the fiscal year ended  September 30, 1998.
Interest  and fees on loans  decreased  modestly  between  the fiscal year ended
September 30, 1998 and the 1999 fiscal year as the result of slight  declines in
the  average  balance  of  loans  outstanding  and the  average  yield  on loans
receivable.  Interest and fees on loans for the fiscal year ended  September 30,
1999 were $3,974,970 and $3,990,297 for the fiscal year ended September 30, 1998
a decline  of  $15,327  or .38%.  Interest  and  dividend  income on  investment
securities  and  interest  income on  mortgage  backed  securities  declined  by
$166,374 and $20,758, respectively,  from $478,512 and $1,884,643,  respectively
for fiscal 1998 to $312,138  and  $1,863,885,  respectively  for the 1999 fiscal
year end. The declines resulted from declines in the average balance outstanding
of investment  securities and mortgage backed  securities as well as declines in
the average  rate of  interest  received on those  respective  security  groups.
Interest  income on federal  funds sold and other  interest  income  declined by
$47,384 and $38,146,  respectively  from $112,612 and $76,937 for the year ended
September  30, 1998 to $65,228  and  $38,791,  respectively  for the 1999 fiscal
year.  The declines  were the result of  decreases  in both the average  balance
outstanding as well as the average rate earned on the respective investments.


                                       9
<PAGE>

INTEREST EXPENSE


Total interest expense decreased by $273,259 from $3,524,799 for the fiscal year
ended  September 30, 1998 to $3,251,540 for the fiscal year ended  September 30,
1999 a  decrease  of 7.75%.  The  decrease  resulted  from  decreases  in market
interest  rates  which  impact  the rates paid on the  Bank's  interest  bearing
liabilities  and from  decreases  in the  average  balance of  interest  bearing
liabilities  outstanding.  (See table of selected  financial data for additional
detail).  The average rate paid on interest bearing liabilities  decreased by 20
basis  points from 4.13% for the fiscal year ended  September  30, 1998 to 3.93%
for the 1999 fiscal year.


OTHER INCOME

Total other income  increased  $48,329 or 9.86% for the year ended September 30,
1999 compared to the fiscal year ended  September 30, 1998.  The primary  change
between the 1999  fiscal  year and the 1998  fiscal  year  occurred in the other
category which  increased from $38,699 for the year ended  September 30, 1998 to
$99,889 for the year.  The increase  resulted from the  recognition of income on
the recapture of a litigation  reserve that had been set up  approximately  four
years  ago.  The  matter  was  settled   during  the  current  fiscal  year  for
approximately  $50,000  less  than the  amount  of the  reserve  which  had been
previously recorded.


OTHER EXPENSE

Total other expense  consists of salaries and employee  benefits,  occupancy and
equipment expense,  FDIC deposit insurance,  data processing expense,  legal and
professional services, advertising and other expenses. The costs of carrying and
administering  non-performing  assets is also included in other  expense.  Other
expense  decreased by $87,196 or 2.92% from $2,981,556 for the fiscal year ended
September  30,  1998 to  $2,894,360  for  the  1999  fiscal  year.  Two  expense
categories,  depreciation and amortization and advertising expense, increased by
$24,023 and $25,244,  respectively from $277,258 and $137,931,  respectively for
the year ended September 30, 1998 to $301,281 and $163,175, respectively for the
1999 fiscal year. The increase in depreciation  occurred primarily as the result
of purchases of new computer  equipment  related to a change of data  processing
firms during the final quarter of the fiscal year ended  September 30, 1998. The
increase  in  advertising  resulted  from  an  increase  in the  sponsorship  of
community  events during the 1999 fiscal year as compared to previous years. The
increases  described above were offset by decreases in professional  services of
$53,071 and in other expense of $81,915 when comparing the year ended  September
30, 1999 to the prior fiscal year. Professional services decreased from $225,174
for the fiscal year ended  September  30,  1998 to $172,103  for the 1999 fiscal
year.  During fiscal 1998 the Bank  reorganized into the holding company form of
ownership and incurred  additional legal and accounting  expenses.  Decreases in
the other category  occurred in several  different  areas.  The most significant
single item was a decrease related to the write-down of an investment in a small
business investment corporation.  The Bank wrote off a $25,000 investment during
the year ended  September  30, 1998 while there was no such item during the 1999
year.


                                       10
<PAGE>

The Bank's primary  sources of liquidity are deposits,  loan payments,  maturing
investment   securities,   principal  and  interest   payments  on  investments,
mortgage-backed  securities  and CMOs,  and advances  from the Federal Home Loan
Bank of Atlanta.  Management  believes  it is prudent to maintain an  investment
portfolio that not only provides a source of income,  but also provides a source
of  liquidity  through its  principal  payments and  maturities  to meet lending
demands and  fluctuations in deposit flows. The various sources of liquidity are
utilized to fund withdrawals, new loans and other investments, as well as to pay
expenses of operations.  Management  believes that the Bank's various sources of
funds are adequate to meet its  commitments in the ordinary  course of business.
The Bank is required under applicable federal  regulations to maintain specified
levels of cash and  liquid  investments  equal to a required  percentage  of net
withdrawable  deposit  accounts.  The Bank  exceeded  all  regulatory  liquidity
requirements during the years ended September 30, 2000, and 1999.

Quantitative  measures  established by  regulations  to ensure capital  adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
at right) of total and Tier I capital  to  risk-weighted  assets,  and of Tier I
capital to average assets.  Management believes,  as of September 30, 2000, that
the Bank meets all capital  adequacy  requirements and meets the requirements to
be classified as "well capitalized."


<TABLE>
<CAPTION>
                                              FOR CAPITAL ADEQUACY
                                            ACTUAL             ADEQUACY PURPOSES         WELL CAPITALIZED
                                     Amount      Ratio         Amount       Ratio        Amount      Ratio
As of September 30, 1999:
<S>                               <C>           <C>       <C>              <C>        <C>            <C>
Total capital
  (to risk weighted assets)       $8,780,000    17.6%     $3,997,304       8.0%       $4,996,630     10.0%

Tier I capital
   (to risk weighted assets)      $8,610,000    17.2%     $1,998,652       4.0%       $2,997,978      6.0%

Tier I capital
   (to average assets)            $8,610,000     8.8%     $3,933,362       4.0%       $4,916,703      5.0%

</TABLE>

                                       11
<PAGE>


IMPACT OF INFLATION AND CHANGING PRICES

The financial  statements and related  financial data presented herein have been
prepared in accordance  with  generally  accepted  accounting  principles  which
require the measurement of financial  position and operating results in terms of
historical  dollars,  without  considering  changes in relative purchasing power
over time due to inflation. Unlike most industrial companies,  virtually all the
assets and liabilities of the thrift  institution  are monetary in nature.  As a
result,  interest rates generally have a more significant  impact on a financial
institution's performance than does the effect of inflation.  Because the Bank's
primary  assets are loans and  investment  securities,  which include more fixed
rate,   fixed  term  loans  and  securities   than  adjustable  rate  loans  and
investments,  changes in interest  rates in the economy have a gradual impact on
yield on assets. The Bank's principal  liability is deposit accounts,  which are
primarily  short term in nature and,  therefore,  adjust rapidly with changes in
the economy.  In general,  periods of high  inflation  are  accompanied  by high
interest rates.  When rates move up rapidly,  the Bank's cost of funds increases
rapidly while the yield on its assets increases slowly,  resulting in a negative
impact on net income.  Conversely,  during periods of low  inflation,  lower and
more moderate interest rates are normally  present,  which results in a low cost
of funds and a more favorable impact on net income.


CONTINGENCIES AND COMMITMENTS


The Bank is defending various claims arising out of the conduct of its business.
While the ultimate  results of these claims cannot be predicted with  certainty,
in the opinion of management, the ultimate disposition of these matters will not
have a significant effect on the consolidated financial position of the Company.

[PICTURE APPEARS HERE]

Information About Forward-Looking Statements
Any statement  contained in this report which is not a historical fact, or which
might  otherwise be considered an opinion or projection  concerning  the Bank or
its business, whether expressed or implied, is meant as and should be considered
a  forward-looking  statement as that term is defined in the Private  Securities
Litigation  Reform  Act  of  1996.   Forward-looking   statement  are  based  on
assumptions  and  opinions  concerning  a variety  of known and  unknown  risks,
including but not necessarily  limited to changes in market conditions,  natural
disasters  and other  catastrophic  events,  increased  competition,  changes in
availability and cost of reinsurance,  changes in governmental regulations,  and
general economic conditions, as well as other risks more completely described in
the Bank's filings with the Securities and Exchange  Commission,  including this
Annual  Report on Form 10-KSB.  If any of these  assumptions  or opinions  prove
incorrect, any forward-looking  statements made on the basis of such assumptions
or opinions may also prove materially incorrect in one or more respects.


