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

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**FORM 10-KSB**

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

For the fiscal year ended September 30, 2000



[  ]       	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 ******

For the transition period from  to

Commission File Number 0-23323

|Delaware                                                       | 36-4153491                            
|-------------------------------------------------------------- | --------------------------------------
|(State or Other Jurisdiction of
Incorporation or Organization) | (I.R.S. EmployerIdentification Number)
|2900 Texas Avenue, Bryan, Texas                                | 77802                                 
|(Address of Principal Executive Offices)                       | (Zip Code)                            











Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the past twelve months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES X  NO

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this
form, and no disclosure will be contained, to the best of Issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. X

The Issuer had a $738,000 net loss for the fiscal year ended September 30, 2000.

As of December 28, 2000, there were issued and outstanding 471,411 shares of the Issuer's Common Stock.
The Issuer's voting stock is not regularly and actively traded, and there are no regularly quoted bid and asked prices for
the Issuer's voting stock.  Accordingly, the Issuer is unable to determine the aggregate market value of the voting stock
held by non-affiliates.

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**Item 1.     Description of Business**

**General**

The Bryan-College Station Financial Holding Company (the "Holding Company" and, when
referred to with First Federal Savings Bank, the "Company"), a Delaware corporation, was formed
as of April 1, 1998 to act as a unitary thrift holding company for First Federal Savings Bank, Bryan,
Texas ("First Federal" or the "Bank") by acquiring 100% of the stock of First Federal through the
exchange of approximately 32% of First Federal common stock for Holding Company common
stock and the purchase of approximately 68% of First Federal common stock for cash (the
"Acquisition").  The Holding Company received approval from the Office of Thrift Supervision (the
"OTS") to acquire all of the common stock of the Bank outstanding upon completion of the
Acquisition.  The Acquisition was completed on April 1, 1998.  All references to the Company,
unless otherwise indicated, at or before April 1, 1998 refer to the Bank.  First Federal converted from
the mutual to stock form of organization and recapitalized in 1993.

First Federal is a federally chartered, independent thrift institution, headquartered in Bryan-College Station, Texas, which began operations in 1965.  First Federal is predominantly a residential
mortgage lender, originating loans primarily in Bryan-College Station and the surrounding counties
of Burleson, Grimes, Leon, Madison, Robertson and Washington, which comprise its immediate
trade area.  To a lesser extent, First Federal also originates residential construction loans in its
immediate trade area, Small Business Administration ("SBA") partially guaranteed loans, and small
commercial real estate and small to medium commercial business loans.  Prior to June, 2000 First
Federal had originated a significant amount of consumer loans primarily secured by automobiles
through selected automobile dealers.  These loans are partially insured against loss by credit-default
insurance.  The Company discontinued this program in response to its most recent examination by
the OTS completed in June, 2000 which resulted in First Federal being designated to be in "troubled
condition" and a "problem association" and First Federal entering into a Supervisory Agreement with the OTS.  On March 2, 2001, the OTS notified First Federal that it was no longer designated to be in "troubled condition" and a "problem association."
See "Regulation
- Supervisory Agreement" for a discussion of regulatory restrictions imposed
and the Supervisory Agreement entered into with the OTS as a result of the examination.

First Federal funds the above lending products using a retail deposit base gathered in its
home market of Bryan-College Station and its immediate trade area.  First Federal currently operates
three full-service offices and a mortgage lending office, two of which are located in Bryan (including
its principal executive offices which are situated in the middle of the Bryan-College Station
community), a new facility located in North Bryan, and one full-service branch and a mortgage
lending office in adjacent College Station.

The principal executive offices of the Holding Company and First Federal are located at 2900
Texas Avenue, Bryan, Texas 77802 and their telephone number at that address is (979) 779-2900.

**Forward-Looking Statements**

When used in this Annual Report on Form ("Form 10-KSB") or future filings by the Holding
Company, with the Securities and Exchange Commission, in the Holding Company's, press releases
or other public or shareholder communication, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "hope," "estimate," "project," "believe" or similar
expressions are intended to identify  "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995.  The Holding Company, wishes to caution readers not to
place undue reliance of any such forward-looking statements, which speak only as of the date made,
and to advise readers that various factors, including regional and national economic conditions,
changes in levels of market interest rates, credit risks of lending activities, and competitive and
regulatory factors, could affect the financial performance of any or all of these entities and could
cause any or all of these actual entities results for future periods to differ materially from those
anticipated or projected.

The Holding Company, does not undertake, and specifically disclaims any obligations, to
publicly release the result of any revisions which may be made to any forward-looking statements
in order to reflect the occurrence of anticipated or unanticipated events or circumstances after the
date of such statements.

**Market Area**

Bryan-College Station is in Brazos County, Texas and is located in the center of the growing
"Texas Triangle", bordered by Houston, Austin-San Antonio, and Dallas-Ft. Worth.  It is the home
of Texas A&M University, which has an enrollment of over 43,000 students and is the third largest
university in the nation -- and is also the home of the George Bush Presidential Library.  It also is
home to Blinn College's new campus, with a student body of approximately 10,000 students.
Management considers the Bryan-College Station area, and the surrounding Texas counties of
Brazos, Burleson, Grimes, Leon, Madison, Robertson, and Washington to be its primary-market and
trade areas for deposits and lending activities.

**Lending Activities**

***General.*****The principal lending activities of First Federal are originating first mortgage real
estate loans secured by owner occupied one- to four-family residential property, originating
residential construction loans secured by owner occupied one- to four-family residential property,
originating SBA and other small commercial loans and originating consumer loans.

While a substantial portion of the loans originated for portfolio by First Federal are
conventional residential mortgage loans (i.e., not guaranteed or insured by agencies of the federal
government), which are secured by residential properties, most may not conform with all of the
requirements for sale to Fannie Mae ("FNMA") or the Federal Home Loan Mortgage

In recent years, First Federal had significantly increased its consumer lending area in order
to increase its risk-adjusted yield on these loans, consisting of consumer loans to individuals with
less than prime credit primarily secured by vehicles and originated through indirect lending from
automobile dealers under its Second Chance Auto Lending Program. At September 30, 2000, the
unpaid principal balance of Second Chance Auto loans was $15.1 million.  First Federal also
originates residential construction loans, small commercial real estate and small to medium
commercial business loans.  In addition, First Federal originates SBA business loans as a Certified SBA lender.  Generally, First Federal sells the SBA guaranteed
portion of SBA loans and retains servicing for the entire loan.

First Federal's policy is not to invest its loan portfolio in long-term, fixed rate mortgage-backed securities or retain long-term, fixed rate loans.  In order to reduce First Federal's
vulnerability to changes in interest rates, First Federal generally originates short-term three-year
balloon and adjustable rate, one- to four-family residential mortgage loans, consumer loans
(especially automobile loans) and short-term construction loans.  At September 30, 2000, First
Federal had $22.2 million of fixed-rate residential mortgage loans (primarily consisting of three-year
balloon loans), $11.1 million of adjustable rate residential mortgage and $23.1 million of fixed rate
consumer loans (predominately automobile loans with an average life of 30-34 months) out of a total
of $71.4  million in total loans, including loans held-for-sale.

Loan originations come primarily from advertising, walk-in customers, real estate brokers,
homebuilders and referrals from existing customers.  All loans that are originated for portfolio by
First Federal are reviewed and approved by the Board of Directors.

***Loan Portfolio Composition.*****  The following table sets forth information concerning the
composition of First Federal's loan portfolio (including loans held-for-sale) in dollar amounts and
in percentages (before deductions for loans in process, deferred fees and discounts and allowances
for losses) as of the dates indicated.

|                                          |                       
|----------------------------------------- | ----------------------
|                                          | 2000                  
|                                          | Amount                
|                                          | (Dollars in Thousands)
|Real Estate Loans                         |                       
|Residential                               | $33,319               
|Residential held-for-sale                 | 61                    
|Commercial                                | 5,096                 
|Construction                              | 6,926                 
|Total real estate loans                   | 45,402                
|                                          |                       
|Other Loans:                              |                       
|Consumer loans:                           |                       
|Secured by automobile                     | 17,167                
|Secured by deposit accounts               | 872                   
|Held for sale                             | 3,811                 
|Other                                     | 1,275                 
|Total consumer loans                      | 23,125                
|Commercial business loans                 | 5,728                 
|Total other loans                         | 28,853                
|Total loans                               | 74,255                
|                                          |                       
|Less:                                     |                       
|Undisbursed portion of construction loans | 2,486                 
|Net deferred fees and discounts           | 109                   
|Deferred income                           | 27                    
|Allowance for losses on loans             | 415                   
|Premiums, net of discounts                | (215)                 
|Net loans                                 | $71,433               

The following table shows the fixed- and adjustable-rate composition of First Federal's loan
portfolio including loans held for sale at the dates indicated.

|                                          | September 30,         
|----------------------------------------- | ----------------------
|                                          | 2000                  
|                                          | Amount                
|                                          | (Dollars in Thousands)
|Fixed-Rate Loans:                         |                       
|Real estate:                              |                       
|Residential                               | $22,203               
|Residential held-for-sale                 | 61                    
|Commercial                                | 3,099                 
|Construction                              | 6,864                 
|Total real estate loans                   | 32,227                
|Consumer loans                            | 19,314                
|Consumer held for sale                    | 3,811                 
|Commercial business loans                 | 507                   
|Total fixed-rate loans                    | 55,859                
|                                          |                       
|Adjustable-Rate Loans:                    |                       
|Real estate:                              |                       
|Residential                               | 11,116                
|Commercial                                | 1,997                 
|Construction                              | 62                    
|Commercial business loans                 | 5,221                 
|Total adjustable rate loans               | 18,396                
|Total loans                               | 74,255                
|                                          |                       
|Less:                                     |                       
|Undisbursed portion of construction loans | 2,486                 
|Deferred fees and discounts               | 109                   
|Deferred income                           | 27                    
|Allowance for losses on loans             | 415                   
|Premiums, net of discounts                | (215)                 
|Net loans                                 | $71,433               

The following table shows the origination, purchase and repayment activities for loans of
First Federal for the periods indicated.

|                                      | Years Ended September 30,
|------------------------------------- | -------------------------
|                                      | 2000                     
|                                      | (Dollars In Thousands)   
|Loans Funded:                         |                          
|Real estate - residential             | $ 7,565                  
|- commercial                          | 1,583                    
|- construction or development         | 14,744                   
|Non-real estate - consumer            | 13,040                   
|- commercial business                 | 6,965                    
|Total loans originated                | 43,897                   
|                                      |                          
|Loans Sold:                           |                          
|Loans sold                            | 2,989                    
|Principal repayments and refinancings | 38,788                   
|Total reductions                      | 41,777                   
|Change in other items, net            | 1,125                    
|Net increase (decrease)               | $   995                  

At September 30, 2000, First Federal serviced $4.8 million in loans for others, consisting
primarily of SBA loans and loans originated under its Second Chance Auto Lending Program and
subsequently sold.

The following schedule illustrates the maturities of First Federal's loan portfolio, including loans held-for-sale at September 30,
2000.  Loans which have adjustable or renegotiable interest rates and amortizing loans are shown as maturing in the period during which
the loan is contractually due.  This schedule does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses.

|                                   | Real Estate            |                     |              |                     |          |                     |        
|---------------------------------- | ---------------------- | ------------------- | ------------ | ------------------- | -------- | ------------------- | -------
|                                   | Residential(2)         | Commercial          | Construction | Consumer(2)         | Business | Total              
|                                   | Amount                 | WeightedAverageRate | Amount       | WeightedAverageRate | Amount   | WeightedAverageRate | Amount 
|                                   | (Dollars in Thousands)
|Due DuringYears EndedSeptember 30, |                        |                     |              |                     |          |                     |        
|                                   |                        |                     |              |                     |          |                     |        
|2001(1)                            | $  5,583               | 8.89%               | $   732      | 9.31%               | $6,708   | 9.08%               | $1,851 
|2002 and 2003                      | 14,870                 | 8.78                | 833          | 9.50                | ---      | ---                 | 10,528 
|2004 and 2005                      | 2,054                  | 8.73                | 839          | 9.11                | 218      | 10.75%              | 10,533 
|2006 to 2010                       | 695                    | 8.65                | 484          | 8.63                | ---      | ---                 | 213    
|2011 to 2020                       | 1,533                  | 8.62                | 1,368        | 9.85                | ---      | ---                 | ---    
|2021 and following                 | 8,645                  | 8.83                | 840          | 9.14                | ---      | ---                 | ---    
|                                   | $33,380                |                     | $5,096       |                     | $6,926   |                     | $23,125

The total amount of loans maturing after September 30, 2001, that have fixed rates of interest
(including three-year balloon home loans and other types of loans with balloon maturities) is $39.3
million while the total amount of loans due after such date which have floating or adjustable rates
of interest is $17.7 million.

***One- to Four-Family Residential Real Estate Lending.***First Federal's primary lending
program is the origination of loans secured by mortgages on owner-occupied one- to four-family
residences, and to a lesser degree on non-owner occupied one- to four-family residences.  In order
to increase the interest rate sensitivity of its residential loan portfolio, First Federal has emphasized
the origination of non-FNMA and FHLMC conforming three-year balloon loans (generally with 30
year amortization schedules).  At September 30, 2000, $22.2 million or 29.9%, of First Federal's
gross loan portfolio consisted of fixed-rate loans on one- to four-family residences.  Most of these
loans were secured by residential properties located in the State of Texas, with a majority of the
properties located in First Federal's primary market area.  On September 30, 2000, 1.0% of all
portfolio residential loans were 90 days or more past due.

First Federal's residential loans are generally underwritten and documented to permit their
sale in the secondary market.  In the event they do not conform to FNMA and FHLMC secondary
market standards, First Federal will determine whether or not such loans meet its credit-underwriting
guidelines to be considered for approval for funding into First Federal's loan portfolio.  First Federal
evaluates both the borrower's ability to make principal and interest payments and the value of the
property (and any other collateral) that will secure the loan.  One- to four-family loan originations
are generally made in amounts up to 90% of the cost or appraised value of the security property,
whichever is lower.  The determination as to lend in excess of 80% of the appraised value is made
on a case-by-case basis and is based on a variety of factors, including the borrower's credit and
payment history, length of employment, length of residence and other factors relating to the
borrower's stability, debt-to-income ratio, as well as the quality of the property securing the loan.
First Federal may require private mortgage insurance for its loans with loan-to-value ratios over
80%, that it retains in its portfolio.  In those instances where First Federal does not require private
mortgage insurance, in the event of a foreclosure, First Federal can be subject to a greater risk of loss
on the foreclosure and disposition of such property.  First Federal has, however, had a very limited
loss experience on such loans.  See "--Loan Delinquencies; Nonperforming Assets and Classified
Assets."

First Federal's residential mortgage loans customarily include "due-on-sale" clauses, which
are provisions giving First Federal the right to declare a loan immediately due and payable in the
event the borrower sells or otherwise disposes of the real property subject to the mortgage, when the
loan is not repaid in full.  First Federal generally enforces these due-on-sale clauses. First Federal
requires, in connection with the origination of residential real estate loans, title insurance and fire
and casualty insurance coverage as well as flood insurance, where appropriate, to protect First
Federal's interest.  The cost of this insurance coverage is paid by the borrower.

***Mortgage-Backed Securities*****.  First Federal has a limited portfolio of mortgage-backed
securities, all of which are held-to-maturity.  Such mortgage-backed securities can serve as collateral
for borrowings and through repayments, as a source of liquidity.  For information regarding the
carrying and market values of First Federal's mortgage-backed securities portfolio, see Note 2 of the
Notes to Consolidated Financial Statements.

Consistent with First Federal's asset/liability policy to minimize interest rate risk,
approximately 98% of First Federal's mortgage-backed securities carry adjustable interest rates.

The following table sets forth the book value of the Bank's mortgage-backed securities at the
dates indicated.

|                                       | September 30,         
|-------------------------------------- | ----------------------
|                                       | 2000                  
|                                       | (Dollars in Thousands)
|Issuers:                               |                       
|                                       |                       
|Federal Home Loan Mortgage Corporation | $373                  
|Federal National Mortgage Association  | 149                   
|Total                                  | $522                  

The following table sets forth the contractual maturities of the Bank's mortgage-backed securities at September 30, 2000.  Not
considered in the preparation of the table below is the effect of prepayments, periodic principal repayments and the adjustable rate nature
of these instruments.

|                                       | Due in                 |                  
|-------------------------------------- | ---------------------- | -----------------
|                                       | 6 Monthsor Less        | 6 Monthsto 1 Year
|                                       | (Dollars in Thousands)
|                                       |                        |                  
|Federal Home Loan Mortgage Corporation | $ ---                  | $ ---            
|                                       |                        |                  
|Federal National Mortgage Association  | ---                    | ---              
|                                       |                        |                  
|Total                                  | $ ---                  | $ ---            

First Federal's mortgage-backed and other securities portfolios are managed in accordance
with a written investment policy adopted by the Board of Directors.  Investments may be made in
accordance with the policy and approval by its Investment Committee.

***Consumer Lending*.**  Federal laws and regulations permit federally chartered thrift
institutions to make secured and unsecured consumer loans (First Federal generally discourages
unsecured lending) up to a regulatory-defined maximum of 35% of their total assets less permissible
investments in commercial paper and corporate debt.  At September 30, 2000, such regulatory-defined consumer loans represented approximately 28% of First Federal's total assets.  In addition,
federal thrift institutions have lending authority above the 35% limit for certain consumer loans such
as home improvement loans, mobile home loans, credit card loans and educational loans.  First
Federal generally discourages unsecured loans, or loans secured by "soft collateral" such as
inventory, accounts receivable and special-purpose equipment except where the borrower is credit-worthy and the loan is partially guaranteed by the SBA.

As part of management's strategy to shorten the average effective maturity of its loans and
thereby minimize its interest rate risk, and also to increase the average yield of its loan portfolio,
First Federal offers various consumer loans, including but not limited to automobile and home
improvement loans.  First Federal also offers loans to its depositors on the security of their deposit
accounts.

First Federal currently originates substantially all of its consumer loans in its primary market
area.  Direct consumer loans are made when First Federal extends credit directly to the borrower as
compared to indirect loans made through automobile dealers selected by First Federal.  In June,
2000, First Federal discontinued the origination of indirect automobile loans through its Second
Chance Auto Lending Program.

In September 1991, First Federal began purchasing motor vehicle installment sales contracts
on an indirect basis from selected automobile dealers pursuant to an agreement established
between the dealer and First Federal ("Dealer Agreement").  These installment sales contracts are
not insured, and are underwritten pursuant to First Federal's own credit underwriting guidelines.
Among other things, the Bank considers the market value, durability and useful life of the vehicle
being financed in conjunction with the term of the loan, and the stability and creditworthiness of the
buyer.  Used vehicles are generally not financed longer than 60 months and only then when the
vehicle is not older than two years and has no more than 30,000 miles of usage.  Each sales contract
is fully amortized and provides for level payments over the term of the contract.  Most contracts are
non-recourse to the originating automobile dealer (except for fraud) and are purchased, in First
Federal's sole discretion, from the dealers on a case-by-case basis, after the Bank's review of the
borrower's credit-worthiness and ability to pay the loan.  First Federal also generally conducts a
personal interview with the borrower prior to approving the loan.

All automobile dealers enter into a Dealer Agreement  with First Federal.  The Dealer Agreement provides
for a reserve account to be established, requiring a minimum balance to be maintained at First
Federal.   The reserve account is used by First Federal to cover potential repossession and any related
losses, as well as to protect against early loan payoffs.  Minimum reserve balances and the method
of disbursement are outlined in each Dealer Agreement.  If the reserve account falls below the agreed
upon levels, the automobile dealer is required to increase the

In December 1995, First Federal expanded its auto lending program by initiating a credit-default insured indirect automobile loan origination program for borrowers with less than prime
credit, and involving automobile dealers selected by First Federal and located primarily in the "Texas
Triangle" bordered by Houston, Austin, San Antonio and Dallas ("Second Chance Auto Loans").
Automobile dealers that sold loans pursuant to the Second Chance Auto Loan Program were not
required to establish dealer reserves pursuant to their Dealer Agreement; however, the loan amount
of the automobile sales contract was generally discounted from the dealer by First Federal prior to
purchase.

The Second Chance Auto Loan Program was underwritten according to the
credit-underwriting guidelines developed by First Federal and agreed to by First Federal's credit-default insurer.  Under these credit underwriting guidelines, the maximum amount financed could
not exceed 125% of the manufacturer's suggested retail price for new vehicles or retail value for
used vehicles as provided in the Southwest edition of the "NADA Official Used Car Guide."  The
amount financed could also include the cost of service, warranty contracts and premiums for credit
life and disability insurance obtained in connection with the vehicle (such amounts in addition to the
sales price, collectively referred to as  "Additional Vehicle Costs").  The Bank primarily focused,
however, on the ability and willingness of the borrower to repay the loan rather than the value of the
underlying collateral.  The amount financed by First Federal generally included the Additional
Vehicle Costs, which were refunded pro rata as a credit to the loan in the event the borrower prepays
the loan or the borrower defaults in payment of the loan and the vehicle is repossessed.  First Federal
required comprehensive insurance coverage on vehicles securing consumer loans, paid for by the
borrower.  However, First Federal paid for borrower credit-default insurance on its Second Chance
Auto Loan Program.

Second Chance Auto Loans were most recently insured by The Royal & Sun Alliance
Company (which carries a rating of A-1 "Superior" by A.M. Best's, an insurance rating company)
for credit-default by the borrower up to $6,000 per loan in the event there is a deficiency between
the unpaid balance of the loan and the resale price of the repossessed vehicle.  At September 30,
2000, $1.5 million of First Federal's Second Chance Auto Loans was insured by other insurers
subject to their limitations, if any.  On that date, Second Chance Auto Loans averaged, at the time
of origination, $12,440 per loan.

At September 30, 2000, Second Chance Auto Loans totaled $15.1 million while total
automobile loans, including loans held for sale, totaled $21.0 million or approximately 29% of First
Federal's gross loan portfolio.

Consumer loans may entail greater risk than do residential mortgage loans, particularly
consumer loans that are secured by rapidly depreciable assets such as automobiles.  First Federal
makes a very limited amount of unsecured loans, which entail an even greater risk.  Any repossessed
collateral for a defaulted consumer loan may not always provide an adequate source of repayment
of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation
of the vehicle or other collateral.  In certain circumstances, such as the borrower filing Chapter 7
bankruptcy or First Federal being unable to locate the borrower, the remaining deficiency may not
warrant further substantial collection efforts against the borrower.  In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and thus, are more likely
to be adversely affected by job loss, divorce, illness or personal bankruptcy.  Furthermore, the
application of various federal and state laws, including federal and state bankruptcy and insolvency
laws, may limit the amount which can be recovered on such loans.  Such loans may also give rise
to claims and defenses by a borrower against an assignee of the loan, who may then be able to assert
against the assignee, the  claims and defenses that he or she has against the seller of the underlying
collateral.  Consumer loan delinquencies may increase over time as the loans age.  Lastly, there can
be no assurance that First Federal can collect any amount due under the applicable insurance policy.

