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, 2002
                                           ------------------
                                       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, 2002 there were 1,053,678 shares of the Registrant's common
stock issued and 1,049,838 shares of the Registrant's common stock outstanding,
$.01 par value

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

<PAGE>


                               AF BANKSHARES, INC.
                                    CONTENTS


PART I - FINANCIAL INFORMATION                                           Pages
                                                                         -----
         Item 1.  Financial Statements

Condensed Consolidated Statements of Financial Condition as of
September 30, 2002 (unaudited) and June 30, 2002                         1
Condensed Consolidated Statements of Income and Comprehensive Income
for the Three Months ended September 30, 2002 and 2001 (unaudited)       2
Condensed Consolidated Statements of Cash Flows for the Three Months
ended September 30, 2002 and 2001 (unaudited)                            3 - 4

Notes to Condensed Consolidated financial statements                     5 - 8

Item 2.  Management's Discussion and Analysis                            9 - 14
         Item 3.  Controls and Procedures                                14

PART II - OTHER INFORMATION

         Item 1.  Legal Proceedings                                      15
         Item 2.  Changes in Securities and Use of Proceeds              15
         Item 3.  Defaults upon Senior Securities                        15
         Item 4.  Submission of Matters to a Vote of Security Holders    15
         Item 5.  Other Information                                      15
         Item 6.  Exhibits and Reports on Form 8-K                       15 - 16
         Signatures                                                      17



<PAGE>

AF BANKSHARES, INC. AND SUBSIDIARIES


<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 2002 and June 30, 2002


ASSETS
                                                                 September 30,          June 30,
                                                                     2002                 2002
--------------------------------------------------------------------------------------------------
                                                                 (Unaudited)               Note
<S>                                                            <C>                   <C>
Cash and cash equivalents:
   Interest-bearing deposits                                   $  1,247,649          $  4,868,508
   Noninterest-bearing deposits                                   7,428,029             6,351,065
Securities held to maturity                                         100,000               100,000
Securities available for sale                                     7,949,435            10,272,145
Federal Home Loan Bank stock                                      1,257,400             1,049,400
Loans receivable, net                                           152,084,152           143,553,436
Real estate owned                                                   259,500               263,035
Office properties and equipment, net                              5,863,509             5,972,706
Accrued interest receivable on loans                                967,830               857,311
Accrued interest receivable on investment securities                 68,186               128,396
Prepaid expenses and other assets                                 1,146,516             1,569,957
Deferred income taxes, net                                          431,529               460,019
Intangible assets                                                 1,615,446             1,615,446
                                                               ------------          ------------
            TOTAL ASSETS                                       $180,419,181          $177,061,424
                                                               ============          ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Savings deposits                                           $134,565,372          $136,768,838
   Note payable                                                  1,298,462             1,264,624
   Note payable - ESOP                                             144,420               181,420
   Advances from Federal Home Loan Bank                         25,146,999            18,909,924
   Accounts payable and other liabilities                        1,018,326             1,768,576
   Redeemable common stock held by the ESOP, net of
      unearned ESOP shares                                         366,872               391,239
  Capital Securities                                             5,000,000             5,000,000
                                                              ------------          ------------
            TOTAL LIABILITIES                                  167,540,451           164,284,621
                                                              ============          ============

Commitments and Contingencies

Stockholders' Equity:
   Commonstock, par value $.01 per share; authorized 5,000,000
     shares; 1,053,678 issued and 1,049,838 outstanding
     shares at September 30, 2002 and June 30, 2002                  10,537               10,537
   Additional paid-in capital                                     4,606,250            4,602,930
   Retained earnings, substantially restricted                    8,255,129            8,200,866
   Accumulated other comprehensive income (loss)                     81,694               37,350
                                                              -------------        -------------
                                                                 12,953,610           12,851,683
    Less the cost of 3,840 shares of treasury stock                 (74,880)             (74,880)
                                                              -------------        -------------
            TOTAL STOCKHOLDERS' EQUITY                           12,878,730           12,776,803
                                                              -------------        -------------
            TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        $ 180,419,181        $ 177,061,424
                                                              =============        =============
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

Note: The Condensed Consolidated Statement of Financial Condition as of June 30,
2002 has been taken from audited financial statements at that date.