                                       12
<PAGE>

SELECTED FINANCIAL DATA

(Dollars in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
                                                                              At September 30,
                                                                             -------------------
                                                           2000              1999           1998        1997          1996
                                                           ----              ----           ----        ----          ----
<S>                                                         <C>                 <C>          <C>         <C>           <C>
BALANCE SHEETS
Total assets                                                100,564             96,104       92,166      99,640        85,997
Loans, net                                                   48,238             43,521       45,413      42,573        30,532
Investment securities                                        42,904             38,534       35,461      44,718        41,611
Deposits                                                     76,334             75,180       73,892      76,346        76,793
Borrowed funds                                               14,950             11,850        9,200       9,200            --
Stockholders' equity                                          8,223              7,763        7,908       7,798         7,312
Shares outstanding
 (actual number)                                            130,000            130,000      130,000     130,000       130,000
Book value per share                                          63.25              59.71        60.83       59.98         56.25


<CAPTION>
                                                                                Years ended September 30,
                                                                             -------------------------------
                                                           2000              1999           1998        1997          1996
                                                           ----              ----           ----        ----          ----
OPERATIONS
<S>                                                         <C>                 <C>          <C>         <C>           <C>
Interest income                                               6,708              6,255        6,543       6,016         5,967
Interest expense                                              3,524              3,252        3,525       3,127         3,169
Net interest income                                           3,184              3,003        3,018       2,889         2,798
Provision for loan loss                                        (104)                45          176          --            --
Net gain (loss) on securities                                    (6)                27           47         141            --
Other noninterest income                                         461               511          443         475           380
SAIF special assessment expense                                   --                --           --          --           494
Other noninterest expense                                      2,968             2,894        2,981       2,947         2,979
Income (loss) before income taxes                                775               602          351         558          (295)
Income tax (benefit) expense                                     276               217          132        (200)          102
Net income (loss)                                                499               386          219          358         (193)
PER SHARE INFORMATION
Basic earnings per share                                        3.94              3.05         1.72         2.75        (1.49)
Basic weighted average shares outstanding                    126,621           126,419      127,218      130,000      130,000
Diluted earnings per share                                      3.71              2.89         1.57         2.75        (1.49)
Diluted weighted average shares outstanding                  134,421           133,619      139,018      130,000      130,000
Cash dividends declared                                          .75               .75          .75          .75          .75
</TABLE>


<TABLE>
<CAPTION>

                                                                     At or for the years ended September 30,
                                                                     ---------------------------------------
OTHER DATA                                                 2000        1999         1998        1997        1996
                                                           ----        ----         ----        ----        ----
<S>                                                        <C>         <C>          <C>         <C>         <C>
Average yield on interest earning assets                   7.67%       7.48%        7.56%       7.63%       7.49%
Average rate on deposits and borrowed funds                4.13%       3.90%        4.13%       4.01%       4.14%
Interest rate spread                                       3.54%       3.58%        3.43%       3.62%       3.35%
Return on average assets                                    .52%        .41%        0.23%       0.42%      -0.22%
Return on average stockholders' equity                     6.40%       4.98%        2.77%       4.80%      -2.56%
Equity to assets ratio                                     8.18%       8.08%        8.58%       7.83%       8.50%
Dividend payout ratio                                     19.53%      25.29%       44.53%      27.23%        n/a
</TABLE>



                                       13
<PAGE>
AVERAGE BALANCE SHEETS AND INTEREST MARGINS

     The following  table set forth certain  information  relating to the Bank's
average balance sheets,  including  interest  earning assets,  interest  bearing
liabilities and net interest margin.
<TABLE>
<CAPTION>

(Dollars in thousands)                                            Years Ended September 30,
---------------------                                             -------------------------
                                                      2000                    1999                    1998
                                               Average    Yield or     Average    Yield or      Average      Yield or
                                               -------    --------     -------    --------      -------      --------
                                               Balance      Rate       Balance      Rate        balance        rate
                                               -------      ----       -------      ----        -------        ----
<S>                                            <C>           <C>        <C>         <C>          <C>           <C>
ASSETS
Federal funds and interest bearing deposits    2,195         5.67%      2,188       4.75%        3,406         5.57%
Investments securities held to maturity (1)    5,180         6.19%      6,744       6.22%        8,187         6.39%
Investment securities available for sale      36,025         6.53%     30,853       5.70%       31,180         5.90%

Loans, net (2)                                44,986         8.58%     44,247       8.69%       44,920         8.88%
                                              ------         ----      ------       ----        ------         ----
  Total interest earning assets               88,386         7.54%     84,032       7.41%       87,693         7.50%
Loan loss allowances                            (285)                    (461)                    (447)
Non-interest earnings assets                   8,079                    8,080                    7,711
                                              ------                   ------                   ------
    Total assets                              96,180                   92,112                   94,957
                                              ------                   ------                   ------

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits                     74,954         3.78%     73,502       3.70%       75,374          3.90%
FHLB advances                                 11,836         5.89%      9,385       5.68%        9,913          5.93%
                                              ------         ----      ------       ----        ------         ----
  Total interest bearing liabilities          86,790         4.06%     82,887       3.93%       85,287          4.13%
Accrued interest on deposits                     285                      338                      287
Other liabilities                              1,305                    1,096                    1,481

Stockholders' equity                           7,800                    7,791                    7,902
                                              ------                   ------                   ------
    Total liabilities and stockholders'
      equity                                  96,180                   92,112                   94,957
                                              ------                   ------                   ------

Interest rate spread                                         3.48%                  3.48%                       3.37%
Net interest margin (3)                                      3.58%                  3.56%                       3.44%

<FN>
(1) Includes Federal Home Loan Bank stock
(2) Loan yields calculated using average balance of gross loans
(3) Net interest income before loan loss provision divided by total average
    interest earning assets.
</FN>
</TABLE>


                                       14
<PAGE>


                          INDEPENDENT AUDITORS' REPORT


The Stockholders and Board of Directors
CFS Bancshares, Inc. and Subsidiaries:


We have audited the accompanying  consolidated balance sheets of CFS Bancshares,
Inc. and  subsidiaries  (the  Company) as of September 30, 2000 and 1999 and the
related  consolidated   statements  of  operations,   stockholders'  equity  and
comprehensive  income  (loss),  and  cash  flows  for  each of the  years in the
three-year  period  ended  September  30,  2000.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of CFS Bancshares, Inc.
and  subsidiaries  as of September  30, 2000 and 1999,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  September 30, 2000, in conformity with  accounting  principles  generally
accepted in the United States of America.


                                  /s/ KPMG LLP


November 17, 2000


                                       15
<PAGE>

                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                          Consolidated Balance Sheets

                          September 30, 2000 and 1999
<TABLE>
<CAPTION>
                 ASSETS                                                        2000              1999
                                                                          -------------     ------------

<S>                                                                       <C>                  <C>
Cash and amounts due from depository institutions                         $   2,918,542        4,811,709
Federal funds sold and overnight deposits                                       675,813        2,877,742
                                                                          -------------     ------------
         Total cash and cash equivalents                                      3,594,355        7,689,451

Interest-earning deposits in other financial institutions                       163,142          161,524
Investment securities held to maturity (fair value of
    $3,506,924 and 4,919,789, respectively)                                   3,527,879        4,929,808
Investment securities available for sale, at fair value (cost of
    $40,099,815 and $34,389,879, respectively)                               39,376,161       33,604,258
Federal Home Loan Bank stock                                                    747,500          592,500
Loans receivable, net                                                        48,238,040       43,521,160
Premises and equipment, net                                                   3,644,836        3,871,433
Real estate acquired by foreclosure, net                                         86,237           47,270
Accrued interest receivable on investment securities                            149,907          122,584
Accrued interest receivable on mortgage-backed securities                       185,749          169,254
Accrued interest receivable on loans                                            324,482          317,617
Other assets                                                                    525,440        1,077,514
                                                                          -------------     ------------
         Total assets                                                     $ 100,563,728       96,104,373
                                                                          =============     ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
    Interest-bearing deposits                                             $  76,334,441       75,180,323
    Advance payments by borrowers for taxes and insurance                       267,533          257,724
    Other liabilities                                                           725,003          981,602
    Employee stock ownership plan debt                                           64,000           72,000
    FHLB advances                                                            14,950,000       11,850,000
                                                                          -------------     ------------
         Total liabilities                                                   92,340,977       88,341,649

Stockholders' equity:
    Serial preferred stock; 300,000 shares authorized; none outstanding              --               --
    Common stock of $1 par value; 700,000 shares authorized;
       130,000 shares issued and outstanding                                    130,000          130,000
    Additional paid-in capital                                                1,184,758        1,180,060
    Retained earnings-substantially restricted                                7,422,368        7,020,548
    Accumulated other comprehensive income (loss)                              (463,139)        (502,798)
    Unearned common stock held by ESOP                                          (51,236)         (65,086)
                                                                          -------------     ------------
         Total stockholders' equity                                           8,222,751        7,762,724
                                                                          -------------     ------------

Commitments and contingencies (notes 13 and 14)                                      --               --
                                                                          -------------     ------------
         Total liabilities and stockholders' equity                       $ 100,563,728       96,104,373
                                                                          =============     ============
</TABLE>

See accompanying notes to consolidated financial statements.


                                       16
<PAGE>

                     CFS BANCSHARES, INC.
                       AND SUBSIDIARIES

             Consolidated Statements of Operations

        Years ended September 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>

                                                                     2000           1999          1998
                                                                 -----------    -----------   -----------
Interest income:
<S>                                                              <C>              <C>           <C>
    Interest and fees on loans                                   $ 3,910,135      3,974,970     3,990,297
    Interest and dividend income on investment securities            546,598        312,138       478,512
    Interest income on mortgage-backed securities                  2,125,940      1,863,885     1,884,643
    Interest income on federal funds sold                             58,876         65,228       112,612
    Other interest income                                             66,143         38,791        76,937
                                                                 -----------    -----------   -----------
         Total interest income                                     6,707,692      6,255,012     6,543,001

Interest expense:
    Interest on deposits                                           2,827,735      2,719,276     2,937,155
    Interest on FHLB advances                                        696,382        532,264       587,644
                                                                 -----------    -----------   -----------
         Total interest expense                                    3,524,117      3,251,540     3,524,799
                                                                 -----------    -----------   -----------
         Net interest income                                       3,183,575      3,003,472     3,018,202

