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 September 30, 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)

                               21 East Ashe Street
                      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 October 31, 2000 there were 1,053,678 shares of the Registrant's common
stock issued and 1,049,378 shares of the Registrant's common stock outstanding,
$.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
September 30, 2000 (unaudited) and June 30, 2000                                        1

Condensed Consolidated Statements of Income and Comprehensive Income for
the Three Months ended September 30, 2000 and 1999 (unaudited)                          2

Condensed Consolidated Statements of Cash Flows for the Three Months ended
September 30, 2000 and 1999 (unaudited)                                                 3 - 4

Notes to Condensed Consolidated financial statements                                    5 - 7

         Item 2.  Management's Discussion and Analysis                                  8 - 12

PART II - OTHER INFORMATION

         Item 1.  Legal Proceedings                                                     13
         Item 2.  Changes in Securities and Use of Proceeds                             13
         Item 3.  Defaults upon Senior Securities                                       13
         Item 4.  Submission of Matters to a Vote of Security Holders                   13
         Item 5.  Other Information                                                     13
         Item 6.  Exhibits and Reports on Form 8-K                                      13
         Signatures                                                                     14
</TABLE>

<PAGE>

AF BANKSHARES, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 2000 AND JUNE 30, 2000


<TABLE>
<CAPTION>
ASSETS
                                                                                      September 30,             June 30,
                                                                                          2000                    2000
------------------------------------------------------------------------------------------------------------------------
                                                                                       (Unaudited)                Note
<S>                                                                                  <C>                   <C>
Cash and cash equivalents:
   Interest-bearing deposits                                                         $     508,813         $   2,599,071
   Noninterest-bearing deposits                                                          6,945,019             4,823,781
Certificates of deposit, at cost                                                            99,000                99,000
Securities held to maturity                                                                100,000               100,000
Securities available for sale                                                            8,835,087             8,860,452
Federal Home Loan Bank stock                                                               900,100               775,700
Loans receivable, net                                                                  116,109,224           108,778,257
Real estate owned                                                                          241,941               289,441
Office properties and equipment, net                                                     4,382,340             4,183,610
Accrued interest receivable on loans                                                       790,873               605,749
Accrued interest receivable on investment securities                                        55,807                82,647
Prepaid expenses and other assets                                                          553,422               562,317
Deferred income taxes, net                                                                 406,535               499,045
Intangible assets                                                                        1,085,261             1,111,333
                                                                                     -----------------------------------
                              TOTAL ASSETS                                           $ 141,013,422         $ 133,370,403
                                                                                     ===================================
LIABILITIES AND EQUITY
Liabilities:
   Savings deposits                                                                  $ 108,686,880         $ 102,679,834
   Note payable                                                                            700,000               700,000
   Note payable - ESOP                                                                     213,364               229,878
   Advances from Federal Home Loan Bank                                                 18,000,150            15,513,007
   Accounts payable and other liabilities                                                  575,577             1,630,313
   Redeemable common stock held by the ESOP, net of
      unearned ESOP shares                                                                  95,602                77,116
                              TOTAL LIABILITIES                                        128,271,573           120,830,148
Commitments and Contingencies
Stockholders' Equity:
    Commonstock, par value $.01 per share; authorized 5,000,000 shares;
          1,053,678 issued and 1,049,379 outstanding shares
          at September 30, 2000 and June 30, 2000                                           10,537                10,537
   Additional paid-in capital                                                            4,589,937             4,591,555
   Retained earnings, substantially restricted                                           8,444,082             8,331,965
   Deferred recognition and retention plan                                                (231,690)             (281,344)
   Accumulated other comprehensive income                                                   12,833               (28,608)
                                                                                     -----------------------------------
                                                                                        12,825,699            12,624,105
    Less the cost of 4,300 shares of treasury stock                                        (83,850)              (83,850)
                                                                                     -----------------------------------
                              TOTAL STOCKHOLDERS' EQUITY                                12,741,849            12,540,255
                                                                                     -----------------------------------
                              TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY             $ 141,013,422         $ 133,370,403
                                                                                     ===================================
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

Note: The Condensed Consolidated Statements of Financial Condition as of June
30, 2000 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 MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                            Three Months Ended
                                                                               September 30,
--------------------------------------------------------------------------------------------------
                                                                           2000             1999
--------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>
Interest and dividend income:
Loans                                                                 $ 2,554,392      $ 1,871,667
Investment securities                                                     151,834          168,728
Interest-bearing deposits                                                  31,145           71,124
                                                                      ----------------------------
                TOTAL INTEREST INCOME                                   2,737,371        2,111,519
                                                                      ----------------------------