<PAGE>

AF BANKSHARES, INC. AND SUBSIDIARIES


<TABLE>
<CAPTION>
CONDENSED  CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended September 30, 2002 and 2001

                                                              Three Months Ended
                                                                 September 30,
---------------------------------------------------------------------------------------
                                                            2002                2001
---------------------------------------------------------------------------------------
<S>                                                    <C>                  <C>
Interest and dividend income:
  Loans                                                $ 2,747,721          $ 2,746,520
  Investment securities                                     95,461              140,840
  Interest bearing deposits                                 12,262               75,883
                                                       -----------          -----------
        TOTAL INTEREST INCOME                            2,855,444            2,963,243
                                                       -----------          -----------

Interest expense:
  Deposits                                                 893,356            1,272,505
  Federal Home Loan Bank advances                          252,852              233,940
  Notes payable                                             16,885               19,840
  Capital Securities                                       130,317              113,453
                                                       -----------          -----------
                                                         1,293,410            1,639,738
                                                       -----------          -----------
        NET INTEREST INCOME                              1,562,034            1,323,505
Provision for loan losses                                  112,500              152,900
                                                       -----------          -----------
        NET INTEREST INCOME AFTER PROVISION FOR
        LOAN LOSSES                                      1,449,534            1,170,605
                                                       -----------          -----------

Noninterest income:
  Insurance commissions                                    562,132              494,532
  Other                                                    289,541              189,790
                                                       -----------          -----------
                                                           851,673              684,322
                                                       -----------          -----------
Noninterest expense:
  Compensation and employee benefits                     1,314,303            1,198,424
  Occupancy and Equipment                                  279,765              230,856
  Deposit insurance premiums                                 5,732                5,655
  Computer processing charges                              133,799              111,928
  Amortization                                                   -               35,989
  Other                                                    434,190              367,299
                                                       -----------          -----------
                                                         2,167,789            1,950,151
                                                       -----------          -----------
        INCOME (LOSS) BEFORE INCOME TAXES                  133,418              (95,224)
  Income taxes                                              61,268              (37,281)
                                                       -----------          -----------
        NET INCOME (LOSS)                                   72,150              (57,943)
                                                       -----------          -----------
  Other comprehensive income (loss), net of tax:
    Unrealized gain (loss) on securities, net of tax        44,344               59,100
                                                       -----------          -----------
        COMPREHENSIVE INCOME (LOSS)                    $   116,494          $     1,157
                                                       ===========          ===========

  Basic Earnings per share of common stock (Note 3)    $      0.07          $     (0.06)
                                                       ===========          ===========
  Diluted Earnings per share of common stock (Note 3)  $      0.07          $     (0.06)
                                                       ===========          ===========
  Cash dividends per share                             $      0.05          $      0.05
                                                       ===========          ===========
</TABLE>


    See Notes to Condensed Consolidated Financial Statements.

<PAGE>

AF BANKSHARES, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended September 30, 2002 and 2001

                                                                     Three Months Ended
                                                                  2002                 2001
---------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>
Cash Flows from Operating Activities
  Net income (loss)                                           $    72,150       $   (57,943)
  Adjustments to reconcile net income (loss) to net cash
     provided by operating activities:
Provision for loan losses and REO                                 112,500           152,900
Provision for depreciation                                        189,503           146,928
Amortization of goodwill and non compete covenants                      -            35,989
Change in operating assets and liabilities:
  Accrued interest receivable                                     (50,309)         (110,259)
  Accrued interest payable                                         19,798          (134,023)
  Prepaid and other assets                                        423,441          (151,988)
  Accounts payable and other liabilities                         (750,250)         (101,997)
  Other                                                            45,058            44,687
                                                              -----------       -----------
      NET CASH PROVIDED BY OPERATING ACTIVITIES                    61,891          (175,706)
                                                              -----------       -----------
Cash Flows from Investing Activities
  Increase in Federal Home Loan Bank stock                       (208,000)                -
  Purchases of securities available for sale                     (800,000)       (3,650,000)
  Proceeds from securities available for sale                   3,166,600           636,267
  Net originations of loans receivable                         (8,643,216)       (5,255,103)
  Purchases of office properties and equipment                    (80,306)         (499,219)
  Purchase of goodwill and noncompete agreements                        -          (190,000)
                                                              -----------       -----------
      NET CASH USED IN INVESTING ACTIVITIES                    (6,564,922)       (8,958,055)
                                                              -----------       -----------
Cash Flows from Financing Activities
  Net increase in savings deposits                             (2,223,264)        5,914,187
  FHLB Advances                                                 6,237,075           (12,890)
  Notes Payable                                                    (3,162)         (263,208)
  Proceeds from capital securities                                      -         5,000,000
  Dividends paid                                                  (51,513)          (51,790)
                                                              -----------       -----------
      NET CASH PROVIDED BY FINANCING ACTIVITIES                 3,959,136        10,586,299
                                                              -----------       -----------
      NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     (2,543,895)        1,452,538
Cash and cash equivalents:
    Beginning                                                  11,219,573        12,567,765
                                                              -----------       -----------