Provision for (recovery of) loan losses                             (104,500)        45,000       176,000
                                                                 -----------    -----------   -----------
         Net interest income after provision for loan losses       3,288,075      2,958,472     2,842,202
                                                                 -----------    -----------   -----------
Other income:
    Service charges on deposit accounts                              415,469        410,993       404,746
    (Losses) gains on sales and calls of investment securities        (6,125)        27,486        46,594
    Other                                                             46,293         99,889        38,699
                                                                 -----------    -----------   -----------
         Total other income                                          455,637        538,368       490,039
                                                                 -----------    -----------   -----------
Other expense:
    Salaries and employee benefits                                 1,372,332      1,333,455     1,330,058
    Net occupancy expense                                            120,853        115,754       128,439
    Federal insurance premiums                                        56,786         97,494       100,106
    Data processing expenses                                         208,665        229,336       226,734
    Professional services                                            253,856        172,103       225,174
    Depreciation and amortization                                    281,325        301,281       277,258
    Advertising expense                                               70,302        163,175       137,931
    Office supplies                                                   57,198         75,420        67,759
    Insurance expense                                                 66,061         60,669        60,509
    Other                                                            480,840        345,673       427,588
                                                                 -----------    -----------   -----------
         Total other expense                                       2,968,218      2,894,360     2,981,556
                                                                 -----------    -----------   -----------
         Income before income taxes                                  775,494        602,480       350,685

Income tax expense                                                   276,174        216,893       131,735
                                                                 -----------    -----------   -----------
         Net income                                              $   499,320        385,587       218,950
                                                                 ===========    ===========   ===========
Basic earnings per share                                         $      3.94           3.05          1.72
                                                                 ===========    ===========   ===========
Basic weighted average shares outstanding                            126,621        126,419       127,218
                                                                 ===========    ===========   ===========
Diluted earnings per share                                       $      3.71           2.89          1.61
                                                                 ===========    ===========   ===========
Diluted weighted average shares outstanding                          134,421        133,619       136,018
                                                                 ===========    ===========   ===========
</TABLE>
See accompanying notes to consolidated financial statements.

                                       17
<PAGE>

                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

 Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)

                 Years ended September 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>

                                                                       Accumulated     Unearned
                                                          Retained         other        common
                                            Additional    earnings -   comprehensive     stock       Total
                                 Common      paid-in     substantially    income        held by    stockholders'   Comprehensive
                                  stock      capital      restricted      (loss)         ESOP        equity         income (loss)
                                 -------    ----------   ------------- -------------   ---------   ------------    --------------
<S>                             <C>           <C>           <C>            <C>         <C>          <C>            <C>
Balance at September 30, 1997  $ 130,000     1,160,760     6,611,011      27,038      (130,941)    7,797,868

   Net income                         --            --       218,950          --            --       218,950        $ 218,950
   Unrealized loss on investment
     securities available for
     sale, net                        --            --            --     (19,436)           --       (19,436)         (19,436)
                                                                                                                    ---------
   Comprehensive income                                                                                             $ 199,514
                                                                                                                    =========
   Purchase of Employee Stock
     Ownership Plan shares            --            --            --          --       (63,700)      (63,700)
   Difference between fair
     value and cost of Employee
     Stock Ownership Plan shares
     committed to be released         --         6,400            --          --            --         6,400
   Release of Employee Stock
     Ownership Plan shares            --            --            --          --        65,470        65,470
   Cash dividends declared
     ($.75 per share)                 --            --       (97,500)         --            --       (97,500)
                                --------     ---------     ---------    --------       -------     ---------
Balance at September 30, 1998    130,000     1,167,160     6,732,461       7,602      (129,171)    7,908,052

   Net income                         --            --       385,587          --            --       385,587         $ 385,587
   Unrealized loss on investment
     securities available for
     sale, net                        --            --            --    (510,400)           --      (510,400)         (510,400)
                                                                                                                     ---------
   Comprehensive loss                                                                                                $(124,813)
                                                                                                                     =========
   Difference between fair
     value and cost of Employee
     Stock Ownership Plan shares
     committed to be released         --        12,900            --          --            --        12,900
   Release of Employee Stock
     Ownership Plan shares            --            --            --          --        64,085        64,085
   Cash dividends declared
     ($.75 per share)                 --            --       (97,500)         --            --       (97,500)
                                --------     ---------     ---------    --------       -------     ---------
Balance at September 30, 1999    130,000     1,180,060     7,020,548    (502,798)      (65,086)    7,762,724

   Net income                         --            --       499,320          --            --       499,320         $ 499,320
   Unrealized gain on investment
     securities available for
     sale, net                        --            --            --      39,659            --        39,659            39,659
                                                                                                                     ---------
   Comprehensive income                                                                                              $ 538,979
                                                                                                                     =========
   Difference between fair
     value and cost of Employee
     Stock Ownership Plan shares
     committed to be released         --         4,698            --          --            --         4,698
   Release of Employee Stock
     Ownership Plan shares            --            --            --          --        13,850        13,850
   Cash dividends declared
     ($.75 per share)                 --            --       (97,500)         --            --       (97,500)
                                --------     ---------     ---------    --------       -------     ---------
Balance at September 30, 2000   $130,000     1,184,758     7,422,368    (463,139)      (51,236)    8,222,751
                                ========     =========     =========    ========       =======     =========

</TABLE>


See accompanying notes to consolidated financial statements.


                                       18
<PAGE>


                     CFS BANCSHARES, INC.
                       AND SUBSIDIARIES

             Consolidated Statements of Cash Flows

        Years ended September 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>
                                                                        2000         1999          1998
                                                                      ---------    ---------    ---------
<S>                                                                   <C>            <C>          <C>
Cash flows from operating activities:
    Net income                                                        $ 499,320      385,587      218,950
    Adjustments to reconcile net income to net
       cash provided by operating activities:
         Provision for (recovery of) loan losses                       (104,500)      45,000      176,000
         Depreciation and amortization                                  281,325      301,281      277,258
         Net amortization of premium and accretion
            of discount on investment securities                         46,066      134,208       85,517
         Net accretion of discount on loans                             (50,188)     (61,607)     (78,356)
         Compensation expense recognized on
            ESOP shares allocation                                       18,548       36,162       85,700
         Loss (gain) on sale of investment securities
            available for sale, net                                       4,083      (25,850)     (43,717)
         Loss (gain) on sale of investment securities held to
            maturity, net                                                 2,042           --           --
         Gain on call of investment securities
            available for sale, net                                          --       (1,636)      (2,877)
         Loss (gain) on sale of real estate acquired by foreclosure     (16,552)      (5,482)       4,243
         Charge-off of investment security held to maturity                  --           --       25,000
         Decrease (increase) in accrued interest receivable             (50,683)      31,858       (1,513)
         Decrease (increase) in other assets                            529,765     (336,694)     (98,083)
         Increase (decrease) in other liabilities                      (256,599)     261,920     (146,797)
         Increase (decrease) in accrued interest on deposits             88,647       38,448      (24,394)
                                                                      ---------    ---------    ---------
              Net cash provided by operating activities                 991,274      803,195      476,931
                                                                      ---------    ---------    ---------
</TABLE>


                                       19
<PAGE>

<TABLE>
<CAPTION>

                      CFS BANCSHARES, INC.
                        AND SUBSIDIARIES

              Consolidated Statements of Cash Flows

         Years ended September 30, 2000, 1999, and 1998
                                                                              2000            1999          1998
                                                                            ---------      ---------      ---------
<S>                                                                       <C>                 <C>            <C>
Cash flows from investing activities:
    Increase in interest-earning
      deposits in other financial institutions                            $    (1,618)        (2,009)        (1,941)
    Proceeds from sale of investment securities held to maturity               81,232             --             --
    Purchases of investment securities held to maturity                            --       (502,656)            --
    Purchase of mortgage - backed securities
      held to maturity                                                             --       (953,886)
    Proceeds from principal collected on mortgage-
      backed securities and collateralized mortgage                         1,305,991      2,837,205      2,418,154
      obligations held to maturity
    Proceeds from sale of investment securities
      available for sale                                                    1,309,941      1,550,760      5,890,772
    Proceeds from maturity or call of investment
      securities available for sale                                           146,336      2,661,567      5,692,097
    Purchases of investment securities available for sale                  (1,897,478)    (6,884,031)    (1,135,691)
    Purchases of mortgage-backed securities available for sale             (8,646,922)   (12,512,826)   (16,330,001)
    Proceeds from principal collected on mortgage-backed
      securities and collateralized mortgage obligations                    3,340,701      9,826,447      7,652,962
      available for sale
    Redemption (purchase) of FHLB stock                                      (155,000)        77,500       (210,000)
    Net change in loans                                                    (4,638,190)     1,781,327     (3,023,540)
    Proceeds from sale of premises and equipment                                1,782             --             --
    Purchase of premises and equipment                                        (56,510)      (141,718)      (105,310)
    Proceeds from sale of real estate acquired by foreclosure                  57,346        145,450        121,305
    Improvements to real estate acquired by foreclosure                        (3,761)            --           (399)
                                                                           ----------     ----------     ----------

           Net cash provided by (used in) investing activities             (9,156,150)    (2,116,870)       968,408
                                                                           ----------     ----------     ----------
Cash flows from financing activities:
    Net increase (decrease) in interest-bearing deposits                    1,065,471      1,249,686     (2,429,143)
    Cash dividends                                                            (97,500)       (97,500)       (97,500)
    Increase (decrease) in advance payments by
      borrowers for taxes and insurance                                         9,809        (42,924)       (23,526)
    Net proceeds from FHLB advances                                         3,100,000      2,650,000             --
    Repayment of ESOP debt                                                     (8,000)       (73,471)       (63,000)
                                                                           ----------     ----------     ----------
           Net cash provided by (used in) financing activities              4,069,780      3,685,791     (2,613,169)
                                                                           ----------     ----------     ----------
Net increase (decrease) in cash and cash equivalents                       (4,095,096)     2,372,166     (1,167,830)
Cash and cash equivalents at beginning of year                              7,689,451      5,317,285      6,485,115
                                                                           ----------     ----------     ----------
Cash and cash equivalents at end of year                                  $ 3,594,355      7,689,451      5,317,285
                                                                           ==========     ==========     ==========
Supplemental information on cash payments:
    Interest paid                                                         $ 3,435,470      3,204,876      3,538,547
                                                                           ==========     ==========     ==========
    Income taxes paid                                                     $   337,500             --        110,000
                                                                           ==========     ==========     ==========
Supplemental information on noncash investing and financing activities:
    Loans transferred to real estate acquired by foreclosure              $    75,998        127,604         88,779
                                                                           ==========     ==========     ==========
    Real estate sold and financed by the Bank                             $        --             --        121,305
                                                                           ==========     ==========     ==========
</TABLE>
See accompanying notes to consolidated financial statements.


