SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549

                                   FORM 10-QSB

  [U] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934

          For the quarterly period ended March 31, 2000
                                         --------------
                                       OR
  [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

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

                           Commission File No: 0-24479

                               AF BANKSHARES, INC.
                               -------------------
        (Exact name of small business issuer as specified in its charter)

      Federally Chartered                              56-2098545
      -------------------                              ----------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

                           206 South Jefferson Avenue
                      West Jefferson, North Carolina 28694
                      ------------------------------------
               (Address of principal executive office) (Zip code)

                                 (336)-246-4344
                                 --------------
                           (Issuer's telephone number)

                                       N/A
                                       ---
              (Former name, former address and former fiscal year,
                         if changed since last report)

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

As of April 30, 2000 there were issued and outstanding 1,049,378 shares of the
Registrant's common stock, $.01 par value

Transitional Small Business Disclosure Format: Yes    No  U
                                                  ---    ---


<PAGE>

                               AF BANKSHARES, INC.
                                    CONTENTS


<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION                                                          Pages
                                                                                        -----
<S>                                                                                     <C>
         Item 1.  Financial Statements

Condensed Consolidated Statements of Financial Condition as of
March 31, 2000 (unaudited) and June 30, 1999                                                1

Condensed Consolidated Statements of Income and Comprehensive Income for
the Three and Nine Months ended  March 31, 2000 and 1999 (unaudited)                        2

Condensed Consolidated Statements of Cash Flows for the Nine Months ended
March 31, 2000 and 1999 (unaudited)                                                     3 - 4

Notes to Condensed Consolidated financial statements                                    5 - 7

         Item 2.  Management's Discussion and Analysis of Financial
         Condition And Results of Operations                                           8 - 13

PART II - OTHER INFORMATION

         Item 1.  Legal Proceedings                                                        14
         Item 2.  Changes in Securities and Use of Proceeds                                14
         Item 3.  Defaults upon Senior Securities                                          14
         Item 4.  Submission of Matters to a Vote of Security Holders                      14
         Item 5.  Other Information                                                        14
         Item 6.  Exhibits and Reports on Form 8-K                                         14
         Signatures                                                                        15
</TABLE>

<PAGE>

AF BANKSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 2000 AND JUNE 30, 1999


ASSETS
<TABLE>
<CAPTION>
                                                                                       March 31,              June 30,
                                                                                         2000                   1999
----------------------------------------------------------------------------------------------------------------------
                                                                                      (Unaudited)               Note
<S>                                                                             <C>                 <C>
Cash and cash equivalents:
   Interest-bearing deposits                                                    $      1,701,158    $      4,173,311
   Noninterest-bearing deposits                                                        6,902,470           8,221,749
Certificates of deposit, at cost                                                          99,000             198,000
Securities held to maturity                                                              100,000             100,000
Securities available for sale                                                          9,525,268          10,976,170
Federal Home Loan Bank stock                                                             582,200             523,600
Loans receivable, net                                                                102,390,782          81,156,766
Real estate owned                                                                         98,150              59,000
Office properties and equipment, net                                                   3,576,191           2,544,777
Accrued interest receivable on loans                                                     533,722             398,918
Accrued interest receivable on investment securities                                      56,238              97,598
Prepaid expenses and other assets                                                        578,962             546,721
Deferred income taxes, net                                                               572,023             425,100
Intangible assets                                                                      1,137,406             509,716
                                                                                   ----------------------------------
                              TOTAL ASSETS                                      $    127,853,570    $    109,931,426
                                                                                   ==================================
LIABILITIES AND EQUITY
Liabilities:
   Savings deposits                                                             $    103,086,418    $     93,106,090
   Notes payable                                                                         955,420             255,420
   Advances from Federal Home Loan Bank                                                9,025,856           2,564,358
   Accounts payable and other liabilities                                              2,271,038           1,636,362
   Redeemable common stock held by the ESOP, net of
      unearned ESOP shares                                                               104,808             150,942
                                                                                   ----------------------------------
                              TOTAL LIABILITIES                                      115,443,540          97,713,172
                                                                                   ----------------------------------
Commitments and Contingencies
Stockholders Equity:
    Commonstock, par value $.01 per share; authorized 5,000,000 shares;
          1,053,678 issued and outstanding at March 31, 2000
          and June 30, 1999                                                               10,537              10,537
   Additional paid-in capital                                                          4,593,405           4,593,516
   Retained earnings, substantially restricted                                         8,241,976           7,974,373
   Deferred recognition and retention plan                                              (330,998)           (479,960)
   Accumulated other comprehensive income, unrealized gain (loss)
          on securities available for sale                                               (21,040)            203,638
                                                                                   ----------------------------------
                                                                                      12,493,880          12,302,104
    Less the cost of 4,300 shares of treasury stock                                      (83,850)            (83,850)
                                                                                   ----------------------------------
                              TOTAL STOCKHOLDERS' EQUITY                              12,410,030          12,218,254
                                                                                   ----------------------------------
                              TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        $    127,853,570    $    109,931,426
                                                                                   ==================================
</TABLE>

See Notes to Condensed  Consolidated Financial Statements.

Note: The Condensed Consolidated Statements of Financial Condition as of June
30, 1999 has been taken from audited financial statements at that date.