    Ending                                                    $ 8,675,678       $14,020,303
                                                              ===========       ===========
</TABLE>

<PAGE>

AF BANKSHARES, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
Three Months Ended September 30, 2002 and 2001

                                                                   2002            2001
--------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>
Supplemental Schedule of Cash and Cash Equivalents
    Cash:
       Interest-bearing deposits                              $ 1,247,649       $ 7,449,218
       Noninterest-bearing                                      7,428,029         6,571,085
                                                              -----------       -----------
                                                              $ 8,675,678       $14,020,303
                                                              ===========       ===========
Supplemental Disclosures of Cash Flow Information
    Cash payments for:
       Interest                                               $ 1,387,178       $ 1,406,528
                                                              ===========       ===========
       Income taxes                                           $         -       $    61,000
                                                              ===========       ===========
</TABLE>


See Notes to Condensed Consolidated Financial Statements.

<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, with branches in Boone, Jefferson,
Sparta, Warrensville, and West Jefferson, North Carolina. The Company has an
insurance subsidiary headquartered in West Jefferson, North Carolina, operating
as AF Insurance Services, Inc. with branches in Boone, Elkin, Jefferson, Lenoir,
Sparta, West Jefferson, and Wilkesboro, North Carolina. The Company has a
brokerage service subsidiary headquartered in West Jefferson, North Carolina,
operating as AF Brokerage, Inc., which serves Ashe, Alleghany, Wilkes and
Watauga counties; as well as Union County, North Carolina, through a third party
arrangement with a bank in Monroe, North Carolina.

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 and 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 as the Company
became a majority owned subsidiary of AsheCo, MHC.

At the Company's annual meeting held on November 4, 2002, stockholders approved
a resolution to amend Section I of the Company's federal stock charter to change
the Company's name from AF Bankshares, Inc. to AF Financial Group. Management
believes that the name "AF Financial Group" more accurately reflects its
transition from banking to financial services provider and that the new name
will assist potential clients and customers in recognizing the Company as a full
service financial services provider.

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 traditional `banking only' services would
impair the Company's growth and make retention of existing customers more
difficult. The Company continues to seek opportunities to increase


                                       5
<PAGE>

market penetration for its products and 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., that
currently conducts brokerage services from two offices in West 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. During the fiscal year
ended June 30, 2002, AF Brokerage entered into a service contract with a
non-affiliated community bank in Monroe, North Carolina, to provide investment
services to the bank's customers through a dual employee arrangement. This move
signals the first step in the brokerage firm's intent to enter and expand its
business into the arena of third party providers for non-competitive client
financial institutions in North Carolina. Management continues to evaluate
acquisitions and business opportunities that will provide access to new
customers and expanded markets, which would enhance the Company's long term
value and earnings potential.

On November 1, 2000, the Company purchased the assets of an insurance agency in
Boone, North Carolina, adding insurance products to the banking services offered
by the Company in Watauga County. On October 1, 2001, the Company purchased the
assets of an insurance agency in Sparta, North Carolina. Management believes
that penetration into new (especially contiguous) markets increases the
opportunity to deliver products from all of the Company's subsidiaries to a
broader market base, thereby making the insurance and brokerage subsidiaries
more profitable investments by increasing the economies of scale, as well as
improving the economies of scope, and at the same time adding to the products
that are available for delivery to the Company's customers.

Of course, management is equally committed to protecting and expanding the
Company's market share in existing markets. As evidence of this continuing
commitment, on October 24, 2001 AF Bank opened the only financial institution
outlet located inside the new Wal-Mart in West Jefferson, North Carolina. In May
2002 the Company opened a freestanding full-service branch adjacent to Wal-Mart
in West Jefferson, North Carolina. Thus, customers now enjoy the convenience of
banking inside where they shop, as well as having access to a comprehensive
array of financial services at the freestanding branch office (including an
ATM), drive-through lanes, and a commercial depository. Also, the Company has
just added a new Customer Call Center allowing customers to speak with a banking
representative by phone from 7 a.m. until 10 p.m. Monday through Friday.