                                       20
<PAGE>

                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998


(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       CFS Bancshares,  Inc. is a holding  company for Citizens  Federal Savings
       Bank (the Bank) and the Bank's wholly-owned subsidiary,  Citizens Service
       Corporation - collectively  the Company.  The holding  company was formed
       June 30, 1998 and all  outstanding  shares of the Bank were exchanged for
       shares of the holding company upon  formation.  The exchange was recorded
       as a pooling of  interests  whereby  the  historical  basis of the Bank's
       accounts  were  carried  over  to the  holding  company.  The  Bank  is a
       federally  chartered stock savings bank regulated by the Office of Thrift
       Supervision (OTS) and certain other federal agencies. The Bank provides a
       full  range of banking  services  to  customers  through  its  offices in
       Birmingham and Eutaw,  Alabama.  The Bank is subject to competition  from
       other  financial  institutions  in the market in which it  operates.  The
       following  is a  description  of  the  more  significant  accounting  and
       reporting  policies which the Company follows in preparing and presenting
       its financial statements:

       (a)    BASIS OF PRESENTATION

              The consolidated  financial statements include the accounts of CFS
              Bancshares,  Inc. and its subsidiaries.  All intercompany accounts
              and transactions have been eliminated in consolidation.

              The financial  statements  have been  prepared in conformity  with
              accounting  principles  generally accepted in the United States of
              America.  In preparing  the  financial  statements,  management is
              required  to  make  estimates  and  assumptions  that  affect  the
              reported  amounts of assets and  liabilities and the disclosure of
              contingent  assets and  liabilities  as of the date of the balance
              sheet and revenues and  expenses  for the period.  Actual  results
              could differ significantly from those estimates.

              One estimate  that is  particularly  susceptible  to a significant
              change  in the  near  term  relates  to the  determination  of the
              allowance  for loan losses.  A  significant  portion of the Bank's
              mortgage loans are secured by real estate in Alabama, primarily in
              Jefferson   County  and  the  surrounding   areas.   The  ultimate
              collectibility  of the loan portfolio is susceptible to changes in
              market conditions in Alabama.

              Management   believes  that  the  allowance  for  loan  losses  is
              adequate. While management uses available information to recognize
              losses  on  loans,  future  additions  to  the  allowance  may  be
              necessary  based on changes in economic  conditions.  In addition,
              various  regulatory  agencies,   as  an  integral  part  of  their
              examination process,  periodically review the Bank's allowance for
              loan  losses.  Such  agencies  may require  the Bank to  recognize
              additions  to  the  allowance   based  on  their  judgments  about
              information available to them at the time of their examination.

                                                                (Continued)

                                       21
<PAGE>

                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

       (B)    CASH AND CASH EQUIVALENTS

              For purposes of reporting  cash flows,  cash and cash  equivalents
              include cash on hand, amounts due from financial  institutions and
              federal  funds sold.  Generally,  federal  funds are purchased and
              sold for one-day periods.

       (C)    INVESTMENT SECURITIES

              The Bank  classifies its investment  securities in two categories:
              available  for  sale  or  held  to  maturity.   Held  to  maturity
              securities are those securities for which the Bank has the ability
              and  intent  to  hold  the  security  until  maturity.  All  other
              securities are classified as available for sale.

              Available for sale securities are recorded at fair value.  Held to
              maturity   securities  are  recorded  at  cost  adjusted  for  the
              amortization  or accretion of premiums and  discounts.  Unrealized
              holding gains and losses,  net of the related  income tax effects,
              on  securities  available  for sale are excluded from earnings and
              are reported as a separate component of stockholders' equity until
              realized.

              A  decline  in  the  market  value  of any  available-for-sale  or
              held-to-maturity  security  below  cost that is deemed  other than
              temporary results in a charge to earnings and the establishment of
              a new cost basis for the security.

              Premiums and  discounts are amortized or accreted over the life of
              the related  investment  security as an  adjustment to yield using
              the level-yield  method and prepayment  assumptions.  Dividend and
              interest  income are  recognized  when earned.  Realized gains and
              losses for investment securities sold are included in earnings and
              are  derived   using  the  specific   identification   method  for
              determining the cost of the security sold.

              The  investment  in the  stock of the  Federal  Home  Loan Bank is
              required of insured  institutions that utilize the services of the
              Federal Home Loan Bank.  The stock has no quoted fair value and no
              ready  market  exists.  However,  the  Federal  Home Loan Bank has
              historically repurchased the stock at cost. Accordingly, the stock
              is reported in the financial statements at cost.

       (D)    LOANS AND INTEREST INCOME

              Loans receivable are stated at their unpaid principal balance less
              the  undisbursed  portion of loans in process,  unearned  interest
              income and an allowance for loan losses.  Interest income on loans
              is  recorded  using a simple  interest  method.  It is the general
              policy of the Bank to  discontinue  the accrual of  interest  when
              principal or interest  payments are  delinquent 90 days or more or
              the ultimate  collection of either is in doubt.  Unearned discount
              on loans  purchased is accreted to income over the remaining  life
              of the loans purchased using the level-yield method.

                                                                (Continued)

                                       22
<PAGE>


                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

              At September 30, 2000, approximately 23 percent of the Bank's loan
              portfolio  consists  of  mortgage  loans to  churches.  The Bank's
              exposure  to  credit  loss in the event of  nonperformance  by the
              parties to financial instruments for mortgage loans to churches is
              represented by the contractual amounts of these instruments.

       (E)    ALLOWANCE FOR LOAN LOSSES

              Additions  to  the   allowance   for  loan  losses  are  based  on
              management's  evaluation  of  the  loan  portfolio  under  current
              economic  conditions,  including  such  factors  as the volume and
              character of loans  outstanding,  past loss  experience,  and such
              other factors which, in management's judgment, deserve recognition
              in  estimating  loan  losses.  Loans are charged to the  allowance
              when,  in the opinion of  management,  such loans are deemed to be
              uncollectible.  Provisions for loan losses and recoveries of loans
              previously charged to the allowance are added to the allowance.

              One of the  procedures  used by  management  in  establishing  the
              allowance   for  loan  losses  is  the   evaluation  of  potential
              impairment on selected loans. A loan is considered  impaired when,
              based on current  information and events,  it is probable that the
              Bank will be unable to collect all amounts  due  according  to the
              contractual  terms  of the  note  agreement.  Impaired  loans  are
              measured based on the present value of expected future cash flows,
              discounted at the loan's effective interest rate, or at the loan's
              observable  market price,  or the fair value of the  collateral if
              the loan is collateral dependent.  Loans that are determined to be
              impaired require a valuation allowance equivalent to the amount of
              impairment.  Impairment  losses are included in the  allowance for
              loan losses  through a charge to the  provision  for loan  losses.
              Cash  receipts on impaired  loans which are accruing  interest are
              applied to principal and interest under the  contractual  terms of
              the loan agreement.  Cash receipts on impaired loans for which the
              accrual of interest  has been  discontinued  are applied to reduce
              the  principal  amount of such loans until the  principal has been
              recovered and are recognized as interest income thereafter.

       (F)    LOAN FEES

              Loan origination  fees and certain direct loan  origination  costs
              are deferred and recognized over the lives of the related loans as
              a  yield  adjustment   using  a  method  which   approximates  the
              level-yield method.

       (G)    REAL ESTATE ACQUIRED BY FORECLOSURE

              For real estate acquired through foreclosure,  a new cost basis is
              established  at the  lower  of cost or fair  value,  adjusted  for
              estimated costs to sell, at the time of foreclosure. Subsequent to
              foreclosure,  foreclosed  assets are  carried at the lower of fair
              value less  estimated  costs to sell or cost,  with the difference
              recorded as a valuation  allowance,  on an individual asset basis.
              Changes in the valuation  allowance  are  recognized as charges or
              credits to earnings.

                                                                (Continued)

                                       23
<PAGE>

                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

       (H)    INCOME TAXES

              The Company  provides for income  taxes based upon pretax  income,
              adjusted for permanent  differences  between  reported and taxable
              earnings.  Deferred tax assets and  liabilities are recognized for
              the future tax  consequences  attributable to differences  between
              the financial  statement  carrying  amounts of existing assets and
              liabilities  and their  respective tax bases.  Deferred tax assets
              and  liabilities  are measured using enacted tax rates expected to
              apply to  taxable  income  in the years in which  those  temporary
              differences are expected to be realized or settled.  The effect on
              deferred  tax assets and  liabilities  of a change in tax rates is
              recognized in the period that includes the enactment date.

       (I)    PREMISES AND EQUIPMENT

              Land is stated at cost.  Premises and equipment are stated at cost
              less accumulated  depreciation.  Depreciation is provided over the
              estimated  useful lives of the respective  assets on primarily the
              straight-line method.

       (J)    EMPLOYEE STOCK OWNERSHIP PLAN

              The Company sponsors an Employee Stock Ownership Plan (ESOP) which
              has borrowed funds from another  financial  institution to acquire
              common  stock of the  Company.  The Company has  committed to make
              contributions  to the plan that,  when combined with  dividends on
              unallocated  shares, are sufficient to fund interest and principal
              payments on the ESOP debt.  Unallocated  shares are  reflected  as
              unearned ESOP shares in stockholders'  equity. Shares are released
              and allocated to  participants  as principal  payments are made on
              the loans. The Company records  compensation  expense equal to the
              fair value of the committed-to-be-released shares.