<PAGE>

AF BANKSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
THREE AND NINE MONTHS ENDED MARCH 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                    Three Months Ended             Nine Months Ended
                                                                         March 31,                      March 31,
-------------------------------------------------------------------------------------------------------------------------
                                                                   2000           1999            2000           1999
-------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>            <C>              <C>             <C>
Interest and dividend income:
     Loans                                                 $    2,203,593 $     1,646,694  $    6,130,369  $   5,011,294
     Investment securities                                        126,689         125,739         440,037        369,692
     Interest-bearing deposits                                     68,907         157,811         171,472        468,600
                                                            ------------------------------  -----------------------------
                TOTAL INTEREST INCOME                           2,399,189       1,930,244       6,741,877      5,849,586
                                                            ------------------------------  -----------------------------
Interest expense:
     Deposits                                                   1,051,461         905,527       2,987,159      2,837,728
     Federal Home Loan Bank advances                              155,346          60,265         414,179        136,072
     Notes payable                                                 18,520           5,665          29,205         15,973
                                                            ------------------------------  -----------------------------
                                                                1,225,327         971,457       3,430,543      2,989,773
                                                            ------------------------------  -----------------------------
                NET INTEREST INCOME                             1,173,862         958,787       3,311,334      2,859,813
Provision for loan losses                                          39,000          10,000          48,000         20,000
                                                            ------------------------------  -----------------------------
                NET INTEREST INCOME AFTER PROVISION FOR
                 LOAN LOSSES                                    1,134,862         948,787       3,263,334      2,839,813
                                                            ------------------------------  -----------------------------
Noninterest income:
     Insurance commissions                                        285,488         142,659         698,399        383,257
     Gain on sale on investments available for sale                30,609          74,873          94,603        116,802
     Other                                                        226,110         149,424         555,975        393,488
                                                            ------------------------------  -----------------------------
                                                                  542,207         366,956       1,348,977        893,547
                                                            ------------------------------  -----------------------------
Noninterest expense:
     Compensation and employee benefits                           817,679         621,265       2,279,077      1,708,132
     Occupancy and Equipment                                      152,847         127,937         411,141        363,052
     Deposit insurance premiums                                     4,922          12,850          31,377         36,225
     Computer processing charges                                   79,384          53,428         215,643        147,450
     Amortization                                                  26,073           9,543          54,525         29,457
     Other                                                        370,182         291,517       1,049,890        813,091
                                                            ------------------------------  -----------------------------
                                                                1,451,087       1,116,540       4,041,653      3,097,407
                                                            ------------------------------  -----------------------------
                INCOME BEFORE INCOME TAXES                        225,982         199,203         570,658        635,953
Income taxes                                                       89,635          76,683         222,608        233,943
                                                            ------------------------------  -----------------------------
                NET INCOME                                        136,347         122,520         348,050        402,010
                                                            ------------------------------  -----------------------------
Other comprehensive income (loss), net of tax:
  Unrealized gain (loss) on securities, net of tax                (38,312)          8,383        (159,780)       102,086
     Less:  reclassification adjustment for gains
       included in net income, net of  tax                         20,998          51,363          64,898         80,126
                                                            ------------------------------  -----------------------------
               COMPREHENSIVE INCOME                        $       77,037 $        79,540  $      123,372  $     423,970
                                                            ==============================  =============================

Basic Earnings per share of common stock (Note 3)          $         0.13 $          0.12  $         0.35  $        0.40
                                                            ==============================  =============================
Diluted Earnings per share of common stock (Note 3)        $         0.13 $          0.12  $         0.35  $        0.40
                                                            ==============================  =============================
Cash dividends per share                                   $         0.05 $          0.05  $         0.15  $        0.15
                                                            ==============================  =============================
</TABLE>

See Notes to Condensed Financial Statements.



                                        2

<PAGE>

AF BANKSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
                                                                                                  Nine Months Ended
                                                                                              2000                 1999
--------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
<S>                                                                                     <C>                  <C>
    Net income                                                                          $    348,050         $    402,010
    Adjustments to reconcile net income to net cash
       provided by operating activities:
       Provision for loan losses and REO                                                      48,000               20,000
       Provision for depreciation                                                            280,494              261,109
       Amortization of goodwill and non-compete covenant                                      54,525               29,457
       Change in operating assets and liabilities:
           Accrued interest receivable                                                       (93,444)             (80,464)
           Accrued interest payable                                                           37,697              (14,001)
           Prepaid and other assets                                                          (32,241)            (154,285)
           Accounts payable and other liabilities                                            634,675               34,256
           Other                                                                             225,578              260,182
                                                                                        ----------------------------------
                         NET CASH PROVIDED BY OPERATING ACTIVITIES                         1,503,334              758,264
                                                                                        ----------------------------------
Cash Flows from Investing Activities
    Proceeds from certificates of deposit                                                     99,000                    -
    Increase in Federal Home Loan Bank stock                                                 (58,600)                   -
    Purchases of securities available for sale                                            (1,500,000)          (8,568,004)
    Proceeds from securities available for sale                                            2,518,423            5,413,092
    Net originations of loans receivable                                                 (21,282,016)          (3,628,619)
    Purchases of office properties and equipment                                          (1,332,844)            (675,720)
    Proceeds from foreclosed real estate                                                      11,500              (20,885)
                                                                                        ----------------------------------
                         NET CASH USED IN INVESTING ACTIVITIES                           (21,544,537)          (7,480,136)
                                                                                        ----------------------------------
Cash Flows from Financing Activities
    Net increase in savings deposits                                                       9,942,631            7,328,908
    FHLB Advances                                                                          6,461,498           (1,538,418)
    Repurchase Stock                                                                               -             (113,750)
    Dividends paid                                                                          (154,359)            (153,759)
                                                                                        ----------------------------------
                         NET CASH PROVIDED BY FINANCING ACTIVITIES                        16,249,770            5,522,981
                                                                                        ----------------------------------
                         NET DECREASE IN CASH AND CASH EQUIVALENTS                        (3,791,433)          (1,198,891)
Cash and cash equivalents:
    Beginning                                                                             12,395,060           14,308,009
                                                                                        ----------------------------------
    Ending                                                                              $  8,603,627         $ 13,109,118
                                                                                        ==================================
</TABLE>