Interest expense:
Deposits                                                                1,165,682          936,552
Federal Home Loan Bank advances                                           243,375           80,876
Notes payable                                                               9,625            5,805
                                                                      ----------------------------
                                                                        1,418,682        1,023,233
                                                                      ----------------------------
                NET INTEREST INCOME                                     1,318,689        1,088,286
Provision for loan losses                                                  59,000            9,000
                                                                      ----------------------------
                NET INTEREST INCOME AFTER PROVISION FOR
                 LOAN LOSSES                                            1,259,689        1,079,286
                                                                      ----------------------------

Noninterest income:
Insurance commissions                                                     339,051          226,437
Other                                                                     209,282          160,882
                                                                      ----------------------------
                                                                          548,333          387,319
                                                                      ----------------------------
Noninterest expense:
Compensation and employee benefits                                        915,846          712,740
Occupancy and Equipment                                                   185,773          126,721
Deposit insurance premiums                                                  5,220           12,935
Computer processing charges                                                79,659           73,394
Amortization                                                               26,073           14,226
Other                                                                     310,363          314,103
                                                                      ----------------------------
                                                                        1,522,934        1,254,119
                                                                      ----------------------------
                INCOME BEFORE INCOME TAXES                                285,088          212,486
Income taxes                                                              111,862           82,829
                                                                      ----------------------------
                NET INCOME                                                173,226          129,657
                                                                      ----------------------------
Other comprehensive income (loss), net of tax:
  Unrealized gain (loss) on securities, net of tax                         41,441          (60,864)
                                                                      -----------      -----------
               COMPREHENSIVE INCOME                                   $   214,667      $    68,793
                                                                      ===========      ===========

Basic Earnings per share of common stock (Note 3)                     $      0.17      $      0.13
                                                                      ===========      ===========
Diluted Earnings per share of common stock (Note 3)                   $      0.17      $      0.13
                                                                      ===========      ===========
Cash dividends per share                                              $      0.05      $      0.05
                                                                      ===========      ===========

See Notes to Condensed Consolidated Financial Statements.
</TABLE>


                                       2

<PAGE>

AF BANKSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
                                                                                                  Three Months Ended
                                                                                               2000                 1999
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                  <C>
Cash Flows from Operating Activities
    Net income                                                                  $            173,226 $            129,657
    Adjustments to reconcile net income to net cash
       used in operating activities:
Provision for loan losses and REO                                                             59,000                9,000
Provision for depreciation                                                                   137,209               90,572
Amortization of goodwill and non-compete covenant                                             26,072               14,226
Change in operating assets and liabilities:
Accrued interest receivable                                                                 (158,284)             (87,332)
Accrued interest payable                                                                      13,790               10,644
Prepaid and other assets                                                                       8,895               14,888
Accounts payable and other liabilities                                                    (1,054,736)            (265,859)
Other                                                                                         41,831               70,451
                                                                                -----------------------------------------
                         NET CASH USED IN OPERATING ACTIVITIES                              (752,997)             (13,753)
                                                                                -----------------------------------------
Cash Flows from Investing Activities
    Increase in Federal Home Loan Bank stock                                                (124,400)                  -
    Purchases of securities available for sale                                                   -                (104,000)
    Proceeds from securities available for sale                                              158,267               509,915
    Net originations of loans receivable                                                  (7,389,967)          (7,567,064)
    Purchases of office properties and equipment                                            (335,939)            (199,035)
    Proceeds from foreclosed real estate                                                      47,500                  -
                                                                                -----------------------------------------
                         NET CASH USED IN INVESTING ACTIVITIES                            (7,644,539)          (7,360,184)
                                                                                -----------------------------------------
Cash Flows from Financing Activities
    Net increase in savings deposits                                                       5,993,256            1,299,964
    FHLB Advances                                                                          2,487,143            8,487,173
    Dividends paid                                                                           (51,883)             (51,407)
                                                                                -----------------------------------------
                         NET CASH PROVIDED BY FINANCING ACTIVITIES                         8,428,516            9,735,730
                                                                                -----------------------------------------
                         NET INCREASE IN CASH AND CASH EQUIVALENTS                            30,980            2,361,793
Cash and cash equivalents:
    Beginning                                                                              7,422,852           12,395,060
                                                                                -----------------------------------------
    Ending                                                                      $          7,453,832 $         14,756,853
                                                                                =========================================
</TABLE>


                                       3

<PAGE>

AF BANKSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED) THREE
MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                          2000                  1999
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                   <C>
Supplemental Schedule of Cash and Cash Equivalents
    Cash:
       Interest-bearing deposits                                            $             508,813 $           3,943,829
       Noninterest-bearing                                                              6,945,019            10,813,024
                                                                             -------------------------------------------
                                                                            $           7,453,832 $          14,756,853
                                                                             ===========================================
Supplemental Disclosures of Cash Flow Information
    Cash payments for:
       Interest                                                             $           1,395,267 $           1,006,784
                                                                              ==========================================
       Income taxes                                                         $               7,273 $              15,000
                                                                              ==========================================
</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.

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 in addition to the more normal banking 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



                                       5

<PAGE>


brokerage subsidiary, AF Brokerage, Inc. that currently conducts brokerage
services from offices in West Jefferson and Jefferson and by appointment in the
Company's other office locations. 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. commenced operation in the fourth quarter of 2000
as an independent broker/dealer. 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.

On July 17, 2000, the Company signed a letter of intent to purchase the assets
of an insurance agency in Boone, North Carolina. If consummated the purchase is
expected to close in the second quarter of the 2001 fiscal year. Management
believes that penetration into other markets increases the opportunity to
deliver products from all of the Company's subsidiaries to a broader market and
will make the insurance and brokerage subsidiaries more profitable investments
by increasing the economies of scale and adding to the products that are
available for delivery to the Company's customers. The Company continues to seek
opportunities to increase its market penetration for its services.

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, 2000, 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 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 month
period ended September 30, 2000 are not necessarily indicative of the results of
operations that may be expected for the Company's fiscal year ending June 30,
2001.

The accounting policies followed are as set forth in Note 1 of the Notes to
Financial Statements in the Company's 2000 financial statements, which are
included in the Company's Form 10-KSB for the year ended June 30, 2000.

NOTE 3.   EARNINGS PER SHARE

The Company's basic and diluted earnings per share for the three month period
ended September 30, 2000 are based on a weighted average of 1,019,028, 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 first quarter of fiscal
year ending June 2001, 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


                                       6

<PAGE>


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 $18,000,150 and $15,513,007 at September
30, 2000 and June 30, 2000 respectively, from the Federal Home Loan Bank (`the
FHLB"). Interest at September 30, 2000 is payable at rates ranging from 5.84% to
6.87%. Pursuant to collateral agreements with the FHLB, advances are
collateralized by the Bank's stock in the FHLB and qualifying first mortgage
loans. $4.0 million of the advances are due by June 2001, $850,000 is due August
2002, $150,150 is due January 2007, $5.0 million is due August 2009, $3.0
million is due September 2009 and $5.0 million is due September 2010.




                                       7

<PAGE>

                               AF BANKSHARES, INC.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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.
In fact, the transition from "banking" to financial services provider impacted
every major competitor of the Company. The Financial Services Modernization Act
is an excellent example of regulatory and governmental support of this
viewpoint.

As noted in Note 1. of the Notes To Condensed Consolidated 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. 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 REMAIN POSITIVE.

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 $7.3 million or 6.7%;

     o        Asset growth of $7.6 million or 5.7%;

     o        An increase of $161,000 or 41.6% in non interest income,
              reflecting the Company's continuing emphasis in the areas of
              insurance and securities services;

     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
              lines of business.

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.


                                       8

<PAGE>

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2000 AND JUNE 30, 2000:

Total assets increased by $7.6 million, or 5.7%, to $141.0 million at September
30, 2000 from $133.4 million at June 30, 2000. The increase in assets was the
result of an increase of $7.3 million, or 6.7%, in loans receivable, net, from
June 30, 2000 to September 30, 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's penetration
of the more highly commercialized Boone market. Increases in net loans
outstanding were primarily funded by both an increase of $6.0 million in
deposits, and an increase of $2.5 million in advances from the Federal Home Loan
Bank.

The Company's net investment in property and equipment increased $199,000 or
4.8% to $4.4 million at September 30, 2000, and was primarily a result of
purchasing a previously leased building in Lenoir, North Carolina, during the
three months ended September 30, 2000, that is occupied by a branch of the
insurance subsidiary.

The Bank's deposits increased by $6.0 million, or 5.9%, from $102.7 million at
June 30, 2000 to $108.7 million at September 30, 2000. Management believes that
the increase in deposits is attributable to its continuing marketing efforts
directed towards increasing balances in savings and transaction accounts and in
smaller, stable certificates of deposits. During the three-month period ending
September 30, 2000, the Bank's savings and transaction accounts increased $2.4
million from a net gain of 598 new accounts. Management intends to continue its
marketing efforts and to offer new products to increase these lower cost core
deposits.

At September 30, 2000, retained earnings had increased $112,117 or 1.4% to $8.4
million as a result of earnings of $173,226, a decrease for the fair market
value adjustment for ESOP stock in the amount of $9,226 and a reduction for
dividends of $51,883. Deferred recognition and retention plan ("RRP") decreased
by $49,654 as a result of recognizing the vesture of additional RRP shares. At
September 30, 2000, the Bank's regulatory capital amounted to $11.9 million
compared to $11.7 million at June 30, 2000, which was 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, decreased to $173,000 at September 30, 2000 compared to $411,900 at June
30, 2000. 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 approximately $13,900 during the three month period ended
September 30, 2000 compared to net charge offs of $13,200 for the comparable
period ended September 30, 1999. As a result and based on management's analysis
of its allowances, a $59,000 provision for additional loan loss allowance was
made for the three month period ended September 30, 2000.


COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
AND 1999:

GENERAL. Net income for the three-month period ended September 30, 2000 was
$173,226, or $43,569 more than the $129,657 earned during the same period in
1999. Changes in net income during the comparable three-month period were
primarily attributable to an increase in interest income on loans due to both
the volume and rate of the institution's loan portfolio. This increase was
partially offset by the increase in interest expense in order to fund the loan


                                       9

<PAGE>

growth and increased compensation and employee benefit expenses due to 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. Also important to note was the 41.6% increase in
non-interest income, partially offset by a 21.4% increase in noninterst expense.
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 $625,852 or 29.6% from $2,111,519
for the three-month period ended September 30, 1999 to $2,737,371 for the
three-month period ended September 30, 2000. This increase was attributable to a
change in the volume, rate and mix of net loans receivable. Interest income from
loans increased $682,725 or 36.5% from $1,871,667 for the three months ended
September 30, 1999 to $2,554,392 for the three months ended September 30, 2000.

INTEREST EXPENSE. Interest expense increased by $395,449 or 38.7% to $1,418,682
for the three-month period ended September 30, 2000 from $1,023,233 for the
three months ended September 30, 1999. The increase is the result of both the
increase in advances outstanding at the Federal Home Loan Bank, and the $6.0
million increase in savings deposits, both of which were used to fund loan
demand.

NET INTEREST INCOME. Net interest income increased by $230,403 or 21.2% from
$1,088,286 for the three-month period ended September 30, 1999 to $1,318,689 for
the three-month period ended September 30, 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 $9,000 provision for loan losses
during the three-month period ended September 30, 1999. A $59,000 provision for
loan losses was made during the three-month period ended September 30, 2000.
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-month period
ended September 30, 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 three-month period ended
September 30, 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 September 30, 2000, the Bank's level of general valuation
allowances for loan losses amounted to $1.0 million which management believes is
adequate to absorb any existing losses in its loan portfolio.

NON-INTEREST INCOME. Non-interest income increased by $161,014, or 41.6% from
$387,319 for the three-month period ended September 30, 1999 to $548,333 for the
three months ended September 30, 2000. The increase was primarily attributable
to increased revenues generated from insurance sales and income generated from
the Company's brokerage activities during the three-months ended September 30,
2000. Both these areas of growth and widening market


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<PAGE>

penetration should continue to produce new growth in non-interest income.

NON-INTEREST EXPENSE. Non-interest expense increased by $268,815 or 21.4% from
$1,254,119 for the three months ended September 30, 1999 to $1,522,934 for the
three months ended September 30, 2000. Increases in non-interest expense for the
three month period ended September 30, 2000 are primarily attributable to an
increase in compensation costs and in occupancy expenses. Compensation costs
increased by $203,106 or 28.5% for the three- month period ended September 30,
2000, primarily as the result of adding additional insurance employees and
additional employees to position the Company for future expansion. Occupancy
cost increased by $59,052, or 46.6% for the three-month period ended September
30, 2000, due to the costs associated with the new insurance office in Elkin,
North Carolina.


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 September 30, 2000, cash and cash equivalents, a significant source of
liquidity, totaled $7.5 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 and generally maintain sufficient liquidity to ensure safe
and sound operations. The Bank's liquidity ratio at September 30, 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.


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


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<PAGE>

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.




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<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
         Not applicable

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 November 7, 2000                    By: /s/ James A. Todd
      ---------------------------             ----------------------------------
                                          James A. Todd
                                          President and Chief Executive Officer

Dated November 7, 2000                    By: /s/ Melanie Paisley Miller
      ---------------------------             ----------------------------------
                                          Melanie Paisley Miller
                                          Executive Vice President, Secretary,
                                          Treasurer and Chief Financial Officer





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