       (K)    COMPREHENSIVE INCOME

              The  Company  adopted  Financial   Accounting   Standard  No.  130
              Reporting  Comprehensive  Income,   ("FAS130")  in  1999  and,  as
              required,  has reflected total comprehensive income in all periods
              presented in the consolidated financial statements.


(2)    CASH AND AMOUNTS DUE FROM DEPOSITORY INSTITUTIONS

       The Bank is  required  to  maintain  certain  daily  reserve  balances in
       accordance with the Federal Reserve Board requirements. The Bank exceeded
       the required balances of approximately  $25,000 at September 30, 2000 and
       1999.

                                                                (Continued)

                                       24
<PAGE>

                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998


(3)    INVESTMENT SECURITIES

       The amortized cost and  approximate  fair value of investment  securities
       held to maturity at September 30, 2000 and 1999 were as follows:

<TABLE>
<CAPTION>
                                            2000                      1999
                                    ------------------------  -----------------------
                                    AMORTIZED      FAIR       AMORTIZED      FAIR
                                      COST          VALUE       COST         VALUE
                                    ----------   ----------   ----------   ----------
<S>                                 <C>          <C>          <C>          <C>
       U.S. Government Agencies     $  500,000      496,360      500,000      495,584
       Mortgage-backed securities    1,877,722    1,868,204    2,926,248    2,924,910
       Collateralized mortgage
          obligations                1,150,157    1,142,360    1,503,560    1,499,295
                                    ----------   ----------   ----------   ----------

                                    $3,527,879    3,506,924    4,929,808    4,919,789
                                    ==========   ==========   ==========   ==========
</TABLE>

       The amortized cost and  approximate  fair value of investment  securities
       available for sale at September 30, 2000 and 1999, were as follows:
<TABLE>
<CAPTION>
                                            2000                         1999
                                    -------------------------   -------------------------
                                    AMORTIZED       FAIR        AMORTIZED       FAIR
                                       COST         VALUE          COST         VALUE
                                    -----------   -----------   -----------   -----------
<S>                                 <C>             <C>           <C>           <C>
       U.S. Treasury and U.S.
         Government agencies        $ 8,804,664     8,529,274     7,035,432     6,733,203
       Equity securities              3,102,882     3,057,864     3,749,765     3,708,398
       Mortgage-backed securities    14,262,037    13,913,202    15,146,285    14,763,824
       Collateralized mortgage
         obligations                 13,930,232    13,875,821     8,458,397     8,398,833
                                    -----------   -----------   -----------   -----------

                                    $40,099,815    39,376,161    34,389,879    33,604,258
                                    ===========   ===========   ===========   ===========
</TABLE>

                                                                (Continued)

                                       25
<PAGE>

                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998


       The gross  unrealized  gains and losses of investment  securities held to
maturity at September 30, 2000 and 1999, are as follows:
<TABLE>
<CAPTION>

                                          2000                  1999
                                   -----------------      -------------------
                                    GROSS      GROSS        GROSS    GROSS
                                  UNREALIZED UNREALIZED UNREALIZED UNREALIZED
                                     GAINS    LOSSES       GAINS     LOSSES
                                    -------   -------      -------   -------
<S>                                   <C>      <C>           <C>       <C>
       U.S. Treasury and U.S.
         Government agencies        $    --     3,640           --     4,416
       Mortgage-backed securities     1,805    11,323        7,430     8,768
       Collateralized mortgage
         obligations                     --     7,797          439     4,703
                                    -------   -------      -------   -------

                                    $ 1,805    22,760        7,869    17,887
                                    =======   =======      =======   =======
</TABLE>

       The gross unrealized gains and losses of investment  securities available
       for sale at September 30, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                           2000                  1999
                                    -------------------   -------------------
                                      GROSS      GROSS     GROSS       GROSS
                                   UNREALIZED UNREALIZED UNREALIZED UNREALIZED
                                     GAINS      LOSSES     GAINS      LOSSES
                                    --------   --------   --------   --------
<S>                                 <C>         <C>            <C>    <C>
       U.S. Treasury and U.S.
         Government agencies        $ 26,860    302,250        183    302,412
       Equity securities                  --     45,018         --     41,367
       Mortgage-backed securities     18,523    367,357      8,629    391,091
       Collateralized mortgage
         obligations                  72,025    126,436     81,576    141,140
                                    --------   --------   --------   --------

                                    $117,408    841,061     90,388    876,010
                                    ========   ========   ========   ========

</TABLE>


                                                                (Continued)

                                       26
<PAGE>
                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

       The U.S.  Government Agency security held to maturity with amortized cost
       of $500,000 and  approximate  fair value of $496,360  matures on July 16,
       2001.

       The  amortized  cost  and  approximate  fair  value  of  debt  investment
       securities  available  for sale at  September  30, 2000,  by  contractual
       maturities  are  shown  below.   Actual   maturities  could  differ  from
       contractual maturities due to call or prepayment provisions.

<TABLE>
<CAPTION>
                                                                  AMORTIZED        FAIR
                                                                    COST           VALUE
                                                                 -----------   -----------
<S>                                                             <C>            <C>
                Due from one to five years                      $ 2,989,503     2,899,982
                Due from five to ten years                        5,815,161     5,629,292
                Mortgage-backed securities and collateralized
                   mortgage obligations                          28,192,269    27,789,023
                                                                -----------   -----------

                                                                $36,996,933    36,318,297
                                                                ===========   ===========
</TABLE>

       Proceeds  from sales of  investment  securities  available  for sale were
       $1,309,941, $1,550,760, and $5,890,772, for the years ended September 30,
       2000,  1999 and 1998,  respectively.  Gross gains  (losses) of  ($4,083),
       $25,850,  and  $43,717  were  realized on those sales for the years ended
       September 30, 2000, 1999 and 1998, respectively.

       Proceeds  from  sales of  investment  securities  held to  maturity  were
       $81,232 for the year ended  September 30, 2000. The amortized cost of the
       sold  investment  securities  held to maturity  was $83,274  resulting in
       gross losses of $2,042 for the year ended September 30, 2000. The sale of
       the investment  security held to maturity in 2000 occurred after the Bank
       collected over 85% of the principal outstanding. There were no investment
       securities held to maturity sold during 1999 and 1998.

       Investment  securities with amortized cost of $36,041,628 and $24,024,553
       at  September  30, 2000 and 1999,  respectively,  were  pledged to secure
       public deposits as required by law and for other purposes.  Additionally,
       in accordance with Office of Thrift Supervision regulations,  the Bank is
       required to maintain a certain  percentage  (4 percent at  September  30,
       2000), of its withdrawable  deposits and current borrowings in cash, U.S.
       Treasury  obligations,  or other approved  investments  which are readily
       convertible  into  cash.  The  Bank  met this  liquidity  requirement  at
       September 30, 2000.


                                                                (Continued)

                                       27
<PAGE>
                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

(4)    LOANS

       At September 30, 2000 and 1999, the Bank had the following net loans:

<TABLE>
<CAPTION>
                                                            2000            1999
                                                          -----------   -----------
<S>                                                       <C>            <C>
        Total loans                                       $50,712,916    45,904,206

        Plus unearned premium on loans purchased               18,877         3,067

        Less:  Unamortized loan origination fees              635,214       614,963
               Undisbursed portion of loans in process      1,516,383     1,460,993
               Allowance for loan losses                      342,156       310,157
                                                          -----------   -----------
                                                            2,474,876     2,383,046
                                                          -----------   -----------
        Net loans                                         $48,238,040    43,521,160
                                                          ===========   ===========
</TABLE>

       The composition of the total loan portfolio was as follows:

                                              2000           1999
                                           -----------   -----------
        Residential real estate mortgage   $32,424,554    29,353,617
        Consumer installment                 1,318,057     1,602,367
        Non residential mortgage            15,763,271    14,039,105
        Commercial                           1,207,034       909,117
                                           -----------   -----------

               Total loans                 $50,712,916    45,904,206
                                           ===========   ===========

       A summary of the  transactions  in the  allowance for loan losses for the
years ended September 30, 2000, 1999, and 1998 follows:

<TABLE>
<CAPTION>

                                                     2000        1999          1998
                                                  ---------    ---------    ---------
<S>                                               <C>            <C>          <C>
        Balance at beginning of year              $ 310,157      553,797      630,423
        Net charge-offs
            Gross charge-offs                       (84,401)    (326,590)    (314,990)
            Gross recoveries                        220,900       37,950       62,364
        Provision charged to earnings              (104,500)      45,000      176,000
                                                  ---------    ---------    ---------

        Balance at end of year                    $ 342,156      310,157      553,797
                                                  =========    =========    =========

</TABLE>

                                                                (Continued)

                                       28
<PAGE>

                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

       Loans on which the accrual of interest had been  discontinued  or reduced
       amounted to $1,755,011  and $1,391,680 as of September 30, 2000 and 1999,
       respectively.  If these loans had been  current  throughout  their terms,
       interest  income  would have been  increased  by  $66,594,  $62,189,  and
       $114,980, for 2000, 1999 and 1998, respectively.

       Impaired  loans at  September  30,  2000 and 1999  totaled  $148,075  and
       $149,121,  respectively.  The allowance  amounts,  which were $54,572 and
       $54,589 in 2000 and 1999,  respectively,  were primarily determined using
       the fair value of the related collateral. The average recorded investment
       in impaired loans for the years ended  September 30, 2000, 1999 and 1998,
       was $149,078, $221,001, and $300,639,  respectively.  The interest income
       recognized  on impaired  loans for the years ended  September  30,  2000,
       1999, and 1998 was approximately $85, $3,744 and $410, respectively.

       During 2000,  certain  officers and  directors of the Company,  including
       their  immediate  families and companies with which they are  associated,
       were loan  customers  of the Bank.  Such  loans are made in the  ordinary
       course of business at normal  credit terms,  including  interest rate and
       collateral  requirements,  and do not present  more than a normal  credit
       risk. The following is a summary of activity  during 2000 with respect to
       the aggregate loans to these individuals and their associates:

            Balance at September 30, 1999   $1,213,737
                New loans                      642,735
                Repayments                     117,170
                                            ----------

            Balance at September 30, 2000   $1,739,302
                                            ==========



                                                                (Continued)

                                       29
<PAGE>

                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

(5)    PREMISES AND EQUIPMENT

       Premises and equipment are summarized as follows:

                                                  2000         1999
                                               ----------   ----------
        Land                                   $  733,242      733,242
        Buildings and leasehold improvements    3,038,911    3,038,911
        Furniture, fixtures and equipment       2,197,013    2,144,070
                                               ----------   ----------

                                                5,969,166    5,916,223

        Less: accumulated depreciation          2,324,330    2,044,790
                                               ----------   ----------

                                               $3,644,836    3,871,433
                                               ==========   ==========


(6)    REAL ESTATE ACQUIRED BY FORECLOSURE

       Real estate  acquired by  foreclosure,  net, as of September 30, 2000 and
       1999   totaled   $86,237  and  $47,270,   respectively.   There  were  no
       transactions  in the allowance for losses on the real estate  acquired by
       foreclosure in 2000 or 1999.


(7)    INTEREST-BEARING DEPOSITS

       At  September  30, 2000 and 1999,  the  composition  of  interest-bearing
       deposits and applicable interest rates were as follows:

<TABLE>
<CAPTION>
                                                                                    2000           1999
                                                                                 -----------   -----------
      <S>                                                                        <C>           <C>
        NOW accounts (2000 - .43%, 1999 - .42%)                                  $ 8,755,081     8,385,107
        Super NOW accounts (2000 - 2.27%, 1999 - 2.25%)                            4,699,077     5,038,147
        Passbook savings (2000 - 2.49%, 1999 - 2.49%)                             16,464,242    17,455,461
        Time deposits:
            Certificates of deposit less than $100,000 (2000 - 4.37% to 8.00%,
               1999 - 4.00% to 8.00%)                                             18,572,682    19,678,305
            Certificates of deposit greater than $100,000  (2000 -5.93%,
               1999 - 4.75%)                                                      27,585,937    24,454,528
                                                                                 -----------   -----------

                 Total time deposits                                              46,158,619    44,132,833

        Accrued interest on deposits                                                 257,422       168,775
                                                                                 -----------   -----------

                 Total deposits                                                  $76,334,441    75,180,323
                                                                                 ===========   ===========
</TABLE>


                                                                (Continued)

                                       30
<PAGE>

                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

       Weighted  average  interest rates on deposit  accounts were as follows at
September 30, 2000 and 1999:

                                                           2000     1999
                                                           ----     ----


        NOW and demand deposit accounts                     .43%    .42%
        Super NOW accounts                                 2.27%   2.25%
        Passbook savings accounts                          2.49%   2.49%
        Certificates of deposit less than $100,000         5.09%   4.91%
        Certificates of deposit greater than $100,000      5.93%   4.75%
            Total                                          4.12%   3.06%

       Interest on deposits is summarized as follows:

                                2000         1999         1998
                             ----------   ----------   ----------

        NOW accounts         $   40,317       36,040       86,957
        Super NOW accounts      107,477       97,103       96,667
        Passbook savings        416,499      435,261      478,354
        Time deposits         2,263,442    2,150,872    2,275,177
                             ----------   ----------   ----------

                             $2,827,735    2,719,276    2,937,155
                             ==========   ==========   ==========

       The amounts and  maturities  of time  deposits at September  30, 2000 and
1999 are as follows:

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

        Within one year                     $38,924,656    37,499,384
        After one but within two years        4,381,218     2,689,716
        After two but within three years      2,164,490     2,358,971
        After three but within four years       365,486     1,264,611
        After four but within five years        282,622       216,517
        Greater than five years                  40,147       103,634
                                            -----------   -----------

                                            $46,158,619    44,132,833
                                            ===========   ===========


                                                                (Continued)

                                       31
<PAGE>

                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

(8)      BORROWED FUNDS

       The Company  was liable to the  Federal  Home Loan Bank of Atlanta on the
       following advances at September 30, 2000:

                                                    FIXED
                                                   INTEREST
             MATURITY DATE                          RATE             2000
        --------------------------------------    ----------    -----------

        March 2001                                    6.94%     $ 3,000,000
        March 2002                                    6.70%       1,000,000
        April 2002                                    6.70%       1,750,000
        September 2004                                5.71%       5,000,000
        June 2008                                     5.51%       4,200,000
                                                                -----------

           Total (weighted average rate of 6.08%)               $14,950,000
                                                                ===========

       At September  30, 2000,  the advances  were  collateralized  by a blanket
       pledge of  first-mortgage  residential  loans. The September 2004 advance
       and the June 2008 advance are  callable in September  2001 and June 2003,
       respectively.


(9)    INCOME TAXES

       For the years  ended  September  30,  2000,  1999,  and 1998,  income tax
expense (benefit) consists of the following:

                         2000         1999        1998
                      ---------    ---------   ---------
        Current:
            Federal   $ 274,210      113,290      88,604
            State        19,219       12,037          --
                      ---------    ---------   ---------

                        293,429      125,327      88,604
                      ---------    ---------   ---------

        Deferred:
            Federal     (14,845)      84,509      37,606
            State        (2,410)       7,057       5,525
                      ---------    ---------   ---------

                        (17,255)      91,566      43,131
                      ---------    ---------   ---------

                      $ 276,174      216,893     131,735
                      =========    =========   =========

                                                                (Continued)

                                       32
<PAGE>
                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

       The income tax expense  above  represents  an effective  tax rate of 35.6
       percent,  36.0  percent  and 37.6  percent  for  2000,  1999,  and  1998,
       respectively.  The actual  income tax  expense for 2000,  1999,  and 1998
       differs from the  "expected"  income tax expense for those years which is
       computed by applying the U.S.  Federal  corporate income tax rate of 34.0
       percent  for  2000,  1999,  and 1998 to  income  before  income  taxes as
       follows:
<TABLE>
<CAPTION>

                                                    2000         1999         1998
                                                 ---------    ---------    ---------
<S>                                              <C>            <C>          <C>
        Computed "expected" income tax expense   $ 263,668      204,844      119,233
        State tax, net of federal effect            11,095        9,400        4,208
        Dividends paid to ESOP                      (7,845)      (7,845)      (6,824)
        Other, net                                   9,256       10,494       15,118
                                                 ---------    ---------    ---------

                                                 $ 276,174      216,893      131,735
                                                 =========    =========    =========
</TABLE>

       The tax effects of temporary  differences  that give rise to  significant
       portions of the  deferred  tax assets and  deferred  tax  liabilities  at
       September 30, 2000 and 1999 are presented below:
<TABLE>
<CAPTION>

                                                                             2000       1999
                                                                           --------   --------
<S>                                                                        <C>         <C>
        Deferred tax assets:
            Unrealized loss on investment securities available for sale    $260,512    282,821
            Loans - unearned loan fee income                                 14,381     17,574
            Nonaccrual interest                                             125,033     75,815
            Foreclosed property                                              21,726     31,649
            Prepaid expenses and accruals                                    11,791      5,585
            Other                                                            10,583     20,425
                                                                           --------   --------

                                                                            444,026    433,869
                                                                           --------   --------

        Deferred tax liabilities:
            Loan - allowance for loan losses                                 46,186     12,101
            FHLB stock                                                       40,942     40,942
            Premises and equipment - differences in depreciation expense     15,422     31,636
            Loan basis - book to tax difference                              93,704     93,704
            Other                                                               102      2,763
                                                                           --------   --------

                                                                            196,356    181,146
                                                                           --------   --------

        Net deferred tax asset                                             $247,670    252,723
                                                                           ========   ========
</TABLE>
                                                                (Continued)

                                       33
<PAGE>
                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

       Management believes results of future operations will generate sufficient
       taxable income and resulting tax  liabilities to realize the deferred tax
       asset. There was no valuation allowance at September 30, 2000 or 1999, or
       any change in the valuation  allowance  during the years ended  September
       30, 2000, 1999 or 1998.


(10)   EMPLOYEE BENEFIT PLANS

       The Company sponsors an Employee Stock Ownership Plan (ESOP). The ESOP is
       available  to  all  employees  who  have  met  certain  age  and  service
       requirements.  Contributions  to the plan are  determined by the board of
       directors,  based  on a  percentage  of the  total  payroll  and  certain
       limitations as to the deductibility for tax purposes. The Company intends
       to make  contributions  to the Plan that, when combined with dividends on
       unallocated  shares,  are  sufficient  to  fund  interest  and  principal
       payments on the ESOP debt. The ESOP has borrowed funds on three occasions
       to  purchase  shares of common  stock of the Bank for the  benefit of the
       ESOP participants.

       The  common  stock  of the  Company  acquired  by the  ESOP  is  held  as
       collateral for the loans. As of September 30, 2000, the ESOP holds 30,790
       (23.69  percent)  shares of the  Company's  outstanding  stock,  of which
       27,586 shares have been allocated to the participants.  The Company makes
       contributions  to the ESOP  which  are  used to make  loan  interest  and
       principal payments. Shares are released and allocated to the participants
       prorata  with  the  paydowns  on the ESOP  debt.  All  dividends  paid on
       allocated  and  unallocated  shares are used to reduce  interest  expense
       related to the ESOP debt.

       The first ESOP loan (1989 loan) was paid off as of  September  30,  1999.
       The second ESOP loan (1995 loan) was paid off as of  September  30, 1999.
       The third ESOP loan (1998 loan) is repayable in monthly  installments  of
       interest at the prime rate and annual  installments  of  principal in the
       amount of $8,000.  The loan  originated on March 9, 1998 to purchase 4005
       shares (1998 shares). The principal outstanding at September 30, 2000 and
       1999 was $64,000 and 72,000,  respectively.  Unearned  shares at year-end
       2000 and 1999  totaled  2,971 and 3,371 with fair values of $118,840  and
       $141,582 respectively.

       Contributions  to fund  the  installments  on the  1989  loan  have  been
       recorded  as  compensation  expense.   Such  contributions   approximated
       $13,000,  and $46,000,  in 1999 and 1998 respectively.  The fair value of
       the  committed-to-be-released  1995 and 1998 shares are also  reported as
       compensation  expense.  Such shares  totaled 400,  860, and 760 for 2000,
       1999,  and  1998,   respectively.   The  related   compensation   expense
       approximated  $18,000,  $36,000,  and $39,000,  in 2000,  1999, and 1998,
       respectively.

                                                                (Continued)

                                       34
<PAGE>
                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

       The Bank also sponsors a 401(k) retirement plan (401(k)). The 401(k) is a
       trusteed,  salary  reduction plan which is available to all employees who
       have  completed  one year of  service  and have  attained  the age of 21.
       401(k) participants may elect to defer a percentage of their compensation
       each year up to a certain  dollar  limit  established  by law. The Bank's
       management  may make a  discretionary  matching  contribution  equal to a
       percentage of the amount of salary reduction 401(k) participants  elected
       to defer. Such discretionary  contributions for the years ended September
       30, 2000, 1999, and 1998 were $28,536, $27,078 and $24,994, respectively.
       The Bank also provides major medical and dental  coverage  funded through
       pre-tax withholdings from the participants.


(11)   NET INCOME PER SHARE

       Presented below is a summary of the components used to calculate  diluted
       earnings  per share for the years ended  September  30, 2000,  1999,  and
       1998:
<TABLE>
<CAPTION>

                                                      2000       1999        1998
                                                    --------   --------   --------
<S>                                                 <C>         <C>        <C>
Diluted earnings per share:
    Weighted average common shares
        outstanding                                 $126,621    126,419    127,218
    Net effect of the assumed exercise of
        stock options-based on the treasury
        stock method using average market
        price for the year                             7,800      7,200      8,800
                                                    --------   --------   --------

    Total weighted average common shares
        and potential common stock outstanding      $134,421    133,619    136,018
                                                    ========   ========   ========
</TABLE>

                                                                (Continued)

                                       35
<PAGE>

                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

(12)   COMPREHENSIVE INCOME

       Presented below is a summary of other  comprehensive  income (loss) for
       the years ended September 30, 2000, 1999, and 1998:

<TABLE>
<CAPTION>

                                                                                 YEAR ENDING SEPTEMBER 30,
                                                                                2000        1999        1998
                                                                              --------    --------    --------
<S>                                                                           <C>         <C>           <C>
Other comprehensive income (loss) before tax:
    Unrealized holding gain (loss) on
        investment securities available for sale
        arising during the period, net                                        $ 66,051    (770,055)     14,201
    Reclassification adjustment for gains (losses)
        on investment securities available for sale
        realized in net income                                                  (4,083)     27,486      46,594
                                                                              --------    --------    --------

    Other comprehensive income (loss), before
        income taxes                                                            61,968    (797,541)    (32,393)
                                                                              --------    --------    --------

Income tax expense (benefit) related to other comprehensive income:
    Unrealized holding gain (loss) on
        investment securities available for sale
        arising during the period, net                                         (23,942)   (276,147)      5,681
    Reclassification adjustment for gains (losses)
        on investment securities available for sale
        realized in net income                                                  (1,633)     10,994      18,638
                                                                              --------    --------    --------

          Total income tax expense (benefit)
                related to other comprehensive
                income                                                         (22,309)   (287,141)    (12,957)
                                                                              --------    --------    --------

    Other comprehensive income (loss)                                         $ 39,659    (510,400)    (19,436)
                                                                              ========    ========    ========
</TABLE>

                                                                (Continued)

                                       36
<PAGE>
                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

(13)   STOCKHOLDERS' EQUITY

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

       Quantitative  measures  established  by  regulations  to  ensure  capital
       adequacy  require  the Bank to maintain  minimum  amounts and ratios (set
       forth in the table  below) of total and Tier I capital  to  risk-weighted
       assets, and of Tier I capital to average assets as set forth in the table
       below.
<TABLE>
<CAPTION>

                                                              FOR CAPITAL ADEQUACY
                                                ACTUAL              PURPOSES        WELL CAPITALIZED
                                         -------------------  -------------------  ------------------
                                          AMOUNT       RATIO    AMOUNT     RATIO    AMOUNT     RATIO
                                         ---------   -------  ---------  -------- ---------  --------
<S>                                     <C>            <C>    <C>           <C>   <C>           <C>
As of September 30, 2000:
   Total capital
     (to risk weighted
     assets)                            $8,780,000     17.6%  3,997,304     8.0%  4,996,630     10.0%
   Tier I capital
     (to risk weighted
     assets)                             8,610,000     17.2%  1,998,652     4.0%  2,997,978      6.0%
   Tier I capital
     (to average assets)                 8,610,000      8.8%  3,933,362     4.0%  4,916,703      5.0%

As of September 30, 1999:
   Total capital
     (to risk weighted
     assets)                            $8,295,000     17.8%  3,732,880     8.0%  4,666,100     10.0%
   Tier I capital
     (to risk weighted
     assets)                             8,165,000     17.5%  1,866,440     4.0%  2,799,660      6.0%
   Tier I capital
     (to average assets)                 8,165,000      8.7%  3,763,408     4.0%  4,704,260      5.0%

</TABLE>

                                                                (Continued)

                                       37
<PAGE>
                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

       Savings  institutions  with more than a "normal"  level of interest  rate
       risk are  required  to  maintain  additional  total  capital.  A  savings
       institution  with a greater than normal interest rate risk is required to
       deduct specified amounts from total capital,  for purposes of determining
       its compliance  with  risk-based  capital  requirements.  The Bank was in
       compliance with capital standards at September 30, 2000 and 1999.

       Retained earnings at September 30, 2000 and 1999,  include  approximately
       $2,200,000  for which no  provision  for income  tax has been made.  This
       amount  represents  allocations of income to bad debt  deductions for tax
       computation  purposes.  If,  in the  future,  this  portion  of  retained
       earnings  is used  for any  purpose  other  than to  absorb  tax bad debt
       losses,  income  taxes may be imposed at the then  applicable  rates.  An
       additional   $1,400,000  of  retained  earnings  is  also  restricted  at
       September  30,  2000 and  1999,  as a result of the  liquidation  account
       established upon conversion to a stock company.  No dividends may be paid
       to  stockholders if such dividends would reduce the net worth of the Bank
       below the amount required by the liquidation account.


(14)   CONTINGENCIES

       The Company is defending  various  lawsuits and claims arising out of the
       conduct of its business. While the ultimate results of these lawsuits and
       claims cannot be predicted with certainty,  in the opinion of management,
       the ultimate  disposition  of these  matters will not have a  significant
       effect on the consolidated financial position or results of operations of
       the Company.


(15)   OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

       The Bank is a party to financial instruments with  off-balance-sheet risk
       in the  normal  course of  business  to meet the  financing  needs of its
       customers.  These  financial  instruments  include  commitments to extend
       credit. Such instruments involve elements of credit risk in excess of the
       amounts recognized in the financial statements.

       The Bank's exposure to credit loss in the event of  nonperformance by the
       other party to the financial  instrument for commitments to extend credit
       is represented by the contractual amount of these  instruments.  The Bank
       uses the same  credit  policies  in making  commitments  and  conditional
       obligations as it does for on-balance-sheet instruments.

                                                                (Continued)

                                       38
<PAGE>

                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

       The  off-balance  sheet  financial  instruments  whose  contract  amounts
       represent credit risk as of September 30, 2000, are as follows:

                Commitments to extend credit          $1,868,000
                Commitments to fund lines of credit      104,746
                                                      ----------

                                                      $1,972,746
                                                      ==========

       Commitments to extend credit are agreements to lend to a customer as long
       as there is no violation of any  condition  established  in the contract.
       Commitments  generally have fixed expiration  dates or other  termination
       clauses and may require  payment of a fee. Since some of the  commitments
       are expected to expire  without  being drawn upon,  the total  commitment
       amounts do not necessarily represent future cash requirements.


(16)   STOCK OPTION PLAN

       In 1991,  under the terms of the Bank's  incentive stock option plan, the
       Bank granted  12,000 common stock options to officers and key  employees.
       The  exercise  price for the  options is equal to $14.00  per share.  All
       options are  exercisable  through  2001.  As of September  30,  2000,  no
       options had been exercised.


(17)   FAIR VALUE OF FINANCIAL INSTRUMENTS

       The  following  table  provides  fair  values  of  the  Bank's  financial
       instruments at September 30, 2000 and 1999. Fair value estimates are made
       at a specific point in time,  based on relevant  market  information  and
       information  about  the  financial  instrument.  These  estimates  do not
       reflect any premium or discount  that could result from offering for sale
       at  one  time  the  Bank's  entire  holdings  of a  particular  financial
       instrument.  Because  no  market  exists  for a  portion  of  the  Bank's
       financial  instruments,  fair  value  estimates  are  based on  judgments
       regarding future expected loss experience,  current economic  conditions,
       risk characteristics of various financial instruments, and other factors.
       These  estimates are subjective in nature and involve  uncertainties  and
       matters of significant judgment and, therefore, cannot be determined with
       precision.   Changes  in  assumptions  could  significantly   affect  the
       estimates.  Fair value estimates are based on existing on and off-balance
       sheet financial  instruments  without attempting to estimate the value of
       anticipated  future business and the value of assets and liabilities that
       are  not  considered  financial   instruments.   In  addition,   the  tax
       ramifications  related to the  realization  of the  unrealized  gains and
       losses can have a significant effect on fair value estimates and have not
       been  considered in any of the  estimates.  The  assumptions  used in the
       estimation  of the fair value of the  Bank's  financial  instruments  are
       explained  below.  Where quoted  market  prices are not  available,  fair
       values  are  based on  estimates  using  discounted  cash  flow and other
       valuation techniques.

                                                                (Continued)

                                       39
<PAGE>

                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

       Discounted  cash flows can be  significantly  affected by the assumptions
       used, including the discount rate and estimates of future cash flows.

       The following fair value estimates  cannot be substantiated by comparison
       to independent markets and should not be considered representative of the
       liquidation  value of the  Bank's  financial  instruments,  but  rather a
       good-faith  estimate of the fair value of financial  instruments  held by
       the Bank.

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

       Cash and Cash Equivalents and Interest-earning Deposits in Other Banks --
       Fair value equals the carrying value of such assets due to their nature.

       Investment  Securities and Accrued Interest  Receivable -- The fair value
       of investments is based on quoted market prices.  The carrying  amount of
       related accrued interest receivable approximates its fair value.

       Federal  Home  Loan  Bank  Stock  --  The  Federal  Home  Loan  Bank  has
       historically  repurchased  its  stock at cost.  Therefore,  the  carrying
       amount is considered a reasonable estimate of its fair value.

       Loans  Receivable  --  The  fair  value  of  loans  is  calculated  using
       discounted  cash flows by loan type.  The discount rate used to determine
       the present value of the loan portfolio is an estimated  market  discount
       rate that reflects the credit and interest rate risk inherent in the loan
       portfolio.  The  estimated  maturity  is based on the  Bank's  historical
       experience  with  repayments  adjusted to estimate  the effect of current
       market  conditions.  The  carrying  amount of  related  accrued  interest
       receivable approximates its fair value.


       Deposits -- Fair values for  certificates of deposit have been determined
       using discounted cash flows. The discount rate used is based on estimated
       market rates for deposits of similar remaining  maturities.  The carrying
       amount of all other deposits, due to their short-term nature, approximate
       their  fair  values.  The  carrying  amount of related  accrued  interest
       payable approximates its fair value.

                                                                (Continued)

                                       40


<PAGE>

                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

       FHLB  Advances  and ESOP  Debt -- Fair  value has been  determined  using
       discounted  cash  flows.  The  discount  rate used is based on  estimated
       current rates for advances with similar maturities.
<TABLE>
<CAPTION>

                                              2000                       1999
                                   -------------------------   -------------------------
                                     CARRYING     ESTIMATED     CARRYING     ESTIMATED
                                      AMOUNT      FAIR VALUE      AMOUNT      FAIR VALUE
                                   -----------    ----------    ----------    ----------
<S>                                <C>             <C>           <C>           <C>
Financial assets:
    Cash and cash equivalents      $ 3,594,355     3,594,355     7,689,451     7,689,451
    Interest-earning deposits in
        other banks                    163,142       163,142       161,524       161,524
    Investment securities           43,627,694    42,883,085    38,534,066    38,524,047
    Federal Home Loan Bank
        stock                          747,500       747,500       592,500       592,500
    Loans receivable, net           48,238,040    47,407,000    43,521,160    43,944,273
    Accrued interest receivable        660,138       660,138       609,455       609,455

Financial liabilities:
    Deposits, including accrued
        interest payable            76,334,441    76,147,822    75,180,323    74,821,998
    FHLB advances                   14,950,000    14,956,000    11,850,000    11,829,688
    ESOP debt                           64,000        64,000        72,000        72,000

</TABLE>

(18)   DIVIDENDS FROM SUBSIDIARY

       Dividends  paid by the  subsidiary  bank are the primary  source of funds
       available to the Company for payment of dividends to its stockholders and
       for other needs.  Applicable  federal and state statutes and  regulations
       impose  restrictions  on the amounts of dividends that may be declared by
       the subsidiary bank. In addition, the subsidiary bank is also required to
       maintain minimum amounts of capital to total  "risk-weighted"  assets, as
       defined by banking  regulators.  Capital  adequacy  considerations  could
       further limit the  availability of dividends from the subsidiary bank. At
       September  30,  2000,   the  Bank  could  have   declared   dividends  of
       approximately   $3,447,000   without   prior   approval   of   regulatory
       authorities. Accordingly, at September 30, 2000, approximately $4,785,000
       of the parent's investment in its subsidiary was restricted from transfer
       in the form of dividends.


                                                                (Continued)

                                       41
<PAGE>
                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

(19)   PARENT COMPANY FINANCIAL INFORMATION

       The condensed  financial  information  for CFS Bancshares,  Inc.  (Parent
Company Only) is presented as follows:

                              (PARENT COMPANY ONLY)
                            CONDENSED BALANCE SHEETS
                           SEPTEMBER 30, 2000 AND 1999

<TABLE>
<CAPTION>

                            ASSETS                         2000            1999
                                                        -----------    -----------
<S>                                                     <C>                <C>
Cash                                                    $    54,271        100,000
Investment in subsidiary Bank                             8,232,480      7,765,663
                                                        -----------    -----------

         Total assets                                   $ 8,286,751      7,865,663
                                                        ===========    ===========

                         LIABILITIES

Note payable (ESOP debt)                                $    64,000         72,000
Other liabilities                                                --         30,939
                                                        -----------    -----------

         Total liabilities                                   64,000        102,939
                                                        -----------    -----------

                     STOCKHOLDERS' EQUITY

Serial preferred stock                                           --             --
Common stock                                                130,000        130,000
Additional paid-in capital                                1,184,758      1,180,060
Retained earnings                                         7,422,368      7,020,548
Accumulated other comprehensive income (loss)              (463,139)      (502,798)
Unearned common stock held by ESOP                          (51,236)       (65,086)
                                                        -----------    -----------

           Total stockholders' equity                     8,222,751      7,762,724
                                                        -----------    -----------

           Total liabilities and stockholders' equity   $ 8,286,751      7,865,663
                                                        ===========    ===========
</TABLE>

                                                                (Continued)

                                       42
<PAGE>

                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998

                              (PARENT COMPANY ONLY)
                       CONDENSED STATEMENTS OF OPERATIONS
                   FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND
                   1999 AND FOR THE PERIOD FROM JUNE 30, 1998
                        (INCEPTION) TO SEPTEMBER 30, 1998


<TABLE>
<CAPTION>
                                                 2000       1999      1998
                                               --------   --------   --------
<S>                                            <C>          <C>       <C>
Income:
     Cash dividends from Bank                  $ 97,500     97,500    100,000
     Interest income                                484         --         --
                                               --------   --------   --------
             Total income                        97,984     97,500    100,000

Expense                                          15,274         --     30,939
                                               --------   --------   --------

     Earnings before equity in undistributed
        earnings of subsidiary                   82,710     97,500     69,061
     Equity in undistributed earnings of
        subsidiary                              416,610    288,087    149,889
                                               --------   --------   --------

             Net earnings                      $499,320    385,587    218,950
                                               ========   ========   ========

</TABLE>

                                                                (Continued)

                                       43
<PAGE>



                              CFS BANCSHARES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        September 30, 2000, 1999 and 1998


                              (PARENT COMPANY ONLY)
                       CONDENSED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
                      AND FOR THE PERIOD FROM JUNE 30, 1998
                        (INCEPTION) TO SEPTEMBER 30, 1998
<TABLE>
<CAPTION>


                                                   2000         1999          1998
                                                 ---------    ---------    ---------
<S>                                              <C>            <C>          <C>
Cash flows from operating activities:
     Net earnings                                $ 499,320      385,587      218,950
     Adjustments  to  reconcile  net  earnings
        to net  cash  provided  by
        operating activities:
     Equity in undistributed earnings of
        subsidiary                                (416,610)    (288,087)    (149,889)
     (Decrease) increase in other liabilities      (30,939)          --       30,939
                                                 ---------    ---------    ---------
     Net cash provided by operating
        activities                                  51,771       97,500      100,000
                                                 ---------    ---------    ---------
Cash flows from financing activities:
     Cash dividends paid                           (97,500)     (97,500)          --
                                                 ---------    ---------    ---------
                                                   (97,500)     (97,500)          --
                                                 ---------    ---------    ---------

Net increase in cash                               (45,729)          --      100,000
Cash at beginning of year                          100,000      100,000           --
                                                 ---------    ---------    ---------
Cash at end of year                              $  54,271      100,000      100,000
                                                 =========    =========    =========
</TABLE>

                                                                (Continued)

                                       44
<PAGE>


CORPORATE INFORMATION



CORPORATE HEADQUARTERS
1700 3rd Avenue North
Birmingham, Alabama  35203
(205) 328-2041                              STOCK TRANSFER AGENT
                                            Registrar and Transfer Company
                                            10 Commerce Drive
FIVE POINTS WEST OFFICE                     Cranford, New Jersey  07016
2100 Bessemer Road
Birmingham, Alabama  35208                  INDEPENDENT AUDITORS
(205) 214-3000                              KPMG LLP
                                            Certified Public Accountants
EUTAW OFFICE                                Financial Center, Suite 1200
213 Main Street                             Birmingham, Alabama  35203
Eutaw, Alabama  35462
(205) 372-9307                              ANNUAL MEETING
                                            The Annual Meeting of
                                            CFS Bancshares, Inc. will be held
                                            January 24, 2001 at 2:00 P.M.
                                            Second Floor Auditorium at
                                            300 North 18th Street
                                            Birmingham, Alabama  35203

                                            SPECIAL COUNSEL
                                            Stradley Ronon Housley Kantarian
                                                & Bronstein, LLP
                                            1220 19th Street NW, Suite 700
                                            Washington, D.C.  20036



FORM 10-KSB

A copy of Form 10-KSB, including financial statement schedules as filed with the
Securities  and  Exchange   Commission  will  be  furnished  without  charge  to
stockholders  of  the  record  date  upon  written  request  to  Secretary,  CFS
Bancshares, Inc., Post Office Box 10022, Birmingham, Alabama 35202.

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