At September 30, 2000, 1.95% of First Federal's consumer loans were past-due over 90 days
(nonperforming assets).  There can be no assurance that First Federal's consumer loan delinquencies
and repossessions will not increase in the future.

***Construction Lending*.**  First Federal generally makes construction loans to individuals for
the construction of their residences and generally to experienced homebuilders primarily for the
construction of contracted-for (custom) residences, and also to a lesser degree primarily to
experienced homebuilders for residences that have not been pre-sold when First Federal believes that
the residence is priced and located so that it should be sold in the relatively short term.

Construction loans to individuals for their residences generally have terms of nine months
and are usually made on a non-amortizing (interest only, payable monthly), balloon basis, to be
repaid from the permanent mortgage loan when the construction is completed.  First Federal's
construction loans are generally made either as the initial stage of a combination loan (i.e., with a
commitment from First Federal to provide permanent financing upon completion of the project) or
with a takeout obligation (commitment to provide permanent financing by a third party lender).
Residential construction loans are generally underwritten pursuant to the same guidelines used for
originating permanent residential loans.  At September 30, 2000, First Federal had $4.4 million in
residential construction loans, of which $1.9 million are to borrowers who have indicated to First
Federal that they intend to live in the properties upon completion of construction.

Residential construction loans are generally made up to a maximum loan-to-value ratio of
80% based on an independent appraisal and estimate of costs.  Residential construction loans involve
additional risk attributable to the fact that loan funds are advanced upon the security of the project
under construction, which is more difficult to value prior to the completion of construction.  Because
of some uncertainties inherent in estimating construction costs and the market for the home upon
completion, it is relatively difficult to evaluate the total loan funds required to complete a project,
the related loan-to-value ratios, and the likelihood of ultimate success of the project.

***Commercial Real Estate Lending.*****  In order to enhance the yield of its assets, First Federal
originates a limited amount of construction and permanent loans secured by commercial real estate.
First Federal's permanent commercial real estate loan portfolio includes loans secured by churches,
small office buildings, and other small business properties.  First Federal generally makes only
commercial real estate loans secured by income producing property, and discourages large
commercial real estate loans.  At September 30, 2000, First Federal had two commercial real estate
loans in excess of $500,000 that were secured by income-producing properties.  These loans were
originated in May, 2000, and February, 1999, had balances of $627,000 and $710,000, respectively,
at September 30, 2000 and are performing in accordance with their loan repayment terms.

The following table presents information as to the locations and types of properties securing
First Federal's commercial real estate loans at September 30, 2000.

|                            | NumberofLoans          | PrincipalBalance
|--------------------------- | ---------------------- | ----------------
|                            | (Dollars in Thousands)
|Bryan-College Station area:
|Churches                    | 9                      | $1,064          
|Land                        | 27                     | 579             
|Multi-family residential    | 2                      | 611             
|Retail                      | 13                     | 1,778           
|Office                      | 5                      | 644             
|Other                       | 4                      | 420             
|Total                       | 60                     | $5,096          

Commercial real estate loans included in First Federal's portfolio have terms generally
ranging from 3 to 5 years with a balloon payment and 20-25 year amortization schedules.

First Federal generally will not originate or purchase a commercial real estate loan with a
balance of greater than 80% of the appraised value of the underlying collateral, subject to a lesser
loan to value ratio as may be required by regulations.  Land and developed building lot loans are
individually negotiated and are secured by properties located in First Federal's principal market area
where First Federal personnel are familiar with current market values and marketability.  First
Federal requires that any such appraisal be performed by independent, professionally designated and
qualified appraisers.  Senior management of First Federal reviews all independent appraisals prior
to funding any loan.  In originating or purchasing any loan, First Federal considers the
creditworthiness of the borrower, the value of the underlying collateral and the level of

Commercial real estate lending generally affords First Federal an opportunity to receive
interest at rates generally higher than those obtainable from residential lending.  Commercial real
estate lending, however, entails a higher level of risk than loans secured by one- to four-family
residences.  This risk is primarily attributed to several factors, including the concentration of
principal in a limited number of loans and borrowers, the effects of general economic conditions on
income producing properties and the increased difficulty of evaluating and monitoring these types
of loans.  Furthermore, the repayment of loans secured by commercial real estate is typically
dependent upon the successful operation of the related real estate project and thus, may be subject
to a greater extent to adverse conditions in the real estate market or the economy generally.  If the
cash flow from the project is reduced (for example, if leases are not obtained or renewed), the
borrower's ability to repay the loan may be impaired.  For these reasons, First Federal limits the
amount of commercial real estate loans held in its loan portfolio.  In order to manage interest rate
risk, the maturities of these loans are generally short or the interest rates therein are adjustable.****

***Commercial Business and SBA Lending****.*  First Federal engages in a limited amount of
commercial business lending, primarily to small businesses.  These loans are generally made with
adjustable interest rates, in order to limit interest rate risk.  Many of these loans are SBA guaranteed
and First Federal generally sells the guaranteed portion of the loan.  The SBA guarantees up to 90%
of the loan amount, which is backed by the full faith and credit of the U.S. Government.  This
guaranty generally ranges from 75% to 90% of the loan amount up to a maximum guaranteed loan
amount of $750,000 subject to the type and term of the loan.  The term of these SBA loans generally
range from five to seven years for working capital loans and up to 25 years for loans secured by
income-producing real estates.  Interest rates for loans with maturities less than seven years cannot
exceed 2.25% over WSJ Prime, and for those over seven years, 2.75% of WSJ Prime. These loans
are attractive to borrowers because of the extended loan maturities and to the Bank, as lender, as the
interest rates adjust and because the guaranteed portion of the loan can be sold in the secondary
market.  At September 30, 2000, First Federal had $5.7 million or 7.72% of First Federal's gross
loan portfolio in commercial business loans outstanding of which $1.7 million represents the
unguaranteed portion of SBA loans. As of the same date, First Federal's largest commercial business
loan was a $395,000 floor plan line of credit to an automobile dealer, secured by vehicles.  The next
largest commercial business loan was a $150,000 floor plan line of credit to an automobile dealer
and secured by vehicles.  Each of these loans are performing in accordance with their respective loan
repayment terms.  First Federal discourages large commercial business lending because of the larger
risk exposure to the Bank's capital if such loans do not perform.

First Federal  discourages unsecured loans.  It also discourages loans secured by "soft
collateral" such as inventory or accounts receivable, except where the borrower has a good credit
history, debt-to-income ratio and the majority of the loan is guaranteed by the SBA.****First Federal's
policy is to generally make loans secured by "hard collateral," such as vehicles and improved real
estate (primarily homes).  Loans are generally made using "soft collateral" (such as inventory,
accounts

**Loan Delinquencies; Nonperforming Assets and Classified Assets**

When a borrower fails to make a required payment on a loan, First Federal attempts to cause
the deficiency to be cured by contacting the borrower as soon as possible.  In most cases, deficiencies are cured promptly.  After a payment is three days past due, First Federal's collections
department will contact the borrower by telephone and letter and continue that contact on a regular
basis.  Between 30-45 days past due, First Federal may also send the borrower a demand letter.
When deemed appropriate by senior management, First Federal institutes action to foreclose on or
repossess the collateral.  If foreclosed on, real property is sold at a public sale and may be purchased
by a third party or by First Federal.  Repossessed vehicles are generally analyzed by an independent
automobile specialist, repaired and renovated accordingly by First Federal, and resold without
warranty through First Federal's personnel and through select auto dealers and other independent
parties.  A decision as to whether and when to initiate foreclosure or repossession proceedings is
based on such factors as the amount of the outstanding loan in relation to the original indebtedness,
the extent of delinquency and the borrower's ability and willingness to cooperate in curing
delinquencies.

The following table sets forth information concerning delinquent mortgage and other loans
at September 30, 2000 in dollar amounts and as a percentage of First Federal's total loan portfolio.
The amounts presented represent the total remaining principal balances of the related loans, rather
than the actual payment amounts which are overdue.

|                         | Loans Delinquent at September 30, 2000
|------------------------ | --------------------------------------
|                         | 30-59 Days                            
|                         | (Dollars in Thousands)                
|Residential Real Estate:
|Number of loans          | 2                                     
|Amount                   | $      145                            
|Percent of total loans   | .43%                                  
|                         |                                       
|Commercial Real Estate:  |                                       
|Number of loans          | 1                                     
|Amount                   | $         62                          
|Percent of total loans   | 1.21%                                 
|                         |                                       
|Consumer:                |                                       
|Number of loans          | 223                                   
|Amount                   | $2,046                                
|Percent of total loans   | 8.85%                                 
|                         |                                       
|Total:                   |                                       
|Number of loans          | 226                                   
|Amount                   | $2,253                                
|Percent of total loans   | 3.03%                                 

The table below sets forth the amounts and categories of non-performing assets in First
Federal's loan portfolio.  Loans are placed on non-accrual status when the collection of principal
and/or interest becomes doubtful or there is insufficient collateral to prevent a loss.  For all years
presented, First Federal has had no troubled debt restructurings, which involve forgiving a portion
of interest or principal on any loans.  Foreclosed assets may include assets acquired in settlement of
loans.

|                                                               | September 30,         
|-------------------------------------------------------------- | ----------------------
|                                                               | 2000                  
|                                                               | (Dollars in Thousands)
|Non-accruing loans:                                            |                       
|Residential                                                    | $  ---                
|Consumer                                                       | ---                   
|Total                                                          | ---                   
|                                                               |                       
|Accruing loans delinquent more than90 days:                    |                       
|Residential                                                    | 427                   
|Commercial Real Estate                                         | ---                   
|Consumer                                                       | 451                   
|Total                                                          | 878                   
|                                                               |                       
|Foreclosed assets:                                             |                       
|Residential(1)                                                 | 399                   
|Commercial real estate                                         | ---                   
|Other Repossessed Assets (Vehicles)(1)                         | 611                   
|Total                                                          | 1,010                 
|                                                               |                       
|Total non-performing assets                                    | $1,888                
|Total as a percentage of  total assets        at end of period | 2.22%                 

For the most part, nonperforming assets at September 30, 2000, consisted of repossessed
vehicles totaling $611,000, which were awaiting sale, three residential homes and one building lot.
Most of the loans on repossessed vehicles were made through the Second Chance Auto Loan
Program, which has been terminated.

As of September 30, 2000, there were no concentrations of loans in any types of industry
which exceeded 10% of First Federal's total loans, that are not included as a loan category in the
table above.

Interest income recognized relative to non-performing loans during the year ended
September 30, 2000 was not material.

***Other Loans of Concern.***  As of September 30, 2000, there was an aggregate of $1.4 million
of loans which known information about the possible credit problems of the borrowers or the cash

***Classified Assets.***  Federal regulations require that each insured institution classify its own
assets on a regular basis.   First Federal classifies its assets no less than quarterly.   In addition, in
connection with examinations of insured institutions, the OTS has authority to identify problem
assets and, if appropriate, require them to be classified.  There are three classifications for problem
assets: substandard, doubtful and loss.  "Substandard" assets have one or more defined weaknesses
and are characterized by the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected.  "Doubtful" assets have the weaknesses of substandard assets, with
the additional characteristics that the weaknesses make collection or liquidation in full on the basis
of currently existing facts, conditions and values questionable, and there is a high possibility of loss.
An asset classified "Loss" is considered uncollectible and of such little value that continuance as an
asset of the institution is not warranted.  Assets classified as substandard or doubtful require the
institution to establish general allowances (reserves) for possible loan losses.  If an asset or portion
thereof is classified as a "Loss," the institution must either establish specific allowances (reserves)
for loan losses in the amount of 100% of the portion of the asset classified loss, or charge-off such
amount.  General loss allowances established to cover possible losses related to assets classified
"Substandard" or "Doubtful" may be included in determining the institution's regulatory capital
under the risk-based capital standard, while specific loss allowances do not qualify as regulatory
capital.  If an institution does not agree with an examiner's classification of an asset, it may appeal
this determination to the OTS District Director.  Generally, all assets of First Federal which have
been classified are included in the discussion above of other loans of concern and assets for which
repayment by the borrower may be in doubt.

In connection with the filing of its periodic reports with the OTS and in accordance with its
classification of assets policy, First Federal's Board of Directors has established an Asset Review
Committee, which regularly reviews all assets of any concern with senior management and
applicable loan collection personnel, to determine which assets should be classified under applicable
regulations.  Classified assets, as described above, of First Federal at September 30, 2000 were as
follows:

|               |        | (In Thousands)
|-------------- | ------ | --------------
|Substandard(1) | $1,810
|Doubtful       | 14    
|Loss           | ---   
|Total          | $1,824

**Allowance for Losses on Loans**

First Federal's policy is to establish allowances for loan losses based on historical data,
economic trends and projections, an assessment of the borrower's overall financial condition, the
type and value of any collateral securing such loans and other relevant factors.  While the Company
believes that it uses the best information available to make such determinations, future adjustments
could be necessary and net income could be affected if circumstances substantially differ from the
assumptions used in making the initial determination.

Because some loans may not be repaid in full, the Company has established an allowance for
loan losses.  Increases to the allowance are recorded by a provision for loan losses charged to
expense.  Estimating the risk of the loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the allowance is maintained by management at a level considered adequate to cover
possible losses that are currently anticipated based on past loss experience, general economic
conditions, information about specific borrower situations including their financial position and
collateral values, and other factors and estimates that are subject to change over time.  While
management may periodically allocate portions of the allowance for specific problem loan situations,
the whole allowance is available for any loan charge-offs that occur.  A loan is charged-off against
the allowance by management as a loss when deemed uncollectible, although collection efforts
continue and future recoveries may occur.

The Company measures impaired loans based on the present value of expected cash flows
discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable
market price or the fair value of collateral if the loan is collateral dependent.  Loans considered to
be impaired are reduced to the present value of expected future cash flows or to the fair value of
collateral, by allocating a portion of the allowance for loan losses to such loans.  If these allocations
cause the allowance for loan losses to be increased, such increase is reported as a provision for loan
losses.

Smaller balance homogeneous loans are defined as residential first mortgage loans secured
by one-to-four-family residences, residential construction loans, and consumer loans and are
evaluated collectively for impairment.  Commercial real estate loans are evaluated individually for
impairment.  Normal loan evaluation procedures, as described in the second preceding paragraph,
are used to identify loans that must be evaluated for impairment.  In general, loans classified as
"doubtful" or "loss" are considered impaired while loans classified as "substandard" are individually
evaluated for impairment.  Depending on the relative size of the credit relationship, late or
insufficient payments of 30 to 90 days will cause management to reevaluate the credit under its
normal loan evaluation procedures.   While the factors that identify a credit for consideration for
measurement of impairment or nonaccrual are similar, the measurement considerations differ.  A
loan is impaired when the economic value estimated to be received is less than the value implied in
the original credit agreement.  A loan is placed in nonaccrual when payments are more than 90 days
past due unless the loan is adequately collateralized and in the process of collection.  Although
impaired loan and nonaccrual loan balances are measured differently, impaired loan disclosures do
not differ significantly from nonaccrual and renegotiated loan disclosures.

During the year ended September 30, 2000, the Company increased the allowance for loan
losses.  This was a direct result of losses incurred on the Second Chance Auto Lending Program.
As a result of these loan losses and the most recent examination by the OTS, the Company has
terminated its Second Chance Auto Lending program.  Prior to fiscal year 2000, the Bank did not
provide an allowance for anticipated loan losses on Second Chance auto Loans.  Management fully
expected to collect any potential losses from the credit default insurance coverage, based on their
interpretation of the policy coverage and based upon the expected recovery value of the vehicles.
During the year ended September 30, 2000, both the insurance reimbursement realized on the
repossessed vehicles and the actual recovery value of the vehicles were lower than expected,
resulting in actual losses that were greater than anticipated.  The allowance for loan losses is now
calculated taking into account the recent loss experience associated on the Second Chance Auto
Loans.

In addition the Company also has allowances established for repossessed assets and insurance
claims.  Automobiles acquired through repossession are carried at the lower of cost or fair value
(including estimated insurance reimbursements) less estimated costs to sell.  Credit-default insurance
claims are carried at the amount for which the claim was filed.  Losses on disposition, including
expenses incurred in connection with the disposition, and uncollected insurance claims, are charged
to operations.  Valuation allowances are recognized when the fair value ( including estimated
insurance reimbursements) less estimated costs to sell the repossessed asset or the insurance claim
receivable is determined to be less than carrying value of the asset.  Changes in the valuation
allowance are charged or credited to income.

Real estate owned acquired through foreclosure and similar proceedings is carried at the
lower of cost or fair value less estimated costs to sell.  Losses on disposition, including expenses,
incurred in connection with the disposition, are charged to operations.  Valuation allowances are
recognized when the fair value less estimated selling expenses is determined to be less than the cost
of the asset.  Changes in the valuation allowance are charged or credited to income.

The following table sets forth an analysis of First Federal's allowance for loan losses.

|                                                                                          | Year Ended September 30,
|----------------------------------------------------------------------------------------- | ------------------------
|                                                                                          | 2000                    
|                                                                                          | (Dollars in Thousands)  
|                                                                                          |                         
|Balance at beginning of period                                                            | $326                    
|Charge-offs                                                                               | (183)                   
|Recoveries                                                                                | 18                      
|                                                                                          |                         
|Provisions for losses on loans                                                            | 254                     
|Balance at end of period                                                                  | $415                    
|                                                                                          |                         
|Ratio of net charge-offs during the period to
average loans outstanding during the period | .23%                    

The allocation of the allowance for losses on loans at the dates indicated is summarized as
follows:

|            | September 30,
|----------- | -------------
|            | 2000         
|            | Amount       
|            |              
|Real Estate | $144         
|Other       | 271          
|Total       | $415         

For information on First Federal's allowance for losses on foreclosed real estate, see Note 1
of the Notes to Consolidated Financial Statements filed as Item 7 to this Form 10-KSB.

**Investment Activities**

The Company's liquid assets (other than loans, mortgage-backed securities receivable, and
non-interest bearing deposits with the Federal Reserve Bank of Dallas), are invested primarily in
interest-bearing deposits with the FHLB of Dallas, and FHLB stock.  First Federal is required by
federal regulations to maintain a minimum amount of liquid assets that may be invested in specified
securities and is also permitted to make certain other security investments.  First Federal  maintains
liquidity in excess of regulatory requirements.  Cash flow projections are regularly reviewed and
updated to assure that adequate liquidity is provided.  As of September 30, 2000, First Federal's
liquidity ratio (liquid assets as a percentage of net withdrawable savings and current borrowings) was
7.91% as compared to the regulatory requirement of 4%.

The following table sets forth the composition of the Company's liquid assets at the dates
indicated.

|                                     | At September 30,      
|------------------------------------ | ----------------------
|                                     | 2000                  
|                                     | BookValue             
|                                     | (Dollars in Thousands)
|                                     |                       
|Interest-bearing deposits            | $4,667                
|                                     |                       
|FHLB stock                           | 436                   
|                                     |                       
|Total liquid assets and FHLB stock	. | $5,103                

***General.***  Deposit accounts have traditionally been the principal source of First Federal's
funds for use in lending and for other general business purposes.  In addition to deposits, First
Federal derives funds from loan repayments and cash flows generated from its overall operations.
Scheduled loan payments are a relatively stable source of funds, while deposit inflows and outflows
and the related cost of such funds vary.  Borrowings from the FHLB of Dallas may be used on a
short-term basis to compensate for seasonal reductions in deposits or deposit inflows at less than
projected levels and may be used on a longer term basis to support expanded lending activities in
order to minimize excess cash on hand over and above liquidity requirements.

***Deposits.***  First Federal attracts both short-term and long-term deposits from its primary
market area and has not actively sought deposits outside of this area.  First Federal offers regular
passbook accounts, NOW accounts, commercial and personal checking accounts, money market
deposit accounts, fixed interest rate certificates of deposits with varying maturities, and negotiated
rate $90,000 or above jumbo certificates of deposit.  At September 30, 2000, First Federal had $20.9
million in checking and money market accounts.

Deposit account terms vary according to the minimum balance required, the time period the
funds must remain on deposit and the interest rate, among other factors.  First Federal regularly
evaluates the internal cost of funds, surveys rates and types of accounts offered by competing
institutions, reviews its cash flow requirements for lending and liquidity and makes rate changes
when deemed appropriate.  In order to decrease the volatility of its deposits, First Federal imposes
penalties of up to 30 days of interest for certificates maturing one year or less and 90 days for
certificates over one year, on early withdrawal on its certificates of deposit.  As are other financial
institutions, First Federal has become more susceptible to short-term fluctuations in deposit flows,
as customers have become more interest rate conscious.  In addition, First Federal has not been
willing to pay higher rates to retain deposits that may not be profitably deployed.  First Federal does
not have any brokered deposits and has no present intention to accept or solicit such deposits.

The following table sets forth the deposit flows at First Federal during the periods indicated.
Net increase (decrease) refers to the amount of deposits during a period less the amount of
withdrawals during the period.

|                            | Year Ended September 30,
|--------------------------- | ------------------------
|                            | 2000                    
|                            | (Dollars in Thousands)  
|                            |                         
|Opening balance             | $73,240                 
|Net deposits (withdrawals)  | (1,953)                 
|Interest credited           | 2,399                   
|                            |                         
|Ending balance              | $73,686                 
|                            |                         
|Net increase (decrease)     | $     446               
|                            |                         
|Percent increase (decrease) | .61%                    

The following table sets forth the dollar amount of savings deposits, by interest rate range,
in the various types of deposit programs offered by First Federal at the dates indicated.

|                                    | At September 30,      
|----------------------------------- | ----------------------
|                                    | 2000                  
|                                    | Amount                
|                                    | (Dollars in Thousands)
|Certificate Accounts:               |                       
|                                    |                       
|0.00- 2.99%                         | $           45        
|3.00- 4.99%                         | 3,093                 
|5.00- 6.99%                         | 43,299                
|7.00- 8.99%                         | 1,455                 
|Total Certificate Accounts          | 47,892                
|                                    |                       
|Other Accounts:                     |                       
|                                    |                       
|Passbook Accounts                   | 4,868                 
|NOW Accounts                        | 11,788                
|Money Market Accounts               | 4,172                 
|Commercial Checking Accounts        | 2,250                 
|Other non-interest bearing accounts | 2,716                 
|Total Other Accounts                | 25,794                
|Total Deposits                      | $73,686               

|            | At September 30,
|----------- | ----------------
|            | 2001            
|0.00- 2.99% | $            ---
|3.00- 4.99% | 2,767           
|5.00- 6.99% | 32,454          
|7.00- 8.99% | ---             
|Total       | $35,221         

|                                            | Maturity              
|------------------------------------------- | ----------------------
|                                            | 3 Monthsor Less       
|                                            | (Dollars in Thousands)
|                                            |                       
|Certificates of deposit less than $100,000  | $  8,573              
|Certificates of deposit of $100,000 or more | 2,068                 
|Total                                       | $10,641               

On April 1, 1998, the Holding Company issued $3,629,000 of 111⁄2% subordinated
debentures due on March 31, 2003 (the "Debentures"). The proceeds from the issuance of the
Debentures were used to partially fund the acquisition of First Federal stock by the Holding
Company.  Interest on the Debentures is payable quarterly on the fifteenth day of January, April, July
and October of each year.   The Debentures require quarterly interest payments of approximately $105,000.

The Holding Company is dependent on dividends from the Bank
in order to pay the interest on the Debentures and its operating
expenses.  First Federal must obtain prior approval of the OTS before declaring any dividends.  As of
January 3, 2001, the OTS had approved the payment of $360,000 to the Holding Company which
should permit the Holding Company to make interest payments through July, 2001.  See "Regulation -- Limitations on Dividends and Other Capital Distributions" and "Management's Discussion and Analysis or Plan of Operation -- Liquidity and Capital Resources.
"

For additional information relating to borrowings, see Notes 8 and 10****to the Notes  to
Consolidated Financial Statements of the Company filed as Item 7 to this Form 10-KSB.

The following table sets forth the maximum month-end balance and average balance of
FHLB advances and other borrowings during the periods indicated.

|                 | Year Ended September 30,
|---------------- | ------------------------
|                 | 2000                    
|                 | (In Thousands)          
|Maximum Balance: |                         
|FHLB advances    | $4,000                  
|Debentures       | 3,629                   
|                 |                         
|Average Balance: |                         
|FHLB advances    | $      545              
|Debentures       | 3,629                   

|                                                | September 30, 
|----------------------------------------------- | --------------
|                                                | 2000          
|                                                | (In Thousands)
|                                                |               
|FHLB advances                                   | $3,000        
|Debentures                                      | 3,629         
|Total borrowings                                | $6,629        
|                                                |               
|Weighted average interest rate of FHLB advances | 6.63%         
|Weighted average interest rate on Debentures    | 11.50%        

Federally chartered institutions are permitted to invest in the capital stock, obligations, or
other specified types of securities of subsidiaries (referred to as "service corporations") and to make
loans to such subsidiaries, and joint ventures in which such subsidiaries are participants, in an
aggregate amount not exceeding 2% of an institution's assets, plus an additional 1% of assets if the
amount over 2% is used for specified community or inner city development purposes.  Federal
regulations also permit institutions to make specified loans to such subsidiaries under its general
lending authority.  In addition, such institutions are authorized to invest unlimited amounts in
subsidiaries that are engaged solely in activities in which the parent institution may engage.

First Federal's service corporation, First Service Corporation of Bryan, is currently inactive
and has no material assets or liabilities.  In 1999, the Holding Company organized Best of Texas,
Inc., a proposed used car dealership organized for the purpose of selling used cars, including First
Federal's repossessed vehicles.  This corporation is currently inactive and has no material assets or
liabilities.  See "Regulation - Federal Regulation of Thrift Institutions."

**REGULATION**

**General**

First Federal is a federally chartered thrift institution, the deposits of which are federally
insured and backed by the full faith and credit of the U.S. government.  Accordingly, First Federal
is subject to broad federal regulation and oversight extending to all its operations.  First Federal is
a member of the FHLB of Dallas and is subject to certain limited regulation by the Board of
Governors of the Federal Reserve System ("Federal Reserve Board"). As a financial institution
holding company of First Federal, the Holding Company also is subject to federal regulation
oversight.  The purpose of the regulation of the Holding Company and other holding companies is
to protect the subsidiary thrift institution.  First Federal is a member Savings Association Insurance
Fund ("SAIF") and the deposits of First Federal are insured by the FDIC.  As a result, the FDIC has
certain regulatory and examination authority over First Federal.

Certain of these regulatory requirements and restrictions are discussed below or elsewhere
in this document.

**Federal Regulation of Thrift Institutions**

The OTS has extensive authority over the operations of thrift institutions.  As part of this
authority, First Federal is required to file periodic reports with the OTS and is subject to periodic
examination by the OTS and the FDIC.  The last regular OTS examination of First Federal began
April 17, 2000, and was concluded on June 1, 2000, for books and records as of March 31, 2000.
Under agency scheduling guidelines, it is likely that another examination will be initiated within 12
months of the last exam.  When these examinations are conducted by the OTS and the FDIC, the
examiners may require First Federal to provide for higher general or specific loan loss reserves.  All
thrift institutions are subject to a semi-annual assessment, based upon the thrift institution's total
assets, to fund the operations of the OTS.  First Federal's OTS assessment for the expense of
examinations for the fiscal year ended September 30, 2000, was $32,000.

The OTS also has extensive enforcement authority over all thrift institutions and their
holding companies, including First Federal and the Holding Company.  This enforcement authority
includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist
or removal orders and to initiate injunctive actions.  In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound practices.  Other actions or
inactions may provide the basis for enforcement action, including misleading or untimely reports
filed with the OTS.  Except under certain circumstances, public disclosure of final enforcement
actions by the OTS is required.

In addition, the investment, lending and branching authority of First Federal is prescribed by
federal laws and it is prohibited from engaging in any activities not permitted by such laws.  For
instance, no thrift institution may invest in non-investment grade corporate debt securities.  In
addition, the permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of total capital, except with approval of the OTS.
Federal thrift institutions are also generally authorized to branch nationwide.  First Federal is in
compliance with the noted restrictions.

First Federal's general permissible lending limit for loans-to-one-borrower is equal to the
greater of $500,000 or 15% of unimpaired capital and surplus (except for loans fully secured by
certain readily marketable collateral, in which case this limit is increased to 25% of unimpaired
capital and surplus).  At September 30, 2000, First Federal's legal lending limit under this restriction
was $830,000.  First Federal is in compliance with the loans-to-one-borrower limitation.

The OTS, as well as the other federal banking agencies, has adopted guidelines establishing
safety and soundness standards on such matters as loan underwriting and documentation, internal
controls and audit systems, interest rate risk exposure and compensation and other employee
benefits.  Any institution which fails to comply with these standards must submit a compliance plan.
A failure to submit a plan or to comply with an approved plan will subject the institution to further
enforcement action.  First Federal has adopted these OTS guidelines.

**Insurance of Accounts and Regulation by the FDIC**

First Federal is a member of the SAIF, which is administered by the FDIC.  Deposits are
insured up to applicable limits by the FDIC and such insurance is backed by the full faith and credit
of the U.S. government.  As insurer, the FDIC imposes deposit insurance premiums and is
authorized to conduct examinations of and to require reporting by FDIC-insured institutions.  It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a serious risk to the SAIF or the BIF.  The FDIC also has the authority
to initiate enforcement actions against thrift institutions, after giving the OTS an opportunity to take
such action, and may terminate the deposit insurance if it determines that the institution has engaged
in unsafe or unsound practices or is in an unsafe or unsound condition.

The FDIC's deposit insurance premiums are assessed through a risk-based system under
which all insured depository institutions are placed into one of nine categories and assessed
insurance premiums based upon their level of capital and supervisory evaluation.  Under the system,
institutions classified as well-capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1 or
core capital to risk-weighted assets ("Tier 1 risk-based capital") of at least 6% and a risk-based
capital ratio of at least 10%) and considered healthy pay the lowest premium while institutions that
are less than adequately capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or
a risk-based capital ratio of less than 8%) and considered of substantial supervisory concern pay the
highest premium.  Risk classification of all insured institutions will be made by the FDIC for each
semi-annual assessment period.

The FDIC is authorized to increase assessment rates, on a semi-annual basis, if it determines
that the reserve ratio of the SAIF will be less than the designated reserve ratio of 1.25% of SAIF
insured deposits.  In setting these increased assessments, the FDIC must seek to restore the reserve
ratio to that designated reserve level, or such higher reserve ratio as established by the FDIC.  The
FDIC may also impose special assessments on SAIF members to repay amounts borrowed from the
U.S. Treasury or for any other reason deemed necessary by the FDIC.

The premium schedule for BIF and SAIF insured institutions ranged from 0 to 27 basis
points.  However, SAIF-insured institutions are required to pay a Financing Corporation (FICO)
assessment, in order to fund the interest on bonds issued to resolve bank and thrift failures in the
1980s.  This amount is currently equal to about 2.08 basis points for each $100 in domestic deposits,
while BIF-insured institutions pay an assessment equal to approximately 1.00 basis points for each
$100 in domestic deposits.  These assessments, which may be revised based upon the level of BIF
and SAIF deposits will continue until the bonds mature in the years 2017 through 2019.

**Supervisory Agreement**

The OTS, during an OTS examination completed in June, 2000, determined that the
Bank required special supervisory attention primarily due to its Second Chance Auto Loan program.  The OTS formally designated the Bank to be in "troubled condition" and a "problem association"
due to its total capital to risk-weighted assets ratio being only marginally  above the minimum
required amount after taking into account the losses associated with repossessed automobiles and
the increase in the allowance for loan losses related to its Second Chance Auto Loan Program.
This designation subjected the Bank to growth restrictions that limited any increase in total assets
during any quarter in excess of an amount equal to interest  credited on deposits during the
quarter without the prior written approval of the OTS, prior OTS review of all executive
compensation,  prior notice to OTS of all  transactions between the Bank and its affiliates, such
as the Holding Company, and receipt of OTS approval prior to paying a dividend from the Bank
to the Holding Company.  On March 2, 2001, the OTS notified the Bank that it was no longer
designated to be in "troubled condition" and a "problem association."

As a result of the OTS examination, however, the OTS required the Bank to enter into a
Supervisory Agreement on September 22, 2000.  The Supervisory Agreement generally addresses the development and implementation of
actions, plans, policies and procedures to improve the operations and financial condition of the Bank,
particularly in the areas of management, asset quality, dispositions of assets, director and executive
officer compensation and transactions with affiliates and subsidiaries.  In particular the board of
directors of the Bank was directed to increase its participation in the affairs of the Bank and assume
full responsibility for compliance with the Supervisory Agreement.  The various plans, policies and
procedures developed by the Bank have been approved by the OTS except as noted below.

The Supervisory Agreement also required the Bank to submit a written business plan by
September 30, 2000, subject to the approval of the OTS , that covers the overall operation of the
Bank and sets forth (i) the Bank's plans to achieve "well capitalized" status by March 31, 2001; (ii)
a contingent capital plan to increase capital to avoid undercapitalization; (iii) strategies to reduce
non-interest expenses, especially general and administrative expenses; (iv) the development of
profitable lines of business; and (v) strategies for enhancing the viability of the North Bryan branch.
The OTS approved the Business Plan, however, there can be no assurance, that each of any element of the plan will be successfully completed.

Management believes that the deficiencies cited by the OTS in its recent report of
examination of the Bank have been cured and that the Bank is currently otherwise in substantial
compliance with the Supervisory Agreement at this time.  Compliance with the Supervisory
Agreement, however, is subject to a determination of compliance by the OTS at the time of the
Bank's next examination, and therefore no assurance can be given that the Bank will be in
compliance with the Supervisory Agreement at that time.

The Supervisory Agreement will remain in effect until modified, terminated or suspended
by the OTS. A failure to comply with the Supervisory Agreement could result in the initiation of a
formal enforcement action by the OTS, including the imposition of civil money penalties.

**Regulatory Capital Requirements**

Federally insured thrift institutions, such as First Federal, are required to maintain a
minimum level of regulatory capital.  The OTS has established capital standards, including a tangible
capital requirement, a leverage ratio (or core capital) requirement and a risk-based capital
requirement applicable to such thrift institutions.  These capital requirements must be generally as
stringent as the comparable capital requirements for national banks.  The OTS is also authorized to
impose capital requirements in excess of these standards on individual associations on a case-by-case
basis.

The capital regulations require tangible capital of at least 1.5% of adjusted total assets (as
defined by regulation).  Tangible capital generally includes common stockholders' equity and
retained income, and certain noncumulative perpetual preferred stock and related income. In
addition, all intangible assets, other than a limited amount of purchased mortgage servicing rights,
must be deducted from tangible capital for calculating compliance with the requirement.  At
September 30, 2000, the Bank did not have any intangible assets.

The OTS regulations establish special capitalization requirements for thrift institutions that
own subsidiaries.  In determining compliance with the capital requirements, all subsidiaries engaged
solely in activities permissible for national banks or engaged in certain other activities solely as
agent for its customers are "includable" subsidiaries that are consolidated for capital purposes in
proportion to the association's level of ownership.  For excludable subsidiaries the debt and equity
investments in such subsidiaries are deducted from assets and capital.   First Federal was not subject
to any such deduction at September 30, 2000.

At September 30, 2000, First Federal had tangible capital of $5.6 million, or 6.6% of adjusted
total assets, which is approximately $4.3 million above the minimum requirement of 1.5% of
adjusted total assets in effect on that date.

The capital standards also require core capital equal to at least 3% of adjusted total assets.
Core capital generally consists of tangible capital.  At September 30, 2000, First Federal had core
capital equal to $5.6 million, or 6.6% of adjusted total assets, which is $2.2 million above the
minimum leverage ratio requirement of 3% as in effect on that date.

The OTS risk-based requirement requires thrift institutions to have total capital of at least
8% of risk-weighted assets.  Total capital consists of core capital, as defined above, and
supplementary capital.  Supplementary capital consists of certain permanent and maturing capital
instruments that do not qualify as core capital and general valuation loan and lease loss allowances
up to a maximum of 1.25% of risk-weighted assets.  Supplementary capital may be used to satisfy
the risk-based requirement only to the extent of core capital.  The OTS is also authorized to require
a thrift institution to maintain an additional amount of total capital to account for concentration of
credit risk and the risk of non-traditional activities.  At September 30, 2000, First Federal had no
capital instruments that qualify as supplementary capital and $511,000 of general loss reserves,
which was less than 1.25% of risk-weighted assets.

In determining the amount of risk-weighted assets, all assets, including certain off-balance
sheet items, will be multiplied by a risk weight, ranging from 0% to 100%, based on the risk inherent
in the type of asset.  For example, the OTS has assigned a risk weight of 50% for prudently
underwritten permanent one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan-to-value ratio of not more than 80% at origination unless insured to
such ratio by an insurer approved by the FNMA or FHLMC.

On September 30, 2000, First Federal had total capital of $6.0 million and risk-weighted
assets of $66.4 million, or total capital of 9.0% of risk-weighted assets.  This amount was $657,000
above the 8% requirement in effect on that date, however, this amount was $672,000 below the 10%
well capitalized requirement in effect on that date.  See "Regulation - Supervisory Agreement".

The OTS and the FDIC are authorized and, under certain circumstances required, to take
certain actions against thrift institutions that fail to meet their capital requirements.  The OTS is
generally required to take action to restrict the activities of an "undercapitalized association"
(generally defined to be one with less than either a 4% core capital ratio, a 4% Tier 1 risked-based
capital ratio or an 8% risk-based capital ratio).  Any such association must submit a capital
restoration plan and until such plan is approved by the OTS may not increase its assets, acquire
another institution, establish a branch or engage in any new activities, and generally may not make
capital distributions.  The OTS is authorized to impose the additional restrictions that are applicable
to significantly undercapitalized associations.

As a condition to the approval of the capital restoration plan, any company controlling an
undercapitalized association must agree that it will enter into a limited capital maintenance guarantee
with respect to the institution's achievement of its capital requirements.

Any thrift institution that fails to comply with its capital plan or is "significantly
undercapitalized" (i.e., Tier 1 risk-based or core capital ratios of less than 3% or a risk-based capital
ratio of less than 6%) must be made subject to one or more of additional specified actions and
operating restrictions which may cover all aspects of its operations and include a forced merger or
acquisition of the association.  An association that becomes "critically undercapitalized" (i.e., a
tangible capital ratio of 2% or less) is subject to further mandatory restrictions on its activities in
addition to those applicable to significantly undercapitalized associations.  In addition, the OTS must
appoint a receiver (or conservator with the concurrence of the FDIC) for a thrift institution, with
certain limited exceptions, within 90 days after it becomes critically undercapitalized.

At September 30, 2000, First Federal fell within the regulatory definition of "adequately
capitalized".  First Federal has been, however, designated as "problem association" due to its total
capital to risk-weighted assets ratio being only marginally above the minimum required amount after
taking into account the losses associated with repossessed automobiles and the increase in the
allowance for loan losses related to its Second Chance Auto Loan Program.  See "Borrowings" and
"Regulation - Supervisory Agreement."

**Limitations on Dividends and Other Capital Distributions**

The OTS imposes various restrictions on savings institutions with respect to their ability to
make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out
mergers and other transactions charged to the capital account.  The OTS also prohibits a savings
institution from declaring or paying any dividends or from repurchasing any of its stock if, as a result
of such action, the regulatory capital of the institution would be reduced below the amount required
to be maintained for the liquidation account established in connection with the institution's mutual
to stock conversion.

First Federal may make a capital distribution without the approval of the OTS provided it
notifies the OTS, 30 days before it declares the capital distribution and meets the following
requirements: (i) has a regulatory rating in one of the two top examination categories, (ii) is not of
supervisory concern, and will remain adequately- or well-capitalized, as defined in the OTS prompt
corrective action regulations, following the proposed distribution, and (iii) the distribution does not
exceed the institution's net income for the calendar year-to-date plus retained net income for the
previous two calendar years (less any dividends previously paid).  Because First Federal does not
meet the above stated requirements, it must obtain the prior approval of the OTS before declaring
any proposed distributions.  See "Borrowings."

**Liquidity**

All thrift institutions, including First Federal, are required to maintain an average daily
balance of liquid assets equal to a certain percentage of the sum of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less.  For a discussion of what
First Federal includes in liquid assets, see "Management's Discussion and Analysis or Plan of Operation -- Liquidity and Capital Resources."  This liquid asset ratio
requirement may vary from time to time (between 4% and 10%) depending upon economic
conditions and savings flows of all thrift institutions.  At the present time, the minimum regulatory
liquid asset ratio is 4%.

In addition, short-term liquid assets (e.g., cash, certain time deposits, certain bankers
acceptances and short-term U.S. Treasury obligations) currently must constitute at least 1% of the
association's average daily balance of net withdrawable deposit accounts and current borrowings.
Penalties may be imposed upon associations for violations of either liquid asset ratio requirement.
At September 30, 2000, First Federal was in compliance with both requirements, with an overall
liquid asset ratio of 7.91% and a short-term liquid assets ratio of 7.91%.

**Qualified Thrift Lender Test**

All thrift institutions, including First Federal are required to meet a qualified thrift lender
("QTL") test to avoid certain restrictions on their operations.  This test requires a thrift institution
to have at least 65% of its portfolio assets (as defined by regulation) in qualified thrift investments
on a monthly average for nine out of every 12 months on a rolling basis.  As an alternative, the thrift
institution may maintain 60% of its assets in those assets specified in Section 7701(a)(19) of the

Any thrift institution that fails to meet the QTL test must convert to a national bank charter,
unless it requalifies as a QTL and thereafter remains a QTL.  If an association does not requalify and
converts to a national bank charter, it must remain SAIF-insured until the FDIC permits it to transfer
to the BIF.  If such an association has not yet requalified or converted to a national bank, its new
investments and activities are limited to those permissible for both a thrift institution and a national
bank, and it is limited to national bank branching rights in its home state.  In addition, the association
is immediately ineligible to receive any new FHLB borrowings and is subject to national bank limits
for payment of dividends.  If such association has not requalified or converted to a national bank
within three years after the failure, it must divest of all investments and cease all activities not
permissible for a national bank.  In addition, it must repay promptly any outstanding FHLB
borrowings, which may result in prepayment penalties.   If any association that fails the QTL test is
controlled by a holding company, then within one year after the failure, the holding company must
register as a bank holding company and become subject to all restrictions on bank holding
companies.  See "-- Holding Company Regulation."

**Community Reinvestment Act**

Under the Community Reinvestment Act ("CRA"), every FDIC-insured institution has a
continuing and affirmative obligation consistent with safe and sound banking practices to help meet
the credit needs of its entire community, including low and moderate income neighborhoods.  The
CRA does not establish specific lending requirements or programs for financial institutions nor does
it limit an institution's discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA.  The CRA requires the OTS, in
connection with the examination of First Federal, to assess the institution's record of meeting the
credit needs of its community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by First Federal.  An unsatisfactory
rating may be used as the basis for the denial of an application by the OTS.  Due to the heightened
attention being given to the CRA in the past few years, First Federal may be required to devote
additional funds for investment and lending in its local community.

First Federal was examined for CRA compliance in 1998 and received a rating of
satisfactory.

**Transactions with Affiliates**

Generally, transactions between a thrift institution or its subsidiaries and its affiliates are
required to be on terms as favorable to the association as transactions with non-affiliates.  In
addition, certain of these transactions, such as loans to an affiliate, are restricted to a percentage of
the association's capital.  Affiliates of First Federal include the Holding Company and any company
which is under common control with First Federal.  In addition, a thrift institution may not lend to
any affiliate engaged in activities not permissible for a bank holding company or acquire the
securities of most affiliates.

Certain transactions with directors, officers or controlling persons are also subject to conflict
of interest regulations enforced by the OTS.  These conflict of interest regulations and other statutes
also impose restrictions on loans to such persons and their related interests.  Among other things,
such loans must be made on terms substantially the same as for loans to unaffiliated individuals.

**Holding Company Regulation**

The Holding Company is a unitary savings and loan holding company and can engage in any
safe and sound business that is lawful to conduct, subject to regulatory oversight by the OTS.  As
such, the Holding Company is required to register and file reports with the OTS and is subject to
regulation and examination by the OTS.  In addition, the OTS has enforcement authority over the
Holding Company and its non-thrift institution subsidiaries which also permits the OTS to restrict
or prohibit activities that are determined to be a serious risk to the subsidiary thrift institution.
Otherwise, the Holding Company can engage in any safe and sound business, which is lawful to
conduct for any type of business.

As a unitary savings and loan holding company, the Holding Company generally is not
subject to activity restrictions.  If the Holding Company acquires control of another thrift institution
as a separate subsidiary, it would become a multiple savings and loan holding company, and the
activities of the Holding Company and any of its subsidiaries (other than First Federal or any other
SAIF-insured thrift institution) would become subject to such restrictions unless such other
institutions each qualify as a QTL and were acquired in a supervisory acquisition.

If First Federal fails the QTL test, the Holding Company must obtain the approval of the OTS
prior to continuing after such failure, directly or through its other subsidiaries, any business activity
other than those approved for multiple savings and loan holding companies or their subsidiaries.  In
addition, within one year of such failure the Holding Company must register as, and will become
subject to, the restrictions applicable to bank holding companies.

**Federal Securities Law**

The stock of the Holding Company is registered with the SEC under the Securities Exchange
Act of 1934, as amended (the "Exchange Act").  The Holding Company is subject to the information,
proxy solicitation, insider trading restrictions and other requirements of the SEC under the Exchange
Act.

The Holding Company stock held by persons who are affiliates (generally officers, directors
and principal stockholders) of the Holding Company may not be resold without registration or unless
sold in accordance with certain resale restrictions.  If the Holding Company meets specified current
public information requirements, each affiliate of the Holding Company is able to sell in the public
market, without registration, a limited number of shares in any three-month period.

**Federal Reserve System**

The Federal Reserve Board requires all depository institutions to maintain noninterest
bearing reserves at specified levels against their transaction accounts (primarily checking and NOW
checking accounts).  At September 30, 2000, First Federal was in compliance with these reserve
requirements.  The balances maintained to meet the reserve requirements imposed by the Federal
Reserve Board may be used to satisfy liquidity requirements that may be imposed by the OTS.  See
"-- Liquidity."

Thrift institutions are authorized to borrow from the Federal Reserve Bank "discount
window," but Federal Reserve Board regulations require associations to exhaust other reasonable
alternative sources of funds, including FHLB borrowings, before borrowing from the Federal
Reserve Bank.

**Federal Home Loan Bank System**

First Federal is a member of the FHLB of Dallas, which is one of 12 regional FHLBs, that
administers the home financing credit function of thrift institutions.  Each FHLB serves as a reserve
or central bank for its members within its assigned region.  It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System.  It makes loans to members
(i.e., advances) in accordance with policies and procedures, established by the board of directors of
the FHLB which are subject to the oversight of the Federal Housing Finance Board.  All advances
from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB.
In addition, all long-term advances are required to provide funds for residential home financing.

As a member, First Federal is required to purchase and maintain stock in the FHLB of Dallas.
At September 30, 2000, First Federal had $436,000 in FHLB stock, which was in compliance with
this requirement.  In past years, First Federal has received substantial dividends on its FHLB stock.
Over the past five fiscal years such dividends have averaged 6.2% and were 7.7% for fiscal year
2000.

Under federal law the FHLBs are required to provide funds for the resolution of troubled
thrift institutions and to contribute to low- and moderately priced housing programs through direct
loans or interest subsidies on advances targeted for community investment and low- and
moderate-income housing projects.  These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future.  These contributions could also have an
adverse effect on the value of FHLB stock in the future.  A reduction in value of First Federal's
FHLB stock may result in a corresponding reduction in First Federal's capital.

For the year ended September 30, 2000, dividends paid by the FHLB of Dallas to First
Federal totaled $32,000, which constitute an $11,000 increase from the amount of dividends received
in fiscal year 1999.

**Federal and State Taxation**

Thrift institutions such as First Federal that meet certain definitional tests relating to the
composition of assets and other conditions prescribed by the Internal Revenue Code of 1986, as
amended (the "Code"), are permitted to establish reserves for bad debts and to make annual additions
thereto which may, within specified formula limits, be taken as a deduction in computing taxable
income for federal income tax purposes.  The amount of the bad debt reserve deduction is computed
under the experience method.

Under the experience method, the bad debt reserve deduction is an amount determined under
a formula based generally upon the bad debts actually sustained by the thrift institution over a period
of years.

In August 1996, legislation was enacted that repealed the percentage of taxable income
method used by many thrifts, including First Federal, to calculate their bad debt reserve for federal
income tax purposes. As a result, small thrifts such as First Federal must recapture that portion of
the reserve that exceeds the amount that could have been taken under the experience method for tax
years beginning after December 31, 1987.  The recapture will occur over a six-year period, the
commencement of which will be delayed until the first taxable year beginning after December 31,
1997, provided the institution meets certain residential lending requirements.  The management of
the Company does not believe that the legislation will have a material impact on the Company.  At
September 30, 2000, First Federal had approximately $171,000 in bad debt reserves subject to
recapture for federal income tax purposes.  The deferred tax liability related to the recapture has been
previously established so there will be no effect on future net income.

In addition to the regular income tax, corporations, including thrift institutions such as First
Federal, generally are subject to a minimum tax.  An alternative minimum tax is imposed at a
minimum tax rate of 20% on alternative minimum taxable income, which is the sum of a
corporation's regular taxable income (with certain adjustments) and tax preference items, less any
available exemption.  The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more than 90% of alternative
minimum taxable income.

A portion of First Federal's reserves for losses on loans may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other distributions to a shareholder
(including distributions on redemption, dissolution or liquidation) or for any other purpose (except
to absorb bad debt losses).  As of September 30, 2000, the portion of First Federal's reserves subject
to this treatment for tax purposes totaled approximately $643,000.

The Holding Company files a consolidated federal income tax return with First Federal on
a fiscal year basis using the accrual method of accounting.

Management is not aware of any examination of issues related to still open federal income
tax returns (including returns of subsidiaries and predecessors of, or entities merged into, First
Federal) which would result in a deficiency that could have a material adverse effect on the financial
condition of the Company.

***Texas Taxation.***  The State of Texas does not have a corporate income tax, but it does have
a corporate franchise tax to which First Federal is subject.

The tax is the higher of 0.25% of taxable capital (usually the amount of paid in capital plus
retained earnings) or 4.5% of "net taxable earned surplus."  "Net taxable earned surplus" is net
income for federal income tax purposes increased by the compensation of directors and executive
officers.

***Delaware Taxation.***  As a Delaware holding company, the Holding Company is exempted
from Delaware corporate income tax but is required to file an annual report with and pay an annual
fee to the State of Delaware.  The Holding Company is also subject to an annual franchise tax
imposed by the state of Delaware.

**Competition**

First Federal faces strong competition both in originating loans and in attracting deposits.
Competition in originating loans comes primarily from other thrift institutions, commercial banks
and mortgage companies who also make loans located in First Federal's primary market area.  First
Federal competes for loans principally on the basis of the interest rates and loan fees it charges, the
types of loans it originates and the quality of service it provides to borrowers.

First Federal faces substantial competition in attracting deposits from other thrift institutions,
commercial banks, money market and mutual funds, credit unions and other investment vehicles.
The ability of First Federal to attract and retain deposits depends on its ability to provide an
investment opportunity that satisfies the requirements of investors as to rate of return, liquidity, risk
and other factors.  First Federal competes for these deposits by offering a variety of deposit accounts
at competitive rates and convenient business hours.

**Employees**

At September 30, 2000, the Company had a total of 50 full-time and 11 part-time employees.
None of the Company's employees are represented by any collective bargaining agreement.
Management considers its employee relations to be good.

**Item 2.  Description of Property**

**Offices**

First Federal owns the building and land for the Holding Company's and its executive office
at 2900 Texas Avenue, Bryan, Texas.  This office now has approximately 8,700 square feet and is
situated on almost an acre of land with over 200 feet of frontage situated on the principal
thoroughfare in Bryan-College Station.  The depreciated net book value of this office and land (with
recent improvements) was $733,000 at September 30, 2000.

First Federal also opened and owns a branch office at 2202 Longmire in College Station,
Texas in March of 1994.  The office has approximately 2320 square feet and is situated on almost
two acres of land.  The book value of this office and land was $290,000 at September 30, 2000.

First Federal also acquired in fiscal 1998 approximately one acre of land at 1500 N. Texas
Avenue, Bryan, Texas, as the site for its north Bryan full-service branch.  It opened in June 1998,
with a special bank modular facility pending construction of the permanent facility, which was
completed in December, 1999.  The book value of this office and land was $619,000 at
September 30, 2000.

The Bank maintains a database of depositor and borrower customer information.  The net
book value of the data processing and computer equipment and software utilized by the Bank at
September 30, 2000 was $217,000.

**Item 3.  Legal Proceedings**

The Company is, from time to time, a party to certain lawsuits arising in the ordinary course
of its business.  The Company believes that none of these lawsuits would, if adversely determined,
have a material adverse effect on its financial condition.

**Item 4.  Submission of Matters to a Vote of Security Holders**

No matter was submitted to a vote of security holders, through the solicitation of proxies or
otherwise, during the three months ended September 30, 2000.



**Item 5.  Market for Common Equity and Related Stockholder Matters**

**Market Information**

The Holding Company's common stock is listed on the OTC Electronic Bulletin Board under
the symbol "BCSF."

The following table sets forth the high and low bid prices of the Holding Company's
common stock for the periods indicated.  The information in the table below was provided by the
OTC Electronic Bulletin Board.  The information reflects inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.

|               | Fiscal 2000 | Fiscal 1999
|-------------- | ----------- | -----------
|               | High        | Low        
|               |             |            
|First Quarter  | $9.250      | 4.318      
|Second Quarter | 9.250       | 6.250      
|Third Quarter  | 6.250       | 6.250      
|Fourth Quarter | 6.875       | 5.250      

The Holding Company pays dividends upon the determination of the Board of Directors in
its discretion that such payment is consistent with the long-term interests of the Company.  The
factors affecting this determination include the Company's consolidated financial condition and
results of operations, tax considerations, industry standards, economic conditions, regulatory
restrictions, general business practices and other relevant factors.  The Holding Company did not
declare cash dividends on its common stock during fiscal years 2000 and 1999.  However, First
Federal paid an aggregate of $ 87,000 in quarterly cash dividends on its preferred stock in fiscal year
2000.

First Federal may not declare or pay a cash dividend or repurchase shares of its stock if the
effect thereof would be to cause its regulatory capital to be reduced below the amount required for
the liquidation account or to meet applicable regulatory capital requirements.  Federal regulations
limit the Bank's capital distributions such that the proposed distribution, combined with dividends
already paid for the year, does not exceed its net income for the calendar year- to- date plus retained
net income for the previous two years.  The Bank must obtain the prior approval of the OTS before declaring any
dividends.

**Item 6.  Management's Discussion and Analysis or Plan of Operation**

**General**

The Bryan-College Station Financial Holding Company (the "Holding Company" and, with
its subsidiary the "Company"), a Delaware corporation, was formed to act as the holding company
for First Federal Savings Bank, Bryan, Texas ("First Federal" or the "Bank") by acquiring 100% of
the stock of First Federal through the exchange of approximately 32% of First Federal common
stock for Holding Company common stock and the purchase of approximately 68% of First Federal
common stock for cash (the "Acquisition").  The Holding Company received approval from the
Office of Thrift Supervision (the "OTS") to acquire all of the common stock of the Bank outstanding
upon completion of the Acquisition.  The Acquisition was completed on April 1, 1998. All
references to the Company, unless otherwise indicated, at or before April 1, 1998, refer to the Bank.

The Company is headquartered in Bryan, Texas and operates through its principal operating
subsidiary First Federal.  First Federal's major goals are to provide high quality full-service "niche"
retail banking on a profitable basis to primarily the middle-class and blue-collar population through
its offices located in Bryan/College Station, Texas.  First Federal intends to continue to focus
primarily on one-to four-family residential loans, Small Business Administration ("SBA") through
its designation as a Certified SBA Lender, and to a lesser degree through direct consumer automobile
and personal loans, home improvement loans, residential construction loans, and small to medium
size commercial business loans.  In addition, First Federal seeks to continue maintaining and
improving its asset quality and continuing to minimize to the extent possible, its vulnerability to
changes in interest rates in order to continue to maintain an attractive spread between its average
yield on loans and securities and its average cost of interest paid on deposits and borrowings.

First Federal's net interest income has historically been dependent largely upon the difference
("spread") between the average yield earned primarily on loans, and to a much lesser extent
mortgage-backed securities and other securities ("interest-earning assets") and the average interest
rate paid on savings and other deposits and borrowings ("interest-bearing liabilities"), as well as the
relative amounts of such assets and liabilities.  The interest rate spread between interest-earning
assets and interest-bearing liabilities is impacted by several factors, including economic and
competitive conditions that influence interest rates, loan demand, deposit flows, regulatory
developments and the types of assets and liabilities on its balance sheet.  At September 30, 2000,
1999 and 1998, the Company's interest rate spread was 5.26%, 4.84% and 4.49%, respectively.

Like all financial institutions, First Federal has always been subject to interest rate risk
because its interest-bearing liabilities (primarily deposits) mature or reprice at different times, or on
a different basis than its interest-earning assets (primarily loans).  First Federal's net income is also
affected by gains and losses on the sale of loans, loan servicing rights and investments, provisions
expensed for loans and other losses on repossessed assets and insurance claims, service charge fees,
loan servicing income, fees for other financial services rendered, operating expenses and income
taxes.

Since 1991, First Federal has relied primarily on its noninterest income for net income.
While First Federal's noninterest income has been a relatively steady source of income, it is highly
dependent upon the ability of First Federal to originate loans and realize profits on the sale of loans,
loan participations and related servicing rights to the secondary market and to increase its service
charges, and fee income from checking accounts.

**Asset/Liability Management**

First Federal, like all financial institutions, is subject to interest rate risk to the degree that
its interest-bearing liabilities mature or reprice more rapidly, or on a different basis, than its
interest-earning assets, some of which may be longer term or fixed interest rate.  Loans maturing
within five years total $58.8 million or 79% of total loans, while loans maturing over five years total
$15.5 million or 21% of total loans.  As a continuing part of its financial strategy, First Federal
continually considers methods of managing any such asset/liability mismatch, consistent with
maintaining acceptable levels of net interest income.

In order to monitor and manage interest rate sensitivity and interest rate spread, First Federal
created an Asset/Liability Committee ("ALCO"), composed of its President, Executive Vice
President/Chief Financial Officer, Senior Vice President/Accounting and three outside directors.
The responsibilities of the ALCO are to assess First Federal's asset/liability mix and recommend
strategies that will enhance income while managing First Federal's vulnerability to changes in
interest rates.

First Federal's asset/liability management strategy has two goals.  First, First Federal seeks
to build its net interest income and noninterest income while adhering to its underwriting and lending
guidelines.  Second, and to a lesser extent, First Federal seeks to increase the interest rate sensitivity
of its assets and decrease the interest rate sensitivity of its liabilities in order to reduce First Federal's
overall sensitivity to changes in interest rates.  First Federal places its primary emphasis on
maximizing net interest margin, while striving to better match the interest rate sensitivity of its assets
and liabilities.  There can be no assurance that this strategy will achieve the desired results and will
not result in substantial losses in the event of an increase in interest rate risk.

As part of this strategy, management has continued to emphasize growth in
noninterest-bearing deposits such as checking accounts or lower interest-bearing savings deposits
by offering full-service retail banking.  In order to minimize the possible adverse impact that a rise
in interest rates may have on net interest income, First Federal has developed several strategies to
manage its interest rate risk.  Primarily, First Federal is currently  selling all newly-originated one-to
four-family residential mortgage loans, which are saleable in the secondary market and most of
which are long-term fixed-rate loans.  In addition, First Federal currently offers three-year fixed rate
balloon loans and other adjustable rate loans and relatively short-term consumer loans, giving First
Federal an opportunity to reprice its loans on a more frequent basis.

**Net Portfolio Value**

Senior management and the Board of Directors review First Federal's exposure to interest
rate risk on a quarterly basis.  The interest rate risk is measured by computing estimated changes in
net interest income and the net portfolio value of cash flows from assets, liabilities and off-balance
sheet items within a range of assumed changes in market interest rates.  If estimated changes to net
portfolio value and net interest income are not within the limits established by the Board, the Board
may direct management to adjust First Federal's asset and liability mix to bring interest rate risk
within Board approved limits.  The Board limits have been established with consideration of the
dollar impact of various rate changes and First Federal's capital position.

The balance sheet consists of investments in interest-earning assets, primarily loans, which
are primarily funded by interest-bearing liabilities, deposits and borrowings.  These financial
instruments have varying levels of sensitivity to changes in market interest rates, resulting in market
risk.  Other than loans that are originated and held for sale, all of our financial instruments are for
other than trading purposes.  First Federal is subject to interest rate risk to the extent that its interest-bearing liabilities with short and intermediate-term maturities reprice more rapidly, or on a different
basis, than its interest-earning assets.

Presented below, as of September 30, 2000, is an analysis of First Federal's interest rate risk
as measured by changes in NPV for instantaneous and sustained parallel shifts in the yield curve,
in 100 basis point increments, up and down 300 basis points in accordance with OTS regulations.
As illustrated in the table, NPV is more sensitive to rising rates than declining rates.  This occurs
principally because, as rates rise, the market value of fixed-rate loans declines due to both the rate
increase and slowing prepayments.  When rates decline, First Federal does not experience a
significant rise in market value for these loans because borrowers prepay at relatively high rates.
OTS assumptions are used in calculating the amounts in this table.

|Change inInterest Rate | EstimatedNPV | At September 30, 2000 | AcceptableLimitsEstablishedby Board ofDirectors
|---------------------- | ------------ | --------------------- | -----------------------------------------------
|(Basis Points)         | NPV          | $ Change              | % Change                                       
|                       |              |                       |                                                
|(Dollars in Thousands)
|                       |              |                       |                                                
|+300                   | $9,006       | $(389)                | (4)%                                           
|+200                   | 9,207        | (188)                 | (2)                                            
|+100                   | 9,344        | (51)                  | (1)                                            
|0                      | 9,395        | 0                     | 0                                              
|-100                   | 9,344        | (51)                  | (1)                                            
|-200                   | 9,348        | (47)                  | (1)                                            
|-300                   | 9,603        | 208                   | 2                                              

In evaluating First Federal's exposure to interest rate risk, certain shortcomings inherent in
the method of analysis presented in the foregoing tables must be considered.  For example, although
certain assets and liabilities may have similar maturities or periods to repricing, they may react in
different degrees to changes in market interest rates.  Also, the interest rates on certain types of assets
and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on
other types may lag behind changes in market rates.  Further, in the event of a change in interest
rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed
in calculating the table.  For example, projected passbook, money market and checking account
maturities may also materially change if interest rates change.  Finally, the ability of many borrowers
to service their debt may decrease in the event of an interest rate increase.  First Federal considers
all of these factors in monitoring its exposure to interest rate risk.

**Average Balances, Interest Rates and Yields**

The following table presents for the periods indicated the total dollar amount of interest income from average interest-earning assets
and the resultant yields, as well as the interest expense on average interest-bearing liabilities and the interest rates, expressed both in dollars
and rates and the net interest margin.  No tax equivalent adjustments were made.  The yield includes fees which are considered adjustments
to yields.

|                                                            | For the Fiscal Year Ended September 30,
|----------------------------------------------------------- | ---------------------------------------
|                                                            | 2000                                   
|                                                            | AverageOutstandingBalance              
|                                                            | (Dollars in Thousands)                 
|                                                            |                                        
|Interest-earning assets:                                    |                                        
|Loans receivable, net                                       | $72,720                                
|Mortgage-backed securities                                  | 599                                    
|Interest bearing deposits       with Federal Home Loan Bank | 2,043                                  
|Other interest-earning assets                               | 598                                    
|                                                            |                                        
|Total interest-earning assets                               | 75,960                                 
|                                                            |                                        
|Noninterest-earning assets                                  | 8,463                                  
|                                                            |                                        
|Total assets                                                | $84,423                                

|                                                                              | For the Fiscal Year Ended September 30,
|----------------------------------------------------------------------------- | ---------------------------------------
|                                                                              | 2000                                   
|                                                                              | AverageOutstandingBalance              
|                                                                              | (Dollars in Thousands)                 
|Interest-bearing liabilities:                                                 |                                        
|Deposits                                                                      | $70,167                                
|FHLB advances                                                                 | 545                                    
|Notes payable                                                                 | 3,629                                  
|Total interest-bearing liabilities                                            | 74,341                                 
|                                                                              |                                        
|Other liabilities(2)                                                          | 8,062                                  
|Total liabilities                                                             | 82,403                                 
|Stockholders' equity                                                          | 2,020                                  
|                                                                              |                                        
|Total liabilities and         stockholders' equity                            | $84,423                                
|                                                                              |                                        
|Net interest income;  interest rate spread                                    |                                        
|                                                                              |                                        
|Net interest margin(1)                                                        |                                        
|                                                                              |                                        
|Average interest-earning assets to       average interest-bearing liabilities | 102.18%                                

|                                                                    | At September 30,
|------------------------------------------------------------------- | ----------------
|                                                                    | 2000            
|Weighted average yield on:                                          |                 
|Loans receivable                                                    | 11.43%          
|Mortgage-backed securities                                          | 6.95            
|Other interest-earning assets                                       | 6.50            
|                                                                    |                 
|Combined weighted average yield on interest-earning assets          | 11.12           
|                                                                    |                 
|Weighted average rate paid on:                                      |                 
|Deposits                                                            | 5.00            
|Borrowings                                                          | 6.63            
|Notes payable                                                       | 11.50           
|                                                                    |                 
|Combined weighted average rate paid on interest-bearing liabilities | 5.36            
|                                                                    |                 
|Spread                                                              | 5.76%           

|                                                                    | For the Fiscal Year EndedSeptember 30,
|------------------------------------------------------------------- | --------------------------------------
|                                                                    | 2000                                  
|Weighted average yield on:                                          |                                       
|Loans receivable                                                    | 10.41%                                
|Mortgage-backed securities                                          | 5.68                                  
|Other interest-earning assets                                       | 6.10                                  
|                                                                    |                                       
|Combined weighted average yield on interest-earning assets          | 10.22                                 
|                                                                    |                                       
|Weighted average rate paid on:                                      |                                       
|Deposits                                                            | 4.61                                  
|FHLB advances                                                       | 5.87                                  
|Notes payable                                                       | 11.68                                 
|                                                                    |                                       
|Combined weighted average rate paid on interest-bearing liabilities | 4.96                                  
|                                                                    |                                       
|Spread                                                              | 5.26                                  
|                                                                    |                                       
|Net interest margin                                                 | 5.36%                                 

The following schedule presents the dollar amount of changes in interest income and interest
expense for major components of interest-earning assets (primarily loans) and interest-bearing
liabilities (primarily deposits) for the periods shown.  It distinguishes between the increase in interest
income and interest expense related to higher outstanding balances and to the levels and volatility
of interest rates.  For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in rate (i.e., changes in rate multiplied
by old volume) and (ii) changes in volume (i.e., changes in volume multiplied by old rate).  For
purposes of this table, changes attributable to both rate and volume have been allocated
proportionately to the change due to volume and rate.

|                                    | For the Fiscal Year Ended September 30,
|----------------------------------- | ---------------------------------------
|                                    | 2000 vs. 1999                          
|                                    | Increase(Decrease)Due To               
|                                   
|                                    | Volume                                 
|                                    | (Dollars in Thousands)                 
|Interest-earning assets:            |                                        
|Loans                               | $  (11)                                
|Mortgage-backed securities          | (14)                                   
|Interest bearing deposits with FHLB | (81)                                   
|Other interest-earning assets       | (1)                                    
|                                    |                                        
|Total interest-earning assets       | (107)                                  
|                                    |                                        
|Interest-bearing liabilities:       |                                        
|Deposits                            | 2                                      
|FHLB advances                       | 21                                     
|Notes payable                       | ---                                    
|                                    |                                        
|Total interest-bearing liabilities  | 23                                     
|                                    |                                        
|Net interest income                 | $(130)                                 
|                                    |                                        
|Net increase in net interest income |                                        

The Company's results of operations are dependent on its net interest income which is the
difference between interest income on interest-earning assets (primarily loans) and interest expense
on interest-bearing liabilities (primarily deposits) and noninterest income.  Interest income is a
function of the average balances of interest-earning assets (primarily loans) outstanding during the
period and the average yields earned on such assets.  Interest expense is a function of the average
amount of interest-bearing liabilities outstanding (primarily deposits) during the period and the
average rates paid on such liabilities.  The Company's noninterest income includes income from
service charges and fees on checking accounts, loan servicing and other fees and charges, and gains
on sales loans.  The Company's net income is also affected by the level of its noninterest expenses,
such as employee salaries and benefits, occupancy and equipment expenses, and federal deposit
insurance premiums.

**Comparison of Fiscal Year Ended September 30, 2000 to September 30, 1999**

The Company reported a consolidated net loss of $738,000 for the year ended
September 30, 2000, as compared to net income of $245,000 for the year ended September 30,
1999, a decrease of $983,000.  The decrease in net income was due to a decrease in gains on the
sale of consumer loans, costs related to the settlement of retirement benefits and other matters
with the Company's former President and Chief Executive Officer, provisions for losses on
loans, repossessed assets and insurance claims and the effect of a change in the Company's
method of accounting for organization costs to comply with new accounting guidance.

Net interest income increased by $88,000 to $4,073,000 for the year ended September 30,
2000 from $3,985,000 for the year ended September 30, 1999.  This increase primarily resulted
from increases in the average yield of the loan portfolio, offset in part by increases in the average
rate and volume of deposits and borrowings.  The yield on the loan portfolio is expected to
decline in future periods due to declines in market interest rates (which reduced the yield of
adjustable rate loans in the portfolio upon repricing and the yield received at the time of
origination) and due to the payoff of higher yielding Second Chance Auto Loans.  Because of the
termination of the Second Chance Auto Loans, proceeds received upon repayment of these loans
will be deployed in lower yielding assets which is expected to result in the Company achieving
lower average yields and interest income in future operating periods.  The average yield on First
Federal's loans increased 34 basis points as a result of an increase in the volume of consumer
automobile loans and commercial loans, which yield a higher rate than traditional residential
mortgage loans.  These increases were partially offset by an increase in the cost of funds
resulting from an increase in the average rate paid on deposits of 15 basis points and an increase
in borrowings.  As a result, the Company's interest margin increased to 5.36% for the year ended
September 30, 2000 from 5.10% for the year ended September 30, 1999.  The ratio of average
interest-earning assets to average interest-bearing liabilities declined to 102.18% at September
30, 2000 from 105.67% at September 30, 1999.  The average net interest spread for the fiscal
year ended September 30, 2000, increased to 5.26% from 4.84% for the same periods.

The provision for loan losses is based on management's periodic review of the Company's
loan portfolio which considers, among other factors, past actual loan loss experience, the general
prevailing economic conditions, changes in composition and risks inherent in the loan portfolio,
independent third-party loan reviews and specific borrower considerations such as the ability to
repay the loan and the estimated value of the underlying collateral.  In addition, various
regulatory agencies, as an integral part of their examination process, periodically review the
Company's allowance for estimated loan losses.

The Company recorded a $254,000 provision for loan losses for the year ended
September 30, 2000 as compared to a $104,000 provision for loan losses for the year ended
September 30, 1999.  Management increased the loan loss provision during fiscal 2000 largely as
a result of an increased loss experience on the Second Chance Auto loans during the year.   As a
result of these loan losses,  the Company has terminated its Second Chance Auto Lending
program.  Prior to fiscal year 2000, the Company did not provide an allowance for anticipated
loan losses on Second Chance Auto Loans.

Total non-performing assets decreased for the year ended September 30, 2000 to $1.9
million or 2.22% of total  assets as compared to $2.7 million or 3.31% of total assets at
September  30,  1999.  Much of the decrease in non-performing assets was primarily attributable
to a $300,000 reduction in loan delinquencies, a $174,000 reduction in real estate from
foreclosure and a $347,000 reduction in repossessed vehicles.

Noninterest income decreased $721,000 to $1,062,000 for the year ended September 30,
2000 from $1,783,000 for the year ended September 30, 1999.  This was primarily a result of the
absence of any sales of consumer loans during the year ended September 30, 2000 as compared
to  gain on sale of consumer loans of $478,000 during the prior fiscal year.  In addition, other
noninterest income decreased $167,000 because in fiscal 1999 the Company had insurance
reimbursements for casualty losses and insurance rebates taken on credit-default insurance
reserves.  During fiscal 2000, because of the number of Second Chance loan insurance claims, the
Company did not receive any rebates.  Also, there was a decrease in gains on sale of servicing
rights as a result of a decline in loan sales during fiscal 2000. The Company is substantially
dependent on its noninterest income in order to achieve net income.  Gains on the sales of loans
and servicing rights are dependent on various factors that are not necessarily within the control of
the Company, including market and economic conditions.  As a result, there can be no assurance
that the gains on sales of loans and servicing rights reported by the Company in prior periods will
be reported in future periods or that there will not be substantial periodic variation in the results
from such activities that would affect the level of net income or loss reported by the Company.

Noninterest expense increased $557,000 from $5,220,000 for the year ended September
30, 1999 to $5,777,000 for the year ended September 30, 2000.  This increase was primarily the
result of approximately $325,000 of supplemental retirement expenses related to the termination of employment of the Company's former President and Chief Executive Officer and $240,000 of expenses related to valuation adjustments and losses for
non-interest
bearing assets (primarily repossessed vehicles).  Due to
the discontinuation of the Second Chance Auto Lending Program, the Company anticipates
a decline in compensation and benefits in future periods, since fifteen full-time equivalent employees have been eliminated.

Income tax expense decreased $457,000 from $199,000 for the year ended September 30,
1999 to an income tax benefit of $258,000 for the year ended September 30, 2000 due to the net
loss incurred for the year ended September 30, 2000.

The Company recognized the cumulative effect of a change in accounting principle
relating to the treatment of organization costs as a long-lived asset.  Due to a new accounting
pronouncement, the remaining value of this asset, of $100,000, was fully amortized at October 1,
1999.

**Comparison of Fiscal Year Ended September 30, 1999 to September 30, 1998**

The Company reported consolidated net income of $245,000 for its first full year of
operations ended September 30, 1999, as compared to $292,000 for the year ended
September 30, 1998, a decrease of $47,000, or 16%.  The decrease in net income was primarily
due to costs associated with the termination of the defined benefit pension plan at the Bank level
and an increase in the professional staff of the Bank in order to increase loan originations and
service its customers as the Bank expanded in the Bryan-College Station area.  The terminated
plan was replaced with a less expensive 401(k) profit-sharing plan.

Net interest income increased by $511,000 to $4.0 million for the year ended
September 30, 1999 from $3.5 million for the year ended September 30, 1998.  This increase
primarily resulted from increases in the average balance and average yield of the loan portfolio,
offset in part by increases in the volume of deposits and other borrowings.   The average yield on
First Federal's loans increased 24 basis points as a result of an increase in the volume of credit-default insured consumer automobile loans which yield a higher rate than traditional residential
mortgage loans.  The average balance of loans increased as a result of a concerted effort to
increase the consumer loan portfolio.  These increases were partially offset by an increase in the
cost of funds resulting from a $8.0 million increase in the average balance of deposits and a $1.8
million increase in the average balance of notes payable.  In addition, the average cost of funds
decreased 22 basis points as a result of increased emphasis on transactional deposit accounts. As
a result, the Company's interest margin increased to 5.10% for the year ended September 30,
1999 from 4.80% for the year ended September 30, 1998.  The ratio of interest-earning assets to
interest-bearing liabilities declined to 105.67% at September 30, 1999 from 106.51% at
September 30, 1998.  The average net interest spread for the fiscal year ending September 30,
1999, increased to 4.84% from 4.49% for the same periods.

The Company recorded a $104,000 provision (expense) for loan losses for the year ended
September 30, 1999 as compared to a $79,000 provision for loan losses for the year ended
September 30, 1998.  The increase in the provision for loan losses was largely a result of an
increase in gross loans during the year.

Noninterest income increased $852,000 to $1,783,000 for the year ended September 30,
1999 from $931,000 for the year ended September 30, 1998.  This was primarily a result of
increased profits on sales of loans and servicing rights of $558,000 combined with an increase in
service charges of $142,000 as a result of an increase in transactional deposit accounts.  In
addition, other income increased $83,000 primarily as a result of insurance reimbursements for
casualty losses.

Noninterest expense increased $1.3 million from $3.9 million for the year ended
September 30, 1998 to $5.2 million for the year ended September 30, 1999.   The increase
primarily resulted from the restructuring and expansion of the Company.  Compensation and benefits increased $689,000 as a result of a curtailment loss of $172,000 relative to the

Income tax expense increased $35,000 from $164,000 for the year ended September 30,
1998 to $199,000 for the year ended September 30, 1999.   Income tax expense reflected a tax
rate of 45% for the year ended September 30, 1999 as compared to 36% for the year ended
September 30, 1998.  The effective tax rate increased as a result of an increase in nondeductible
expenses.

**Financial Condition**

The Company's total assets increased $3.0 million, or 3.7%, to $84.9 million at
September 30, 2000 from $81.9 million at September 30, 1999.

Net loans receivable (excluding loans held for sale) decreased $400,000 to $67.6 million
at September 30, 2000 from $68.0  million at September 30, 1999.  The decrease resulted
primarily from an increase in the balance of loans held for sale at September 30, 2000.  Loans
held for sale increased from $2.5 million as of September 30, 1999 to $3.9 million at September
30, 2000.

Repossessed assets and insurance claims decreased from $1,078,000 at September 30,
1999 to $889,000 at September 30, 2000.  This decrease was due primarily to the write down of
valuation estimates based on this year's insurance claim experience and sales of repossessed
vehicles.

Real estate owned decreased from $548,000 at September 30, 1999 to $377,000 at
September 30, 2000 due to sales offset by a transfer of $129,000 of loans to real estate owned.

Deposits increased $446,000.  The increase was a result of a strategy to control the
Bank's growth in 2000, as required by the OTS.  Advances from the Federal Home Loan Bank
("FHLB") increased by $3,000,000 as the Bank began to use the FHLB as a low cost source of
short-term funds.  The Holding Company's stockholders' equity decreased $738,000 from
September 30, 1999 to September 30, 2000, due to the net loss recorded in the year ended
September 30, 2000. There were no dividends declared or paid by the Holding Company during
the year ended September 30, 2000.

**Liquidity and Capital Resources**

The Bank's primary sources of funds are deposits, principal and interest payments on
loans and mortgage-related securities, proceeds from sales of long term, fixed-rate residential
mortgage loans, proceeds from sales of credit-default insured consumer automobile loans and
other funds provided from operations.  Additionally, the Bank has borrowed funds from the
FHLB of Dallas or utilized other sources of funds based on need, comparative costs and
availability at the time.

While scheduled loan and mortgage-backed securities repayments, short-term
investments, and FHLB borrowings are relatively stable sources of funds, deposit flows are
unpredictable and are a function of external factors including competition, the general level of
interest rates, and general economic conditions.

The Bank maintains investments in liquid assets based on management's assessment of
cash needs, expected deposit flows, availability of advances from the FHLB, available yield on
liquid assets (both short-term and long-term) and the objectives of its asset/liability management
program.  Several options are available to increase liquidity, including reducing loan
originations, increasing deposit marketing activities, and increasing borrowings from the FHLB.

Federal regulations require insured institutions to maintain minimum levels of liquid
assets.  At September 30, 2000, First Federal's regulatory liquidity ratio was 7.91% or 3.91%
above the 4% regulatory requirement.  First Federal uses its capital resources principally to meet
its ongoing commitments to fund maturing certificates of deposits and deposit withdrawals,
repay borrowings, fund existing and continuing loan commitments, maintain its liquidity and
meet operating expenses.  First Federal's core and risk-based capital ratios were 6.59% and
8.99%, which exceeded the minimum required capital ratios of 4.0% and 8.0%, respectively.

At September 30, 2000, the Bank had commitments to originate loans, including loans in
process, totaling $3.8 million.  The Bank also had $730,000 of outstanding unused lines of credit
and $150,000 of letters of credit.  The Bank considers its liquidity and capital resources to be
adequate to meet its foreseeable short and long-term needs.  The Bank expects to be able to fund
or refinance, on a timely basis, its material commitments and long-term liabilities.  At
September 30, 2000, the Bank had $3.0 million of advances outstanding from the FHLB.

The Bank's liquidity, represented by cash equivalents, is a product of its operating,
investing and financing activities. These activities are summarized below for the periods
indicated.

|                                                                                             | Year Ended  September 30,
|-------------------------------------------------------------------------------------------- | -------------------------
|                                                                                             | 2000                     
|                                                                                             | (In Thousands)           
|Operating Activities:                                                                        |                          
|Net income (loss)                                                                            | $(738)                   
|Adjustment to reconcile net income or loss to net
     cash provided by operating activities | (49)                     
|Net cash used in operating activities                                                        | (787)                    
|Net cash provided by investing activities                                                    | 123                      
|Net cash provided by (used in) financing activities                                          | 3,407                    
|Net increase (decrease) in cash and cash equivalents                                         | 2,743                    
|Cash and cash equivalents at beginning of period                                             | 4,705                    
|Cash and cash equivalents at end of period                                                   | $7,448                   

The primary investing activity of the Bank is lending.  Loans originated net of
repayments and sales provided $3,000 and $3.3 million in cash for the years ended
September 30, 2000 and September 30, 1999, respectively.  Deposits increased $446,000 during
the year ended September 30, 2000 as compared to a $314,000 decrease during the year ended
September 30, 1999.  FHLB advances increased by $3,000,000 as compared to a decrease of
$800,000 in 1999.

The Holding Company's 11 1/2% debentures due March 31, 2003 require quarterly interest
payments  of  approximately  $105,000.  The Holding Company is  dependent on dividends from
the Bank in order to pay the interest on the debentures, next due in April 2001.  The Bank must obtain prior approval of the OTS before declaring any dividends.  Failure to
timely pay the interest may result in a default under the indenture governing the debentures
resulting in acceleration of the maturity of the outstanding $3,629,000 principal balance and a
demand for payment from debenture holders that the Holding Company could not currently meet.

As of January 3, 2001, the Bank had received OTS approval to pay dividends of $360,000
to the Holding Company.  Management believes that these dividends, along with an expected tax
refund of $140,000, will allow the Holding Company to make all the necessary interest payments
through July 2001 and cover foreseeable operating expenses for the year ending September 30,
2001.

**Impact of Inflation and Changing Prices**

The Consolidated Financial Statements and related financial data presented herein have
been prepared in accordance with generally accepted accounting principles ("GAAP"), which
require the measurement of financial position and results of operations in terms of historical
dollars without considering changes in the relative purchasing power of money over time
because of inflation.

Unlike industrial companies, virtually all of the Company's assets and liabilities are
monetary in nature.  As a result, interest rates generally have a more significant impact on a
financial institution's performance than the effects of general inflation.  Interest rates do not
necessarily move in the same direction or in the same magnitude as the prices of goods and
services.  In the current interest rate environment, the liquidity, maturity structure and quality of
the Company's assets and liabilities are critical to the maintenance of acceptable performance
levels.

**Effect of New Accounting Standards**

In June 1999, the FASB issued Statement of Financial Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities."  SFAS No. 133
standardizes the accounting for derivative instruments, including certain derivative instruments
embedded in other contracts.  Under the standard, entities are required to carry all derivative
instruments in the statement of financial position at fair value.  The accounting for changes in the
fair value (i.e. gains or losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and, if so, on the reason for holding it.
If certain conditions are met, entities may elect to designate a derivative instrument as a hedge of
exposures to changes in fair value, cash flows, or foreign currencies.  If the hedged exposure is a
fair value exposure, the gain or loss on the derivative instrument is recognized in earnings in the
period of change together with the offsetting loss or gain on the hedged item attributable to the
risk being hedged. If the hedged exposure is a cash flow exposure, the effective portion of the
gain or loss on the derivative instrument is reported initially as a component of other
comprehensive income (outside earnings) and subsequently reclassified into earnings when the
forecasted transaction affects earnings.  Any amount excluded from the assessment of hedge
effectiveness as well as the ineffective portion of the gain or loss is reported in earnings
immediately.  Accounting for foreign currency hedges is similar to accounting for fair value and
cash flow hedges.  If the derivative instrument is not designated as a hedge, the gain or loss is
recognized in earnings in the period of change.  This statement is effective for the Company on
October 1, 2000.  This statement will have no effect on the Company, as it owns no derivative
instruments and engages in no hedging activities.

**Item 7.  Financial Statements**

REPORT OF INDEPENDENT AUDITORS

To the Stockholders and Board of Directors
The Bryan-College Station Financial Holding Company

We have audited the accompanying consolidated statements of financial condition of The
Bryan-College Station Financial Holding Company as of September 30, 2000 and 1999 and
the related consolidated statements of income (loss), stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 2000.  These financial statements
are the responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards.  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 The Bryan-College Station Financial Holding
Company as of September 30, 2000 and 1999 and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 2000 in conformity with
generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, on October 1, 1999, The
Bryan-College Station Financial Holding Company changed its method of accounting for
organization costs to comply with new accounting guidance.

---

|                                                                                                                                                                    | 2000      | 1999     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | ---------
|**ASSETS**                                                                                                                                                          |           |          
|Cash and due from banks                                                                                                                                             | $   2,781 | $   3,086
|Securities available-for-sale                                                                                                                                       | 5         | 5        
|Securities held-to-maturity, at cost (fair value: 2000 - $502;  1999 - $667)                                                                                        | 522       | 692      
|Loans held for sale                                                                                                                                                 | 3,872     | 2,464    
|Loans receivable, net (net of allowance for loan losses:
  2000 - $415; 1999 - $326)                                                                                | 67,561    | 67,974   
|Federal Home Loan Bank stock                                                                                                                                        | 436       | 404      
|Servicing rights                                                                                                                                                    | 279       | 545      
|Real estate owned (net of allowance for losses:
  2000 - $22; 1999 - $25)                                                                                           | 377       | 548      
|Repossessed assets and insurance claims (net of allowance  for losses:  2000 - $96; 1999 - $21)                                                                     | 889       | 1,078    
|Premises and equipment                                                                                                                                              | 2,180     | 2,099    
|Accrued interest receivable                                                                                                                                         | 647       | 613      
|Other assets                                                                                                                                                        | 710       | 742      
|                                                                                                                                                                    | $  84,926 | $  81,869
|**LIABILITIES AND STOCKHOLDERS' EQUITY**                                                                                                                            |           |          
|Liabilities                                                                                                                                                         |           |          
|Deposits                                                                                                                                                            | $  73,686 | $  73,240
|Advance payments by borrowers for insurance and taxes                                                                                                               | 779       | 818      
|Advances from Federal Home Loan Bank                                                                                                                                | 3,000     | --       
|Debentures                                                                                                                                                          | 3,629     | 3,629    
|Accrued supplemental retirement plan benefits                                                                                                                       | 594       | 180      
|Accrued interest payable and other liabilities                                                                                                                      | 988       | 1,014    
|                                                                                                                                                                    | 82,676    | 78,881   
|Minority interest                                                                                                                                                   | 873       | 873      
|Stockholders' equity                                                                                                                                                |           |          
|Common stock - par value $.01 per share; authorized     1,500,000 shares, issued 471,406 shares at September 30, 2000
     and 428,409 shares at September 30, 1999 | 5         | 4        
|Additional paid-in capital                                                                                                                                          | 2,117     | 2,060    
|Retained earnings (deficit)                                                                                                                                         | (745)     | 51       
|                                                                                                                                                                    | 1,377     | 2,115    
|                                                                                                                                                                    | $  84,926 | $  81,869

---

---

|                                                                              | 2000   | 1999   | 1998  
|----------------------------------------------------------------------------- | ------ | ------ | ------
|Interest income                                                               |        |        |       
|Loans                                                                         | $7,568 | $7,334 | $6,686
|Mortgage-backed securities                                                    | 34     | 45     | 63    
|Other                                                                         | 161    | 164    | 142   
|Total interest income                                                         | 7,763  | 7,543  | 6,891 
|Interest expense                                                              |        |        |       
|Deposits                                                                      | 3,234  | 3,125  | 2,981 
|Debentures                                                                    | 424    | 425    | 210   
|FHLB advances                                                                 | 32     | 8      | 226   
|Total interest expense                                                        | 3,690  | 3,558  | 3,417 
|**Net interest income**                                                       | 4,073  | 3,985  | 3,474 
|Provision for loan losses                                                     | 254    | 104    | 79    
|**Net interest income after provision for loan losses**                       | 3,819  | 3,881  | 3,395 
|Noninterest income                                                           
|Service charges                                                               | 713    | 744    | 602   
|Gain on sale of mortgage loans                                                | 198    | 167    | 116   
|Gain on sale of consumer loans                                                | -      | 478    | -     
|Gain on sale of mortgage servicing rights                                     | 45     | 142    | 113   
|Servicing fee income, net of amortization                                     | 85     | 66     | -     
|Operation of foreclosed real estate                                           | (15)   | (17)   | (20)  
|Other                                                                         | 36     | 203    | 120   
|Total noninterest income                                                      | 1,062  | 1,783  | 931   
|Noninterest expense                                                           |        |        |       
|Compensation and benefits                                                     | 2,435  | 2,406  | 1,733 
|Supplemental retirement plan                                                  | 414    | 89     | 73    
|Occupancy and equipment expense                                               | 597    | 547    | 471   
|Federal insurance premiums                                                    | 44     | 65     | 43    
|Net loss on real estate owned, including provision                            | 18     | 26     | 27    
|Net loss on repossessed assets and insurance claims,      including provision | 405    | 165    | 86    
|Loan expense                                                                  | 16     | 44     | 56    
|Office supplies                                                               | 141    | 142    | 122   
|Professional fees                                                             | 322    | 313    | 141   
|Advertising                                                                   | 62     | 77     | 83    
|Data processing                                                               | 298    | 260    | 192   
|Telephone                                                                     | 118    | 121    | 99    
|Postage                                                                       | 125    | 106    | 108   
|Other                                                                         | 782    | 859    | 636   
|Total noninterest expense                                                     | 5,777  | 5,220  | 3,870 

---

---

|                                                                                                      | 2000      | 1999    | 1998   
|----------------------------------------------------------------------------------------------------- | --------- | ------- | -------
|**Income (loss) before income taxes and**   **cumulative effect of a change in accounting principle** | $  (896)  | $  444  | $  456 
|Income tax (benefit) expense                                                                          | (258)     | 199     | 164    
|Income (loss) before cumulative effect of   a change in accounting principle                          | (638)     | 245     | 292    
|Cumulative effect of a change in accounting principle                                                 | 100       | -       | -      
|**Net income (loss)**                                                                                 | (738)     | 245     | 292    
|Dividends on Bank preferred stock                                                                     | -         | -       | (44)   
|Net income available to common stockholders                                                           | $  (738)  | $  245  | $  248 
|**Earnings (loss) per common share - basic and diluted:**                                             |           |         |        
|Earnings (loss) before cumulative effect of a change in   accounting principle                        | $  (1.35) | $   .52 | $   .42
|Cumulative effect of a change in accounting principle                                                 | (.21)     | -       | -      
|**Earnings (loss) per common share, basic and diluted**                                               | $  (1.56) | $  .52  | $  .42 

---

THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANYCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITYYears ended September 30, 2000, 1999, and 1998(In thousands, except share and per share data)

---

|                                                                                      | PreferredStock | CommonStock | AdditionalPaid-InCapital | RetainedEarnings(Deficit) | Total  
|------------------------------------------------------------------------------------- | -------------- | ----------- | ------------------------ | ------------------------- | -------
|Balance at October 1, 1997                                                            | $     1        | $     2     | $2,743                   | $2,088                    | $4,834 
|Issuance of 200,000 shares of  Company common stock, net  of stock issue cost of $276 | -              | 2           | 1,722                    | -                         | 1,724  
|Purchase of fractional shares  of Bank stock and stock of  dissenting stockholders    | -              | -           | (1,744)                  | (2,199)                   | (3,943)
|Minority interest                                                                     | (1)            | -           | (872)                    | -                         | (873)  
|Cash dividends paid by Bank  ($.50 per common share,  $.50 per preferred share)       | -              | -           | -                        | (164)                     | (164)  
|Net income                                                                            | -              | -           | -                        | 292                       | 292    
|Balance at September 30, 1998                                                         | -              | 4           | 1,849                    | 17                        | 1,870  
|Issuance of 10% stock dividend                                                        | -              | -           | 211                      | (211)                     | -      
|Net income                                                                            | -              | -           | -                        | 245                       | 245    
|Balance at September 30, 1999                                                         | -              | 4           | 2,060                    | 51                        | 2,115  
|Issuance of 10% stock dividend                                                        | -              | 1           | 57                       | (58)                      | -      
|Net loss                                                                              | -              | -           | -                        | (738)                     | (738)  
|Balance at September 30, 2000                                                         | $     -        | $     5     | $2,117                   | $  (745)                  | $1,377 

---

---

|                                                                                     | 2000     | 1999    | 1998   
|------------------------------------------------------------------------------------ | -------- | ------- | -------
|**Cash flows from operating activities**                                             |          |         |        
|Net income (loss)                                                                    | $  (738) | $  245  | $  292 
|Adjustments to reconcile net income (loss) to net cash     from operating activities |          |         |        
|Depreciation                                                                         | 293      | 324     | 232    
|Amortization of premiums and discounts on mortgage-        backed securities, net    | 3        | 5       | 4      
|Amortization of debt issue costs                                                     | 100      | 100     | 67     
|Cumulative effect of a change in accounting principle                                | 100      | -       | -      
|Net change in loans held for sale                                                    | (1,210)  | (1,491) | (8)    
|Origination of loan servicing rights                                                 | -        | (642)   | -      
|Amortization of loan servicing rights                                                | 266      | 97      | -      
|Change in net deferred loan origination fees                                         | 27       | 52      | 124    
|Change in deferred income taxes                                                      | (307)    | (23)    | (21)   
|Net (gains) losses on sales of                                                       |          |         |        
|Foreclosed real estate                                                               | 18       | 1       | 27     
|Repossessed assets                                                                   | 355      | 165     | 86     
|Mortgage loans                                                                       | (198)    | (167)   | (116)  
|Mortgage servicing rights                                                            | (45)     | (142)   | (113)  
|Consumer loans                                                                       | -        | (478)   | -      
|Provision for loan losses and foreclosed real estate                                 | 276      | 129     | 79     
|Federal Home Loan Bank stock dividend                                                | (32)     | (22)    | (38)   
|Change in                                                                            |          |         |        
|Repossessed assets                                                                   | 67       | (353)   | (26)   
|Accrued interest receivable                                                          | (34)     | (5)     | (71)   
|Other assets                                                                         | (11)     | (286)   | 130    
|Accrued interest payable and other liabilities                                       | 283      | 172     | 480    
|Net cash from operating activities                                                   | (787)    | (2,319) | 1,128  
|**Cash flows from investing activities**                                             |          |         |        
|Net change in loans receivable                                                       | 3        | 3,291   | (6,613)
|Purchase of securities available-for-sale                                            | -        | -       | (5)    
|Principal payments on mortgage-backed securities                                     | 167      | 257     | 192    
|Proceeds from sale of mortgage servicing rights                                      | 45       | 142     | 113    
|Proceeds from redemption of Federal Home Loan Bank stock                             | -        | -       | 552    
|Capital expenditures on premises and equipment, net                                  | (374)    | (787)   | (751)  
|Capital expenditures on foreclosed real estate                                       | (47)     | (77)    | (40)   
|Proceeds from sale of foreclosed real estate                                         | 329      | 30      | 28     
|Net cash from investing activities                                                   | 123      | 2,856   | (6,524)
|**Cash flows from financing activities**                                             |          |         |        
|Net change in deposits                                                               | 446      | (314)   | 14,746 
|Net change in advance payments by borrowers     for insurance                        | (39)     | (45)    | 1      
|Net change in Federal Home Loan Bank Advances                                        | 3,000    | (800)   | (9,200)
|Net proceeds from issuance of debentures                                             | -        | -       | 3,128  
|Net proceeds from issuance of common stock                                           | -        | -       | 1,724  
|Purchase and retirement of Bank stock                                                | -        | -       | (3,943)
|Dividends paid on preferred and common stock                                         | -        | -       | (164)  
|Net cash from financing activities                                                   | 3,407    | (1,159) | 6,292  

---

---

|                                                        | 2000   | 1999     | 1998  
|------------------------------------------------------- | ------ | -------- | ------
|Change in cash and cash equivalents                     | $2,743 | $  (622) | $  896
|Cash and cash equivalents at beginning of year          | 4,705  | 5,327    | 4,431 
|**Cash and cash equivalents at end of year**            | $7,448 | $4,705   | $5,327
|Supplemental disclosures of cash flow information       |        |          |       
|Cash paid during the year for                           |        |          |       
|Interest                                                | $3,625 | $3,550   | $3,305
|Income taxes                                            | 147    | 254      | 156   
|Supplemental disclosure of noncash investing activities |        |          |       
|Net transfer between loans and foreclosed real estate   | 129    | 245      | 223   

---

---

**NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

Basis of Presentation:  The accompanying consolidated financial statements for the year ended
September 30, 2000 include the accounts of The Bryan-College Station Financial Holding
Company ("the Company") and its wholly owned subsidiaries, First Federal Savings Bank ("the
Bank") and Best of Texas, Inc. ("the Dealership").  On April 1, 1998, the Company was
capitalized through the issuance of 200,000 shares of common stock at $10 per share.  The
Bank concurrently became a wholly owned subsidiary of the Company in a stock-for-stock
exchange with bank stockholders.  Stock of dissenting stockholders and fractional shares were
purchased by the Company for $24.07 per share.  Since the transaction was an internal
reorganization, the historical cost basis of accounting is continued for the Bank.  On August
30, 1999, the Dealership was capitalized through the issuance of 500 shares of common stock
to the holding company at $.01 per share.

The consolidated financial statements include the accounts and results of operations of the
Company, the Bank, and the Bank's wholly owned subsidiary, First Service Corporation of
Bryan.  The 2000 and 1999 consolidated financial statements also include the accounts of the
Dealership.

Nature of Operations:  The only business of the Company is the ownership of the Bank and
the Dealership.  The Bank is a federally chartered stock savings bank and a member of the
Federal Home Loan Bank ("FHLB") system which maintains insurance on deposit accounts
with the Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation.  The Bank makes residential, commercial real estate, and consumer loans
primarily in Brazos County, Texas.  Substantially all loans are secured by specific items of
collateral, including real estate, residences, and consumer assets.  The Dealership had limited
activity during the fiscal year ended September 20, 2000.

Use of Estimates in the Preparation of Financial Statements:  The preparation of financial
statements in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.  Actual results could
differ from those estimates.  The collectibility of loans, fair value of financial instruments, and
status of contingencies are particularly subject to change.

Securities:  Securities are classified as held-to-maturity when management has the intent and
the Company has the ability to hold those securities to maturity.  All other securities are
classified as available-for-sale since the Company may decide to sell those securities in response
to changes in market interest rates, liquidity needs, changes in yields or alternative
investments, and for other reasons.  These securities are carried at fair value with unrealized
gains and losses, net of income taxes reported in other comprehensive income (loss) equity.
Premiums and discounts are recognized in interest income using methods that approximate the
level-yield method.  Realized gains and losses on disposition are based on the net proceeds and
the adjusted carrying amounts of the securities sold, using the specific identification method.

---

---

**NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (Continued)

Loans Receivable:  Loans receivable are stated at unpaid principal balances, less the allowance
for loan losses and deferred loan origination fees and discounts.

Allowance for Loan Losses:  Because some loans may not be repaid in full, the Company has
established an allowance for loan losses.  Increases to the allowance are recorded by a provision
for loan losses charged to expense.  Estimating the risk of the loss and the amount of loss on
any loan is necessarily subjective.  Accordingly, the allowance is maintained by management at
a level considered adequate to cover possible losses that are currently anticipated based on past
loss experience, general economic conditions, information about specific borrower situations
including their financial position and collateral values, and other factors and estimates that are
subject to change over time.  While management may periodically allocate portions of the
allowance for specific problem loan situations, the whole allowance is available for any loan
charge-offs that occur.  A loan is charged-off against the allowance by management as a loss
when deemed uncollectible, although collection efforts continue and future recoveries may
occur.

The Company measures impaired loans based on the present value of expected cash flows
discounted at the loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of collateral if the loan is collateral dependent.  Loans
considered to be impaired are reduced to the present value of expected future cash flows or to
the fair value of collateral, by allocating a portion of the allowance for loan losses to such loans.
If these allocations cause the allowance for loan losses to be increased, such increase is reported
as a provision for loan losses.

Smaller balance homogeneous loans are defined as residential first mortgage loans secured by
one-to-four-family residences, residential construction loans, and consumer loans and are
evaluated collectively for impairment.  Commercial real estate loans are evaluated individually
for impairment.  Normal loan evaluation procedures, as described in the second preceding
paragraph, are used to identify loans that must be evaluated for impairment.  In general, loans
classified as "doubtful" or "loss" are considered impaired while loans classified as "substandard"
are individually evaluated for impairment.  Depending on the relative size of the credit
relationship, late or insufficient payments of 30 to 90 days will cause management to
reevaluate the credit under its normal loan evaluation procedures.  While the factors that
identify a credit for consideration for measurement of impairment or nonaccrual are similar,
the measurement considerations differ.  A loan is impaired when the economic value estimated
to be received is less than the value implied in the original credit agreement.  A loan is placed
in nonaccrual when payments are more than 90 days past due unless the loan is adequately
collateralized and in the process of collection.  Although impaired loan and nonaccrual loan
balances are measured differently, impaired loan disclosures do not differ significantly from
nonaccrual and renegotiated loan disclosures.

---

---

**NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (Continued)

Recognition of Income on Loans:  Interest on loans is accrued over the term of the loans based
on the principal balance outstanding.  Where serious doubt exists as to the collectibility of a
loan, the accrual of interest is discontinued.

Loan Fees and Costs:  The Company defers loan origination fees, net of certain direct loan
origination costs.  The net amount deferred is netted against loans in the balance sheet and is
recognized in interest income as a yield adjustment over the contractual term of the loan,
adjusted for prepayments.

Loan Sales:  The Company sells a portion of its mortgage loan production in the secondary
market with servicing released.  The Company obtains sales commitments on these loans
immediately prior to making the origination commitment.  The Company also sells a portion
of its consumer indirect loans with servicing retained on these loans.  Loans classified as held
for sale are carried at the lower of cost or market value in the aggregate.  Net unrealized losses
are recognized by charges to income.

Servicing Rights: The Company originates mortgage and consumer loans for sale to the
secondary market.  When servicing on sold loans is retained, the Company capitalizes the cost
of servicing rights.

The consumer loans are sold at a rate less than the original coupon rate.  The servicing asset is
recorded at the present value of the remaining payment stream to the Company with
assumptions such as estimated life, delinquencies, and other risks factored into the discount
rate.  The capitalized cost of loan servicing rights is amortized in proportion to and over the
period of estimated net future revenue.

Premises and Equipment:  The Company's premises and equipment are stated at cost less
accumulated depreciation.  The Company's premises and related furniture and equipment are
depreciated using the straight-line method over their estimated useful lives.  Maintenance and
repairs are charged to expense, and improvements are capitalized.

Repossessed Assets and Insurance Claims:  Automobiles acquired through repossession are
carried at the lower of cost or fair value (including estimated insurance reimbursements) less
estimated costs to sell.  Credit-default insurance claims are carried at the amount for which the
claim was filed.  Losses on disposition, including expenses incurred in connection with the
disposition, and uncollected insurance claims, are charged to operations.  Valuation allowances
are recognized when the fair value (including estimated insurance reimbursements) less
estimated costs to sell the repossessed asset or the insurance claim receivable is determined to
be less than carrying value of the asset.  Changes in the valuation allowance are charged or
credited to income.

---

---

**NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (Continued)

Real Estate Owned:  Real estate owned acquired through foreclosure and similar proceedings is
carried at the lower of cost or fair value less estimated costs to sell.  Losses on disposition,
including expenses incurred in connection with the disposition, are charged to operations.
Valuation allowances are recognized when the fair less estimated selling expenses is determined
to be less than cost of the asset.  Changes in the valuation allowance are charged or credited to
income.

Organization Costs:  During 1999, a new accounting pronouncement was effective that
required the Company to charge the September 30, 1999 unamortized balance of $100,000 to
expense in the first quarter of the 2000 fiscal year.  The additional amortization was disclosed
in the consolidated statements of income (loss) as a cumulative effect of a change in
accounting principle.

Statement of Cash Flows:  Cash and cash equivalents are defined to include the Company's
cash on hand, demand balances, interest-bearing deposits with financial institutions, and
investments in certificates of deposit with original maturities of less than three months.

Income Taxes:  The Company records income tax expense based on the amount of taxes due
on its tax return plus deferred taxes computed on the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of assets and liabilities,
using enacted tax rates.

Earnings Per Common Share:  Amounts reported as earnings per common share for each of the
three years ended September 30, 2000 reflect earnings available to common stockholders for
the year divided by the weighted average number of common shares outstanding during the
year.  Weighted average common shares were 471,406, 471,406, and 586,653 for the years
ended September 30, 2000, 1999, and 1998 adjusted for 10% stock dividends in 2000 and
1999.  The warrants attached to the 3,629 units issued by the Company on April 1, 1998 have
an exercise price of $12.50 per share and the stock options granted on May 25, 1999 have an
exercise price of $8.00 per share.  The warrants and stock options are not included in diluted
earnings per share since the exercise price exceeds the market price of the stock.

In future years, outstanding stock options and warrants may be exercised, which would
increase the weighted average common shares outstanding and, thereby, dilute earnings per
share.  In addition, if the average common stock price were to exceed the exercise price of
outstanding options and warrants in a future year, the assumed exercise of the options and
warrants would have a dilutive effect on earnings per share for that future year.  However,
previously reported earnings per share and diluted earnings per share would not be restated.

---

---

**NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (Continued)

Reclassifications:  Certain items in the financial statements as of and for the years ended
September 30, 1999 and 1998 have been reclassified, with no effect on net income, to
conform to the current year presentation.

**NOTE 2 - SECURITIES**

The amortized cost and fair values of securities at September 30 are as follows:

|                   | 2000         
|------------------ | -------------
|                   | AmortizedCost
|Available-for-sale |              
|Equity stock       | $    5       
|Held-to-maturity   |              
|FHLMC certificates | $373         
|FNMA certificates  | 149          
|                   | $522         

|                   | 2000         
|------------------ | -------------
|                   | AmortizedCost
|Available-for-sale |              
|Equity stock       | $    5       
|Held-to-maturity   |              
|FHLMC certificates | $447         
|FNMA certificates  | 245          
|                   | $692         

Mortgage-backed securities have varying maturities.  Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.

---

---

**NOTE 3 - LOANS**

Loans receivable at September 30 are summarized as follows:

|                                         | 2000    | 1999   
|---------------------------------------- | ------- | -------
|First mortgage loans                     |         |        
|Principal balances:                      |         |        
|Secured by one-to-four-family residences | $33,319 | $33,436
|Secured by other properties              | 5,096   | 5,865  
|Construction                             | 6,926   | 4,800  
|                                         | 45,341  | 44,101 
|Less:                                    |         |        
|Undisbursed portion of loans             | (2,486) | (1,669)
|Net deferred loan origination fees       | (149)   | (159)  
|Deferred gain                            | (27)    | (3)    
|Total first mortgage loans               | 42,679  | 42,270 
|Consumer and other loans                 |         |        
|Principal balances:                      |         |        
|Automobile                               | 17,167  | 18,529 
|Home equity and second mortgage          | 8       | 12     
|Loans secured by deposit accounts        | 872     | 1,080  
|Commercial                               | 5,728   | 2,988  
|Other consumer                           | 1,267   | 2,961  
|                                         | 25,042  | 25,570 
|Net deferred loan origination costs      | 40      | 77     
|Net premiums on indirect loans           | 215     | 383    
|Total consumer and other loans           | 25,297  | 26,030 
|Less allowance for loan losses           | (415)   | (326)  
|                                         | $67,561 | $67,974

---

---

**NOTE 3 - LOANS** (Continued)

A summary of the activity in the allowance for loan losses follows:

|                                | 2000  | 1999 | 1998
|------------------------------- | ----- | ---- | ----
|Balance at beginning of year    | $326  | $307 | $273
|Provision charged to operations | 254   | 104  | 79  
|Charge-offs                     | (183) | (92) | (75)
|Recoveries                      | 18    | 7    | 30  
|Balance at end of year          | $415  | $326 | $307

There were no impaired loans during the three years ended September 30, 2000.  Nonaccrual
loans totaled approximately $32,000 at September 30, 1999. The approximate amounts of
interest income that would have been recorded under the original terms of such loans and the
interest income actually recognized for the years ended September 30 are not material.  There
were no nonaccrual loans at September 30, 2000 or 1998.

The largest portion of the Company's loans are originated for the purpose of enabling
borrowers to purchase residential real estate property secured by first liens on such property.
At September 30, 2000, approximately 49% of the Company's loans were secured by owner-occupied, one-to-four-family residential property.  The Company requires collateral on all loans
and generally maintains loan-to-value ratios of 80% or less.  The Company also originates a
significant amount of automobile loans, which totaled approximately 25% of the Company's
loans at September 30, 2000.  Approximately 70% of the automobile loans are those
originated under the Company's Second Chance Loan program.  These loans are made to
individuals with a less than perfect credit history, which results in a higher interest rate to the
Company.  These loans are insured for credit default as a means of reducing the risk of loss to
the Company.

The Company has granted loans to certain officers and directors of the Bank and Company.
Related-party loans are made on substantially the same terms as comparable transactions with
unrelated persons.

Activity in the loan accounts of executive officers, directors, and principal stockholders is as
follows:

|                                                | 2000   | 1999 
|----------------------------------------------- | ------ | -----
|Balance at beginning of year                    | $728   | $649 
|Loans disbursed                                 | 411    | 381  
|Principal repayments                            | (123)  | (241)
|Change in persons classified as related parties | -      | (61) 
|Balance at end of year                          | $1,016 | $728 

---

---

**NOTE 4 - RESERVE FOR LOSSES ON REPOSSESSED ASSETS AND INSURANCE CLAIMS**

The Company's "Second Chance" loan program to originate loans to individuals with less
than prime credit was discontinued during June 2000.  These loans are insured by credit-default insurance.  Repossessed assets are carried at the lower of cost or fair value adjusted for
expected credit-default insurance proceeds.  The credit-default insurance claims are carried at
the filed claim amount.  The activity in the reserve for repossessed assets and insurance
claims is as follows for the years ended September 30:

|                  | (In thousands)
|----------------- | --------------
|                  | 2000          
|Beginning balance | $  21         
|Provision         | 147           
|Charge-offs       | (72)          
|Ending balance    | $ 96          

**NOTE 5 - SECONDARY MARKET OPERATIONS**

The following summarizes the Company's secondary market activities:

|                                          | 2000    | 1999    | 1998   
|----------------------------------------- | ------- | ------- | -------
|**Mortgage**                              |         |         |        
|Proceeds from sale of mortgage loans      | $12,361 | $16,980 | $11,526
|Gain on sale of mortgage loans            | $   198 | $   167 | $   116
|Gain on sale of mortgage servicing rights | 45      | 142     | 113    
|                                          | $   243 | $   309 | $   229
|Loans serviced for others                 | $1,741  | $1,819  | $1,966 

---

---

**NOTE 5 - SECONDARY MARKET OPERATIONS** (Continued)

|                                     | 2000    | 1999    | 1998    
|------------------------------------ | ------- | ------- | --------
|**Consumer**                         |         |         |         
|Proceeds from sale of consumer loans | $     - | $5,693  | $-      
|Gain on sale of consumer loans       | $     - | $   478 | $     - 
|Loans serviced for others            | $3,067  | $4,959  | $  
   -

Following is an analysis of the change in servicing rights for the years ended September 30,
2000 and 1999:

|                  | 2000  | 1999   
|----------------- | ----- | -------
|Beginning balance | $545  | $     -
|Additions         | -     | 642    
|Amortization      | (266) | (97)   
|Ending balance    | $279  | $545   

**NOTE 6 - PREMISES AND EQUIPMENT**

A summary of premises and equipment at September 30 is as follows:

|                           | 2000    | 1999   
|-------------------------- | ------- | -------
|Land                       | $   423 | $  423 
|Buildings and improvements | 1,825   | 1,412  
|Furniture and equipment    | 1,932   | 1,915  
|Construction in process    | 15      | 162    
|Total cost                 | 4,195   | 3,912  
|Accumulated depreciation   | (2,015) | (1,813)
|                           | $2,180  | $2,099 

---

---

**NOTE 7 - DEPOSITS**

Certificate of deposit accounts with a minimum denomination of $100,000 or more totaled
$9,307,000 and $8,236,000 at September 30, 2000 and 1999, respectively.

At September 30, 2000, scheduled maturities of certificates of deposit are as follows:

|Year Ending |        
|----------- | -------
|2001        | $35,221
|2002        | 8,619  
|2003        | 2,050  
|2004        | 465    
|2005        | 1,537  
|            | $47,892

**NOTE 8 - ADVANCES FROM FEDERAL HOME LOAN BANK AND DEBENTURES**

At September 30, 2000 secured advances from the Federal Home Loan Bank were as follows:

|Interest Rate | Maturity Date   | Balance
|------------- | --------------- | -------
|6.63%         | October 6, 2000 | $3,000 

The maximum amount of credit available, secured by a blanket lien on first mortgages, is the
lesser of 75% of qualifying collateral or 35% of total assets of the Bank.  At September 30,
2000, the Bank had the ability, if needed, to borrow up to approximately $25,300,000 from
the Federal Home Loan Bank of Dallas.

The Bank maintains a collateral pledge agreement covering secured advances whereby the Bank
has agreed to at all times keep on hand, free of all other pledges, liens, and encumbrances, first
mortgage loans on residential property (not more than 90 days delinquent), aggregating no less
than 133% of the outstanding secured advances from the Federal Home Loan Bank of Dallas.

Debentures consist of 3,629 units, each unit consisting of a $1,000 debenture and nine
detachable warrants exercisable at an exercise price of $12.50 per share.  At September 30,
2000 and 1999, debentures total $3,629,000, bear an interest rate of 11.5%, and mature on
March 31, 2003.  The Company's debentures require quarterly interest payments of
approximately

---

---

**NOTE 8 - ADVANCES FROM FEDERAL HOME LOAN BANK AND DEBENTURES** (Continued)

$105,000.  See Note 10 for discussion of supervisory agreement.

**NOTE 9 - BENEFIT PLANS**

During 1999, the Company's Board of Directors adopted a stock option and incentive plan
(the Plan) under the terms of which 40,000 shares of common stock were reserved for
issuance.  The options become exercisable immediately upon date of grant and expiration terms
will be no greater than ten years for incentive stock options and no greater than fifteen years
for non-qualified stock options.

A summary of the status of the Company's stock option plan and changes during the year are
presented below:

|                                                             | 2000Shares | 1999Shares | Weighted-AverageExercisePrice
|------------------------------------------------------------ | ---------- | ---------- | -----------------------------
|Outstanding at beginning of year                             | 27,250     | -          | $     -                      
|Granted                                                      | -          | 27,250     | 8.00                         
|Exercised                                                    | -          | -          | -                            
|Forfeited                                                    | -          | -          | -                            
|Outstanding at end of year                                   | 27,250     | 27,250     | $8.00                        
|Options exercisable at end of year                           | 27,250     | 27,250     |                              
|Weighted-average fair value of   options granted during year | $       -  | $    
 .97 |                              
|Average remaining option term                                | 10.9 years | 11.9 years |                              

The Company applies APB Opinion 25 and related Interpretations in accounting for its stock
option plan.  Accordingly, no compensation cost has been recognized at the date of grant.  Had
compensation cost been determined based on the fair value at the grant dates for awards under
the plan consistent with the method of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and earnings per share would have been reduced to
the pro forma amounts in the table below.  For purposes of pro forma disclosure, the estimated

---

---

**NOTE 9 - BENEFIT PLANS**(Continued)

fair value of the options is amortized to expense over the options' vesting period, which
resulted in full amortization during the fiscal year ended September 30, 1999 as a result of the
options immediate vesting per the plan.

|Net income (loss) as reported  | $245
|------------------------------ | ----
|Pro forma net income           | 225 
|Earnings per share as reported |     
|Basic and diluted              | .52 
|Pro forma earnings per share   |     
|Basic and diluted              | .48 

The Black-Scholes option pricing valuation model was developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully transferable.  In addition,
option valuation models require the input of highly subjective assumptions including the
expected stock price volatility.  The expected stock volatility has been considered not
applicable because, since the formation of the Company, there has been limited stock
transactions.  Because changes in the subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock options.

|                                               | IncentiveStockOptions | Non-QualifiedStockOptions
|---------------------------------------------- | --------------------- | -------------------------
|Date of grant                                  | 5/25/99               | 5/25/99                  
|Options granted                                | 15,250                | 12,000                   
|Estimated fair value stock of options granted: | $     .48             | $    1.60                
|Assumptions used:                              |                       |                          
|Risk-free interest rate                        | 5.61%                 | 5.61%                    
|Expected option life                           | 10 years              | 15 years                 
|Expected stock price volatility                | N/A                   | N/A                      
|Expected dividend yield                        | N/A                   | N/A                      

In 1999, the Company curtailed and initiated termination of its defined benefit pension plan,
which covered substantially all employees.  A curtailment loss of approximately $172,000 was
recognized in 1999.  During the year ended September 30, 2000, the Company received
approval from the Pension Benefit Guaranty Corporation to terminate this plan and distribute
the assets.  The Company terminated this plan and settled all of its obligations.  There was no
additional settlement gain or loss recognized.

---

---

**NOTE 9 - BENEFIT PLANS** (Continued)

Information about the pension plan at September 30, 1999 was as follows:

|Change in benefit obligation:          |       
|-------------------------------------- | ------
|Beginning benefit obligation           | $676  
|Service cost                           | 69    
|Interest cost                          | 47    
|Actuarial loss                         | 20    
|Benefits paid                          | (57)  
|Ending benefit obligation              | $755  
|Change in plan assets:                 |       
|Beginning fair value                   | $542  
|Actual return                          | 32    
|Employer contribution                  | 62    
|Benefits paid                          | (57)  
|Ending fair value                      | $579  
|Funded status                          | $(176)
|Unrecognized net actuarial loss        | -     
|Unrecognized net transition obligation | -     
|Accrued cost                           | $(176)

Net pension cost includes the following components:

|                                      | Year Ended September 30,
|------------------------------------- | ------------------------
|                                      | 1999                    
|Service cost earned during the period | $  69                   
|Interest cost                         | 47                      
|Expected return on plan assets        | (38)                    
|Net amortization and deferral         | 13                      
|Curtailment loss                      | 172                     
|Net periodic pension cost             | $263                    

---

---

**NOTE 9 - BENEFIT PLANS**(Continued)

The assumptions used to develop the net periodic pension cost were:

|                                            | Year Ended September 30,
|------------------------------------------- | ------------------------
|                                            | 1999                    
|Discount rate                               | 7%                      
|Expected long-term rate of return on assets | 7%                      
|Rate of increase in compensation levels     | 5%                      

An employee 401(k) profit sharing plan was approved by the Board of Directors effective
January 1, 1999.  The plan covers employees having completed three months of service and
who are at least 21 years of age.  Discretionary and matching contributions to the profit
sharing plan are determined and approved annually by the Company's Board of Directors.
There were no contributions for the years ended September 30, 2000 and 1999.

The Bank entered into an employment, consulting, and supplemental retirement agreement on
July 1, 1997 with the President and Chief Executive Officer of the Bank.  The employment
and consulting portions of the agreement have a combined term of five years from the
commencement date of July 1, 1997.  The consulting portion commences upon completion of
the three-year employment period and calls for annual consulting fees equal to $58,200
payable in equal monthly installments.  The supplemental retirement agreement commences
on the later of the retirement date or July 1, 2002 and is based on services commencing on July
1, 1997.

During the year ended September 30, 2000, the President and Chief Executive of the Bank
resigned.  In connection with his resignation, the Company reached a settlement of the above
agreement which requires a one-time payment of $95,000 and lifetime monthly payments of
$5,900.  The liability for the one-time payment was recorded as of September 30, 2000.  In
addition, since all monthly amounts due under this plan are fully vested, an additional liability
of approximately $414,000 was recorded as of September 30, 2000.  The liability for the
monthly payments was recorded based on actuarial assumptions and an 8% discount rate.

As discussed in Note 10, though the aforementioned amounts have been accrued, the
payments of these amounts are subject to the receipt of a written notice of non-objection from
the Regional Director of the Office of Thrift Supervision (OTS), the Bank's primary regulator.
The OTS provided written notice of non-objection on March 5, 2001.

---

---

**NOTE 10 - REGULATORY AND CAPITAL MATTERS**

*Supervisory Agreement*

In June 2000, the OTS formally designated the Bank to be in a "troubled condition" and a
"problem association" due to its total capital to risk-weighted assets ratio being only marginally
above the minimum required amount after taking into account the losses associated with
repossessed automobiles and the increase in the allowance for loan losses related to its Second
Chance Auto Loan Program.  As a result, the Bank is subject to growth restrictions limiting any
increase in total assets during any quarter in excess of an amount equal to interest credited on
deposits during the quarter, without the prior written approval of the OTS; prior OTS review
of all executive compensation; prior notice to OTS of all transactions between the Bank and its
affiliates, such as the Company; and receipt of OTS approval prior to paying a dividend from
the Bank to the Company.

In addition to the designation of "troubled condition" and "problem association," in September
of 2000, the Board of Directors received a Supervisory Agreement ("Agreement") from the
OTS.  The Agreement requires the Bank to (1) take all necessary and appropriate actions to
comply with various OTS regulations; (2) make provisions, within 30 days prior to the
termination of the interim president and chief executive officer's employment contract, to
retain or employ an OTS approved president and chief executive officer; (3) not make any
severance payments to its former president except after receipt of a written notice of non-objection from the Regional Director of the OTS.  In addition, the Board of Directors shall
establish a workable committee structure that provides for all committees to meet on a regular
basis; (4) develop a one-year business plan, which will be monitored by the Board of Directors,
which includes: (a) a target date no later than March 31, 2001 for reaching well capitalized
status, (b) a contingent capital plan, (c) strategies for reducing noninterest expense, (d)
development of profitable lines of business, and (e) strategies for improving branch
profitability; (5) discontinuation of the subprime lending program, as well as the disposition of
repossessed assets in accordance with policy, recognition of losses in a timely manner, and
review the allowance for loan losses for adequacy at least quarterly; (6) compliance with
affiliates transaction rules; and (7) various provisions as related to changes in Directors or
Executive Officers, Terms of Employment, and Golden Parachute payments.

The various plans, policies, and procedures developed by the Bank have been approved by the
OTS except that, although the Bank submitted the required strategic plan and earnings
projections on a timely basis, the Bank, due to the pending settlement of the supplemental
employee retirement plan, currently does not anticipate being able to achieve a well capitalized
status by March 31, 2001 and expects to amend the business plan submitted after discussion

---

---

**NOTE 10 - REGULATORY AND CAPITAL MATTERS** (Continued)

with the OTS.  As a part of the original strategic plan, the Company developed various
contingency plans in case earnings do not improve by March 31, 2001.  These contingency
plans could include the (1) sale of real estate and/or the sale of Second Chance auto loans,
which would result in an after-tax gains, (2) capital raising initiatives, and (3) a strategic
alliance.  These initiatives may need to be implemented if the OTS does not accept an
amended business plan showing the achievement of well-capitalized status at a later date.

The Company is dependent on operating cash and dividends from the Bank in order to pay
interest on the debentures and operating expenses.  Failure to timely pay the interest on the
debentures may result in a default under the indenture governing the debentures resulting in
acceleration of the maturity of the outstanding $3,629,000 principal balance and a demand for
payment from debenture holders that the Company could not currently meet.  As discussed
previously, the Company is required to apply to the OTS for dividends from the Bank.  As of
January 3, 2001, the Bank has received OTS approval to pay dividends of $360,000 to the
holding company.  Management has projected that these dividends, along with an expected
income tax refund of $140,000, will allow the Company to make all of the necessary interest
payments through July 2001 and cover expected operating expenses for the year ended
September 30, 2001.

*Capital Matters*

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 regulation to ensure capital adequacy require the Bank to
maintain minimum amounts and ratios of total and Tier I capital as defined in the regulations
to risk-weighted assets as defined and of Tier I capital to average assets as defined.  As of
September 30, 2000, the most recent notification from the Office of Thrift Supervision
categorized the Bank as adequately capitalized under the regulatory framework for prompt
corrective action.  To be categorized as well capitalized, the Bank must maintain minimum
total risk-based, Tier I risk-based, and Tier I leverage ratios.  At September 30, 2000 and 1999,
the Bank did not meet the minimum requirement to be well capitalized but was considered
adequately capitalized under prompt corrective action regulations.

---

---

**NOTE 10 - REGULATORY AND CAPITAL MATTERS** (Continued)

At year end, actual capital levels of the Bank and minimum required levels were:

|                                                 | Actual | Minimum Requiredfor CapitalAdequacy Purposes | Minimum Requiredto Be WellCapitalized UnderPrompt CorrectiveAction Regulations
|------------------------------------------------ | ------ | -------------------------------------------- | ------------------------------------------------------------------------------
|                                                 | Amount | Ratio                                        | Amount                                                                        
|2000                                             |        |                                              |                                                                               
|Total capital (to risk-weighted assets)          | $5,973 | 8.99%                                        | $5,316                                                                        
|Tier 1 (core) capital (to risk-weighted assets)  | 5,589  | 8.41                                         | 2,658                                                                         
|Tier 1 (core) capital (to adjusted total assets) | 5,589  | 6.59                                         | 3,392                                                                         
|1999                                             |        |                                              |                                                                               
|Total capital (to risk-weighted assets)          | $6,154 | 9.08%                                        | $5,419                                                                        
|Tier 1 (core) capital (to risk-weighted assets)  | 5,828  | 8.62                                         | 2,709                                                                         
|Tier 1 (core) capital (to adjusted total assets) | 5,828  | 7.16                                         | 3,257                                                                         

Accordingly, management considers the capital requirements to have been met.  Regulations
also include restrictions on loans to one borrower; certain types of investments and loans; loans
to officers, directors, and principal stockholders; brokered deposits; and transactions with
affiliates.

Federal regulations require the Bank to comply with a Qualified Thrift Lender (QTL) test,
which requires that 65% of assets be maintained in housing-related finance and other specified
assets.  The QTL ratio at September 30, 2000 was 73.10%.  If the QTL test is not met, limits
are placed on growth, branching, new investments, FHLB advances, and dividends or the
institution must convert to a commercial bank charter.  Management considers the QTL test to
have been met.

Bank Series A preferred stock has a $ .01 par value, is nonvoting, and entitles the holder to a
$10 per share liquidation preference.  The stock bears non-cumulative quarterly dividends at
an annual rate of 10%.  At the Bank's option, the stock can be redeemed after two years.  The
Bank preferred stock is reflected as minority interest in the consolidated statements of financial
condition.

Delaware law generally limits dividends of the Company to an amount equal to the excess of
its net assets over its paid-in capital or, if there is no such excess, to its net profits for the
current and immediately preceding fiscal year.  In addition, the Company is prohibited from
paying dividends on junior securities such as the Company's common stock unless all interest
payments with respect to the debentures have been made.

---

---

**NOTE 11 - COMMITMENTS, CONTINGENT LIABILITIES, AND
CONCENTRATIONS**

The Company is a party to financial instruments with off-balance-sheet risk in the normal
course of business to meet the financing needs of its customers.  These financial instruments
consist of commitments to make loans and fund lines of credit and loans-in-process.  The
Company's exposure to credit loss in the event of nonperformance by the other party to these
financial instruments is represented by the contractual amount of these instruments.  The
Company follows the same credit policy to make such commitments as it uses for on-balance-sheet items.

At September 30, these financial instruments are summarized as follows:

|                                                                     | ContractAmount
|-------------------------------------------------------------------- | --------------
|                                                                     | 2000          
|Financial instruments whose contract amounts  represent credit risk: |               
|Commitments to make loans                                            | $3,770        
|Loans-in-process                                                     | 2,486         
|Lines of credit                                                      | 730           
|Letters of credit                                                    | 150           

The Company had $1.2 million of fixed rate commitments to originate loans, ranging from to
8.0% to 8.5% at September 30, 2000.  The commitments have terms of 75 days.  Since many
commitments to make loans expire without being used, the amount above does not necessarily
represent future cash commitments.  Collateral may be obtained upon exercise of a
commitment.  The amount of collateral is determined by management and may include
commercial and residential real estate and other business and consumer assets.

Financial instruments that potentially subject the Company to concentrations of credit risk
include interest-bearing deposit accounts in other financial institutions and loans.  At
September 30, 2000, the Company had deposit accounts with balances totaling approximately
$4.6 million at the Federal Home Loan Bank of Dallas.  Concentrations of loans are described
in Note 3.

The Company is, from time to time, a party to certain lawsuits arising in the ordinary course of
its business.  The Bank believes that none of these lawsuits would, if adversely determined,
have a material adverse effect on its financial condition, results of operations, or capital.

During September 1996, the Company entered into a noncancelable operating lease for office
space relating to mortgage operations.  The lease expired August 31, 1998, and the Company
is leasing the space month to month until December 31, 1999.  The Company has entered into
a

---

---

**NOTE 11 - COMMITMENTS, CONTINGENT LIABILITIES, AND
CONCENTRATIONS** (Continued)

new noncancelable operating lease for office space for the mortgage operations effective
January 1, 1999 with a term of three years and one option to renew for an additional three
years.  The Company also entered into a noncancelable operating lease for premises to be used
for the purpose of automobile sales related to the Dealership.  The lease became effective
August 1, 1999 with a term to expire on May 14, 2001.  The lease provides for continual
options to renew for two-year terms until the death of the lessor.  In addition, the Company
paid $10,000 for an option to purchase the property for a minimum price of $110,000
adjusted by any increase in the Consumer Price Index.  Rental expense was approximately
$43,000 and $25,000 for the years ended September 30, 2000 and 1999, respectively.
Projected minimum payments under the terms of the leases, not including insurance and
maintenance, are as follows:

|2001 | $37
|---- | ---
|2002 | 5  
|     | $42

**NOTE 12 - INCOME TAX EXPENSE (BENEFIT)**

The provision for income tax expense (benefit) consists of the following:

|                                      | Year Ended September 30,
|------------------------------------- | ------------------------
|                                      | 2000                    
|Current income tax expense (benefit)  | $49                     
|Deferred income tax expense (benefit) | (307)                   
|                                      | $(258)                  

The provision for income tax differs from that computed at the statutory corporate tax rate as
follows:

|                                              | Year Ended September 30,
|--------------------------------------------- | ------------------------
|                                              | 2000                    
|Tax expense (benefit) at statutory rate (34%) | $(339)                  
|Nondeductible reorganization costs            | 34                      
|Preferred stock dividends                     | 29                      
|Other tax effects                             | 18                      
|                                              | $(258)                  

---

---

**NOTE 12** **- INCOME TAX EXPENSE (BENEFIT)**(Continued)

Deferred tax assets (liabilities) are comprised of the following at September 30:

|                                               | 2000  | 1999  
|---------------------------------------------- | ----- | ------
|Supplemental employee retirement agreement     | $225  | $61   
|Pension liability                              | 2     | 59    
|Loans, principally due to allowance for losses | 91    | 24    
|Depreciation                                   | 12    | 12    
|Total deferred tax assets                      | 330   | 156   
|Federal Home Loan Bank stock dividends         | (80)  | (69)  
|Servicing rights                               | (95)  | (262) 
|Total deferred tax liabilities                 | (175) | (331) 
|Net deferred tax assets (liabilities)          | $155  | $(175)

The Bank has qualified under provisions of the Internal Revenue Code which permit it to
deduct from taxable income a provision for bad debts that differs from the provision charged to
income in the financial statements.  Retained earnings at September 30, 2000 include
approximately $643,000, representing tax bad debt provisions through 1987, for which no
deferred federal income tax liability has been recorded.

**NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS**

The approximate carrying amount and estimated fair value of financial instruments at
September 30 is as follows:

|                                            | 2000                      | 1999               
|------------------------------------------- | ------------------------- | -------------------
|                                            | ApproximateCarryingAmount | EstimatedFair Value
|Financial assets                            |                           |                    
|Cash and cash equivalents                   | $7,448                    | $7,448             
|Securities                                  | 527                       | 507                
|Loans, net of allowance for     loan losses | 67,561                    | 67,430             
|Loans held for sale                         | 3,872                     | 3,872              
|Federal Home Loan Bank stock                | 436                       | 436                
|Accrued interest receivable                 | 647                       | 647                

---

---

**NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS** (Continued)

|                                                          | 2000                      | 1999               
|--------------------------------------------------------- | ------------------------- | -------------------
|                                                          | ApproximateCarryingAmount | EstimatedFair Value
|Financial liabilities                                     |                           |                    
|Demand deposits                                           | $(20,925)                 | $(20,925)          
|Savings deposits                                          | (4,868)                   | (4,868)            
|Time deposits                                             | (47,893)                  | (48,080)           
|Advance payments by borrowers     for taxes and insurance | (779)                     | (779)              
|Federal Home Loan Bank Advances                           | (3,000)                   | (3,000)            
|Debentures                                                | (3,629)                   | (3,508)            
|Accrued interest payable                                  | (241)                     | (241)              

For the purposes of above, the following assumptions were used:

Cash and Cash Equivalents:  The estimated fair values for cash and cash equivalents are based
on their carrying values due to the short-term nature of these assets.

Securities:  The fair values of securities are based on the quoted market value for the individual
security or its equivalent.

Loans:  The estimated fair value for loans has been determined by calculating the present value
of future cash flows based on the current rate the Company would charge for similar loans with
similar maturities, applied for an estimated time period until the loan is assumed to be repriced
or repaid.

Federal Home Loan Bank Stock:  The fair value of Federal Home Loan Bank stock is assumed
to approximate its carrying value.

Deposit Liabilities:  The estimated fair value for time deposits has been determined by
calculating the present value of future cash flows based on estimates of rates the Company
would pay on such deposits, applied for the time period until maturity.  The estimated fair
values of interest-bearing demand and savings deposits are assumed to approximate their
carrying values as management establishes rates on these deposits at a level that approximates
the local market area.  Additionally, these deposits can be withdrawn on demand.

---

---

**NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS** (Continued)

Accrued Interest:  The fair values of accrued interest receivable and payable are assumed to
equal their carrying values.

Federal Home Loan Bank Advances and Advance Payments by Borrowers for Taxes and
Insurance:  The fair values are assumed to approximate the carrying values.

Debentures:  The estimated fair value of debentures is based on calculating the present value of
future cash flows using the current rate for a note with similar risk characteristics and similar
length to maturity.  The current rate was obtained from inquiry of investment bankers familiar
with the thrift industry and the risk associated with debentures based on recent issuance of
similar debentures.

Off-Balance-Sheet Instruments:  Off-balance-sheet items consist principally of unfunded loan
commitments.  The fair value of these commitments is not material.

Other assets and liabilities of the Company not defined as financial instruments, such as
property and equipment, are not included in the above disclosures.  Also not included are
nonfinancial instruments typically not recognized in financial statements such as the value of
core deposits and similar items.

While the above estimates are based on management's judgment of the most appropriate
factors, there is no assurance that if the Company disposed of these items on September 30,
2000, the fair value would have been achieved, because the market value may differ depending
on the circumstances.  The estimated fair values at September 30, 2000 should not necessarily
be considered to apply at subsequent dates.

---

---

**NOTE 14 - PARENT COMPANY ONLY FINANCIAL INFORMATION**

CONDENSED BALANCE SHEETSSeptember 30, 2000 and 1999

|                                         | 2000    | 1999   
|---------------------------------------- | ------- | -------
|**ASSETS**                              
|Cash                                     | $	112   | $	27   
|Equity interest in bank subsidiary       | 5,589   | 5,828  
|Equity interest in nonbank subsidiary    | (27)    | 1      
|Other assets                             | 437     | 859    
|                                         | $	6,111 | $	6,715
|**LIABILITIES AND STOCKHOLDERS' EQUITY**
|Debentures                               | $	3,629 | $	3,629
|Accrued interest and other liabilities   | 232     | 98     
|Total liabilities                        | 3,861   | 3,727  
|Minority interest                        | 873     | 873    
|Stockholders' equity                    
|Common stock                             | 5       | 4      
|Additional paid-in capital               | 2,117   | 2,060  
|Retained earnings (deficit)              | (745)   | 51     
|Total stockholders' equity               | 1,377   | 2,115  
|                                         | $	6,111 | $	6,715

---

---

**NOTE 14 - PARENT COMPANY ONLY FINANCIAL INFORMATION** (Continued)

|                                                                                                      | 2000    | 1999  | 1998 
|----------------------------------------------------------------------------------------------------- | ------- | ----- | -----
|Income                                                                                               
|Interest income                                                                                       | $	3     | $	8   | $	3  
|Dividends from bank subsidiary                                                                        | 604     | 156   | -    
|Other income                                                                                          | 10      | -     | 10   
|Total income                                                                                          | 617     | 164   | 13   
|Expenses                                                                                             
|Interest expense                                                                                      | 424     | 425   | 210  
|Other expenses                                                                                        | 403     | 290   | 256  
|Total expenses                                                                                        | 827     | 715   | 466  
|**Loss before equity in undistributed earnings of subsidiary**                                        | (210)   | (551) | (453)
|Equity in undistributed (overdistributed) 
  earnings (loss) of subsidiaries                          | (658)   | 572   | 310  
|Income (loss) before income tax benefit and
  cumulative effect of a change in accounting
  principle | (868)   | 21    | (143)
|Income tax benefit                                                                                    | (230)   | (224) | (160)
|Income (loss) before cumulative effect of a  change in accounting principle                           | (638)   | 245   | 17   
|Cumulative effect of a change in accounting
  principle                                               | 100     | -     | -    
|Net income (loss)                                                                                     | $	(738) | $	245 | $	17 

---

---

**NOTE 14 - PARENT COMPANY ONLY FINANCIAL INFORMATION** (Continued)

CONDENSED STATEMENTS OF CASH FLOWS
For the years ended September 30, 2000 and 1999
and the period April 1, 1998 through September 30, 1998

|                                                                                                                                        | 2000    | 1999  | 1998   
|--------------------------------------------------------------------------------------------------------------------------------------- | ------- | ----- | -------
|**Cash flows from operating activities**                                                                                               
|Net income (loss)                                                                                                                       | $	(738) | $	245 | $	17   
|Adjustments to reconcile net income to
   net cash provided by operating activities:
    Equity in undistributed earnings of subsidiary | 658     | (572) | (310)  
|Amortization of debt issuance and
     reorganization costs                                                                             | 100     | 100   | 67     
|Cumulative effect of a change in accounting
     principle                                                                              | 100     | -     | -      
|Increase in other assets, net of liabilities                                                                                            | (35)    | (187) | (242)  
|Net cash provided by (used in)
       operating activities                                                                              | 85      | (414) | (468)  
|**Cash flows from financing activities**                                                                                               
|Net proceeds from issuance of common stock                                                                                              | -       | -     | 1,724  
|Net proceeds from issuance of debentures                                                                                                | -       | -     | 3,128  
|Purchase and retirement of Bank stock                                                                                                   | -       | -     | (3,943)
|Net cash provided by financing activities                                                                                               | -       | -     | 909    
|Change in cash and cash equivalents                                                                                                     | 85      | (414) | 441    
|Cash and cash equivalents at beginning of period                                                                                        | 27      | 441   | -      
|**Cash and cash equivalents at end of period**                                                                                          | $	112   | $	27  | $	441  
|Supplemental disclosures of cash flow information
  Cash paid during the period for
   Interest                                         | $	417   | $	417 | $	121  

**Item 8.  Changes in and Disagreements with Accountants on Accounting****and Financial Disclosure**

There has been no current report on Form 8-K filed within 24 months prior to the date of
the most recent financial statements reporting a change of accountants and/or reporting
disagreements on any matter of accounting principle or financial statement disclosure.



**Item 9.  Directors, Executive Officers, Promoters and Control**            **Persons; Compliance with Section 16(a) of the Exchange Act**

The following information as to the business experience during the past five years is
supplied with respect to each executive officer of the Bank.  There are no arrangements or
understandings between the persons named and any other person pursuant to which such officers
were selected.

*David D. Rinehart.*  Mr. Rinehart has served as the President and Chief Executive Officer
since May, 2000.   He previously served as Executive Vice President and Chief Financial Officer
of Fort Bend Holding Corporation and its subsidiary Fort Bend Federal Savings and Loan
Association in Rosenberg, Texas.  Mr. Rinehart has approximately 26 years of banking
experience since graduating in 1965 from Miami University.  He is past president of the Gulf
Coast Chapter of the Financial Managers Society.

*William Wantuck.*  Mr. Wantuck joined the Company in January 1999 as Executive Vice
President and Chief Financial Officer.  Mr. Wantuck currently supervises the accounting,
regulatory reporting, loan administration, branch banking operations, and consumer loan
functions.  Mr. Wantuck has been in banking since 1976 and has extensive experience in most
operational areas of banking.  Mr. Wantuck is a certified public accountant, a certified internal
auditor and a certified financial services auditor.  Mr. Wantuck is a member of the Audit
Committee, the Asset Review Committee, the Regulatory Compliance Committee, and is
Chairperson of the Asset/Liability Committee.  In May 2000, Mr. Wantuck assumed the
additional title of Chief Operating Officer.

*Mary L. Hegar.*  Ms. Hegar joined First Federal in 1977 and became Assistant
Secretary/Treasurer in 1987 and was promoted to Senior Vice President/Financial and
Regulatory. Ms. Hegar primarily coordinates the accounting functions of the Bank, monitors
First Federal's investments and is responsible for regulatory reporting.  Ms. Hegar is a member of
the Asset/Liability Committee.

The table below sets forth certain information regarding the Company's directors.

|Name               | Age(1) | Position(s) Held                              | Director Since(2) | Term toExpire
|------------------ | ------ | --------------------------------------------- | ----------------- | -------------
|Directors         
|Helen Chavarria    | 64     | Director                                      | 1999              | 2001         
|Robert H. Conaway  | 47     | Vice Chairman of the Board                    | 1995              | 2001         
|Ken L. Hayes       | 61     | Director                                      | 1993              | 2001         
|George Koenig      | 56     | Director/Executive Vice President of the Bank | 1996              | 2001         
|Joseph W. Krolczyk | 61     | Director, Secretary/Treasurer                 | 1998              | 2001         
|Charles Neelley    | 71     | Director                                      | 1993              | 2001         
|Richard L. Peacock | 82     | Director                                      | 1965              | 2001         
|Roland Ruffino     | 50     | Director                                      | 1995              | 2001         
|Gary A. Snoe       | 43     | Chairman of the Board                         | 1998              | 2001         
|Ernest A. Wentrcek | 72     | Director                                      | 1965              | 2001         

The principal occupation of each director is set forth below.  All directors have held their
present position for at least five years unless otherwise indicated.

***Helen Chavarria***.  Ms. Chavarria is a currently a Housing Management Specialist for the
Brazos Valley Council of Government, a position she has held since 1992.  She also serves as an
area recruiter for Amnesty and as an instructional assistant for Region IV Educational Service
Center, located in Huntsville, Texas.  Ms. Chavarria has served in such capacities since 1988.

***Robert H. Conaway****.*  Mr. Conaway is the founder and President of Progress Supply,
located in Bryan, Texas, a distributor of wholesale supply plumbing fixtures and contractors'
supplies.

***Ken L. Hayes****.*  Mr. Hayes is the owner of Aggieland Travel, located in College Station, a
full-service travel agency.

***George Koenig.***  Mr. Koenig is currently serving as Executive Vice President of  the
Bank.  Mr. Koenig was previously employed as an executive operations officer with a local
financial institution located in Bryan, Texas.

***Joseph W. Krolczyk.***  Mr. Krolczyk has served as the owner and President of KESCO
Supply Inc., a food service equipment and supply firm located in Bryan, Texas for over 20 years.

***Charles Neelley.***  Mr. Neelley is retired from Texas A&M University and the travel
agency business.  He is currently active in the mini-storage business. In November 1995, Mr.
Neelley was elected Secretary/Treasurer of the Board of First Federal, and later was elected
Secretary/Treasurer of the Company when it was organized in 1998.

***Richard L. Peacock.***  Mr. Peacock has been retired since 1983 from a privately owned
retail office supply and furniture business located in Bryan, Texas.  Prior to that time, he was in
the restaurant business for approximately 12 years and the soft-drink bottling business for five
years.  He has also managed a health resort and clinic located in Marlin, Texas.  In

***Roland Ruffino.***  Mr. Ruffino is a partner of Readfield Meats, Inc., a long-time leading
wholesale and retail meat distributor located in Bryan, Texas.

***Gary A. Snoe.***  Mr. Snoe is the owner and President of Snoe Inc., a precision, speciality
machining and welding plant located in the Bryan, Texas trade area.  He was previously the
owner of a machine and welding plant for over 19 years in Houston, Texas.

***Ernest A. Wentrcek.***  Mr. Wentrcek was the Secretary and/or Treasurer of the Bank's
Board of Directors until 1995 when he was elected Vice Chairman of the Board of Directors of
First Federal, and later was elected Vice Chairman of the Board of the Company when it was
formed in 1998.  Mr. Wentrcek is the President and owner of W&W Builders/Realtors, a real
estate sales, rental and property management company located in Bryan, Texas.  In September
1988, he retired as the Associate Director for Business Affairs of the Texas Engineering
Extension Service, Texas A&M University System, a vocational education organization.  He is a
member of the Finance Committee of the Supreme Lodge of the Slavonic Benevolent Order of
the State of Texas (SPJST).  Mr. Wentrcek is a licensed real estate broker and a member of the
Bryan-College Station Board of Realtors and the Multiple Listing Service.  He is also a member
of the American Legion Post 159-Bryan.

To the Company's knowledge, based solely on a review of the copies of such reports
furnished to the Company and written representations that no other reports are required, during
the fiscal year ended September 30, 2000, all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10 percent beneficial owners were complied with.

**Item 10.  Executive Compensation**

**Director Compensation**

Outside directors receive $300.00 for each board meeting and $100.00 for each
committee meeting attended, not to exceed a maximum of $400.00 per month.

**Executive Compensation**

The following table sets forth information concerning the compensation paid or granted
to each person who served as the Company's Chief Executive Officer, during fiscal year 2000
and to one other executive officer of the Bank who made in excess of $100,000 in salary and
bonus during fiscal year 2000.

|SUMMARY COMPENSATION TABLE                                   
|-------------------------------------------------------------
|Annual Compensation                                          
|Awards                                                       
|Name andPrincipal Position                                   
|David D. Rinehart,(1)*President and Chief
 Executive Officer*
|J. Stanley Stephen(2)*President and Chief**Executive Officer*
|James D. McCrady, Jr.(5)*Senior Vice President*              

The following table provides information as to the value of the options held by Messrs.
Rinehart, Stephen and McCrady during fiscal 2000, none of which have been exercised.

|AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR ANDOPTION VALUES AT SEPTEMBER 30, 2000
|--------------------------------------------------------------------------------------
|                                                                                      
|Name                                                                                  
|David D. Rinehart,*President and Chief        Executive Officer*                      
|J. Stanley Stephen*President and Chief        Executive Officer*                      
|James D. McCrady, Jr.*Senior Vice President*                                          



(1)Represents the aggregate market value (market price of the common stock less the exercise price) of the option granted    based upon the closing price of $5.25 per share of the common stock as reported
on the OTC Electronic Bulletin    System
on September 29, 2000.  Therefore, such options were not in-the-money at that date.

**Employment Agreements**

On October 2, 2000, the Bank entered into an employment agreement with David Rinehart.
Under the terms of the agreement, Mr. Rinehart is entitled to receive an annual base salary in an
amount not less than his current salary of $135,000, and to participate in discretionary bonuses as
authorized and declared by the Bank's Board of Directors.  The employment agreement is for an
initial term of two years and provides for annual extensions of one year, in addition to the then-remaining term thereunder, on each anniversary of the commencement date of the agreement (*i.e.*,
each October 2) upon written approval by the Bank's Board of Directors.  The agreement
terminates upon the employee's death, for cause, in certain events specified by Office of Thrift
Supervision regulations, or by Mr. Rinehart upon 90 days written notice to the Bank.

In the event there is a "change in control" (as defined in the employment agreement) of the
Bank where Mr. Rinehart's employment is terminated in connection with, or twelve months after
the change in control, the employment agreement provides for a lump sum payment to Mr.
Rinehart of 299% of his base average annual compensation over the most recent five year period or such shorter period since employment and continuation of health benefits for the remaining term of the employment agreement.  The agreement also guarantees
participation in an equitable manner in employee benefits applicable to
executive personnel.

Based on his current compensation, if Mr. Rinehart was terminated under circumstances
entitling him to severance pay as described above, he would have been entitled to receive a lump
sum cash payment of approximately $403,650.

**Item 11.    Security Ownership of Certain Beneficial Owners and
                	    Management**

Stock Ownership of Significant Shareholders, Directors and Executive Officers

The following table presents information regarding the beneficial ownership of the
Company's common stock as of December 29, 2000, by those persons or entities (or group of
affiliated persons or entities) known by management to beneficially own more than five percent of
the outstanding common stock of the Company, each director of the Company, each executive
officer of the Company, and all of the executive officers and directors of the Company as a group.

The persons named in the following table have sole voting power for all shares of common
stock shown as beneficially owned by them, subject to community property laws where applicable
and except as indicated in the footnotes to this table.  The address of each of the beneficial owners,
except where otherwise indicated, is the same address as that of the Company.  An asterisk (*) in
the tables indicates that an individual beneficially owns less than one percent of the outstanding
common stock of the Company.  Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission (the "SEC").  As of December 29, 2000, there were
471,411 shares of the Company's common stock outstanding.

|Name of Beneficial Owner                                                                | BeneficialOwnership(2) | Percent of Common StockOutstanding
|--------------------------------------------------------------------------------------- | ---------------------- | ----------------------------------
|***Significant Shareholder***                                                           |                        |                                   
|J. Stanley Stephen and Jean Stephen(1)                                                  | 36,388                 | 7.72%                             
|                                                                                        |                        |                                   
|***Directors and Named Executive Officers***                                            |                        |                                   
|Helen Chavarria                                                                         | 330                    | *                                 
|Robert H. Conaway                                                                       | 8,121                  | 1.72                              
|Ken L. Hayes                                                                            | 2,410                  | *                                 
|George Koenig                                                                           | 1,330                  | *                                 
|Joseph W. Krolczyk                                                                      | 6,038                  | 1.28                              
|James McCrady                                                                           | ---                    | ---                               
|Charles Neelley                                                                         | 14,916                 | 3.15                              
|Richard L. Peacock                                                                      | 9,147                  | 1.93                              
|David D. Rinehart                                                                       | ---                    | ---                               
|Roland Ruffino                                                                          | 13,820                 | 2.92                              
|Gary A. Snoe                                                                            | 14,086                 | 2.98                              
|Ernest A. Wentrcek                                                                      | 9,809                  | 2.07                              
|Directors and Executive Officers of the Company and the Bank as a group (13 persons)(2) | 84,407                 | 17.28                             

___________________

**Item 12.  Certain Relationships and Related Transactions**

The Bank, like many financial institutions, has followed a policy of granting to officers,
directors and employees, loans secured by the borrower's residence, along with certain consumer
loans and business loans, if the borrower is credit-worthy.  All loans to the Bank's officers and
directors are made in the ordinary course of business and generally on the same terms, including
interest rate and collateral, and conditions as those of comparable transactions prevailing at the
time, and do not involve more than the normal risk of collectibility or present other unfavorable
features.

All loans by the Bank to its directors and executive officers are subject to the OTS
regulations restricting loans and other transactions with affiliated persons of the Bank.  Federal law
currently requires that all loans to directors and executive officers generally be made on terms and
conditions comparable to those for similar transactions with non-affiliates.  Loans to all directors
and executive officers and their associates totaled $1.0 million at September 30, 2000, which was
18.2% of the Bank's equity capital at that date.  All loans to directors and executive officers were
performing in accordance with their terms at September 30, 2000.

**Item 13.  Exhibits and Reports on Form 8-K**

**(a)	Exhibits**

|RegulationS-B ExhibitNumber | Document                                                                                                                                    | Reference toPrior Filingor ExhibitNumberAttachedHereto
|--------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------
|2                           | Plan of acquisition, reorganization, arrangement,	liquidation or succession                                                                 | None                                                  
|3(a)                        | Certificate of Incorporation                                                                                                                | *                                                     
|3(b)                        | By-Laws                                                                                                                                     | 3(b)                                                  
|4                           | Instruments defining the rights of securityholders, including debentures                                                                    | *                                                     
|9                           | Voting Trust Agreement                                                                                                                      | None                                                  
|10.1                        | Supervisory Agreement                                                                                                                       | **                                                    
|10.2                        | David D. Rinehart Employment Agreement                                                                                                      | 10.2                                                  
|10.3                        | Compromise Settlement Agreement and MutualRelease dated March 8, 2001 betweenJ. Stanley Stephen, Jean Stephen and First FederalSavings Bank | 10.3                                                  
|11                          | Statement re:  computation of per share earnings                                                                                            | Not required                                          
|12                          | Statement re:  computation of ratios                                                                                                        | Not required                                          
|13                          | Annual Report to Security Holders                                                                                                           | Not required                                          
|16                          | Letter re:  change in certifying accountants                                                                                                | None                                                  
|18                          | Letter re:  change in accounting principles                                                                                                 | None                                                  
|21                          | Subsidiaries of Registrant                                                                                                                  | 21                                                    
|22                          | Published report regarding matters submitted to vote of security holders                                                                    | None                                                  
|23                          | Consents of Experts and Counsel                                                                                                             | Not required                                          
|24                          | Power of Attorney                                                                                                                           | Not required                                          
|99                          | Additional Exhibits                                                                                                                         | None                                                  

_____________________

*	Filed as exhibits to the Company's Form S-1 registration statement (File No. 333-28179) filed on May 30, 1997      pursuant to Section 5 of the Securities Act of 1933.  All of such previously filed documents are
hereby
incorporated herein      by reference in accordance with Item 601 of Regulation S-B.

**	Filed as exhibit 99.1 to the Company's Current Report on Form 8-K (File No. 000-23323) on December 22, 2000 and is       incorporated herein by reference in accordance with Item 601 of Regulation S-B.

**(b)	Reports on Form 8-K**

There were no reports on Form 8-K filed for the quarter ended September 30, 2000.

**SIGNATURES**

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

|                       | **THE BRYAN-COLLEGE STATION
       	FINANCIAL HOLDING COMPANY**                                                                              
|---------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------
|Date:   March 15, 2001 | By:   /s/     David D. Rinehart
       David D. Rinehart, President and Chief        Executive Officer
       *(Principal Executive Officer)*

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following person in the capacities and on the dates indicated.

|By:      /s/    Gary A. Snoe
          Gary A. Snoe
            Chairman of the Board                                                   | By:       /s/     David D. Rinehart
             David D. Rinehart, President                 and Chief Executive Officer
             *(Principal Executive Officer)*
|--------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date:   March 15, 2001                                                                                                                  | Date:   March 15, 2001                                                                                                                                                
|By:      /s/    Ken L. Hayes
          Ken L. Hayes, Director                                                                           | By:       /s/     Joseph W. Krolczyk
             Joseph W. Krolczyk, Director,                Secretary and Treasurer of the   
              Board of Directors     
|Date:   March 15, 2001                                                                                                                  | Date:   March 15, 2001                                                                                                                                                
|By:      /s/    Charles Neelley
          Charles Neelley          Director, Secretary and Treasurer          of the Board of Directors | By:       /s/     George Koenig
             George Koenig, Director                 and Executive Vice President                                                     
|Date:   March 15, 2001                                                                                                                  | Date:   March 15, 2001                                                                                                                                                

|By:      /s/    Roland Ruffino
          Roland Ruffino
            Director                                                                                     | By:       /s/     Robert H. Conaway
             Robert H. Conaway                Director
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------
|Date:   March 15, 2001                                                                                                                                           | Date:   March 15, 2001                                                                    
|By:      /s/    Ernest A. Wentrcek       
   Ernest A. Wentrcek
          Director                                                                               | By:       /s/     Richard L. Peacock
            Richard L. Peacock
             Director 
|Date:   March 15, 2001                                                                                                                                           | Date:   March 15, 2001                                                                    
|By:      /s/    William Wantuck       
   William Wantuck
          Chief Financial Officer
          *(Principal Financial and Accounting
            Officer)* | By:       /s/     Helen Chavarria
             Helen Chavarria
             Director      
|Date:   March 15, 2001                                                                                                                                           | Date:   March 15, 2001