                                        3

<PAGE>

AF BANKSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
NINE MONTHS ENDED MARCH 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                              2000                 1999
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                  <C>
Supplemental Schedule of Cash and Cash Equivalents
    Cash:
       Interest-bearing deposits                                                        $  1,701,158         $  7,084,134
       Noninterest-bearing                                                                 6,902,470            6,024,984
                                                                                        ----------------------------------
                                                                                        $  8,603,628         $ 13,109,118
                                                                                        ==================================
Supplemental Disclosures of Cash Flow Information
    Cash payments for:
       Interest                                                                         $  3,392,846         $  3,003,774
                                                                                        ==================================
       Income taxes                                                                     $    171,855         $    264,500
                                                                                        ==================================
</TABLE>

See Notes to Condensed Financial Statements.








                                       4

<PAGE>

                               AF BANKSHARES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1.   NATURE OF BUSINESS

AF Bankshares, Inc. (the "Company") is a federally chartered stock holding
company for AF Bank (the "Bank") which conducts business from its main office
located in West Jefferson, North Carolina, branches in West Jefferson, Jefferson
and Warrensville, North Carolina operating under the trade name Ashe Federal
Bank; one branch in Alleghany County, North Carolina operating under the trade
name Alleghany First Bank; and one branch in Watauga County, North Carolina
operating under the trade name Appalachian First Bank. The Company has an
insurance subsidiary operating under the trade names AF Ashelande Insurance
Service, in West Jefferson; AF Brown Insurance Agency in Wilkesboro; AF Blair
Insurance Agency in Lenoir; AF Insurance Service Center in Elkin; and AF
Insurance Services, Inc. in Sparta, West Jefferson and Jefferson, North
Carolina. The Company has a brokerage service subsidiary, operating as AF
Brokerage, Inc., which serves Ashe, Alleghany, Wilkes and Watauga Counties. On
April 15, 1996, the Board of Directors of Ashe Federal Bank adopted a Plan of
Reorganization and the related Stock Issuance Plan pursuant to which the Bank
exchanged its federal mutual savings bank charter for a federal stock savings
bank charter, conducted a minority stock offering, and formed AsheCo, MHC a
mutual holding company which owned more than 50% of the common stock issued by
the Bank. The Bank conducted its minority stock offering in July and August of
1996 and the closing occurred on October 4, 1996. The Bank sold 461,779 shares
of common stock in the minority stock offering, which includes 36,942 shares
sold to its Employee Stock Ownership Plan (the "ESOP"), and issued 538,221
shares to the mutual holding company.

At the Bank's annual meeting held on December 8, 1997, the shareholders of Ashe
Federal Bank approved the Ashe Federal Bank 1997 Stock Option Plan; the Ashe
Federal Bank 1997 Recognition and Retention Plan; a change in the Bank's federal
stock charter, changing the corporate name to AF Bank and approved a plan of
reorganization providing for the establishment of AF Bankshares, Inc., as a
federally chartered stock holding company parent of the Bank. On June 16, 1998,
the Bank completed its reorganization into a two-tier mutual holding company and
became a wholly owned subsidiary of the Company and the Company became a
majority owned subsidiary of AsheCo, MHC, the Bank's mutual holding company.

On December 11, 1997, the Bank filed notice with the Office of Thrift
Supervision ("the OTS"), of its intention to open a branch office in Alleghany
County to operate under the name Alleghany First Bank. Subsequent to the notice
filed with the OTS, the Bank published public notice of its intent in the
Alleghany News and the Jefferson Post. No public objection was filed within the
ten day period then allowed under OTS regulations; therefore, the OTS notified
the Bank that it had no objection to the planned branch on January 15, 1997. The
Bank opened the new office, Alleghany First Bank, on March 18, 1997.
Additionally, the Bank's insurance agency subsidiary offers property, casualty,
health and life insurance products within the Alleghany facility.


                                       5

<PAGE>



On January 27, 1999, the Bank filed notice with the OTS of its intention to open
a branch office in Watauga County to operate under the name Appalachian First
Bank, and published public notice. No public objection was filed; therefore, the
OTS notified the Bank that it had no objection to the planned branch on March 1,
1999. The Bank opened the new branch office, in Watauga County operating under
the trade name Appalachian First Bank, on March 1, 1999. Two experienced loan
officers, a loan customer service representative, and a teller from the Watagua
market operate this branch office. Entry into Watauga County significantly
expands the Company's potential to market its banking products, as well as its
insurance and non-insured investment products, in a new, larger, and more
diverse geographic marketplace.

During the third quarter of the fiscal year ending June 30, 1999, the Company
entered an agreement to purchase an insurance agency located in Lenoir, North
Carolina. The purchase of assets was completed on April 1, 1999. The insurance
office in Lenior operates under the trade name, AF Blair Insurance Agency. On
October 11, 1999 the Company entered an agreement to purchase the assets of an
insurance agency in Elkin, North Carolina. The purchase of assets closed on
December 1, 1999. Management believes penetration into other markets increases
the opportunity to deliver products from all of the Company's subsidiaries to a
broader market; at the same time making the insurance subsidiary a more
profitable investment by increasing revenues, providing economies of scale and
adding to the products that are available for delivery to the Company's
customers.

Management believes that the Company's customers perceive "financial services"
to encompass five broad categories: funds transfer including checking accounts;
insured savings instruments; credit/lending services; insurance; and securities
brokerage. Further, management believes that failure to offer insurance and
brokerage services will impair the Company's growth and make retention of
existing customers more difficult. The Company continues to seek opportunities
to increase its market penetration for insurance services, primarily in
northwestern North Carolina. During the three month period ending September 30,
1998, the Company established a securities brokerage subsidiary, AF Brokerage,
Inc. which currently conducts brokerage services as a branch of a third party
broker/dealer. AF Brokerage, Inc. applied to the NASD for membership in the
third quarter of 1998 and was granted membership on October 22, 1999. AF
Brokerage, Inc. will commence operation in the fourth quarter of 2000 as an
independent broker/dealer once arrangements with the clearing agent have been
completed. Management continues to evaluate acquisitions and business
opportunities that it believes will provide access to customers and markets
which enhance the Company's value and earnings potential in the long term.

During the year ended June 30, 1999, the Company purchased 6,300 shares of its
common stock for a total price of $113,750. During the year ended June 30, 1999,
the Company issued 2,000 of these shares. Management does not plan to acquire
additional shares until it has a specific purpose for additional stock
purchases.

NOTE 2.   BASIS OF PRESENTATION

The accompanying unaudited financial statements (except for the statement of
financial condition at June 30, 1999, which is extracted from audited financial
statements) have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the


                                       6

<PAGE>


opinion of management, all adjustments (none of which were other than normal
recurring accruals) necessary for a fair presentation of the financial position
and results of operations for the periods presented have been included. The
results of operations for the three and nine month periods ended March 31, 2000
are not necessarily indicative of the results of operations that may be expected
for the Company's fiscal year ending June 30, 2000.

The accounting policies followed are as set forth in Note 1 of the Notes to
Financial Statements in the Company's 1999 financial statements, which are
included in the Company's Form 10-KSB for the year ended June 30, 1999.

NOTE 3.   EARNINGS PER SHARE

The Company's basic and diluted earnings per share for the three and nine month
periods ended March 31, 2000 are based on a weighted average of 1,011,819 and
1,008,179 shares, respectively, assumed to be outstanding for the period.
Options to purchase 21,322 shares of common stock at $18.50 per share were
outstanding during the third quarter of fiscal year ending June 2000, and
because the average market price is lower then the exercise price of $18.50, the
incremental shares, are not considered dilutive and are not included in the
calculation of diluted earnings per share. Shares owned by the Company's ESOP
that have not been committed to be released are not considered to be outstanding
for the purposes of computing earnings per share. Earnings per share have been
calculated in accordance with Statement of Position 93-6 "Employers' Accounting
for Employee Stock Ownership Plans" and Statement of Financial Accounting
Standards Number 128.

NOTE 4.   INCENTIVE PLAN

On August 19, 1997 the Bank's board of directors approved the AF Bank 1997
Recognition and Retention Plan (RRP), established a Recognition and Retention
Plan Trust to be used to hold awards to be made under the RRP and agreed to
issue an additional 53,678 shares of the Company's stock to be issued as the
shares are vested by the eligible participants in the plan. On the same date,
the Company's board of directors approved the AF Bank 1997 Stock Option Plan
(Option Plan) and approved the allocation of 21,322 authorized but unissued
shares of AF Bankshares, Inc. Common Stock to be reserved for issuance upon
exercise of options granted under the Option Plan. Both the RRP and the Option
Plan were approved by the minority shareholders of AF Bank at the December 8,
1997 annual meeting. The terms of the RRP provided that the eligible
participants are vested at the beginning of the period. The Company adopted the
RRP and the Option Plan on the effective date of the reorganization into a
two-tier mutual holding company.

NOTE 5.  FEDERAL HOME LOAN BANK ADVANCES AND NOTES PAYABLE

The Company had advances outstanding of $9,025,856 and $2,564,358 at March 31,
2000 and June 30, 1999 respectively, from the Federal Home Loan Bank (`the
FHLB"). Interest at March 31, 2000 is payable at rates ranging from 6.10% to
6.87%. Pursuant to collateral agreements with the FHLB, advances are
collateralized by all the Bank's stock in the FHLB and qualifying first mortgage
loans. $875,000 of the advances are due by August of 2002, $150,856 is due
January 2007, $5.0 million is due August 2009, and $3.0 million is due September
2009.


                                       7

<PAGE>


                               AF BANKSHARES, INC.
   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                                   OPERATION

THIS FORM 10-QSB CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS CONSISTING OF
ESTIMATES WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
OTHER BUSINESS OF THE AF BANKSHARES, INC. THAT ARE SUBJECT TO VARIOUS FACTORS
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ESTIMATES.
FACTORS WHICH COULD INFLUENCE THE ESTIMATES INCLUDE CHANGES IN GENERAL AND LOCAL
MARKET CONDITIONS, LEGISLATIVE AND REGULATORY CONDITIONS AND AN ADVERSE INTEREST
RATE ENVIRONMENT.

BACKGROUND AND INTRODUCTION

Management believes it is important to view the quarterly financial results of
the Company within the larger context of the Company's long-term strategic
business plan. Doing so helps keep short-term results in better perspective, and
underscores management's commitment to the LONG-TERM profitability and success
of the Company.

It has long been management's view that the Company's success in the 21st
Century will depend in large part upon its ability to compete far beyond the
narrow boundaries imposed upon banking during the majority of the 20th Century.
The recently enacted Financial Services Modernization Act serves to validate
that view. One immediate result of this landmark legislation is that financial
services firms now have the authority to enter a multitude of activities
prohibited by earlier laws and regulations.

As noted in Note 1. of the Notes To Condensed Financial Statements, management
believes that the Company's customers perceive "financial services" to encompass
five broad categories: funds transfer including checking accounts; insured
savings instruments; credit/lending services; insurance; and securities
brokerage. Preparing the Company to compete on a competitively superior basis in
all these categories has had a negative impact on short-term earnings.

Added to these planned investments in the Company's future were several factors
outside the control of management:

          o  The costs of regulatory compliance with, and preparations for the
             possible Year 2000 computer problem (which in hard dollars cost the
             Company more than $250,000);

          o  The recent tightening of short-term interest rates by the Federal
             Reserve in an effort to contain inflation; and

          o  The resulting inverted yield curve between higher short-term
             interest rates and lower long-term rates.

All these factors tended to exert additional downward pressure on earnings
during the most recent quarter and nine months' operating periods.

However, it is well worth noting that -- given both these planned and
uncontrollable dampening factors -- THE COMPANY'S EARNINGS FOR THE MOST RECENTLY
COMPLETED QUARTER AND THE MOST RECENTLY COMPLETED NINE MONTHS REMAIN POSITIVE.


                                       8

<PAGE>

In fact, there are a number of significantly positive factors and recent events
which bode extremely well for the Company's long-term success:

          o  An increase in net loans of $21.2 million or 26.2%;

          o  Asset growth of $17.9 million or 16.3%, resulting in enhanced
             leveraging the Company's capital;

          o  Continued growth in non interest income, reflecting the Company's
             continuing emphasis in the areas of insurance and securities
             services;

          o  Approval of the Company's broker/dealer license;

          o  The addition of the Company's fourth insurance agency to the AF
             Insurance network;

          o  Adding additional insurance markets with major emphasis in
             commercial property and casualty business, thereby providing the
             Company with an even better mix between personal and commercial
             coverages; and

          o  The nearing completion of the Company's new administrative and
             corporate headquarters building.

Therefore, management is optimistic about the future of the Company. Overall,
management and the board of directors are indeed pleased with the continued
positive short -term earnings of the Company, particularly in light of the
investments required (i.e., slightly lower short-term earnings) to accomplish
the goals of the long-term strategic plan.



COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2000 AND JUNE 30, 1999:

Total assets increased by $17.9 million, or 16.3%, to $127.9 million at March
31, 2000 from $109.9 million at June 30, 1999. The increase in assets was the
result of an increase of $21.2 million, or 26.2%, in loans receivable, net,
partially offset by a decrease of $3.8 million in cash and cash equivalents,
from June 30, 1999 to March 31, 2000. The increase in net loans receivable is
typical for the Bank, which operates in lending markets that have had sustained
loan demand over the last several years and the result of the Bank beginning to
penetrate the Boone market which is a more highly commercialized market.
Increases in net loans outstanding, were primarily funded by both an increase of
$10.0 million in deposits, the decrease of $3.8 million in cash and cash
equivalents, the decrease of $1.5 million in securities available for sale and
an increase of $6.5 million in advances from the Federal Home Loan Bank.

The Company's net investment in property and equipment increased $1.0 million or
40.5% to $3.6 million at March 31, 2000, and was primarily a result of building
renovations at 111 South Jefferson Avenue, West Jefferson, North Carolina, and
from the purchase of AF Insurance Center in Elkin, North Carolina. When
completed, the building at 111 South Jefferson Avenue will be used for the
corporate offices for the Company and as an operation center for AF Bank.

The Bank's deposits increased by $10.0 million, or 10.7%, from $93.1 million at
June 30, 1999 to $103.1 million at March 31, 2000. Management believes that the
increase in


                                       9

<PAGE>


deposits is attributable to its marketing efforts directed towards increasing
balances in savings and transaction accounts and in smaller, stable certificates
of deposits. During the nine month period ending March 31, 2000, the Bank's
savings and transaction accounts increased $5.0 million from a net gain of 1,156
new accounts. Management intends to continue its marketing efforts to increase
these lower cost core deposits.

At March 31, 2000, retained earnings had increased $267,603 or 3.4% to $8.2
million as a result of earnings of $348,051, a decrease for the fair market
value adjustment for ESOP stock in the amount of $73,911 and a reduction for
dividends of $154,359. Deferred recognition and retention plan ("RRP") decreased
by $148,962 as a result of recognizing the vesture of additional RRP shares. At
March 31, 2000, the Bank's regulatory capital amounted to $12.5 million compared
to $12.2 million at June 30, 1999, which was considerably in excess of
regulatory capital requirements at such date.

The Bank's level of non-performing loans, defined as loans past due 90 days or
more, increased to $515,053 at March 31, 2000 compared to $59,600 at June 30,
1999. The increase is primarily due to one loan that is secured by a single
family dwelling. The Bank's level of non-performing loans has remained
consistently low in relation to prior periods and total loans outstanding. The
Bank recognized net charge offs of $183,900 during the nine month period ended
March 31, 2000 compared to, net charge offs, of $69,400 for the comparable
period ended March 31, 1999. As a result and based on management's analysis of
its allowances, a $48,000 provision for additional loan loss allowance was made
for the nine month period ended March 31, 2000.


COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED MARCH 31,
2000 AND 1999:

GENERAL. Net income for the three and nine month period ended March 31, 2000 was
$136,347 and $348,051, respectively, or $13,827 more than the $122,520 and
$53,959 less than the $402,010 earned during the same periods in 1999. Changes
in net income during the comparable three and nine month periods were primarily
attributable to decreased interest income on interest bearing deposits due to
the increased level of non-interest bearing deposits that the institution
maintained to prepare for potential customer withdrawals resulting from year
2000 concerns. Changes were also attributable to costs associated with the
Bank's branch office in Watagua County, Appalachian First Bank, the costs
associated with the purchase of AF Insurance Service Center, in Elkin North
Carolina and the addition of employees in order to prepare the Company for
future expansion. Management believes that these initial costs of expansion will
better position the Company for the future. In management's opinion, there has
not been a material change in interest rate risk from the end of the Company's
most recent fiscal year.

INTEREST INCOME. Interest income increased by $468,945 or 24.3% from $1,930,244
for the three month period ended March 31, 1999 to $2,399,189 for the three
month period ended March 31, 2000. Interest income increased $892,292 or 15.3%
from $5,849,586 for the nine month period ended March 31, 1999 to $6,741,878 for
the nine month period ended March 31, 2000. This increase was attributable to a
change in the volume and mix of net loans receivable, offset by the decrease in
interest-bearing deposits. Interest income from loans increased $556,899 or
33.8% from $1,646,694 for the three months ended March 31, 1999 to $2,203,593
for the three months ended March 31, 2000. Interest income from loans increased
$1,119,075 or 22.3% to $6,130,369 for the nine month period ended March 31, 2000
from $5,011,294 for the nine month period


                                       10

<PAGE>

ended March 31, 1999. This increase was offset by a decrease of $88,904, or
56.3%, in interest income on interest-bearing deposits to $68,907 for the three
month period ended March 31, 2000 from $157,811 for the three month period ended
March 31, 1999. Interest income on interest-bearing deposits decreased $297,128
or 63.4% to $171,472 for the nine month period ended March 31, 2000 from
$468,600 for the nine month period ended March 31, 1999. Management believes
that the decrease in interest earned on interest-bearing deposits is primarily a
result of a shift in funds away from interest-bearing into noninterest earning
deposit balances due to the Bank's increased liquidity needs in order to meet
customer's potential year 2000 needs.

INTEREST EXPENSE. Interest expense increased by $253,870 or 26.1% to $1,225,327
for the three month period ended March 31, 2000 from $971,457 for the three
months ended March 31, 1999. Interest expense increased by $440,770 or 14.7%
from $2,989,773 for the nine month period ended March 31, 1999 to $3,430,543 for
the nine month period ended March 31, 2000. The increase is the result of both
the increase in advances outstanding at the Federal Home Loan Bank to fund loan
demand, increased liquid deposit balances, and the $10.0 million increase in
savings deposits.

NET INTEREST INCOME. Net interest income increased by $215,075 or 22.4% from
$958,787 for the three month period ended March 31, 1999 to $1,173,862 for the
three month period ended March 31, 2000. Net interest income increased by
$451,522 or 15.8% from $2,859,813 for the nine month period ended March 31, 1999
to $3,311,335 for the nine month period ended March 31, 2000. The increase is a
result of increased average outstanding balances in net loans receivable and an
improved interest rate spread in effect during the period.

PROVISION FOR LOAN LOSSES. Management made a $10,000 provision for loan losses
during the three month period ended March 31, 1999. A $39,000 provision for loan
losses was made during the three month period ended March 31, 2000. During the
nine month period ended March 31, 1999, a provision of $20,000 was made and
during the nine month period ended March 31, 2000, a $48,000 provision was made.
Provisions, which are charged to operations and resulting loan loss allowances,
are amounts that the Bank's management believes will be adequate to absorb
potential losses on existing loans that may become uncollectible. Loans are
charged off against the allowance when management believes that collection is
unlikely. The evaluation to increase or decrease the provisions and resulting
allowances is based both on prior loan loss experience and other factors, such
as changes in the nature and volume of the loan portfolio, overall portfolio
quality and current economic conditions.

The Bank made provisions for loan loss allowances during the three and nine
month period ended March 31, 2000 based upon an analysis of its reserves. The
Bank's level of non-performing loans remained consistently low in relation to
prior periods and total loans outstanding during the nine month period ended
March 31, 2000; however, due to changes in the mix of the Bank's loan portfolio,
management determined it was necessary to make an additional provision. At March
31 2000, the Bank's level of general valuation allowances for loan losses
amounted to $996,000 which management believes is adequate to absorb any
existing losses in its loan portfolio.

NON-INTEREST INCOME. Non-interest income increased by $175,251 from $366,956 for
the three month period ended March 31, 1999 to $542,207 for the three months
ended March 31, 2000. Non-interest income increased by $455,430 from $893,547
for the nine month period ended March 31, 1999 to $1,348,977 for the nine month
period ended March 31, 2000. The increase was primarily attributable to
increased revenues


                                       11

<PAGE>

generated from insurance sales and income generated from the Company's brokerage
activities during the three and nine months ended March 31, 2000. Both these
areas of growth and widening market penetration should continue to produce new
growth in non-interest income.

NON-INTEREST EXPENSE. Non-interest expense increased by $334,547 or 30.0% from
$1,116,540 for the three months ended March 31, 1999 to $1,451,087 for the three
months ended March 31, 2000. Non-interest expense increased by $944,246 or 30.5%
from $3,097,407 for the nine months ended March 31, 1999 to $4,041,653 for the
nine months ended March 31, 2000. Increases in non-interest expense for the
three and nine month periods ended March 31, 2000 are primarily attributable to
an increase in occupancy expenses and in compensation costs. Compensation costs
increased by $196,414 or 31.6% for the three month period ended March 31, 2000
and $570,945 or 33.4% for the nine month period ended March 31, 2000, primarily
as the result of adding employees in the Bank' newest branch, Appalachian First
Bank, the Company's subsidiary, AF Brokerage, Inc. and additional insurance
employees. Occupancy cost increased by $24,910, or 19.5% for the three month
period ended March 31, 2000, and $48,089 or 13.3% for the nine month period
ended March 31, 2000, due to the costs associated with the new branch,
Appalachian First Bank, and costs associated with renovations on the new
corporate and administrative building.


CAPITAL RESOURCES AND LIQUIDITY.

The term "liquidity" generally refers to an organization's ability to generate
adequate amounts of funds to meet its needs for cash. More specifically for
financial institutions, liquidity ensures that adequate funds are available to
meet deposit withdrawals, fund loan demand and capital expenditure commitments,
maintain reserve requirements, pay operating expenses, and provide funds for
debt service, dividends to stockholders, and other institutional commitments.
Funds are primarily provided through financial resources from operating
activities, expansion of the deposit base, borrowings, through the sale or
maturity of investments, the ability to raise equity capital, or maintenance of
shorter term interest-earning deposits.

As of March 31, 2000, cash and cash equivalents, a significant source of
liquidity, totaled $8.6 million.

As a federally chartered savings bank, AF Bank must maintain a daily average
balance of liquid assets equal to at least 4% of withdrawable deposits and
short-term borrowings. During the quarter ended March 31, 1998, the OTS reduced
the required level of liquidity to 4% from 5%, eliminated the short term
liquidity requirement and imposed a new requirement that savings associations
generally maintain sufficient liquidity to ensure safe and sound operations. The
Bank's liquidity ratio at March 31, 2000, as computed under OTS regulations, was
considerably in excess of such requirements. Given its level of liquidity and
its ability to borrow from the FHLB, the Bank believes that it will have
sufficient funds available to meet anticipated future loan commitments,
unexpected deposit withdrawals, and other cash requirements.

The Company's capital position and liquidity are in excellent shape, by any
objective benchmark or comparison.


                                       12

<PAGE>



ASSET/LIABILITY MANAGEMENT.

The Company's asset/liability management is focused primarily on evaluating and
managing the Company's net interest income in relation to various risk criteria.
Factors beyond the Company's control, such as the effects of changes in market
interest rates and competition, may also have an impact on the management of
interest rate risk.

In the absence of other factors, the Company's overall yield on interest-earning
assets will increase as will its cost of funds on its interest-bearing
liabilities when market rates increase over an extended period of time.
Inversely, the Company's yields and cost of funds will decrease when market
rates decline. The Company is able to manage these fluctuations to some extent
by attempting to control the maturity or rate adjustments of its
interest-earning assets and interest-bearing liabilities over given periods of
time. One of the Company's tools to monitor interest rate risk is the
measurement of sensitivity of its net portfolio value to changes in interest
rates.

In order to minimize the potential effects of adverse material and prolonged
increases in market interest rates on the Company's operations, management has
implemented an asset/liability program designed to improve the Company's
interest rate risk exposure. The program emphasizes the originations of three
and five-year fixed rate balloon mortgages, adjustable rate mortgages, selling
long term fixed rate loans to the secondary market, shorter term consumer and
commercial loans, the investment of excess cash in short or intermediate term
interest-earning assets, and the solicitation of deposit accounts that can be
repriced rapidly.

Although the Company's asset/liability management program has generally helped
to decrease the exposure of its earnings to interest rate increases, the Company
continues to be susceptible to increased levels of interest rates, which will
adversely affect earnings during prolonged periods of rising interest rates and
positively affect earnings during prolonged periods of interest rate declines.

IMPACT OF INFLATION AND CHANGING PRICES.

The financial statements and accompanying footnotes have been prepared in
accordance with GAAP, which require the measurement of financial position and
operating results in terms of historical dollars without consideration for
changes in the relative purchasing power of money over time due to inflation.
The assets and liabilities of the Bank are primarily monetary in nature and
changes in market interest rates have a greater impact on the Bank's performance
than do the effects of inflation.

IMPACT OF THE YEAR 2000.

The Company conducted business as usual on January 3, 2000. No disruptions from
the century date change were experienced. The institution's currency supplies
were more than adequate to meet demand.

The Company will continuously monitor its business applications and maintain
contact with its third party vendors and key business partners to resolve any
year 2000 problems that may arise in the future.



<PAGE>


                               AF BANKSHARES, INC.


Part II.  OTHER INFORMATION


Item 1.  Legal Proceedings
         The Company is not engaged in any material legal proceedings at the
         present time other than those proceedings within the normal course of
         business.

Item 2.  Changes in Securities and Use of Proceeds
         Not applicable


Item 3.  Defaults Upon Senior Securities
         Not applicable

Item 4.  Submission of Matters to a Vote of  Security Holders
         Not applicable

Item 5.  Other Information
         (a) Exhibit A - Impact of the Gramm-Leach Bliley Act

Item 6.  Exhibits and Reports on Form 8-K
         (a) 27-1 Financial Data Schedule
         (b) There were no reports on Form 8-K filed during the quarter


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<PAGE>

SIGNATURES


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

                                          AF BANKSHARES, INC.


Dated May 12, 2000                        By:/s/ James A. Todd
      ------------------                     ----------------------------------
                                          James A. Todd
                                          President and Chief Executive Officer

Dated May 12, 2000                        By:/s/ Melanie Paisley Miller
      ------------------                     ----------------------------------
                                          Melanie Paisley Miller
                                          Executive Vice President, Secretary,
                                          Treasurer and Chief Financial Officer









                                       15

<PAGE>

                                    EXHIBIT A


                IMPACT OF ENACTMENT OF THE GRAMM-LEACH-BLILEY ACT

On November 12, 1999, President Clinton signed the Gramm-Leach Bliley Act (the
"Act"), which among other things, establishes a comprehensive framework to
permit affiliations among commercial banks, insurance companies and securities
firms. Generally, the Act (i) repeals the historical restrictions and eliminates
many federal and state law barriers to affiliations among banks and securities
firms, insurance companies and other financial service providers, (ii) provides
a uniform framework for the activities of banks, savings institutions and their
holding companies, (iii) broadens the activities that may be conducted by
subsidiaries of national banks and state banks, (iv) provides an enhanced
framework for protecting the privacy of information gathered by financial
institutions regarding their customers and consumers, (v) adopts a number of
provisions related to the capitalization, membership, corporate governance and
other measures designed to modernize the Federal Home Loan Bank System, (vi)
requires public disclosure of certain agreements relating to funds expended in
connection with an institution's compliance with the Community Retirement Act,
(vii) addresses a variety of other legal and regulatory issues affecting both
day-to-day operations and long-term activities of financial institutions,
including the functional regulation of bank securities and insurance activities.

The Act also restricts the powers of new unitary savings and loan association
holding companies. Unitary savings and loan holding companies that are
"grandfathered," I.E., unitary savings and loan holding companies in existence
or with applications filed with the OTS on or before May 4, 1999, such as the
Company, retain their authority under the prior law. All other unitary savings
and loan holding companies are limited to financially related activities
permissible for bank holding companies, as defined under the Act. The Act also
prohibits non-financial companies from acquiring grandfathered unitary savings
and loan association holding companies.

The Act also requires financial institutions to disclose, on ATM machines, any
non-customer fees and to disclose to their customers upon the issuance of an ATM
card any fees that may be imposed by the institutions on ATM users. For older
ATMs, financial institutions will have until December 31, 2004 to provide such
notices.

The OTS has recently proposed regulations implementing the privacy protection
provisions of the Act. The proposed regulations would require each financial
institution to adopt procedures to protect customers' and consumers' "nonpublic
personal information" by November 13, 2000. We would be required to disclose our
privacy policy, including identifying with whom we share "nonpublic personal
information," to customers at the time of establishing the customer relationship
and annually thereafter. In addition, we would be required to provide our
customers with the ability to "opt-out" of having us share their


                                       16

<PAGE>

personal information with unaffiliated third parties. We currently have a
privacy protection policy in place and intend to review and amend that policy,
if necessary, for compliance with the regulations when they are adopted in final
form. The Act also provides for the ability of each state to enact legislation
that is more protective of consumers' personal information.

We do not believe that the Act will have a material adverse affect upon our
operations in the near term. However, to the extent the Act permits banks,
securities firms and insurance companies to affiliate, the financial services
industry may experience further consolidation. This could result in a growing
number of larger financial institutions that offer a wider variety of financial
services than we currently offer and that can aggressively compete in the
markets we currently serve.




                                       17