Later this year, the Company will be adding two important new services designed
to both strengthen existing customer financial relationships, as well as attract
new customers and clients: check imaging, and online banking. Check imaging will
provide the Company's checking customers with the space-saving option of
receiving imaged statements showing their cancelled checks each month, instead
of bulky stacks of returned checks. And online banking will give customers the
ability to bank directly through their computers -- 24 hours a day, seven days a
week.

Additionally, the Company holds an option to acquire land in Boone, North
Carolina to construct a Financial Service Center which is expected to be
completed during the 2004 fiscal year. The new Financial Center is expected to
cost approximately $5.5 million and will combine banking, insurance and
investments into one convenient location in the Watagua county market. Two
floors of the proposed four-story facility will be offered for lease to the
professional and medical community. The Company continues to seek opportunities
to


                                       6
<PAGE>


increase the market penetration of 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. In the same year, the Company issued
2,000 of these shares. During the year ended June 30, 2002, the Company issued
460 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, 2002, 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, 2002 are not necessarily indicative of the results of
operations that may be expected for the Company's fiscal year ending June 30,
2003.

The accounting policies followed are as set forth in Note 1 of the Notes to
Financial Statements in the Company's 2002 financial statements, which are
included by reference in the Company's Form 10-KSB for the year ended June 30,
2002.

NOTE 3.   EARNINGS PER SHARE

The Company's basic and diluted earnings per share for the three-month period
ended September 30, 2002 are based on weighted averages of 1,039,857 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 2003, 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.  FEDERAL HOME LOAN BANK ADVANCES AND NOTES PAYABLE

The Company had advances outstanding of $25,146,999 and $18,909,924 at September
30, 2002 and June 30, 2002 respectively, from the Federal Home Loan Bank ("the
FHLB"). Interest at September 30, 2002 is payable at rates ranging from 2.17% 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. Advances of $146,999 are due January 2007, $5.0 million is due September
2010, $7.0 million is due November 2010, $4.0 million is due January 2011, $5.0
million is due September 2012 and $4.0 million is due daily.



                                       7
<PAGE>


The Company had Notes Payable outstanding of $1,298,462 and $1,264,624 at
September 30, 2002 and June 30, 2002, respectively. Interest at September 30,
2002 is payable at rates ranging from 1.69% to 5.50% with maturities between 1
and 7 years.

NOTE 5.  CAPITAL SECURITIES

On July 16, 2001, AF Capital Trust (the "Trust"), a Delaware business trust
formed by the Company, completed the sale of $5.0 million of 10.25% Capital
Securities (liquidation amount of $1,000 per security) (the "Capital
Securities") in a private placement as part of a pooled capital securities
transaction. The Trust also issued Common Securities to the Company and used the
net proceeds from the offering to purchase a like amount of 10.25% Junior
Subordinated Deferrable Interest Debentures (the "Subordinated Debentures") of
the Company. The Subordinated Debentures are the sole assets of the Trust and
are eliminated, along with the related income statement effects, in the
consolidated financial statements of the Company. The Company contributed $3.0
million of the proceeds from the sale of the Subordinated Debentures to the Bank
as Tier I Capital to support the Bank's growth. Total expenses associated with
the offering approximating $186,756 were included in other assets and are being
amortized on a straight-line basis over the life of the Subordinated Debentures.

The Capital Securities accrue and pay distributions semi-annually on January
25th and July 25th of each year, commencing on January 25, 2002 at a fixed
annual rate of 10.25% of the stated liquidation amount of $1,000 per Capital
Security. The Company has fully and unconditionally guaranteed all of the
obligations of the Trust, including the semi-annual distributions and payments
on liquidation or redemption of the Capital Securities.

The Capital Securities are mandatorily redeemable upon the maturing of the
Subordinated Debentures on July 25, 2031 or upon earlier redemption as provided
in the Indenture. The Company has the right to redeem the Subordinated
Debentures, in whole or in part, on any January 25th or July 25th on or after
July 25, 2006 at the liquidation amount, plus any accrued but unpaid interest to
the redemption date.

NOTE 6.  DIVIDENDS DECLARED

On September 16, 2002, the Board of Directors of the Company declared a dividend
of $0.05 a share for stockholders of record as of September 19, 2002 and payable
on October 2, 2002. The dividends declared were accrued and reported in accounts
payable and other liabilities in the September 30, 2002 Consolidated Statement
of Financial Condition. AsheCo, MHC, the mutual holding company, did not waive
the receipt of dividends declared by the Company.

NOTE 7.  GOODWILL AND OTHER INTANGIBLE ASSETS

On July 1, 2002, the Company adopted the provisions of Financial Accounting
Standards Board Statement 142, GOODWILL AND OTHER INTANGIBLE ASSETS. Under the
provisions of the Statement, on July 1, 2002, the Company eliminated the
amortization of goodwill and other intangibles that are determined to have an
indefinite life. Upon adoption of the Statement, the Company had no impairment
of goodwill, but will reevaluate the carrying value of goodwill and other
intangible assets at least annually. The Company expects to perform this
reevaluation as of March 31 in each of its fiscal years.




                                       8
<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 COMPANY, THAT ARE SUBJECT TO VARIOUS FACTORS WHICH COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE ESTIMATES. THESE FACTORS
INCLUDE: CHANGES IN GENERAL, ECONOMIC AND MARKET CONDITIONS; THE DEVELOPMENT OF
AN ADVERSE INTEREST RATE ENVIRONMENT THAT ADVERSELY AFFECTS THE INTEREST RATE
SPREAD OR OTHER INCOME ANTICIPATED FROM THE COMPANY'S OPERATIONS AND
INVESTMENTS; AND DEPOSITOR AND BORROWER PREFERENCES. THE COMPANY DISCLAIMS ANY
OBLIGATION TO PUBLICLY ANNOUNCE FUTURES EVENTS OR DEVELOPMENTS THAT MAY AFFECT
THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.

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 is 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 most of the 20th Century. In fact, the
transition from "banking" to "financial services provider" impacted every major
competitor of the Company. The Gramm-Leach-Bliley Financial Services
Modernization Act is an excellent example of regulatory and governmental support
of this viewpoint.

Management has long recognized the dramatically changing dynamics of the
delivery system for financial services in this country. Both individuals and
businesses now look to a broadening array of sources for needed (or wanted)
financial products. Individuals and families are opening FDIC insured savings
accounts at brokerage houses; they are purchasing mutual funds and annuities
through offices of banking organizations; and they are using the services of
non-bank financial planners to plan their retirements and their children's
education needs. Companies are increasingly taking their cash management
function to independent brokers or insurance company representatives; they are
investing idle cash through discount brokerages on the internet; and they are
establishing letters and lines of credit with investment bankers, indirect
credit companies and others.

The Company now has a foundation to successfully compete in its established
markets. In all AF Bank markets, the Company has the capability to deliver
comprehensive insurance services through its insurance subsidiary and the
potential to deliver securities services through AF Brokerage, Inc. In order to
project an imagine as a full service financial provider to potential clients and
customers, the Company's stockholders approved a resolution to amend the
Company's federal stock charter to change the Company's name from AF Bankshares,
Inc. to AF Financial Group. The challenge facing management is to provide the
most economical, efficient - and most importantly - DESIRABLE platform to offer
AF customers, clients and prospects these services. It is a challenge management
is working hard to meet.

To enhance and expand its service delivery channels, the Company recently
introduced a new Call Center, allowing banking customers access to a live
banking representative by telephone from 7 a.m. until 10 p.m., Monday through
Friday. In the near future, Online Banking will be added to provide customers
with the ability to bank direct through their computers 24 hours a day, seven
days a week. Also, Check Imaging is scheduled for introduction during the
current



                                       9
<PAGE>

fiscal year, giving checking customers the added option of receiving imaged
statements showing all their cancelled checks -- instead of bulky stacks of
returned checks each month. These, and other planned improvements, are all
intended to improve the viability and DESIRABILITY of the Company's delivery
platform.

In coming years, management believes that the Company's established foundation
and emerging platform will drive the Company's long-term viability as a
competitively superior financial services provider in all markets.

Management is optimistic about the future of the Company. Management and the
board of directors continue to be pleased with the progess 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 SEPTEMBER 30, 2002 AND JUNE 30, 2002:

Total assets increased by $3.3 million, or 1.9%, to $180.4 million at September
30, 2002 from $177.1 million at June 30, 2002. The increase in assets was
primarily the result of an increase of $8.5 million, or 5.9%, in loans
receivable, net, from June 30, 2002 to September 30, 2002. 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. Increases in net
loans outstanding, were primarily funded by an increase of $6.2 million in
advances from the Federal Home Loan Bank, a decrease of $2.3 million in
securities available for sale and a decrease of $2.5 million in cash and cash
equivalents.

Securities available for sale decreased $2.4 million or 23.3% to $7.9 million at
September 30, 2002 from $10.3 million at June 30, 2002. This decrease was due to
maturing investments and management's decision to use the liquidity to fund loan
demand. At September 30, 2002, the Company's investment portfolio had
approximately $81,694 in net unrealized gains.

The Bank's deposits decreased by $2.2 million, or 1.6%, from $136.8 million at
June 30, 2002 to $134.6 million at September 30, 2002. Management believes that
the decrease in deposits is attributable to the decrease in balances in savings
and transaction accounts. During the three-month period ending September 30,
2002, the Bank's savings and transaction accounts decreased approximately $4.4
million with a net gain of 88 new accounts. This decrease was partially offset
by an increase of $2.2 million in the Bank's certificates of deposits.
Management intends to focus its marketing efforts and to offer new products to
increase the lower cost core deposits.

At September 30, 2002, retained earnings had increased $54,263, or 0.7%, to $8.3
million as a result of net income of $72,150, an increase for the fair market
value for ESOP stock in the amount of $33,626, and a reduction for dividends of
$51,513. At September 30, 2002, the Bank's regulatory capital amounted to $16.8
million compared to $16.6 million at June 30, 2002, 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 $435,835 at September 30, 2002 compared to $460,041 at June
30, 2002. The Bank recognized net charge offs of approximately $88,400 during
the three-month period ended September 30, 2002 compared to net charge offs of
$101,000 for the comparable period ended September 30, 2001. The level of net
charge offs was attributable to recent negative



                                       10
<PAGE>

economic events on the local level, principally related to factory closings in
two of the Company's primary markets and the higher unemployment due to the
closings. As a result and based on management's analysis of its allowances, a
$112,500 provision for loan loss allowance was made during the three-month
period ended September 30, 2002. Similar loan loss provisions in future periods
are uncertain; however, management expects to have a similar level of provision
expense for the second quarter.


COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
AND 2001:

The Company had net income for the three-month period ended September 30, 2002
of $72,150 compared to a net loss of $57,943 during the same period in 2001.
Changes in net income during the comparable three-month period were attributable
to an increase in the net interest income after provision for loan losses and an
increase in insurance commissions. The increases in income were partially offset
by increased compensation expense, occupancy expenses and computer processing
charges associated with the remodeling costs of the Sparta facility and the new
Financial Center located on Mount Jefferson Road in West Jefferson, North
Carolina. 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 decreased by $107,799 or 3.6% from $2,963,243
for the three-month period ended September 30, 2001 to $2,855,444 for the
three-month period ended September 30, 2002. Interest income from
interest-bearing deposits decreased $63,621 or 83.8% from $75,883 for the
three-month period ended September 30, 2001 to $12,262 for the three-month
period ended September 30, 2002. Interest income from investment securities
decreased $45,379 or 32.2% from $140,840 for the three-month period ended
September 30, 2001 to $95,461 for the three-month period ended September 30,
2002. The decrease in interest income was primarily due to the reduction in
interest rates during the periods and the decrease of the volume of
interest-bearing deposits and securities available for sale. The decrease in
interest-bearing deposits and securities available for sale was used to fund
loan demand and offset the decrease in savings deposits.

INTEREST EXPENSE. Interest expense decreased by $346,328 or 21.1% to $1,293,410
for the three-month period ended September 30, 2002 from $1,639,738 for the
three months ended September 30, 2001. Interest expense on deposits decreased by
$379,149 or 29.8% to $893,356 for the three months ended September 30, 2002 from
$1,272,505 for the three months ended September 30, 2001. This decrease is the
result of the 1.28% decrease in the institution's weighted average rate of
deposits during the twelve-month period ended September 30, 2002.

NET INTEREST INCOME. Net interest income increased by $238,529 or 18.0% from
$1,323,505 for the three-month period ended September 30, 2001 to $1,562,034 for
the three-month period ended September 30, 2002. The increase is a result of a
drop in the institution's weighted average rate paid for deposits, partially
offset by the reduction of the weighted average loan rates and the increase in
net loans outstanding.

PROVISION FOR LOAN LOSSES. