U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

                  For the fiscal year ended September 30, 2000

                        Commission File Number 000-25999

                          WAKE FOREST BANCSHARES, INC.
                 (Name of small business issuer in its charter)


              UNITED STATES                        56-2131079
      State or other jurisdiction of       IRS Employer Identification No.
              Incorporation

                             302 South Brooks Street
                        Wake Forest, North Carolina 27587
                    (Address of Principal Executive Offices)

Issuer's telephone, including area code:  (919) 556-5146

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

                     Common Stock, par value $0.01 per share
                                 Title of Class

         Check whether the issuer (1) filed all reports  required to be filed by
Section  13 or 15(d) of the  Exchange  Act  during  the 12  months  (or for such
shorter period that the issuer 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 is not contained in this form, and no disclosure will
be contained,  to the best of the registrant's knowledge, in definitive proxy or
information  statements  incorporated by reference in Part III of this 10-KSB or
any amendment to this Form 10-KSB. |X|

         The revenues for the issuer's fiscal year ended September 30, 2000 were
$6,847,800.

         The issuer  had  1,171,062  shares of common  stock  outstanding  as of
September  30,  2000.   The  aggregate   value  of  the  voting  stock  held  by
non-affiliates  of the Registrant,  computed by reference to the average bid and
asked  prices of the common  stock as of  December  7, 2000 was  $5,738,800  and
$6,148,700, respectively.

                      DOCUMENTS INCORPORATED BY REFERENCE.

         Portions  of the  Annual  Report  to  Stockholders  for the year  ended
September  30, 2000 are  incorporated  by reference  into Parts I and II of this
Form 10-KSB.

         Portions  of the  Proxy  Statement  for  the  2001  Annual  Meeting  of
Shareholders are incorporated by reference into Part III of this Form 10-KSB.

Transitional Small Business Disclosure Format (check one): Yes  |_|  No  |X|

<PAGE>



                                TABLE OF CONTENTS


<TABLE>
<S>                                                                                                            <C>
PART I
         FORWARD-LOOKING STATEMENTS.............................................................................-1-
         ITEM 1.    DESCRIPTION OF BUSINESS.....................................................................-1-
         ITEM 2.    PROPERTIES.................................................................................-28-
         ITEM 3.    LEGAL PROCEEDINGS..........................................................................-28-
         ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................-28-

PART II
         ITEM 5.    MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS....................................-28-
         ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS.......................................................-29-
         ITEM 7.    FINANCIAL STATEMENTS.......................................................................-29-
         ITEM 8.    CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
                    FINANCIAL DISCLOSURE.......................................................................-29-

PART III
         ITEM 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
                    WITH SECTION 16(A) OF THE EXCHANGE ACT.....................................................-29-
         ITEM 10.   EXECUTIVE COMPENSATION.....................................................................-29-
         ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............................-29-
         ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................-29-
         ITEM 13.   EXHIBITS, LISTS AND REPORTS ON FORM 8-K....................................................-30-

SIGNATURES
</TABLE>


<PAGE>

                                     PART I

FORWARD-LOOKING STATEMENTS

        This  document,   including   information   incorporated  by  reference,
contains, and future filings by Wake Forest Bancshares,  Inc. (the "Company") on
Form 10-QSB and Form 8-K and future oral and written  statements  by the Company
and its management may contain forward-looking  statements about the Company and
its subsidiary which we believe are within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, without
limitation,   statements  with  respect  to  anticipated  future  operating  and
financial  performance,  growth opportunities,  interest rates, cost savings and
funding advantages  expected or anticipated to be realized by management.  Words
such as "may," "could," "should," "would," "believe," "anticipate,"  "estimate,"
"expect,"  "intend,"  "plan" and similar  expressions  are  intended to identify
these forward-looking statements.  Forward-looking statements by the Company and
its management are based on beliefs,  plans,  objectives,  goals,  expectations,
anticipations,  estimates and intentions of management and are not guarantees of
future performance. The Company disclaims any obligation to update or revise any
forward-looking statements based on the occurrence of future events, the receipt
of new  information,  or otherwise.  The important  factors we discuss below and
elsewhere in this document, as well as other factors discussed under the caption
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" in our Annual Report to  Shareholders  (attached to this document as
Exhibit  13) and  identified  in our  filings  with the SEC and those  presented
elsewhere by our  management  from time to time,  could cause actual  results to
differ materially from those indicated by the forward-looking statements made in
this document:

     o    the strength of the United States  economy in general and the strength
          of the local economies in which we conduct operations;
     o    the effects of, and changes in,  trade,  monetary and fiscal  policies
          and laws,  including  interest  rate  policies of the Federal  Reserve
          Board ("FRB");
     o    inflation, interest rate, market and monetary fluctuations;
     o    the timely development and acceptance of our new products and services
          and the  perceived  overall  value of these  products  and services by
          users,  including  the  features,  pricing  and  quality  compared  to
          competitors' products and services;
     o    the  willingness  of users to substitute our products and services for
          products and services of our competitors;
     o    our  success  in  gaining  regulatory  approval  of our  products  and
          services,  when  required;
     o    the impact of  changes in  financial  services'  laws and  regulations
          (including laws concerning taxes, banking, securities and insurance);
     o    the impact of technological changes;
     o    acquisitions;
     o    changes in consumer  spending and saving habits;  and
     o    our success at managing the risks involved in the foregoing.

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

         Wake Forest  Bancshares,  Inc. is a  federally-chartered  stock holding
company for Wake Forest Federal Savings & Loan Association (the  "Association"),
a federally chartered stock savings and loan association which conducts business
from its one  office  located  in Wake  Forest,  North  Carolina.  The office is
located in Wake County,  North  Carolina.  The Company was formed on May 7, 1999
pursuant  to an  Agreement  and  Plan  of  Reorganization  whereby  the  Company
exchanged its common stock for all outstanding  common stock of the Association.
The Company is a majority owned  subsidiary of Wake Forest  Bancorp,  M.H.C.,  a
federal mutual holding company (the "MHC").  The Association was founded in 1922
as a building and loan  association.  In 1982, the Association  converted from a
North  Carolina  chartered  mutual  savings and loan  association to a federally
chartered  mutual  savings and loan  association.  During fiscal year 1996,  the
Association  converted  from a  federally  chartered  mutual  savings  and  loan
association to a federally chartered stock savings and loan association. The



                                      -1-
<PAGE>

Association is the Company's sole  subsidiary.  The  Association's  deposits are
insured  by the  Savings  Association  Insurance  Fund  of the  Federal  Deposit
Insurance  Corporation  (the "FDIC") to the maximum extent  permitted by law. At
September  30,  2000,  the  Company  had total  assets of $83.3  million,  total
deposits of $67.9 million and total stockholders' equity of $14.2 million.

         The  Company  conducts  no  business  other than  holding  stock in the
Association, investing dividends received from the Association, repurchasing its
common stock from time to time, and  distributing  dividends on its common stock
to its shareholders.

         The primary focus of the Association is to provide financing for single
family housing in its market area of northern Wake County and southern  Franklin
Counties. The Association has concentrated its lending activities on real estate
loans secured by single family residential  properties and construction loans on
primarily residential properties. To a lesser extent, the Association invests in
commercial real estate, land, multifamily residential and savings account loans.
The  Association  also invests its excess  funds  primarily in Federal Home Loan
Bank  stock,  Federal  Home Loan  Mortgage  Corporation  ("FHLMC")  stock,  U.S.
Treasury and Agency obligations, and other short term interest-bearing deposits.
The  Association's  principal  sources of funds are deposits and  principal  and
interest  payments on loans. The principal source of income is interest on loans
and investment  securities.  The Association's  principal  expenses are interest
paid on deposits and compensation and benefits.

         The Association's  results of operations are dependent primarily on net
interest income,  which is the difference  between the interest income earned on
its interest-earning assets, such as loans and securities,  and interest expense
on its  interest-bearing  liabilities,  such as deposits.  The Association  also
generates  non-interest  income  such as service  charges  and other  fees.  The
Association's  non-interest  expenses  primarily  consist  of  compensation  and
benefits, occupancy expenses, data processing fees and other operating expenses.
The  Association's  results of  operations  are also  significantly  affected by
general  economic and  competitive  conditions  (particularly  changes in market
interest  rates),  government  policies,  changes in  accounting  standards  and
actions of regulatory  agencies.  The Association exceeded all of its regulatory
capital  requirements  at September 30, 2000.  See  "Regulation -- Regulation of
Federal Savings Association -- Capital Requirements."

         The  Association  is primarily  engaged in the  business of  attracting
retail deposits from the general public in the Association's marketing area, and
investing  those  deposits,  together with other sources of funds,  primarily in
loans secured by one- to  four-family  residential  real estate for retention in
its loan portfolio. For further details, see below under "Lending Activities."

REORGANIZATION

         On  October  23,  1995,  the  Board of  Directors  adopted  the Plan of
Reorganization  from  Mutual  Savings  and Loan  Association  to Mutual  Holding
Company,  pursuant to which the  Association  (i) exchanged  its federal  mutual
savings  and loan  association  charter  for a federal  stock  savings  and loan
association  charter  and (ii)  formed the MHC,  a  federally  chartered  mutual
holding  company  which  owned  in  excess  of 50% of the  common  stock  of the
Association. In connection with the reorganization,  the Association sold shares
of  its  common  stock  to  certain   depositors  of  the  Association  and  the
Association's  Employee Stock Ownership Plan ("ESOP"). The Association completed
the reorganization on April 3, 1996.

         The Board of Directors  of the  Association  approved an Agreement  and
Plan of Reorganization  (the "Plan of Reorganization") on November 16, 1998. The
Plan of Reorganization  provided for the establishment of the Company as a stock
holding  company  parent of the  Association.  The  Company  is  majority  owned
(approximately  53%) by the MHC. The  reorganization  into the "two-tier" mutual
holding   company   structure  (the   "Reorganization")   was  approved  by  the
Association's stockholders at their annual meeting held on February 23, 1999 and
by  regulatory  authorities  on April 9, 1999.  The formation of the Company was
consummated on May 7, 1999.

         As part of the  Reorganization  each outstanding share of Association's
common  stock was  converted  into one share of common  stock par value $.01 per
share of the Company and the holders of the Association's common



                                      -2-
<PAGE>

stock became the holders of all the outstanding  shares of the Company's  common
stock.  Accordingly,  as a  result  of  the  Reorganization,  the  Association's
minority  shareholders became minority  shareholders of the Company. The Company
was formed solely for the purpose of becoming a savings and loan holding company
and is regulated  by the Office of Thrift  Supervision  (the  "OTS").  It had no
prior operating  history.  The Reorganization had no impact on the operations of
the  Association  or the MHC. The  Association  continues to operate at the same
location with the same management and subject to all the rights, obligations and
liabilities of the Association existing immediately prior to the Reorganization.

         The Board of Directors of the  Association  initially  capitalized  the
Company with  $100,000.  Future  capitalization  of the Company will depend upon
dividends declared by the Association based on future earnings or the raising of
additional capital by the Company through a future issuance of securities,  debt
or by other means. The Board of Directors of the Company has no present plans or
intentions  with respect to any future  issuance of  securities  or debt at this
time.  Furthermore,  as long as it is in existence,  the MHC must own at least a
majority of the Company's outstanding voting stock.

         The  Reorganization  was treated  similar to a pooling of interests for
accounting  purposes.   Therefore,  the  consolidated  capitalization,   assets,
liabilities,  income and  expenses  of the  Company  immediately  following  the
Reorganization   were  substantially  the  same  as  those  of  the  Association
immediately prior to consummation of the Reorganization, all of which were shown
on the Company's books at their historical recorded values.

MARKET AREA AND COMPETITION

         The  Association  is a  community-oriented  savings  institution  which
primarily  gathers  deposits  and  originates  one- to  four-family  residential
mortgage loans and construction  loans within its market area. The Association's
market area for deposit  gathering and lending is  concentrated in northern Wake
County and southern Franklin Counties, North Carolina.

         The  Association's  market area has benefitted from its close proximity
to the "Research Triangle Park" which includes the cities of Chapel Hill, Durham
and Raleigh.  The commuting distance from the Research Triangle Park to the town
of  Wake  Forest  is  approximately  20  miles.  While  most  of the  commercial
development within the Research Triangle Park has been in Durham County, most of
the residential  development for the employees of the Research Triangle Park has
taken place in Wake County. Northern Wake County is expected to benefit from the
continued expansion of this area.

         Currently,  employment within the region varies,  from a more high tech
and  service-oriented  industry  near  the  Research  Triangle  Park  to a  more
agricultural/manufacturing  base further away from the Research  Triangle  Park.
The largest  employers in the northern  Wake County area  include  Weavexx,  and
Mallinckrodt.  Proximity  to  the  Research  Triangle  Park,  to  Raleigh-Durham
International  Airport and to the City of  Raleigh,  the state  capital,  should
result in the future growth in the Association's market area.

         The population of the Association's market area grew rapidly during the
1990's and is expected to continue its growth over the next five years. Based on
information  provided  by the  Economic  Development  Program of the Wake Forest
Chamber of Commerce,  the town of Wake Forest's population was 5,851 in 1990 and
doubled in size to 11,750 during 2000.  This data also provides that the current
population within a five mile radius of Wake Forest is 24,482 and is expected to
grow by approximately 20% over the next five years.  Residential  owner-occupied
households  totaled  6,820  within a five  mile  radius of Wake  Forest  and are
expected to increase by approximately 22% over the next five years.

         The Association faces substantial  competition for both the deposits it
accepts and the loans it makes.  Located  within the Wake Forest area are branch
offices of six other  depository  institutions,  all six of which are commercial
banks. The Association also encounters significant competition for deposits from
commercial banks, savings banks, savings and loan associations and credit unions
located in the  Raleigh-Durham  area. Due to the Association's  size relative to
its  competitors,  the  Association  offers a more limited product line, with an
emphasis on product delivery and customer service.  The Association competes for
deposits by offering a variety of customer



                                      -3-
<PAGE>

services and deposit accounts at competitive interest rates. The Association, as
well  as  its  competitors,   is  affected  by  general   economic   conditions,
particularly  changes in market  interest  rates,  real  estate  market  values,
government policies and regulatory authorities' actions. Changes in the ratio of
the demand for loans relative to the availability of credit may affect the level
of competition from financial institutions which may have greater resources than
the Association,  but which have not generally engaged in lending  activities in
the  Association's  market area in the past.  Competition may also increase as a
result of the lifting of restrictions on the interstate  operations of financial
institutions. See "--Regulation."

LENDING ACTIVITIES

         Loan Portfolio  Composition.  The Association's loan portfolio consists
primarily  of  conventional   one-  to  four-family  first  mortgage  loans  and
construction loans. To a lesser extent, the Association also makes multi- family
residential  loans,  commercial real estate loans, land loans, and loans secured
by savings accounts at the Association.

         The types of loans that the  Association  may  originate are subject to
federal  and  state  laws  and  regulations.   Interest  rates  charged  by  the
Association  on loans are  affected by the demand for such loans,  the supply of
money available for lending purposes and the rates offered by competitors. These
factors are in turn  affected  by,  among  other  things,  economic  conditions,
monetary  policies  of the federal  government,  including  the Federal  Reserve
Board, and legislative tax policies.

         The following  table sets forth the  composition  of the  Association's
mortgage and other loan  portfolios  in dollar  amounts and  percentages  at the
dates indicated.



<TABLE>
<CAPTION>
                                                                                      AT SEPTEMBER 30,
                                                                  -----------------------------------------------------
                                                                            2000                          1999
                                                                  ------------------------      -----------------------
                                                                                   % OF                          % OF
                                                                    AMOUNT         TOTAL          AMOUNT         TOTAL
                                                                  ----------     ---------      ----------      -------
                                                                                   (DOLLARS IN THOUSANDS)
<S>                                                                 <C>            <C>            <C>            <C>
Type of loans:
   One- to four-family residential .........................        $27,073         37.31%        $24,394         39.71%
   Multi-family residential ................................            187          0.26             184          0.30
   Commercial real estate ..................................         10,595         14.60           8,460         13.76
   Land ....................................................          6,342          8.74           8,232         13.39
   Commercial Construction .................................          3,933          5.42           2,351          3.82
   Residential Construction ................................         26,859         37.01          24,693         40.17
   Equity Line Mortgages ...................................          3,338          4.60           3,107          5.05
   Lines of Credit .........................................          5,786          7.97           2,719          4.42
   Savings Account .........................................            644          0.89             222          0.36
                                                                    -------        ------         -------        ------
Total loans ................................................         84,757        116.80          74,362        120.98
                                                                    -------        ------         -------        ------

Less:
   Deferred loan fees ......................................            204          0.28             172          0.28
   Undisbursed portion of loans in process .................         11,709         16.14          12,460         20.27
   Allowance for loan losses ...............................            280          0.38             263          0.43
                                                                    -------        ------         -------        ------
                                                                     12,193         16.80          12,895         20.98
                                                                    -------        ------         -------        ------
Total loans receivable, net ................................        $72,564        100.00%        $61,467        100.00%
                                                                    =======        ======         =======        ======
</TABLE>



                                      -4-
<PAGE>

         Loan Maturity.  The following table shows the  contractual  maturity of
the  Association's  loans at September 30, 2000.  The table  reflects the entire
unpaid  principal  balance in the maturity  period that  includes the final loan
payment  date  and,  accordingly,  does not give  effect to  periodic  principal
repayments or possible prepayments. Principal repayments and prepayments totaled
$36.4 million and $45.8 million for the years ended September 30, 2000 and 1999,
respectively.

<TABLE>
<CAPTION>
                                                                      AT SEPTEMBER 30, 2000
                             -------------------------------------------------------------------------------------------------------
                             RESIDENTIAL      RESIDENTIAL
                                1 TO 4-          MULTI-        COMMERCIAL                        COMMERCIAL         RESIDENTIAL
                                FAMILY           FAMILY        REAL ESTATE          LAND        CONSTRUCTION(1)   CONSTRUCTION(1)
                             -----------      -----------      ----------         --------      ---------------   ---------------
                                                                      (DOLLARS IN THOUSANDS)
<S>                            <C>              <C>              <C>              <C>               <C>               <C>
Contractual maturity:
One year or less               $  3,541         $     --         $     --         $  1,267          $  3,138          $ 26,859
                               --------         --------         --------         --------          --------          --------
After one year:
  1 year to 3 years              17,258               --               58               81                --                --
  3 years to 5 years              4,273               --               45               31                --                --
  5 years to 10 years               964               --            1,128            4,528                --                --
  10 years to 20 years            1,037               --            7,800              435               795                --
  Over 20 years                      --              187            1,564               --                --                --
                               --------         --------         --------         --------          --------          --------
  Total after one year           25,532              187           10,595            5,075               795                --
                               --------         --------         --------         --------          --------          --------
Total amount due                 27,073              187           10,595            6,342             3,933            26,859
Less undisbursed loans               --               --               --             (169)           (2,024)           (9,516)
                               --------         --------         --------         --------          --------          --------
Net loans outstanding          $ 27,073         $    187         $ 10,595         $  6,173          $  1,909          $ 17,343
                               ========         ========         ========         ========          ========          ========

<CAPTION>
                                                  AT SEPTEMBER 30, 2000
                             ---------------------------------------------------------------
                                 EQUITY                            SAVINGS
                                  LINE            LINES OF         ACCOUNT
                                MORTGAGES          CREDIT           LOANS             TOTAL
                                ---------         --------         --------         --------

<S>                              <C>              <C>              <C>              <C>
Contractual maturity:
One year or less                 $     --         $  5,786         $    171         $ 40,762
                                 --------         --------         --------         --------
After one year:
  1 year to 3 years                    --               --              456           17,853
  3 years to 5 years                   --               --               17            4,366
  5 years to 10 years                  --               --               --            6,620
  10 years to 20 years              3,338               --               --           13,405
  Over 20 years                        --               --               --            1,751
                                 --------         --------         --------         --------
  Total after one year              3,338               --              473           43,995
                                 --------         --------         --------         --------
Total amount due                    3,338            5,786              644           84,757
Less undisbursed loans                 --               --               --          (11,709)
                                 --------         --------         --------         --------
Net loans outstanding            $  3,338         $  5,786         $    644         $ 73,048
                                 ========         ========         ========         ========

------------------------
(1)      Net of undisbursed loans in process. Certain construction loans which mature in periods beyond one year are lines of credit
         to contractors, the purpose of which is to provide for construction related funds.

</TABLE>

<PAGE>

         The following table sets forth the dollar amounts in each loan category
at September 30, 2000 that are  contractually  due after September 30, 2001, and
whether such loans have fixed interest rates or adjustable interest rates.

<TABLE>
<CAPTION>
                                                                                 DUE AFTER SEPTEMBER 30, 2001
                                                                    -------------------------------------------------------
                                                                      FIXED RATES        ADJUSTABLE RATES          TOTAL
                                                                    ----------------  ------------------------  -----------
                                                                                     (DOLLARS IN THOUSANDS)
<S>                                                                     <C>                   <C>                 <C>
One- to four-family residential ..................................      $ 2,070               $21,462             $23,532
Multi-family residential .........................................          187                    --                 187
Commercial Real Estate ...........................................          634                 9,961              10,595
Land .............................................................          187                 4,888               5,075
Commercial Construction ..........................................           --                   795                 795
Residential Construction .........................................           --                    --                  --
Equity line mortgages ............................................           --                 3,338               3,338
Lines of credit ..................................................           --                    --                  --
Savings account loans ............................................          473                    --                 473
                                                                        -------               -------             -------
Total ............................................................      $ 3,551               $40,444             $43,995
                                                                        =======               =======             =======
</TABLE>


         Origination,  Purchase,  Sale and Servicing of Loans. The Association's
lending  activities  are  conducted  through  its office in Wake  Forest,  North
Carolina.  The Association  originates both  adjustable-rate  mortgage loans and
fixed-rate  mortgage  loans.   Adjustable-rate  mortgage  loans  and  fixed-rate
mortgage loans carry maximum maturities of 30 years and 15 years,  respectively.
The  Association's  ability to originate  loans is  dependent  upon the relative
customer  demand for  fixed-rate or  adjustable-rate  mortgage  loans,  which is
affected by the current  and  expected  future  levels of  interest  rates.  The
Association  currently holds for its portfolio all loans it originates and, from
time to time,  purchases  participations  in mortgage loans  originated by other
institutions or affordable  housing  consortiums.  The determination to purchase
participations  in  specific  loans or pools  of  loans is based  upon  criteria
substantially similar to the Association's underwriting policies, which consider
the financial condition of the borrower, the location of the underlying property
and the appraised  value of the property,  among other factors.  The Association
has no  current  plans to sell loans it  originates.  The  Association  does not
service loans for others and has no current plans to begin such activities.



                                      -5-
<PAGE>

         One- to  Four-Family  Mortgage  Lending.  The  Association  offers both
fixed-rate and  adjustable-rate  mortgage loans,  with maturities up to 15 years
and  30  years,  respectively,  which  are  secured  by  one-  to  four-  family
residences, which generally are owner-occupied. Substantially all such loans are
secured by  property  located in  northern  Wake  County and  southern  Franklin
Counties, North Carolina. Loan originations are generally obtained from existing
or past  customers  and members of the local  communities.  See  "--Origination,
Purchase, Sale and Servicing of Loans."

         At  September  30,  2000,  the  Association's  total  loans  were $72.6
million, of which $27.1 million, or 37.31% were one- to four-family  residential
mortgage  loans.  Of  the  one-  to  four-family   residential   mortgage  loans
outstanding at that date,  7.75%,  or $2.1 million,  were  fixed-rate  loans and
92.25%, or $25.0 million,  were  adjustable-rate  loans. The Association  offers
three to five year balloon  loans,  which are either called or modified based on
the Association's  interest rates currently in effect at the balloon date. These
loans are similar to adjustable rate loans in that the loans generally  amortize
over terms of up to 30 years but are not indexed to any widely  recognized rate,
such as the one year U.S.  Treasury  securities  rate,  and do not have interest
rate caps or floors.  Instead,  the  majority of such loans are  modified at the
balloon date and the rate is adjusted to the Association's  current rate offered
for similar loans being  originated  on such dates.  For purposes of the tabular
presentations  throughout  this  document,  such  loans  are  considered  to  be
adjustable. Such loans involve risks similar to more traditional adjustable rate
loans  because the  Association  modifies  the loan  documents at the end of the
three  and  five  year  terms to  adjust  for  rates  currently  offered  by the
Association for similar loans being  originated on such dates. The loans are not
generally  underwritten again at modification unless the Association is aware of
collateral or ability-to-pay issues.

         In view of its operating strategy, the Association adheres to its Board
approved underwriting guidelines for loan origination,  which, though prudent in
approach  to  credit  risk  and  evaluation  of  collateral,   allow  management
flexibility  with respect to documentation of certain matters and certain credit
requirements.  As a result,  such  underwriting  guidelines  in certain  lending
situations are less rigid than comparable Federal National Mortgage  Association
("Fannie Mae") or FHLMC  underwriting  guidelines.  The Association's  loans are
typically originated under terms, conditions and documentation which permit them
to be sold to U.S.  government  sponsored agencies such as the Fannie Mae or the
FHLMC. The Association, however, has no intention to sell loans in the secondary
market. The Association's policy is to originate one- to four-family residential
mortgage  loans in amounts up to 80% of the lower of the appraised  value or the
selling price of the property  securing the loan.  Mortgage loans  originated by
the  Association   generally  include  due-on-sale  clauses  which  provide  the
Association  with the  contractual  right to deem the loan  immediately  due and
payable in the event the borrower  transfers  ownership of the property  without
the  Association's  consent.  Due-on-sale  clauses  are an  important  means  of
adjusting the rates on the Association's  fixed-rate mortgage loan portfolio and
the Association has generally exercised its rights under these clauses.

         Construction Lending. The Association originates loans for construction
to local real estate contractors in its market area,  generally with whom it has
an established  relationship  and to  individuals  for  construction  of one- to
four-family residences. The Association's construction loans primarily have been
made to finance the construction of one- to four-family  residential  properties
which are generally  owner-occupied.  These loans are generally fixed-rate loans
with  maturities  of six  months  with  an  automatic  six  month  renewal.  The
Association's policies provide that construction loans may be made in amounts up
to 80% of the  appraised  value of the  property  or the  cost of  construction,
whichever is less,  for  construction  of one- to  four-family  residences.  All
construction  loans are subject to the limitation on  loans-to-one-borrower  and
the Association  considers the location of the proposed construction in order to
avoid  over-concentration in a single area. Prior to making a commitment to fund
a construction  loan, the Association  requires an independent  appraisal of the
property  by  a  state-certified  appraiser  if  the  requested  amount  exceeds
$125,000.  The  Association's  Chairman  of the Board  generally  inspects  each
project at the  commencement  of  construction  and  throughout  the term of the
construction.   Loan  proceeds  are  disbursed  in  increments  as  construction
progresses and as inspections warrant based upon a percentage of completion.  At
September 30, 2000, the Association  had $17.3 million (net of undisbursed  loan
funds of $9.5  million) of  residential  construction  loans  which  amounted to
23.90% of the  Association's  net loans  outstanding.  The  largest  residential
construction loan in the Association's  portfolio at September 30, 2000 was $1.0
million,  is secured by a single  family  residence  under  construction  and is
performing according to its terms.



                                      -6-
<PAGE>

         Construction loans to individuals are typically made in connection with
the granting of the  permanent  loan on the  property.  Such loans  convert to a
fully  amortizing  adjustable- or fixed-rate loan at the end of the construction
term. In most cases,  the Association  requires that the closing with respect to
permanent  financing occur  simultaneously  with the closing of any construction
loan to an individual.

         The  Association's  construction  loans to local  builders  are made on
either a pre-sold  or  speculative  (unsold)  basis.  However,  the  Association
generally limits the number of unsold homes under  construction by its builders,
with the amount dependent on the reputation of the builder, the present exposure
of the  builder,  the location of the  property,  the size of the loan and prior
sales of homes in the development.  The Association estimates that approximately
75% of its construction loans to builders are on a speculative basis.

         The  Association  also  originates  construction  loans  on  commercial
properties.  The  underwriting  requirements  are similar to those  required for
construction loans on residential properties. However, the loan to value may not
exceed 75% of the property's  appraised  value,  certain debt service and income
ratios  are  considered,  and  financial  projections  and  business  plans  are
reviewed.  At  September  30,  2000,  the  Association  had $1.9 million (net of
undisbursed loan funds of $2.0 million) of commercial  construction  loans which
amounted  to 2.63% of the  Association's  net  loans  outstanding.  The  largest
commercial  construction  loan in the  Association's  portfolio at September 30,
2000 was $1.8 million,  is secured by an area church  property and is performing
according to its terms.

         Construction loans are generally  considered to involve a higher degree
of credit risk than one- to four-  family  residential  mortgage  loans  because
circumstances  outside the  borrower's  control may adversely  affect the market
value of the property. The Association has attempted to minimize these risks by,
among  other  things,  limiting  the  extent of its  construction  lending  as a
proportion  of lending and by limiting  its  construction  lending to  primarily
residential  properties.  In addition,  the Association has adopted underwriting
guidelines  which  impose  stringent  loan-to-value,   debt  service  and  other
requirements  for loans which are believed to involve higher  elements of credit
risk, by limiting the geographic area in which the Association  will do business
to its existing market and by working with builders with whom it has established
relationships.  It is also the  Association's  general policy to obtain personal
guarantees  from the  principal of its corporate  borrowers on its  construction
loans.

         Commercial Real Estate  Mortgage  Lending.  The Association  originates
commercial real estate  mortgage loans that are generally  secured by properties
used  for  business  purposes  and  retail  facilities,  such  as  small  office
buildings,  located in the  Association's  market area as well as a  significant
number of church loans. The Association's  underwriting  procedures provide that
commercial  real estate loans may be made in amounts up to the lesser of (i) 75%
of the lesser of the appraised  value or purchase price of the property and (ii)
the Association's current loans-to-one-borrower limit. These loans are generally
originated as three or five year balloon loans with  amortization  periods of up
to 20 years. The Association's  underwriting  standards and procedures for these
loans are similar to those applicable to its construction  lending,  whereby the
Association considers factors such as the borrower's  expertise,  credit history
and  profitability.  At September 30, 2000, the  Association's  commercial  real
estate  mortgage  portfolio  was  $10.6  million,   or  14.60%  of  total  loans
outstanding.  The  largest  commercial  real  estate  loan in the  Association's
portfolio  at  September  30,  2000 was $1.5  million  and is secured by a local
church property.

         Mortgage  loans  secured  by  commercial  real  estate  properties  are
generally  larger and involve a greater  degree of risk than one- to four-family
residential   mortgage  loans.  This  risk  is  attributable  to  the  uncertain
realization  of  projected  income-producing  cash flows  which are  affected by
vacancy rates, the ability to maintain rent levels against  competitively-priced
properties  and the  ability to  collect  rent from  tenants on a timely  basis.
Because payments on loans secured by commercial real estate properties are often
dependent on the successful operation or management of the properties, repayment
of such loans may be subject to a greater  extent to adverse  conditions  in the
real estate market or the economy. The Association seeks to minimize these risks
through its underwriting standards,  which require such loans to be qualified on
the basis of the property's income and debt service ratio.



                                      -7-
<PAGE>

         Equity Lines and Commercial Lines of Credit. The Association originates
equity  line loans on one- to four-  residential  properties  and line of credit
loans on commercial real estate. The Association's underwriting policies require
that equity line loans on one-to four- residential properties be secured by real
estate  where  the  Association  may or may not have the first  mortgage  on the
property.  The equity line loans on one-to four-  residential  properties may be
made in amounts up to 80% of the  appraised  value or adjusted  tax value of the
property,  and take into  consideration  any outstanding first mortgage liens in
determining the loan-to-value  ratio.  Equity line loans are originated at prime
plus 1% and adjust for changes in prime thereafter on the first day of the month
following a change in prime. The terms on the equity line loans on one- to four-
residential  properties are for a period of 15 years. At September 30, 2000, the
Association's  equity line  portfolio was $3.3 million,  or 4.60% of total loans
outstanding.

         The  risks   associated  with  equity  line  loans  on  one-  to  four-
residential  properties are generally similar to the risks associated with other
forms of  single-family  residential  lending  due to the loan-to  value  limits
placed  on such  loans.  The  lines  are  revolving  and may or may not be fully
disbursed at any given time.

         The Association's  underwriting  policies require that commercial lines
of credit be secured by commercial real estate where the Association has a first
mortgage  position.  Commercial lines of credit are made in amounts up to 75% of
the appraised value of developed  commercial real estate or 65% of the appraised
value of  undeveloped  land.  Commercial  lines of credit are made with terms of
between 3 and 10 years at prime plus 1%, with  adjustments  to prime made on the
first day of the month  following a change in prime.  At September 30, 2000, the
Association's  commercial line of credit portfolio was $5.8 million, or 7.97% of
total loans outstanding.

         The risks  associated with lines of credit on commercial real estate is
substantially the same as the risks described above on the  Association's  other
forms of commercial real estate lending.

         Other Mortgage  Lending.  The Association  also offers loans secured by
land and multi-family  residences.  Land loans generally  consist of residential
building lots for which the borrower intends to ultimately construct residential
properties, but may also include tracts purchased for speculative purposes and a
minor amount of farm land.  Multi-family  loans generally consist of residential
properties with more than four units,  typically apartment  complexes,  in which
the  Association  has a  participating  interest  through an affordable  housing
consortium.  The Association does not solicit such loans which do not constitute
an active part of its business,  and generally  offers such loans to accommodate
its  present  customers  or  to  fulfill   commitments  to  affordable   housing
consortiums.  At September 30, 2000, the Association's total land loan portfolio
was $6.3 million or 8.74% of total loans and its multi-family loan portfolio was
$187,000 or 0.26% of total loans.

         The  Association   requires   appraisals  of  all  properties  securing
multi-family  residential  loans.  Appraisals  are  performed by an  independent
appraiser  designated  by  the  Association,   all  of  which  are  reviewed  by
management.  The  Association  considers  the quality  and  location of the real
estate, the credit of the borrower, the cash flow of the project and the quality
of management involved with the property.

         The Association  originates  multi-family  residential  loans with both
fixed and adjustable  interest  rates which vary as to maturity.  Such loans are
typically  income-producing  investment  loans.  Loan  to  value  ratios  on the
Association's  multi-family  residential  loans are generally limited to 75%. As
part of the criteria for  underwriting  these loans, the  Association's  general
policy is to obtain  personal  guarantees  from the  principals of its corporate
borrowers.

         Multi-family  residential lending entails significant  additional risks
as  compared  with  single-family   residential  property  lending.  Such  loans
typically  involve large loan balances to single  borrowers or groups of related
borrowers.  The payment  experience on such loans is typically  dependent on the
successful operation of the real estate project. The success of such projects is
sensitive  to  changes  in supply  and  demand,  conditions  in the  market  for
multi-family  residential properties as well as regional and economic conditions
generally.

         Savings Account Loans. The Association  offers loans secured by savings
accounts at the  Association.  Interest  rates  charged on such loans are set at
competitive rates, taking into consideration the amount and term of



                                      -8-
<PAGE>

the loan and are  available  in amounts  up to 95% of the value of the  account.
Savings  account  loans are reviewed and approved in conformity  with  standards
approved by the  Association's  Board of Directors.  At September 30, 2000,  the
Association's  savings account loan portfolio totaled $644,000 or 0.89% of total
loans outstanding.

         Loan  Approval  Procedures  and  Authority.   The  Board  of  Directors
establishes  the lending  policies  of the  Association  and reviews  properties
offered as  security.  The Board of  Directors  has  established  the  following
lending  authority:  the lending  officers  may  approve  loans in amounts up to
$500,000  while loans above  $500,000  require  Board  approval.  The  foregoing
lending  limits are reviewed  annually  and, as needed,  revised by the Board of
Directors. The Board ratifies all loans on a monthly basis.

         For  all  loans  originated  by  the  Association,  upon  receipt  of a
completed  loan  application  from a  prospective  borrower,  a credit report is
ordered and certain  other  information  is  verified by an  independent  credit
agency, and, if necessary,  additional  financial  information is required to be
submitted by the  borrower.  An appraisal of any real estate  intended to secure
the proposed  loan is  required,  which  appraisal  currently is performed by an
independent appraiser designated and approved by the Association. Loans of up to
$125,000 may be approved by the  Association's  loan officers using property tax
values and drive-by  appraisals.  The Board  annually  approves the  independent
appraisers  used by the  Association  and approves the  Association's  appraisal
policy. It is the  Association's  policy to obtain title and hazard insurance on
all real estate loans. In connection with a borrower's  request for a renewal of
a mortgage loan, the Association evaluates the borrower's ability to service the
renewed  loan  applying  an  interest  rate  that  reflects   prevailing  market
conditions.   The  current  value  of  the  underlying  collateral  property  is
considered and the Association reserves the right to reappraise the property.

ASSET QUALITY

         Non-Performing  Loans. Loans are considered  non-performing if they are
in  foreclosure or are 90 or more days  delinquent.  Management and the Board of
Directors perform a monthly review of all delinquent loans. The actions taken by
the Association  with respect to  delinquencies  vary depending on the nature of
the loan and period of delinquency. The Association's policies generally provide
that delinquent mortgage loans be reviewed and that a written late charge notice
be mailed no later than the 30th day of delinquency.  The Association's policies
provide that  telephone  contact will be attempted to ascertain  the reasons for
delinquency  and the  prospects  of  repayment.  When  contact  is made with the
borrower at any time prior to foreclosure,  the  Association  attempts to obtain
full  payment  or work  out a  repayment  schedule  with the  borrower  to avoid
foreclosure.

         It is the Association's  general policy to place all loans which are 90
days past due on nonaccrual  status through the  establishment  of a reserve for
uncollected  interest  unless  collectibility  of  all  delinquent  interest  is
assured.  Exceptions to placing a loan on  non-accrual  status are made when the
loan officer or  management  believe that no loss will be incurred on such loan.
Any such  exceptions  are reported to the Board of Directors on a monthly basis.
Circumstances  under which such an  exception  may be granted  include  when the
underlying  property is being actively marketed for sales, when a sales contract
has  been  executed  and is  pending  closing  or when the  Association  and the
borrower are actively  negotiating a work-out  schedule and all such interest is
considered collectible.

         The  Association,  as part of its loan review  process,  including  the
decision whether to place a loan on nonaccrual status, attempts to determine the
underlying  cause of the borrower's  delinquency  and ability to repay the loan.
The Association  has been able to take this approach  because it is a relatively
small institution and its problem loans have been historically  insignificant as
a percentage  of the  Association's  total loan  portfolio.  As the  Association
grows, it may be necessary for the Association to take a more rigid approach and
automatically  place loans on  non-accrual  status upon becoming 90 days or more
past due and evaluate  only those loans that  trigger  certain  mechanisms  that
might indicate that an exception is warranted. However, management believes that
its current  approach  keeps it better  informed as to the progress of a problem
loan and its underlying  difficulties and that its non-accrual policy results in
an accurate  depiction  of loans that are  collectible  or likely to result in a
loss.  There can be no assurances that the Association  will be able to maintain
its problem loans at or below historical levels.



                                      -9-
<PAGE>

         Non-Accrual  and Other Past Due Loans.  The following  table sets forth
information  regarding non- accrual  loans,  other past due loans and REO. There
were no troubled debt restructurings within the meaning of SFAS No. 15 at any of
the dates presented below.



<TABLE>
<CAPTION>
                                                                                           AT OR FOR THE YEAR ENDED SEPTEMBER 30,
                                                                                        -------------------------------------------
                                                                                                 2000                    1999
                                                                                        -------------------       -----------------
                                                                                                    (DOLLARS IN THOUSANDS)
<S>                                                                                             <C>                    <C>
Non-accrual loans: ...................................................................          $    --                $    --
Accruing loans past due 90 days or more:
        Single family, One- to four-family residential ...............................          $    --                    294
                                                                                                -------                -------
Total non-performing loans ...........................................................          $    --                $   294
                                                                                                =======                =======
Allowance for loan losses ............................................................          $   280                $   263
                                                                                                =======                =======
Real estate owned, net ...............................................................          $    --                $    --
                                                                                                =======                =======
Ratios:
    Non-accrual loans to total loans .................................................             0.00%                  0.00%
    Non-performing loans to total loans ..............................................             0.00%                  0.48%
    Non-performing loans and real estate owned to
      total assets ...................................................................             0.00%                  0.41%
    Allowance for loan losses to:
      Non-accrual loans ..............................................................             0.00%                  0.00%
      Non-performing loans ...........................................................             0.00%                 89.51%
      Total loans ....................................................................             0.38%                  0.42%
Contractual interest income that would have been
  recognized on non-accrual loans ....................................................          $    --                $    --
Actual interest income recognized ....................................................               --                     --
                                                                                                -------                -------
Interest income not recognized .......................................................          $    --                $    --
                                                                                                =======                =======
</TABLE>


         Classified   Assets.   Federal   regulations   and  the   Association's
Classification of Assets Policy require that the Association utilize an internal
asset  classification  system  as a means of  reporting  problem  and  potential
problem  assets.  The  Association  has  incorporated  the  OTS  internal  asset
classifications  as a part of its  credit  monitoring  system.  The  Association
currently  classifies problem and potential problem assets as "Special Mention,"
"Substandard," "Doubtful" or "Loss" assets. An asset is considered "Substandard"
if it is inadequately protected by the current equity and paying capacity of the
obligor or of the collateral pledged, if any. "Substandard" assets include those
characterized by the "distinct  possibility"  that the insured  institution will
sustain "some loss" if the deficiencies are not corrected.  Assets classified as
"Doubtful" have all of the weaknesses inherent in those classified "Substandard"
with the added  characteristic  that the weaknesses  present make "collection or
liquidation in full," on the basis of currently existing facts, conditions,  and
values,  "highly  questionable and improbable."  Assets classified as "Loss" are
those considered "uncollectible" and of such little value that their continuance
as assets without the establishment of a specific loss reserve is not warranted.
Assets which do not currently expose the insured  institution to sufficient risk
to warrant  classification in one of the  aforementioned  categories but possess
weaknesses are required to be designated "Special Mention."

         When an insured institution  classifies one or more assets, or portions
thereof,  as Substandard  or Doubtful,  it is required to establish an allowance
for loan losses in an amount deemed  prudent by  management.  Allowance for loan
losses  represent loss allowances  which have been  established to recognize the
inherent risk associated  with lending  activities,  but which,  unlike specific
allowances,  have not been  allocated  to  particular  problem  assets.  When an
insured  institution  classifies one or more assets, or proportions  thereof, as
"Loss," it is required either to establish a specific  allowance for loan losses
equal to 100% of the  amount of the asset so  classified  or to charge  off such
amount.

         A savings  institution's  determination as to the classification of its
assets and the amount of its  allowance  for loan losses is subject to review by
the OTS which can order the establishment of additional allowances.  The OTS, in
conjunction  with the  other  federal  banking  agencies,  recently  adopted  an
interagency  policy statement on



                                      -10-
<PAGE>

allowance for loan losses.  The policy statement provides guidance for financial
institutions on both the  responsibilities  of management for the assessment and
establishment  of adequate  allowances and guidance for banking agency examiners
to use in  determining  the adequacy of  valuation  guidelines.  Generally,  the
policy  statement  recommends  that  institutions  have  effective  systems  and
controls  to  identify,   monitor  and  address  asset  quality  problems;  that
management has analyzed all significant  factors that affect the  collectibility
of the portfolio in a reasonable  manner;  and that  management has  established
acceptable  allowance evaluation processes that meet the objectives set forth in
the policy statement.  While the Association believes that it has established an
adequate  allowance for loan losses,  there can be no assurance that regulators,
in reviewing the  Association's  loan  portfolio as part of a future  regulatory
examination,  will not  request  the  Association  to  materially  increase  its
allowance  for loan  losses,  thereby  negatively  affecting  the  Association's
financial condition and earnings at that time. Although management believes that
adequate  allowance  for loan losses have been  established,  actual  losses are
dependent  upon future  events and, as such,  further  additions to the level of
specific or allowance for loan losses may become necessary.

         The Association's  management  reviews and classifies the Association's
assets quarterly and reports the results to the Association's Board of Directors
on a quarterly basis. The Association  classifies  assets in accordance with the
management  guidelines described above. The Association had no assets classified
as substandard or classified as Special  Mention,  Doubtful or Loss at September
30, 2000. The Association  had $293,800 of assets  classified as Substandard and
no assets classified as Special Mention, Doubtful or Loss at September 30, 1999.

         Allowance for Loan Losses. The allowance for loan losses is established
through a provision  for loan losses  based on  management's  evaluation  of the
risks inherent in the Association's loan portfolio and the general economy.  The
allowance  for loan  losses  is  maintained  at an amount  management  considers
adequate to cover loan  losses  which are deemed  probable  and  estimable.  The
allowance is based upon a number of factors,  including  asset  classifications,
economic  trends,  industry  experience  and  trends,  industry  and  geographic
concentrations,  estimated  collateral  values,  management's  assessment of the
credit risk inherent in the portfolio,  historical loan loss experience, and the
Association's  underwriting  policies.  At September 30, 2000, the Association's
allowance for loan losses was $280,000,  or 0.38% of total loans, as compared to
$263,000 or 0.43%,  at September 30, 1999. The  Association  had  non-performing
loans  of $0 and  $293,800  at  September  30,  2000  and  September  30,  1999,
respectively.  The Association's  level of nonperforming  loans has historically
been low. The  Association  provided  $34,250 in additional loan loss provisions
during  2000.  During the  current  year,  the  Association  charged off $17,300
against its loan loss allowance for a non-performing loan which was subsequently
paid off during the period.  The  Association's  management  determined that its
loan loss allowances were adequate during 1999 and,  accordingly,  no additional
provisions  were  provided in 1999.  There were no loans charged off against the
allowances during 1999. This evaluation is inherently  subjective as it requires
estimates  that are  susceptible to  significant  revisions as more  information
becomes  available.  Various regulatory  agencies,  as an integral part of their
examination  process,  periodically review the Association's  allowance for loan
losses.  These  agencies may require the  Association  to  establish  additional
valuation  allowances,  based on their judgments of the information available at
the time of the examination.

         Real Estate Owned.  Property acquired by the Association as a result of
foreclosure  on a  mortgage  loan is  classified  as real  estate  owned  and is
initially recorded at the fair value of the property at the date of acquisition,
establishing  a new cost  basis  with any  resulting  writedown  charged  to the
allowance  for loan losses.  Thereafter,  an allowance for losses on real estate
owned is  established  if the cost of a property  exceeds its current fair value
less  estimated  sales  costs.  The  Association  obtains an appraisal on a real
estate owned  property as soon as practicable  after it takes  possession of the
real property.  The Association will generally reassess the value of real estate
owned at least  quarterly  thereafter.  The  policy  for loans  secured  by real
estate, which comprise the bulk of the Association's  portfolio, is to establish
loss reserves in accordance with the Association's asset classification process,
based on GAAP. At September 30, 2000, the Association held no real estate owned.



                                      -11-
<PAGE>

         The following table sets forth activity in the Association's  allowance
for loan losses and the  allowance for losses on real estate owned at or for the
periods indicated.


<TABLE>
<CAPTION>
                                                                                                FOR THE YEAR ENDED SEPTEMBER 30,
                                                                                            ----------------------------------------
                                                                                                   2000                   1999
                                                                                            -----------------       ----------------
                                                                                                         (IN THOUSANDS)
<S>                                                                                                <C>                    <C>
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of year ...........................................................           $ 263                  $ 263
Provision for loan losses ..............................................................              34                     --
Charge-offs ............................................................................             (17)                    --
Recoveries .............................................................................              --                     --
                                                                                                   -----                  -----
Balance at end of year .................................................................           $ 280                  $ 263
                                                                                                   =====                  =====
Ratio of net charge-offs to average loans outstanding ..................................            0.03%                    --
                                                                                                   =====                  =====
ALLOWANCE FOR LOSSES ON REAL ESTATE OWNED:
Balance at beginning of year ...........................................................           $  --                  $  --
Provision for losses ...................................................................              --                     --
Recoveries .............................................................................              --                     --
Charge-offs ............................................................................              --                     --
                                                                                                   -----                  -----
Balance at end of year .................................................................           $  --                  $  --
                                                                                                   =====                  =====
</TABLE>


         Accrued  interest  receivable on accruing  loans past due by 90 days or
more  amounted to $0 and $28,300 at September  30, 2000 and 1999,  respectively.
Accordingly, if the Association had placed all such loans on non- accrual status
at those dates,  interest  income for the fiscal years ended  September 30, 2000
and 1999 would have decreased by $0 and $12,800, respectively.

         The  following  table sets forth the  Association's  allowance for loan
losses  allocated by loan  category and the percent of loans in each category to
total loans at the dates indicated.


<TABLE>
<CAPTION>
                                                                                    AT SEPTEMBER 30,
                                                    --------------------------------------------------------------------------------
                                                                    2000                                     1999
                                                    --------------------------------------    --------------------------------------
                                                                                PERCENT OF                                PERCENT OF
                                                                                 LOANS IN                                  LOANS IN
                                                                 PERCENT OF        EACH                   PERCENT OF        EACH
                                                                 ALLOWANCE       CATEGORY                  ALLOWANCE       CATEGORY
                                                    ALLOWANCE     TO TOTAL       TO TOTAL     ALLOWANCE    TO TOTAL        TO TOTAL
                                                      AMOUNT     ALLOWANCE        LOANS         AMOUNT     ALLOWANCE        LOANS
                                                    ---------    ---------       --------     ---------    ---------       --------
                                                                                  (DOLLARS IN THOUSANDS)
<S>                                                    <C>          <C>            <C>           <C>          <C>            <C>
Mortgage loans:
  One- to four- family residential .............       $ 36         12.86%         31.94%        $ 35         13.31%         32.80%
  Multi-family residential .....................          2          0.71           0.22            3          1.14           0.24
  Commercial real estate .......................         65         23.21          12.50           55         20.91          11.38
  Land .........................................         30         10.71           7.48           37         14.07          11.07
  Commercial construction ......................         12          4.29           4.64           10          3.80           3.16
  Residential construction .....................        120         42.86          31.69          113         42.97          33.21
  Equity line mortgages ........................          5          1.79           3.94            5          1.90           4.18
  Lines of Credit ..............................         10          3.57           6.83            5          1.90           3.66
                                                       ----        ------         ------         ----        ------         ------
Total mortgage loans ...........................        280        100.00          99.24          263        100.00          99.70
Savings account loans ..........................         --            --           0.76           --            --           0.30
                                                       ----        ------         ------         ----        ------         ------
Total allowance for loan losses ................       $280        100.00%        100.00%        $263        100.00%        100.00%
                                                       ====        ======         ======         ====        ======         ======
</TABLE>


                                      -12-
<PAGE>

INVESTMENT ACTIVITIES

         The  Association's  investment  policy  permits  it to  invest  in U.S.
government  obligations,  certain  securities  of  various  government-sponsored
agencies,  certificates  of deposit of insured  banks and savings  institutions,
federal  funds,  and  overnight  deposits  at the  Federal  Home Loan  Bank.  At
September 30, 2000, the Association  held: FHLMC stock with an amortized cost of
$15,200 and a current  market value of $838,150 and Federal Home Loan Bank stock
with a cost and market value of $290,700. At September 30, 2000, the Association
held  $9.6  million  in  investments,   including  short-term  interest  earning
deposits.

         The  following   table  sets  forth   activity  in  the   Association's
investments portfolio for the periods indicated:


<TABLE>
<CAPTION>
                                                                                          FOR THE YEAR ENDED SEPTEMBER 30,
                                                                                          --------------------------------
                                                                                            2000                  1999
                                                                                          ---------            ----------
                                                                                                  (IN THOUSANDS)
<S>                                                                                       <C>                   <C>
Amortized cost at beginning of period ........................................            $  8,872              $ 16,758
Purchases/(Maturities or Sales), net .........................................                 (66)               (7,885)
Premium and discount amortization, net .......................................                  --                    (1)
                                                                                          --------              --------
Amortized cost at end of period ..............................................               8,806                 8,872
Net unrealized gain(1) .......................................................                 801                   763
                                                                                          --------              --------
Total securities, net ........................................................            $  9,607              $  9,635
                                                                                          ========              ========
</TABLE>
-------------------
(1)  The net unrealized gain at September 30, 2000 and 1999 relates to available
     for sale  securities in accordance  with Statement of Financial  Accounting
     Standards  ("SFAS") No. 115. The net unrealized  gain is presented in order
     to reconcile the "Amortized Cost" of the Association's securities portfolio
     to the  "Carrying  Cost,"  as  reflected  in the  Statements  of  Financial
     Condition.


         The following table sets forth the amortized cost and fair value of the
Association's investments at the dates indicated.


<TABLE>
<CAPTION>
                                                                                          AT SEPTEMBER 30,
                                                                     -------------------------------------------------------------
                                                                               2000                                1999
                                                                     ---------------------------       ---------------------------
                                                                     AMORTIZED                         AMORTIZED
                                                                        COST          FAIR VALUE          COST          FAIR VALUE
                                                                     ---------        ----------       ---------        ----------
                                                                                            (IN THOUSANDS)
<S>                                                                    <C>              <C>              <C>              <C>
Federal Home Loan Bank Overnight Deposits ......................       $6,250           $6,250           $5,827           $5,827
U.S. Treasury Obligations ......................................        2,250            2,228            2,750            2,722
Equity securities(1) ...........................................           15              838               15              806
Federal Home Loan Bank Stock ...................................          291              291              280              280
                                                                       ------           ------           ------           ------
Total Investments, net(2) ......................................       $8,806           $9,607           $8,872           $9,635
                                                                       ======           ======           ======           ======

-------------------
(1)      Equity securities consist of FHLMC common stock.
(2)      The difference between "Amortized Cost" and "Fair Value" represents net unrealized gains at September 30, 2000 and 1999
         on available for sale securities in accordance with SFAS No. 115.

</TABLE>


                                      -13-
<PAGE>

         The following table sets forth the amortized cost and fair value of the
Association's investments, by accounting classification and by type of security,
at the dates indicated.


<TABLE>
<CAPTION>
                                                                                          AT SEPTEMBER 30,
                                                                     -------------------------------------------------------------
                                                                               2000                               1999
                                                                     ---------------------------       ---------------------------
                                                                     AMORTIZED                         AMORTIZED
                                                                        COST          FAIR VALUE          COST          FAIR VALUE
                                                                     ---------        ----------       ---------        ----------
                                                                                            (IN THOUSANDS)
<S>                                                                    <C>              <C>              <C>              <C>
Held to Maturity:
   Debt securities .............................................       $   --           $   --           $   --           $   --
                                                                       ------           ------           ------           ------
      Total held to maturity ...................................           --               --               --               --
                                                                       ------           ------           ------           ------

Available-for-Sale:
   Debt securities .............................................        2,250            2,228            2,750            2,722
   Equity securities ...........................................           15              838               15              806
                                                                       ------           ------           ------           ------
      Total available-for-sale .................................        2,265            3,066            2,765            3,528
                                                                       ------           ------           ------           ------

Federal Home Loan Bank Overnight deposits ......................        6,250            6,250            5,827            5,827
                                                                       ------           ------           ------           ------
Federal Home Loan Bank Stock ...................................          291              291              280              280
                                                                       ------           ------           ------           ------

      Total Investments, net(1) ................................       $8,806           $9,607           $8,872           $9,635
                                                                       ======           ======           ======           ======

---------------
(1)      The difference  between "Amortized Cost" and "Fair Value" represents net unrealized gains at September 30, 2000 and 1999 on
         available for sale securities in accordance with SFAS No. 115.

</TABLE>


         The  following  table  sets forth  certain  information  regarding  the
amortized cost, fair value and weighted average yield of the Association's  debt
securities at September 30, 2000, by remaining period to contractual maturity.


<TABLE>
<CAPTION>
                                                                              AT SEPTEMBER 30, 2000
                                                           -------------------------------------------------------------------------
                                                                    HELD-TO-MATURITY                      AVAILABLE FOR SALE
                                                           --------------------------------     ------------------------------------
                                                                                   WEIGHTED                                WEIGHTED
                                                           AMORTIZED      FAIR      AVERAGE     AMORTIZED      FAIR         AVERAGE
                                                             COST         VALUE      YIELD        COST         VALUE         YIELD
                                                           ---------    --------    -------     ---------      -----        --------
                                                                                     (DOLLARS IN THOUSANDS)
<S>                                                          <C>          <C>        <C>         <C>           <C>             <C>
U.S. Treasury:
   Due within 1 year ................................        $  --        $  --         --%      $1,500        $1,485          5.34%
   Due after 1 year but within 5 years ..............           --           --         --          750           743          5.65
   Due after 5 years but within 10 years ............           --           --         --           --            --            --
   Due after 10 years ...............................           --           --         --           --            --            --
                                                             -----        -----      -----       ------        ------        ------
      Total .........................................           --           --         --        2,250         2,228            --
Equity Securities ...................................           --           --         --           15           838            --
Federal Home Loan Bank stock ........................                        --         --          291           291
Federal Home Loan Bank deposits .....................           --           --         --        6,250         6,250            --
                                                             -----        -----      -----       ------        ------        ------

      Total .........................................        $  --        $  --        --%       $8,806        $9,607          5.44%
                                                             =====        =====      =====       ======        ======        ======
</TABLE>

                                      -14-
<PAGE>

SOURCES OF FUNDS

         General.  Deposits,  loan and security  repayments and  prepayments and
cash  flows   generated  from   operations  are  the  primary   sources  of  the
Association's funds for use in lending and for other general purposes.

         Deposits.  The Association  offers a variety of deposit accounts with a
range of interest rates and terms. The Association's deposits consist of regular
(passbook)  savings  accounts,  NOW accounts,  checking  accounts,  money market
deposit  accounts,  IRAs and  certificates  of  deposit.  In recent  years,  the
Association  has offered  certificates  of deposit with  maturities  of up to 60
months.  At September  30, 2000,  the  Association's  core  deposits  (which the
Association considers to consist of NOW accounts,  money market deposit accounts
and regular savings accounts) constituted 19.61% of total deposits.  The flow of
deposits is influenced significantly by general economic conditions,  changes in
money market rates, prevailing interest rates and competition. The Association's
deposits  are  obtained  predominantly  from the areas  located  near its office
location. The Association relies primarily on customer service and long-standing
relationships  with  customers  to attract and retain these  deposits.  However,
market  interest  rates and rates  offered by competing  financial  institutions
significantly  affect the Association's  ability to attract and retain deposits.
The Association does not use brokers to obtain deposits.

         The following  table presents the deposit  activity of the  Association
for the periods indicated.


<TABLE>
<CAPTION>
                                                                                             FOR THE YEAR ENDED SEPTEMBER 30,
                                                                                             --------------------------------
                                                                                               2000                    1999
                                                                                             --------                --------
                                                                                                 (DOLLARS IN THOUSANDS)
<S>                                                                                          <C>                     <C>
Total deposits at beginning of period .............................................          $ 57,654                $ 60,038
Net increase (decrease) before interest credited ..................................             7,737                  (4,315)
Interest credited .................................................................             2,483                   1,931
                                                                                             --------                --------
Total deposits at end of period ...................................................          $ 67,874                $ 57,654
                                                                                             ========                ========
</TABLE>

         At September 30, 2000, the Association had approximately  $13.5 million
in "Jumbo"  certificate of deposits (accounts in amounts over $100,000) maturing
as follows:



<TABLE>
<CAPTION>
                                                                                                                       WEIGHTED
                                                                                                 AMOUNT              AVERAGE RATE
                                                                                               ----------           --------------
                                                                                                     (DOLLARS IN THOUSANDS)
<S>                                                                                             <C>                       <C>
MATURITY PERIOD
----------------------------------------------------------------------------------
Within three months ..............................................................                1,448                   5.75%
After three but within six months ................................................                  672                   5.68
After six but within twelve months ...............................................                2,994                   5.97
After twelve but within twenty-four months .......................................                4,668                   6.99
After twenty-four months .........................................................                3,697                   6.68
                                                                                                -------
           Total .................................................................              $13,479                   6.48%
                                                                                                =======
</TABLE>


                                      -15-
<PAGE>

         The following table sets forth the  distribution  of the  Association's
deposit  accounts and the related  weighted  average interest rates at the dates
indicated.



<TABLE>
<CAPTION>
                                                                                   AT SEPTEMBER 30,
                                                   --------------------------------------------------------------------------------
                                                                   2000                                       1999
                                                   ---------------------------------------     ------------------------------------
                                                                  PERCENT         WEIGHTED                   PERCENT       WEIGHTED
                                                                  OF TOTAL        AVERAGE                    OF TOTAL       AVERAGE
                                                    AMOUNT        DEPOSITS          RATE        AMOUNT       DEPOSITS        RATE
                                                   --------       --------        --------     --------      --------      --------
                                                                                (DOLLARS IN THOUSANDS)
<S>                                                 <C>            <C>              <C>         <C>           <C>            <C>
Passbook accounts ..........................        $ 3,276          4.83%          3.00%       $ 3,554         6.16%        3.00%
MMDA accounts ..............................          7,766         11.44%          4.65%         7,923        13.74%        4.15%
NOW accounts ...............................          1,590          2.34%          2.50%         1,413         2.45%        2.50%
Noninterest-bearing accounts ...............            681          1.00%            --            304         0.53%          --
Certificate accounts .......................         54,505         80.30%          6.27%        44,402        77.01%        5.35%
             Accrued Interest ..............             56          0.09%                           58         0.11%
                                                    -------        ------                       -------       ------
                Totals .....................        $67,874        100.00%          5.77%       $57,654       100.00%        4.98%
                                                    =======        ======                       =======       ======
</TABLE>

         The following  table presents,  by interest rate ranges,  the amount of
certificate  accounts  outstanding  at the  dates  indicated  and the  period to
maturity of the certificate accounts outstanding at September 30, 2000.



<TABLE>
<CAPTION>
                               PERIOD TO MATURITY AT SEPTEMBER 30, 2000                                                  TOTAL AT
-----------------------------------------------------------------------------------------------------                  SEPTEMBER 30,
   INTEREST RATE RANGE                        2001            2002            2003         THEREAFTER      TOTAL           1999
------------------------------------         -------         -------         -------       ----------   ------------   -------------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                          <C>             <C>             <C>             <C>          <C>              <C>
3.00% to 5.00% .....................         $ 4,766         $   164         $    28         $   176      $ 5,134          16,919
5.01% to 7.00% .....................          20,827          10,566           3,051           7,878       42,322          27,379
7.01% to 8.00% .....................             100           6,419              --             530        7,049             104
                                             -------         -------         -------         -------      -------         -------
   Total ...........................         $25,693         $17,149         $ 3,079         $ 8,584      $54,505          44,402
                                             =======         =======         =======         =======      =======         =======
</TABLE>

         Borrowings.  The Association  historically has not used borrowings as a
source of funds.  However,  the Association may obtain advances from the Federal
Home Loan Bank as an  alternative  to retail  deposit funds and may do so in the
future as part of its operating strategy. These advances would be collateralized
primarily by certain of the Association's  mortgage loans and secondarily by the
Association's  investment  in capital  stock of the Federal Home Loan Bank.  See
"Regulation--Regulation of Federal Savings  Associations--Federal Home Loan Bank
System."  Such  advances  may be  made  pursuant  to  several  different  credit
programs,  each of which has its own interest rate and range of maturities.  The
maximum  amount  that  the  Federal  Home  Loan  Bank  will  advance  to  member
institutions,  including  the  Association,  fluctuates  from  time  to  time in
accordance  with the  policies  of the OTS and the  Federal  Home Loan Bank.  At
September 30, 2000,  neither the Company nor the  Association had any borrowings
outstanding.

PERSONNEL

         As of  September  30,  2000,  the  Company  had no  employees  who were
compensated through the Company.

         As of September 30, 2000, the Association  had 11 full-time  employees.
In the last three years,  the  Association  has  experienced a low turnover rate
among its employees  and, as of September 30, 2000,  eight of the  Association's
employees had been with the Association  for more than six years.  The employees
are  not  represented  by a  collective  bargaining  unit  and  the  Association
considers its relationship  with its employees to be good. See Part III, Item 10
"Executive  Compensation" for a description of certain  compensation and benefit
programs offered to the Association's employees.



                                      -16-
<PAGE>

                                   REGULATION

            The Company,  the MHC and the  Association  are subject to extensive
regulation,  examination and supervision by the OTS, as their chartering agency.
The  Association's  deposit accounts are insured up to applicable  limits by the
Savings  Association  Insurance Fund and it is a member of the Federal Home Loan
Bank of Atlanta.  The Association  must file reports with the OTS concerning its
activities and financial condition and it must obtain regulatory approvals prior
to entering into certain transactions, such as mergers with, or acquisitions of,
other depository institutions.  The OTS conducts periodic examinations to assess
the  Association's  compliance  with  various  regulatory   requirements.   This
regulation and supervision  establishes a comprehensive  framework of activities
in which a savings  institution  can engage and is  intended  primarily  for the
protection of the deposit  insurance  fund and  depositors.  The Company and the
MHC, as savings and loan holding companies, are required to file certain reports
with, and otherwise comply with, the rules and regulations of the OTS.

            The  OTS  has  significant   discretion  in  connection  with  their
supervisory  and  enforcement  activities and  examination  policies,  including
policies with respect to the  classification  of assets and the establishment of
adequate  loan  loss  reserves  for  regulatory  purposes.  Any  change  in such
policies,  whether by the OTS or the  Congress,  could  have a material  adverse
impact on the Company, the Association or the MHC.

            On November 12,  1999,  President  Clinton  signed into law landmark
financial  services  legislation,   titled  the   Gramm-Leach-Bliley   Act.  The
Gramm-Leach-Bliley  Act repeals  depression-era  laws  restricting  affiliations
among banks,  securities firms, insurance companies and other financial services
providers.  The  impact of the  Gramm-Leach-Bliley  Act on the  Company  and the
Association,  where  relevant,  is discussed  throughout the regulation  section
below.

            The following discussion is intended to be a summary of the material
statutes and  regulations  applicable  to savings  institutions  and it does not
purport to be a comprehensive description of all such statutes and regulations.

REGULATION OF FEDERAL SAVINGS ASSOCIATIONS

            Business  Activities.   The  Association  derives  its  lending  and
investment  powers from the Home Owner's Loan Act and the regulations of the OTS
thereunder.  Under these laws and  regulations,  the  Association  may invest in
mortgage  loans  secured  by  residential  and   non-residential   real  estate,
commercial  and consumer  loans,  certain types of debt  securities  and certain
other assets.  The Association may also establish service  corporations that may
engage in activities not otherwise  permissible for the  Association,  including
certain real estate equity  investments and securities and insurance  brokerage.
These  investment  powers are subject to various  limitations,  including  (a) a
prohibition  against the  acquisition of any corporate debt security that is not
rated in one of the four highest  rating  categories;  (b) a limit of 400% of an
association's   capital   on  the   aggregate   amount  of  loans   secured   by
non-residential  real estate  property;  (c) a limit of 20% of an  association's
assets on commercial loans, with the amount of commercial loans in excess of 10%
of  assets  being  limited  to small  business  loans;  (d) a limit of 35% of an
association's  assets on the aggregate amount of consumer loans and acquisitions
of certain debt securities;  (e) a limit of 5% of assets on non-conforming loans
(loans in excess of the specific  limitations of the Home Owner's Loan Act); and
(f) a limit of the  greater  of 5% of  assets  or an  association's  capital  on
certain  construction  loans  made for the  purpose of  financing  what is or is
expected to become residential property.

         Loans  to One  Borrower.  Under  the Home  Owner's  Loan  Act,  savings
institutions  are generally  subject to the same limits on loans to one borrower
as are imposed on national  banks.  Generally,  under  these  limits,  a savings
institution may not make a loan or extend credit to a single or related group of
borrowers in excess of 15% of the association's  unimpaired capital and surplus.
Additional amounts may be lent, not exceeding 10% of an association's unimpaired
capital and surplus, if such loans and extensions of credit are fully secured by
readily-marketable  collateral.  Such  collateral is defined to include  certain
debt and equity  securities  and bullion,  but  generally  does not include real
estate. At September 30, 2000, the Association's  limit on loans to one borrower
was approximately $2.1 million. At September 30, 2000, the Association's largest
aggregate  amount  of loans to one  borrower  was $1.9  million,  consisting  of
various  loans  secured  by farm and  residential  tracts.  The  second  largest
borrower had an aggregate  balance of  approximately  $1.8  million,  secured by
various residential and



                                      -17-
<PAGE>

commercial  tracts.  At September  30,  2000,  all of the loans in both of these
lending relationships were performing in accordance with their terms.

            QTL Test.  The Home Owner's Loan Act requires a savings  institution
to meet a Qualified  Thrift Lender  ("QTL") test.  Under the QTL test, a savings
institution  is required to maintain at least 65% of its  "portfolio  assets" in
certain  "qualified  thrift  investments"  in at least  nine  months of the most
recent 12-month period.  "Portfolio assets" means, in general,  an association's
total  assets  less the sum of (a)  specified  liquid  assets up to 20% of total
assets,  (b) goodwill and other intangible assets, and (c) the value of property
used  to  conduct  an  association's   business.   The  term  "Qualified  thrift
investments"  includes  various types of loans made for  residential and housing
purposes,    investments   related   to   such   purposes,   including   certain
mortgage-backed  and related  securities,  consumer loans, small business loans,
education loans,  and credit card loans. A savings  association may also satisfy
the QTL test by  qualifying  as a "domestic  building and loan  association"  as
defined in the  Internal  Revenue  Code of 1986.  At  September  30,  2000,  the
Association  maintained  72.84%  of its  portfolio  assets in  qualified  thrift
investments.  The  Association had also met the QTL test in each of the prior 12
months and, therefore, was a qualified thrift lender.

            A savings  association  that fails the QTL test must either  operate
under certain  restrictions on its activities or convert to a bank charter.  The
initial  restrictions  include  prohibitions  against  (a)  engaging  in any new
activity  not  permissible  for  a  national  bank,  (b)  paying  dividends  not
permissible under national bank regulations, (c) obtaining new advances from any
Federal Home Loan Bank;  and (d)  establishing  any new branch in a location not
permissible  for a national bank in an  association's  home state.  In addition,
within one year of the date a savings  association  ceases to meet the QTL test,
any company controlling the association would have to register under, and become
subject  to the  requirements  of,  the Bank  Holding  Company  Act of 1956,  as
amended. If the savings association does not requalify under the QTL test within
the  three-year  period  after it failed the QTL test,  it would be  required to
terminate any activity and to dispose of any  investment not  permissible  for a
national  bank and would have to repay as promptly as possible  any  outstanding
advances  from a Federal Home Loan Bank. A savings  association  that has failed
the QTL test may requalify  under the QTL test and be free of such  limitations,
but it may do so only once.

            Capital   Requirements.   The  OTS   regulations   require   savings
institutions to meet three minimum capital  standards:  a tangible capital ratio
requirement  of 1.5% of total assets as adjusted  under the OTS  regulations,  a
leverage  ratio  requirement of 3% of core capital to such adjusted total assets
and a risk-based  capital ratio requirement of 8% of total risk-based capital to
total risk-weighed assets. In determining the amount of risk-weighted assets for
purposes of the  risk-based  capital  requirement,  a savings  institution  must
compute its risk-based assets by multiplying its assets and certain  off-balance
sheet items by risk-weights, which range from 0% for cash and obligations issued
by the  United  States  Government  or its  agencies  to 100% for  consumer  and
commercial  loans, as assigned by the OTS capital  regulation based on the risks
that  the OTS has  determined  to be  inherent  in the type of  asset.  Tangible
capital  is  defined,  generally,  as  common  stockholder's  equity  (including
retained earnings), certain non-cumulative perpetual preferred stock and related
earnings  and  minority  interests  in  equity  accounts  of fully  consolidated
subsidiaries,  less intangibles other than certain mortgage servicing rights and
investments in and loans to  subsidiaries  engaged in activities not permissible
for a national bank. Core capital is defined similarly to tangible capital,  but
core capital also includes certain qualifying  supervisory  goodwill and certain
purchased credit card  relationships.  Supplementary  capital currently includes
cumulative  preferred stock,  long-term  perpetual  preferred  stock,  mandatory
convertible  securities,  subordinated debt and intermediate preferred stock and
the ALL. The ALL includible in supplementary  capital is limited to a maximum of
1.25% of risk-weighted  assets, and the amount of supplementary capital that may
be included as total capital cannot exceed the amount of core capital.

            The OTS regulations  require that a savings  institution with "above
normal"   interest  rate  risk,   when   determining  its  compliance  with  the
risk-based-capital  requirement,  to deduct a portion of such  capital  from its
total  capital to account for the "above  normal"  interest rate risk. A savings
institution's interest rate risk is measured by the decline in the net portfolio
value  of its  assets  (i.e.,  the  difference  between  incoming  and  outgoing
discounted cash flows from assets,  liabilities and off-balance sheet contracts)
resulting  from a  hypothetical  2%  increase  or  decrease  in market  rates of
interest, divided by the estimated economic value of an association's assets, as


                                      -18-
<PAGE>

calculated in accordance with guidelines set forth by the OTS. At the times when
the 3-month  Treasury bond  equivalent  yield falls below 4%, an association may
compute its interest  rate risk on the basis of a decrease  equal to one-half of
that Treasury rate rather than on the basis of 2%. A savings  institution  whose
measured  interest  rate risk  exposure  exceeds 2% would be  considered to have
"above  normal"  risk.  The interest  rate risk  component is an amount equal to
one-half of the difference between an association's  measured interest rate risk
and 2%, multiplied by the estimated  economic value of an association's  assets.
That  dollar  amount  is  deducted  from  an  association's   total  capital  in
calculating  compliance with its risk-based  capital  requirement.  Any required
deduction for interest rate risk becomes  effective on the last day of the third
quarter  following the reporting  date of the  institution's  financial  data on
which the interest rate risk was computed.  A savings institution with assets of
less than $300  million and a risk-based  capital  ratio in excess of 12% is not
required,  unless the OTS  determines  otherwise,  to comply  with the  standard
reporting requirements for the interest rate risk component, and the institution
may provide such selected  information  as the OTS  determines.  Currently,  the
Association  qualifies for this  exemption from the filing  requirements  but as
part of its interest rate risk management strategy, the Association  voluntarily
files these reports with the OTS. See  "Management's  Discussion and Analysis of
Financial Condition and Results of Operations--Asset/Liability  Management." The
regulations  also  authorize  the  Director  of the OTS to  waive  or  defer  an
association's  interest rate risk component on a case-by-case basis. The OTS has
indefinitely deferred the implementation of the IRR component in the computation
of an institution's risk-based capital requirement. The OTS continues to monitor
the IRR of individual  institutions  and retains the right to impose  additional
capital on individual institutions.

             At September  30,  2000,  the  Association  met each of its capital
requirements.

            The table below  presents the  Association's  regulatory  capital as
compared to the OTS regulatory capital requirements at September 30, 2000:


<TABLE>
<CAPTION>
                                                                                  CAPITAL            EXCESS
                                                                 AMOUNT         REQUIREMENTS         CAPITAL
                                                                --------      ----------------     -----------
<S>                                                             <C>                <C>               <C>
                                                                                (IN THOUSANDS)

Tangible capital ........................................       $13,399            $ 1,237           $12,162
Core capital ............................................        13,399              2,474            10,925
Risk-based capital ......................................        13,679              4,685             8,994
</TABLE>

         A  reconciliation  between  regulatory  capital  and  GAAP  capital  at
September 30, 2000 in the accompanying financial statements is presented below:


<TABLE>
<CAPTION>
                                                                                            TANGIBLE         CORE         RISK-BASED
                                                                                             CAPITAL        CAPITAL         CAPITAL
                                                                                            ---------      ---------      ----------
<S>                                                                                          <C>            <C>            <C>

                                                                                                         (IN THOUSANDS)

GAAP capital ..........................................................................      $ 14,172       $ 14,172       $ 14,172
Standalone equity in Holding Company ..................................................          (277)          (277)          (277)
Net unrealized gain on available for sale investment securities, net of tax ...........          (496)          (496)          (496)
Allowance for loan losses included as supplementary capital ...........................            --             --            280
                                                                                             --------       --------       --------
Regulatory capital ....................................................................      $ 13,399       $ 13,399       $ 13,679
                                                                                             ========       ========       ========
</TABLE>

         Limitation  on Capital  Distributions.  Under OTS capital  distribution
regulations,  certain  savings  associations  will be  permitted  to pay capital
distributions  during a calendar year that do not exceed the  association's  net
income  for that year plus its  retained  net  income  for the prior two  years,
without notice to, or the approval of, the OTS. However,  a savings  association
subsidiary of a savings and loan holding company, such as the Association,  will
continue  to have to file a notice  unless  the  specific  capital  distribution
requires an application.



                                      -19-
<PAGE>

In addition,  the OTS can prohibit a proposed  capital  distribution,  otherwise
permissible under the regulation, if the OTS has determined that the association
is in need of more than normal  supervision or if it determines  that a proposed
distribution by an association  would constitute an unsafe or unsound  practice.
Furthermore,  under the OTS prompt corrective action regulations, the Bank would
be prohibited from making any capital  distribution if, after the  distribution,
the Bank failed to meet its minimum capital  requirements,  as described  above.
See "--Prompt Corrective Regulatory Action."

         Liquidity.  The  Association  is required to maintain an average  daily
balance of liquid assets (cash,  certain time  deposits,  bankers'  acceptances,
specified United States Government, state and federal agency obligations, shares
of certain  mutual funds and certain  corporate  debt  securities and commercial
paper) equal to a monthly average of not less than a specified percentage of its
net  withdrawable  deposit accounts plus short-term  borrowings.  This liquidity
requirement may be changed from time to time by the OTS to any amount within the
range of 4% to 10% depending  upon economic  conditions and the savings flows of
member institutions,  and is currently 4%. Monetary penalties may be imposed for
failure  to  meet  these  liquidity  requirements.   The  Association's  average
liquidity ratio for the month ended September 30, 2000 was 28.12% which exceeded
the applicable requirements.  The Association has never been subject to monetary
penalties for failure to meet its liquidity requirements.

         Assessments. Savings institutions are required by OTS regulation to pay
assessments  to  the  OTS  to  fund  the  operations  of the  OTS.  The  general
assessment,   paid  on  a  semiannual  basis,  is  computed  by  totaling  three
components: the size of the association,  on which the basic assessment would be
based;  the  association's  supervisory  condition,  which  would  result  in an
additional  assessment  based on a percentage  of the basic  assessment  for any
savings  institution  with a  composite  rating of 3, 4 or 5 in its most  recent
safety  and  soundness  examination;  and the  complexity  of the  association's
operations, which would result in an additional assessment based on a percentage
of the basic  assessment  for any savings  association  that  managed  over $1.0
billion in trust assets,  serviced for others loans  aggregating  more than $1.0
billion,  or had certain  off-balance  sheet assets  aggregating  more than $1.0
billion.  In order to avoid a  disproportionate  impact on the  smaller  savings
institutions,  which are those whose total assets never exceeded $100.0 million,
the OTS  regulations  provide that the portion of the assessment  based on asset
size will be the lesser of the assessment  under the amended OTS  regulations or
the regulations before the amendment. Management believes that any change in its
rate of OTS assessments  under the amended OTS regulations will not be material.
The deposit insurance premium expense,  including operating assessments incurred
by the  Association  for the fiscal  years  ended  September  30,  2000 and 1999
totaled $42,300 and $59,850, respectively.

         Branching.  Subject to certain  limitations,  the Home Owner's Loan Act
and the OTS  regulations  permit  federally  chartered  savings  institutions to
establish branches in any state of the United States. The authority to establish
such a branch is available:  (a) in states that expressly  authorize branches of
savings  institutions  located in another state and (b) to an  association  that
qualifies  as a "domestic  building  and loan  association"  under the  Internal
Revenue Code of 1986, which imposes qualification  requirements similar to those
for a "qualified thrift lender" under the Home Owner's Loan Act. See "QTL Test."
The  authority  for a federal  savings  institution  to establish an  interstate
branch network would facilitate a geographic diversification of an association's
activities.  This  authority  under  the  Home  Owner's  Loan  Act  and  the OTS
regulations  preempts any state law purporting to regulate  branching by federal
savings institutions.

         Community  Reinvestment.  Under  the  Community  Reinvestment  Act,  as
implemented  by OTS  regulations,  a savings  institution  has a continuing  and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire  community,  including  low and  moderate  income
neighborhoods.  The  Community  Reinvestment  Act  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
Community  Reinvestment Act. The Community Reinvestment Act requires the OTS, in
connection  with  its  examination  of a  savings  institution,  to  assess  the
association's  record of meeting the credit needs of its  community  and to take
such record  into  account in its  evaluation  of certain  applications  by such
association.  The Community  Reinvestment  Act also requires all



                                      -20-
<PAGE>

institutions  to make public  disclosure  of their  Community  Reinvestment  Act
ratings.  The Association received a "Satisfactory"  Community  Reinvestment Act
rating in its most recent examination on June 15, 1998.

         The  Community  Reinvestment  Act  regulations  establish an assessment
system that bases an association's  rating on its actual  performance in meeting
community  needs. In particular,  the assessment  system focuses on three tests:
(a) a lending test, to evaluate the institution's  record of making loans in its
assessment areas; (b) an investment test, to evaluate the  institution's  record
of investing in community development projects, affordable housing, and programs
benefitting low or moderate income individuals and businesses; and (c) a service
test, to evaluate the  institution's  delivery of services through its branches,
ATMs, and other offices.

         Transactions  with  Related  Parties.  The  Association's  authority to
engage in transactions  with its  "affiliates" is limited by the OTS regulations
and by Sections 23A and 23B of the Federal Reserve Act. In general, an affiliate
of the  Association  is any company that controls the  Association  or any other
company that is controlled by a company that controls the Association, excluding
the  Association's  subsidiaries  other than those that are  insured  depository
institutions.  The OTS  regulations  prohibit  a savings  institution:  (a) from
lending to any of its  affiliates  that is engaged  in  activities  that are not
permissible for bank holding companies under Section 4(c) of the BHC Act and (b)
from purchasing the securities of any affiliate other than a subsidiary. Section
23A limits the aggregate amount of transactions with any individual affiliate to
10% of the capital and  surplus of the savings  institution  and also limits the
aggregate  amount of  transactions  with all  affiliates  to 20% of the  savings
institution's  capital  and  surplus.  Extensions  of credit to  affiliates  are
required to be secured by  collateral  in an amount and of a type  described  in
Section 23A, and the purchase of low quality assets from affiliates is generally
prohibited.  Section 23B provides  that certain  transactions  with  affiliates,
including loans and asset purchases,  must be on terms and under  circumstances,
including  credit  standards,  that  are  substantially  the same or at least as
favorable to the  association  as those  prevailing  at the time for  comparable
transactions  with  non-affiliated  companies.  In  the  absence  of  comparable
transactions,  such  transactions may only occur under terms and  circumstances,
including  credit  standards,  that in good  faith  would be offered to or would
apply to non-affiliated companies.

         The  Association's   authority  to  extend  credit  to  its  directors,
executive officers,  and 10% shareholders,  as well as to entities controlled by
such persons,  is currently  governed by the  requirements of Sections 22(g) and
22(h) of the Federal  Reserve Act and Regulation O of the Federal  Reserve Board
thereunder.  Among other things,  these  provisions  require that  extensions of
credit to insiders (a) be made on terms that are  substantially the same as, and
follow credit  underwriting  procedures that are not less stringent than,  those
prevailing for comparable transactions with unaffiliated persons and that do not
involve  more than the normal risk of  repayment  or present  other  unfavorable
features and (b) not exceed certain limitations on the amount of credit extended
to such persons,  individually and in the aggregate,  which limits are based, in
part, on the amount of the  association's  capital.  In addition,  extensions of
credit in excess of certain limits must be approved by the  association's  board
of directors.

         Enforcement.  Under the  Federal  Deposit  Insurance  Act,  the OTS has
primary  enforcement  responsibility  over  savings  institutions  and  has  the
authority  to  bring  enforcement  action  against  all  "institution-affiliated
parties,"  including any controlling  stockholder or any shareholder,  attorney,
appraiser  or  accountant  who  knowingly  or  recklessly  participates  in  any
violation of applicable law or regulation or breach of fiduciary duty or certain
other  wrongful  actions that causes or is likely to cause a more than a minimal
loss or other  significant  adverse  effect on an insured  savings  institution.
Civil  penalties  cover a wide range of  violations  and  actions and range from
$5,000 for each day during which  violations of law,  regulations,  orders,  and
certain written agreements and conditions continue, up to $1 million per day for
such violations if the person obtained a substantial  pecuniary gain as a result
of such  violation or knowingly or recklessly  caused a substantial  loss to the
institution. Criminal penalties for certain financial institution crimes include
fines of up to $1 million  and  imprisonment  for up to 30 years.  In  addition,
regulators have  substantial  discretion to take  enforcement  action against an
institution that fails to comply with its regulatory requirements,  particularly
with respect to its capital  requirements.  Possible  enforcement  actions range
from the  imposition  of a capital plan and capital  directive to  receivership,
conservatorship,  or the  termination  of deposit  insurance.  Under the Federal
Deposit  Insurance  Act, the FDIC has the authority to recommend to the Director
of OTS that  enforcement  action be taken with respect to a  particular  savings
institution.  If action is not taken by the  Director  of the OTS,  the FDIC has
authority to take such action under certain circumstances.



                                      -21-
<PAGE>

         Standards for Safety and Soundness.  The Federal Deposit Insurance Act,
as amended by Federal Deposit Insurance Corporation Improvement Act of 1991 FDIC
Improvement Act and the Riegle Community Development and Regulatory  Improvement
Act of  1994  ("Community  Development  Act"),  the OTS  and  the  federal  bank
regulatory  agencies have adopted,  a set of guidelines  prescribing  safety and
soundness standards pursuant to FDIC Improvement Act, as amended. The guidelines
establish  general  standards  relating to  internal  controls  and  information
systems,  internal  audit  systems,  loan  documentation,  credit  underwriting,
interest rate exposure,  asset growth, and compensation,  fees and benefits.  In
general,  the guidelines  require,  among other things,  appropriate systems and
practices  to  identify  and manage  the risks and  exposures  specified  in the
guidelines.  The guidelines  prohibit  excessive  compensation  as an unsafe and
unsound  practice and describe  compensation  as excessive when the amounts paid
are unreasonable or  disproportionate  to the services performed by an executive
officer,  employee,  director or principal  shareholder.  In  addition,  the OTS
adopted  regulations  that  authorize,  but do not require,  the OTS to order an
institution  that has been given notice by the OTS that it is not satisfying any
of such safety and soundness  standards to submit a compliance  plan.  If, after
being so notified,  an institution fails to submit an acceptable compliance plan
or fails in any material  respect to implement an accepted  compliance plan, the
OTS must issue an order directing action to correct the deficiency and may issue
an order  directing  other  actions  of the  types to which an  undercapitalized
association is subject under the "prompt  corrective  action" provisions of FDIC
Improvement  Act. If an institution  fails to comply with such an order, the OTS
may seek to enforce such order in judicial proceedings and to impose civil money
penalties.  In addition,  the OTS and the other federal bank regulatory agencies
have  guidelines  for  identifying  and  monitoring  asset  quality and earnings
standards.

         Real Estate Lending  Standards.  The OTS and the other federal  banking
agencies  adopted  regulations  to prescribe  standards for extensions of credit
that (a) are secured by real estate or (b) are made for the purpose of financing
the  construction of improvements  on real estate.  The OTS regulations  require
each savings  institution to establish and maintain written internal real estate
lending  standards that are consistent with safe and sound banking practices and
appropriate to the size of the  association and the nature and scope of its real
estate  lending   activities.   The  standards  also  must  be  consistent  with
accompanying  OTS  guidelines,   which  include  loan-to-value  ratios  for  the
different types of real estate loans.  Associations are also permitted to make a
limited  amount  of loans  that do not  conform  to the  proposed  loan-to-value
limitations so long as such exceptions are reviewed and justified appropriately.
The guidelines also list a number of lending  situations in which  exceptions to
the loan-to-value standards are justified.

         Prompt Corrective  Regulatory  Action.  Under the OTS prompt corrective
action  regulations,  the OTS is required to take certain,  and is authorized to
take other,  supervisory actions against  undercapitalized savings institutions.
For  this  purpose,  a  savings  institution  would  be  placed  in one of  five
categories based on the association's capital.  Generally, a savings institution
is treated as "well  capitalized" if its ratio of total capital to risk-weighted
assets is at least 10.0%, its ratio of core capital to  risk-weighted  assets is
at least 6.0%,  its ratio of core capital to total assets is at least 5.0%,  and
it is not  subject  to any  order  or  directive  by the OTS to meet a  specific
capital level. A savings institution will be treated as "adequately capitalized"
if its ratio of total  capital to  risk-weighted  assets is at least  8.0%,  its
ratio of core capital to risk-weighted assets is at least 4.0%, and its ratio of
core capital to total assets is at least 4.0% (3.0% if the association  receives
the highest rating on the CAMEL financial institutions rating system). A savings
institution that has a total risk-based  capital of less than 8.0% or a leverage
ratio or a Tier 1 capital ratio that is less than 4.0% (3.0%  leverage  ratio if
the association receives the highest rating on the CAMEL financial  institutions
rating  system) is considered to be  "undercapitalized."  A savings  institution
that has a total  risk-based  capital  of less than 6.0% or a Tier 1  risk-based
capital  ratio  or a  leverage  ratio  of less  than  3.0% is  considered  to be
"significantly  undercapitalized."  A savings  institution  that has a  tangible
capital  to assets  ratio  equal to or less than 2% is deemed to be  "critically
undercapitalized."  The elements of an association's capital for purposes of the
prompt corrective action regulations are defined generally as they are under the
regulations for minimum capital requirements.  See "--Capital  Requirements." At
September  30, 2000,  the  Association  met the  criteria  for being  considered
"well-capitalized."

         The severity of the action authorized or required to be taken under the
prompt  corrective  action  regulations  increases as an  association's  capital
deteriorates within the three undercapitalized  categories. All associations are
prohibited  from  paying  dividends  or other  capital  distributions  or paying
management fees to any controlling person if, following such  distribution,  the
association would be undercapitalized. An undercapitalized association



                                      -22-
<PAGE>

is  required to file a capital  restoration  plan within 45 days of the date the
association receives notice that it is within any of the three  undercapitalized
categories.  The  OTS  is  required  to  monitor  closely  the  condition  of an
undercapitalized  association  and to restrict the asset  growth,  acquisitions,
branching,  and new  lines of  business  of such an  association.  Significantly
undercapitalized  associations  are subject to  restrictions  on compensation of
senior executive officers; such an association may not, without OTS consent, pay
any bonus or  provide  compensation  to any senior  executive  officer at a rate
exceeding the officer's average rate of compensation  (excluding bonuses,  stock
options and  profit-sharing)  during the 12 months  preceding the month when the
association   became   undercapitalized.    A   significantly   undercapitalized
association  may also be subject,  among other things,  to forced changes in the
composition  of  its  board  of  directors  or  senior  management,   additional
restrictions  on  transactions  with  affiliates,  restrictions on acceptance of
deposits from correspondent associations,  further restrictions on asset growth,
restrictions  on rates paid on  deposits,  forced  termination  or  reduction of
activities  deemed  risky,  and  any  further  operational  restrictions  deemed
necessary by the OTS.

         If one or more grounds exist for  appointing a conservator  or receiver
for an association, the OTS may require the association to issue additional debt
or stock, sell assets, be acquired by a depository  association  holding company
or combine  with  another  depository  association.  The OTS and the FDIC have a
broad range of grounds  under  which they may appoint a receiver or  conservator
for an insured  depositary  association.  Under FDIC Improvement Act, the OTS is
required  to  appoint  a  receiver  (or  with the  concurrence  of the  FDIC,  a
conservator) for a critically undercapitalized  association within 90 days after
the association becomes critically  undercapitalized or, with the concurrence of
the FDIC,  to take such other action that would  better  achieve the purposes of
the prompt corrective action provisions.  Such alternative action can be renewed
for  successive 90- day periods.  However,  if the  association  continues to be
critically  undercapitalized  on average during the quarter that begins 270 days
after it first became critically undercapitalized, a receiver must be appointed,
unless  the OTS makes  certain  findings  with  which the FDIC  concurs  and the
Director of the OTS and the Chairman of the FDIC certify that the association is
viable.  In addition,  an  association  that is critically  undercapitalized  is
subject  to more  severe  restrictions  on its  activities,  and is  prohibited,
without  prior  approval of the FDIC from,  among other  things,  entering  into
certain material  transactions or paying interest on new or renewed  liabilities
at a rate that would significantly  increase the association's  weighted average
cost of funds.

         Where  appropriate,  the OTS can impose  corrective action by a savings
and loan holding company under the "prompt corrective action" provisions of FDIC
Improvement Act.

         Insurance of Deposit  Accounts.  Pursuant to FDIC  Improvement Act, the
FDIC established a new risk-based  assessment system for determining the deposit
insurance assessments to be paid by insured depositary  institutions.  Under the
new assessment  system,  the FDIC assigns an institution to one of three capital
categories based on the  institution's  financial  information as of the quarter
ending three months  before the beginning of the  assessment.  The three capital
categories consist of: (a) well capitalized,  (b) adequately capitalized, or (c)
undercapitalized.  The  FDIC  also  assigns  an  institution  to  one  of  three
supervisory subcategories within each capital group. The supervisory subgroup to
which an institution is assigned is based on a supervisory  evaluation  provided
to the FDIC by the institution's  primary federal regulator and information that
the FDIC determines to be relevant to the institution's  financial condition and
the risk posed to the deposit insurance funds. An institution's  assessment rate
depends  on the  capital  category  and  supervisory  category  to  which  it is
assigned.  Under the regulation,  there are nine assessment risk classifications
(i.e.,  combinations  of capital  groups  and  supervisory  subgroups)  to which
different  assessment  rates  are  applied.  Assessment  rates for both the Bank
Insurance Fund and the Savings  Association  Insurance Fund currently range from
0.00% of  deposits  for an  institution  in the  highest  category  (i.e.,  well
capitalized and financially  sound, with no more than a few minor weaknesses) to
0.27%  of  deposits  for  an   institution   in  the  lowest   category   (i.e.,
undercapitalized and substantial supervisory concern). The FDIC is authorized to
raise the assessment  rates as necessary to maintain the required  reserve ratio
of 1.25%. As a result of the Deposit  Insurance Funds Act of 1996, both the Bank
Insurance Fund and the Savings Association  Insurance Fund currently satisfy the
reserve ratio  requirement.  The Deposit Insurance Funds Act authorized the FDIC
to  impose a  special  one-time  assessment  on all  institutions  with  Savings
Association  Insurance  Fund-assessable  deposits  in the  amount  necessary  to
recapitalize the Savings Association  Insurance  Fund-assessable  deposits as of
March 31, 1995.



                                      -23-
<PAGE>

         The  1996 Act  also  provides  that  the  FDIC  cannot  assess  regular
insurance  assessments  for an insurance fund unless  required to maintain or to
achieve the  designated  reserve  ratio of 1.25%,  except on those of its member
institutions  that are not  classified as "well  capitalized"  or that have been
found to have "moderately severe" or "unsatisfactory" financial,  operational or
compliance weaknesses. The Association has not been so classified by the FDIC or
the OTS.  Accordingly,  assuming that the designated reserve ratio is maintained
by the Bank Insurance Fund and by the Savings  Association  Insurance Fund after
the collection of the special Savings Association Insurance Fund assessment, the
Association  will have to pay  substantially  lower regular  assessments  on its
deposits  compared  to those paid in recent  years,  as long as the  Association
maintains its regulatory status.

         Under the Federal Deposit  Insurance Act,  insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe
or  unsound  practices,  is  in an  unsafe  or  unsound  condition  to  continue
operations  or has violated  any  applicable  law,  regulation,  rule,  order or
condition imposed by the FDIC or the OTS. The management of the Association does
not know of any practice,  condition or violation that might lead to termination
of deposit insurance.

         Federal  Home  Loan Bank  System.  The  Association  is a member of the
Federal  Home Loan Bank of Atlanta,  which is one of the  regional  Federal Home
Loan Banks  composing the Federal Home Loan Bank System.  Each Federal Home Loan
Bank provides a central credit facility  primarily for its member  institutions.
The  Association,  as a member of the  Federal  Home Loan  Bank of  Atlanta,  is
required to acquire and hold  shares of capital  stock in the Federal  Home Loan
Bank of  Atlanta  in an  amount  at  least  equal  to the  greater  of 1% of the
aggregate principal amount of its unpaid residential  mortgage loans and similar
obligations  at the beginning of each year or 1/20 of its advances  (borrowings)
from the Federal Home Loan Bank of Atlanta.  The  Association  was in compliance
with this  requirement  with an  investment in Federal Home Loan Bank of Atlanta
stock at September 30, 2000, of $290,700.  Any advances from a Federal Home Loan
Bank  must be  secured  by  specified  types of  collateral,  and all  long-term
advances may be obtained only for the purpose of providing funds for residential
housing finance.

         The  Federal  Home Loan Banks are  required  to  provide  funds for the
resolution of insolvent  thrifts and to contribute funds for affordable  housing
programs.  These  requirements  could  reduce  the amount of  earnings  that the
Federal  Home Loan Banks can pay as  dividends  to their  members and could also
result in the  Federal  Home Loan Banks  imposing a higher  rate of  interest on
advances to their  members.  For the fiscal years ended  September  30, 2000 and
1999  dividends  from the Federal  Home Loan Bank of Atlanta to the  Association
amounted to $22,150 and $24,500,  respectively.  If dividends  were reduced,  or
interest on future Federal Home Loan Bank advances increased,  the Association's
net interest income would likely also be reduced.

         Under the  Gramm-Leach-Bliley  Act, membership in the Federal Home Loan
Bank is now voluntary for all federally-chartered savings associations,  such as
the  Association.   The   Gramm-Leach-Bliley  Act  also  replaces  the  existing
redeemable  stock  structure of the Federal Home Loan Bank System with a capital
structure that requires each Federal Home Loan Bank to meet a leverage limit and
a risk-based permanent capital requirement. Two classes of stock are authorized:
Class A  (redeemable  on  6-months  notice)  and Class B Update  (redeemable  on
5-years notice).

         Federal Reserve System. The Association is subject to provisions of the
Federal Reserve Act and the Federal  Reserve  Bureau's  regulations  pursuant to
which depositary  institutions may be required to maintain  non-interest-earning
reserves  against  their  deposit   accounts  and  certain  other   liabilities.
Currently,  reserves must be maintained against transaction  accounts (primarily
NOW and regular  checking  accounts).  The  Federal  Reserve  Board  regulations
generally  require  that  reserves  be  maintained  in the  amount  of 3% of the
aggregate of transaction  accounts up to $46.5 million.  The amount of aggregate
transaction  accounts  in excess of $46.5  million  are  currently  subject to a
reserve ratio of 10%,  which ratio the Federal  Reserve Board may adjust between
8% and 12%. The Federal Reserve Board regulations  currently exempt $4.9 million
of otherwise reservable balances from the reserve requirements,  which exemption
is  adjusted  by the  Federal  Reserve  Board  at  the  end of  each  year.  The
Association is in compliance with the foregoing  reserve  requirements.  Because
required  reserves  must be  maintained  in the form of  either  vault  cash,  a
non-interest-bearing  account  at a  Federal  Reserve  Bank,  or a  pass-through
account as defined by the  Federal  Reserve  Board,  the effect of this  reserve
requirement is to reduce



                                      -24-
<PAGE>

the Association's  interest-earning  assets. The balances maintained to meet the
reserve requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements imposed by the OTS. Federal Home Loan Bank System members
are also  authorized to borrow from the Federal Reserve  "discount  window," but
Federal  Reserve  Board  regulations  require such  institutions  to exhaust all
Federal  Home  Loan  Bank  sources  before  borrowing  from  a  Federal  Reserve
Association.

         New Privacy Regulations.  Pursuant to the  Gramm-Leach-Bliley  Act, the
OTS  has  published  final  regulations   implementing  the  privacy  protection
provisions of the  Gramm-Leach-Bliley  Act. These  regulations,  effective as of
November 13, 2000 with full  compliance  required by July 1, 2001,  require each
financial  institution  to adopt  procedures  to protect  customers'  "nonpublic
personal   information."   The  new  regulations   generally  require  that  the
Association  disclose its privacy  policy,  including  identifying  with whom it
shares a customer's "nonpublic personal information" to customers at the time of
establishing the customer relationship and annually thereafter. In addition, the
Association  will be  required  to provide  its  customers  with the  ability to
"opt-out" of having it share their personal  information with unaffiliated third
parties and not to disclose  account  numbers or access  codes to  nonaffiliated
third parties for marketing  purposes.  The Association  currently has a privacy
protection  policy in place and  intends  to review and amend  that  policy,  if
necessary, for compliance with the regulations.

REGULATION OF OTS HOLDING COMPANIES

         General.  The  Company  and  the  MHC  are  federal  holding  companies
chartered under Section 10(o) of the Home Owner's Loan Act. As such, the Company
and the MHC are registered  with and subject to OTS  examination and supervision
as well as certain reporting requirements.  In addition, the OTS has enforcement
authority  over the Company,  the MHC and any of their  non-savings  institution
subsidiaries.  Among other things, this authority permits the OTS to restrict or
prohibit  activities  that are  determined to be a serious risk to the financial
safety, soundness, or stability of a subsidiary savings institution. Unlike bank
holding  companies,  federal  mutual  holding  companies  are not subject to any
regulatory capital requirements or to supervision by the Federal Reserve System.

         Restrictions  Applicable  to Activities  of Mutual  Holding  Companies.
Pursuant to Section 10(o) of the Home Owner's Loan Act, a mutual holding company
may engage only in the  following  activities:  (i)  investing in the stock of a
savings  institution;  (ii) acquiring a mutual association through the merger of
such association into a savings  institution  subsidiary of such holding company
or an interim  savings  institution  subsidiary of such holding  company;  (iii)
merging with or acquiring another holding company,  one of whose subsidiaries is
a savings  institution;  (iv)  investing in a  corporation  the capital stock of
which is available  for purchase by a savings  institution  under federal law or
under  the  law of  any  state  where  the  subsidiary  savings  institution  or
associations  have their home offices;  (v) furnishing or performing  management
services for a savings  institution  subsidiary  of such holding  company;  (vi)
holding,  managing,  or  liquidating  assets  owned or  acquired  from a savings
institution  subsidiary  of such company;  (vii) holding or managing  properties
used or occupied by a savings  institution  subsidiary of such  company;  (viii)
acting as trustee  under a deed of trust;  (ix) any other  activity (a) that the
Federal Reserve Board, by regulation,  has determined to be permissible for bank
holding  companies under Section 4(c) of the BHC Act, unless the Director of the
OTS, by  regulation,  prohibits or limits any such activity for savings and loan
holding  companies,  or (b) in which multiple savings and loan holding companies
were  authorized  by  regulation  to directly  engage on March 5, 1987;  and (x)
purchasing,  holding,  or  disposing  of stock  acquired  in  connection  with a
qualified  stock issuance if the purchase of such stock by such holding  company
is approved by the Director of the OTS. If a mutual holding company  acquires or
merges with another holding company, the holding company acquired or the holding
company  resulting from such merger or acquisition may only invest in assets and
engage in activities listed above, and it has a period of two years to cease any
non- conforming activities and divest any non-conforming investments.



                                      -25-
<PAGE>

         Restrictions Applicable to All Savings and Loan Holding Companies.  The
Home Owner's Loan Act prohibits a savings and loan holding company,  including a
federal  mutual  holding  company,  directly or  indirectly,  from acquiring (i)
control  (as  defined  under  The Home  Owner's  Loan  Act) of  another  savings
institution (or a holding  company parent  thereof)  without prior OTS approval;
(ii) more  than 5% of the  voting  shares of  another  savings  institution  (or
holding  company  parent  thereof) that is not a subsidiary,  subject to certain
exceptions; (iii) through merger, consolidation,  or purchase of assets, another
savings   institution  or  a  holding  company  thereof,  or  acquiring  all  or
substantially  all of the  assets  of such  institution  (or a  holding  company
thereof)  without  prior  OTS  approval;  or  (iv)  control  of  any  depository
institution  not insured by the FDIC (except  through a merger with and into the
holding company's savings institution subsidiary that is approved by the OTS).

         A savings  and loan  holding  company  may not  acquire  as a  separate
subsidiary an insured  institution  that has a principal  office  outside of the
state  where the  principal  office of its  subsidiary  institution  is located,
except (i) in the case of certain  emergency  acquisitions (as defined under The
Home  Owner's  Loan Act)  approved  by the FDIC;  (ii) if such  holding  company
controls a savings institution  subsidiary that operated a home or branch office
in such additional state as of March 5, 1987, and (iii) if the laws of the state
in  which  the  savings  institution  to be  acquired  is  located  specifically
authorize  a savings  institution  chartered  by that state to be  acquired by a
savings  institution   chartered  by  the  state  where  the  acquiring  savings
institution  or  savings  and loan  holding  company  is located or by a holding
company that controls such a state chartered association. The conditions imposed
upon  interstate  acquisitions  by those  states that have  enacted  authorizing
legislation vary. Some states impose  conditions of reciprocity,  which have the
effect  of  requiring  that the laws of both the  state in which  the  acquiring
holding  company is located (as  determined  by the  location of its  subsidiary
savings  institution)  and the state in which the  association to be acquired is
located,  have each enacted legislation  allowing its savings institutions to be
acquired by out-of-state holding companies on the condition that the laws of the
other state authorize such  transactions on terms no more restrictive than those
imposed on the  acquiror by the state of the target  association.  Some of these
states also impose  regional  limitations,  which restrict such  acquisitions to
states within a defined  geographic  region.  Other states allow full nationwide
banking  without any  condition  of  reciprocity.  Some states do not  authorize
interstate acquisitions of savings institutions. In evaluating an application by
a holding  company to acquire a savings  institution,  the OTS must consider the
financial  and  managerial  resources  and future  prospects  of the company and
savings institution  involved,  the effect of the acquisition on the risk to the
insurance  funds,  the convenience  and needs of the community,  and competitive
factors.

         If the  savings  institution  subsidiary  of a federal  mutual  holding
company  fails  to meet the QTL test  set  forth  in  Section  10(m) of the Home
Owner's Loan Act and  regulations of the OTS, the holding  company must register
with the  Federal  Reserve  Board as a bank  holding  company  under the BHC Act
within  one  year  of the  savings  institution's  failure  to so  qualify.  For
additional  information in this regard,  see "--  Regulation of Federal  Savings
Associations -- QTL Test."

         For a description of certain  restrictions on transactions  between the
Association and its affiliates,  including,  without limitation, the Company and
the MHC, see "-- Regulation of Federal Savings Associations -- Transactions with
Related Parties."

FEDERAL SECURITIES LAW

         The  Company's  common stock is  registered  with the SEC under Section
12(g) of the Securities Exchange Act of 1934, as amended. The Company is subject
to  information,  proxy  solicitation,  insider trading  restrictions  and other
requirements under the Securities Exchange Act of 1934.

                           FEDERAL AND STATE TAXATION

FEDERAL TAXATION

         General.  The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive  description of the tax rules
applicable to the Company,  the Association or the MHC. The Association was last
audited for its taxable year ended September 30, 1993.



                                      -26-
<PAGE>

         For federal income tax purposes, the Company and the Association report
their income using a taxable year ending  September 30 and the accrual method of
accounting.  The Company,  the  Association and the MHC file separate income tax
returns  and each  reports its income on the same basis as the  Association  now
reports its income. Because the MHC owns less than 80% of the outstanding common
stock of the  Company,  the MHC and the Company are not  permitted  to file such
returns on a consolidated  basis. The Company and the Association may file their
returns on a consolidated basis, but during have elected to file separately. The
Company and the  Association  have  entered into a tax sharing  agreement  which
governs the  apportionment of taxable income between the entities.  The Company,
the MHC and the  Association  are subject to federal income taxation in the same
manner as other  corporations with some exceptions,  including  particularly the
Association's tax reserve for bad debts discussed below.

         Bad Debt Reserves. The Association,  as a "small bank" (one with assets
having an adjusted tax basis of $500 million or less) is permitted to maintain a
reserve for bad debts with respect to "qualifying loans," which, in general, are
loans  secured  by  certain  interests  in real  property,  and to make,  within
specified  formula limits,  annual additions to the reserve which are deductible
for purposes of computing  the  Association's  taxable  income.  Pursuant to the
Small Business Job Protection  Act of 1996, the  Association is now  recapturing
(taking into  income)  over a multi-year  period a portion of the balance of its
bad debt reserve as of September 30, 1998.

         Distributions.  To the extent that the Association makes  "non-dividend
distributions"  to the Company,  such  distributions  will be considered to have
been made from the  Association's  "base year reserve,"  i.e., its reserve as of
September 30, 1988,  and then from the  Association's  supplemental  reserve for
losses on loans,  to the  extent  thereof,  and an  amount  based on the  amount
distributed  (but not in excess of the amount of such reserves) will be included
in the Association's income. Non-dividend distributions include distributions in
excess of the  Association's  current and accumulated  earnings and profits,  as
calculated  for federal  income tax  purposes,  distributions  in  redemption of
stock, and distributions in partial or complete liquidation.  Dividends paid out
of the Association's  current or accumulated earnings and profits will not be so
included in the Association's income.

         The amount of additional  taxable  income  created from a  non-dividend
distribution  is an amount  that,  when reduced by the tax  attributable  to the
income,  is equal  to the  amount  of the  distribution.  Thus,  if,  after  the
Reorganization, the Association makes a non-dividend distribution to the Holding
Company,  approximately  one and one-half times the amount of such  distribution
(but not in excess of the amount of such reserves) would be includible in income
for federal  income tax purposes,  assuming a 34% federal  corporate  income tax
rate.  The  Association  does not intend to pay dividends that would result in a
recapture of any portion of its tax bad debt reserves.

         Corporate  Alternative  Minimum  Tax. The Code imposes a tax ("AMT") on
alternative  minimum  taxable income ("AMTI") at a rate of 20%. Only 90% of AMTI
can be  offset  by net  operating  loss  carryovers  of  which  the  Association
currently has none. AMTI is adjusted by determining the tax treatment of certain
items in a manner that negates the deferral of income resulting from the regular
tax treatment of those items.  Thus, the  Association's  AMTI is increased by an
amount equal to 75% of the amount by which the  Association's  adjusted  current
earnings  exceeds its AMTI  (determined  without  regard to this  adjustment and
prior to reduction for net operating losses). The Association does not expect to
be subject to the AMT.

         Although the corporate environmental tax of 0.12% of the excess of AMTI
(with  certain  modifications)  over $2.0  million has  expired,  under  current
Administration  proposals, such tax will be retroactively reinstated for taxable
years beginning after December 31, 1997 and before January 2009.

         Dividends  Received  Deduction.  As the  owner of more  than 20% of the
stock of the  Company,  the MHC may  deduct  from its  income  80% of  dividends
received from the Company. (A 70% dividends received deduction generally applies
with respect to dividends  received by a corporation  if such  corporation  owns
less than 20% of the stock of the corporation paying the dividend).





                                      -27-
<PAGE>

STATE TAXATION

         Under North Carolina law, the corporate  income tax is 7.00% of federal
taxable  income as  computed  under  the Code,  subject  to  certain  prescribed
adjustments. An annual state franchise tax is imposed at a rate of .0015 applied
to the greatest of the  institution's  (i) capital stock,  surplus and undivided
profits,  (ii) investment in tangible property in North Carolina or (iii) 55% of
the appraised valuation of property in North Carolina.

ITEM 2.  PROPERTIES

         The Company conducts its business  through its sole office,  located in
Wake Forest,  North Carolina,  which was renovated in 1995. The Company owns the
main office with net book value for  property  and  equipment  of $432,900 as of
September 30, 2000.  Management  believes that the Company's current  facilities
are  adequate  to meet the  present  and  immediately  foreseeable  needs of the
Company,  the Association and the MHC. However, the Company may consider opening
a branch office in the future.



<TABLE>
<CAPTION>
                                                                                  NET BOOK
                                                                                  VALUE AT
                                    LEASED OR                DATE               SEPTEMBER 30,
                                      OWNED                ACQUIRED                  2000
                                  ------------           ------------          ----------------
                                                                                (IN THOUSANDS)
<S>                                   <C>                    <C>                     <C>
Main Office...................        Owned                  1961                    $409
302 S. Brooks Street
Wake Forest, NC  27587
</TABLE>


ITEM 3.  LEGAL PROCEEDINGS

         At September  30, 2000,  there were no material  legal  proceedings  to
which the Company was a party or to which any of its property was subject.

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

         Not applicable.

                                     PART II

ITEM 5.  MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

         Information  relating  to the market for  Company's  common  equity and
related  stockholder  matters  appears under "Common Stock  Information"  in the
Company's  2001 Annual Report to  Stockholders  on page 38, and is  incorporated
herein by reference.

         Information relating to the payment of dividends by the Company appears
under  "Common  Stock  Information"  in the  Company's  2001  Annual  Report  to
Stockholders  on page 38, and is  incorporated  herein by reference.  A dividend
declared  by the Board of  Directors  of the  Company  is  considered  a capital
distribution from the Company to the stockholders, including the MHC, its mutual
holding  company.   Under  the  requirements  of  the  OTS,  there  are  certain
restrictions  on the ability of the Company to pay a capital  distribution.  See
"Regulation--Limitation on Capital Distributions."

         The Association's dividend payout ratios were 41.87% and 47.06% and the
equity to asset ratios were 17.74% and 18.35% for years ended September 30, 2000
and 1999, respectively.






                                      -28-
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS

         Certain of the above-captioned  information appears under "Management's
Discussion and Analysis" in the Registrant's  2001 Annual Report to Stockholders
on pages 3 through 13 and is incorporated herein by reference.

ITEM 7.  FINANCIAL STATEMENTS

         The following financial statements are incorporated by reference to the
indicated pages of the 2001 Annual Report to Stockholders.

                                                                    Page(s) in
                                                                   Annual Report
                                                                   -------------
         o   Independent Auditor's Report...............................14
         o   Consolidated Statements of Financial Condition,
                 September 30, 2000 and 1999............................15
         o   Consolidated Statements of Income,
                 Years Ended September 30, 2000 and 1999................16
         o   Consolidated Statements of Stockholders' Equity,
                 Years Ended September 30, 2000 and 1999.............17-18
         o   Consolidated Statements of Cash Flows,
                 Years Ended September 30, 2000 and 1999.............19-20
         o   Notes to Consolidated Financial Statements..............21-37

ITEM 8.  CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         The  information  relating to changes in  accountants  is  incorporated
herein by reference to the Company's  Proxy  Statement for the Annual Meeting of
Shareholders to be held on February 20, 2001 ("Proxy Statement").

                                    PART III


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

         The  information  relating to Directors and  Executive  Officers of the
Company is incorporated herein by reference to the Company's Proxy Statement for
the  Annual  Meeting  of  Shareholders  to be held on  February  20,  2001.  The
information  related to Section  16(a) of the Exchange Act is also  incorporated
herein by reference to the Proxy Statement.

ITEM 10. EXECUTIVE COMPENSATION

         The  information  relating to executive  compensation  is  incorporated
herein by reference to the Company's Proxy Statement.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information  relating to security  ownership of certain  beneficial
owners and management is incorporated herein by reference to the Company's Proxy
Statement  under the  heading  "Security  Ownership  of  Beneficial  Owners  and
Management".

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  information   relating  to  certain   relationships   and  related
transactions  is  incorporated  herein  by  reference  to  the  Company's  Proxy
Statement


                                      -29-
<PAGE>

ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K

         (a)      Exhibits

                  2.1      Plan of Reorganization  (Incorporated by reference to
                           Exhibit 2.1 of the Company's  Registration  Statement
                           on Form 8-A, filed with the SEC on May 7, 1999).

                  3.1      Federal Stock Charter of the Company (Incorporated by
                           reference  to Exhibit  3.1 of the Form 8-A filed with
                           the SEC on May 7, 1999).

                  3.2      Bylaws of the Company  (Incorporated  by reference to
                           Exhibit 3.2 of the Form 8-A filed with the SEC on May
                           7, 1999 ).

                  4.3      Common Stock Certificate of the Company (Incorporated
                           by  reference  to  Exhibit  4.3 of the Form 8-A filed
                           with the SEC on May 7, 1999).

                  10.1     Employment Agreement with Anna O. Sumerlin, President
                           and  Chief  Executive   Officer.   (Incorporated   by
                           reference  to Exhibit 10.1 of the Form 10-KSB for the
                           fiscal year ended  September  30, 1999 filed with the
                           SEC on December 28, 1999).

                  10.2     Employment  Agreement with Carlton E. Chappell,  Vice
                           President, Secretary and Treasurer.  (Incorporated by
                           reference  to Exhibit 10.2 of the Form 10-KSB for the
                           fiscal year ended  September  30, 1999 filed with the
                           SEC on December 28, 1999).

                  10.3     Employment  Agreement  with  Robert  C.  White,  Vice
                           President and Chief Financial Officer.  (Incorporated
                           by  reference  to Exhibit 10.3 of the Form 10-KSB for
                           the fiscal year ended  September  30, 1999 filed with
                           the SEC on December 28, 1999).

                  10.4     Employee Stock  Ownership Plan of Wake Forest Federal
                           Savings   &  Loan   Association.   (Incorporated   by
                           reference  to Exhibit 10.4 of the Form 10-KSB for the
                           fiscal year ended  September  30, 1999 filed with the
                           SEC on December 28, 1999).

                  10.5     Wake Forest Federal Savings & Loan  Association  1997
                           Recognition  and  Retention  Plan   (Incorporated  by
                           reference  to the Form S-8 filed with the SEC on July
                           27, 1999).

                  10.6     Wake Forest Federal Savings & Loan  Association  1997
                           Stock Option Plan  (Incorporated  by reference to the
                           Form S-8 filed with SEC on July 27, 1999).

                  13.1     2001 Annual Report to Stockholders

                  21.1     Subsidiaries  of  the  Registrant   (Incorporated  by
                           reference    to    Part    1    -    "General"    and
                           "Reorganization").

                  23.1     Independent Auditor's Consent

                  27.1     Financial Data Schedule  (filed in electronic  format
                           only)





                                      -30-
<PAGE>

         (B)      REPORTS ON FORM 8-K

         1.       The Company  filed a Current  Report on Form 8-K dated  August
                  21, 2000 announcing the termination of the firm of McGladrey &
                  Pullen,  LLP  as  the  Company's   independent   auditors  and
                  appointing  the  firm of  Dixon  Odom  PLLC  as the  Company's
                  independent  auditors for the fiscal year ending September 30,
                  2000.

         2.       The Company filed an amended  Current Report on Form 8-K dated
                  August 29, 2000 announcing that the firm of McGladrey & Pullen
                  LLP responded in a letter dated August 25, 2000 that they were
                  in agreement  with the  Company's  statements  included in its
                  Form 8-K dated August 21, 2000.






                                      -31-
<PAGE>

                                   SIGNATURES

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

                                        WAKE FOREST BANCSHARES, INC.
                                        (Registrant)



Date:  December 27, 2000                By:     /s/ Anna O. Sumerlin
      -----------------------------        -------------------------------------
                                           Anna O. Sumerlin
                                           President and Chief Executive Officer



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


/s/ Anna O. Sumerlin                                           December 27, 2000
------------------------------------------------               -----------------
Anna O. Sumerlin                                               Date
President, Chief Executive Officer
and Director
(Principal Executive Officer)



/s/ Robert C. White                                            December 27, 2000
------------------------------------------------               -----------------
Robert C. White                                                Date
Chief Financial Officer and Vice President
(Principal Accounting Officer)



/s/ Paul K. Brixhoff                                           December 27, 2000
------------------------------------------------               -----------------
Paul K. Brixhoff - Director                                    Date



/s/ Harold R. Washington                                       December 27, 2000
------------------------------------------------               -----------------
Harold R. Washington - Director                                Date


/s/  John D. Lyon                                              December 27, 2000
------------------------------------------------               -----------------
John D. Lyon - Director                                        Date


/s/  R.W. Wilkinson, III                                       December 27, 2000
------------------------------------------------               -----------------
R.W. Wilkinson, III - Vice-Chairman and Director               Date




                                      -32-
<PAGE>

/s/ Howard L. Brown                                            December 27, 2000
------------------------------------------------               -----------------
Howard L. Brown -Chairman of the Board                         Date
and Director



/s/ Leelan A. Woodlief                                         December 27, 2000
------------------------------------------------               -----------------
Leelan A. Woodlief - Director                                  Date



/s/ William S. Wooten                                          December 27, 2000
------------------------------------------------               -----------------
William S. Wooten - Director                                   Date


/s/ Rodney M. Privette                                         December 27, 2000
------------------------------------------------               -----------------
Rodney M. Privette - Director                                  Date





                                      -33-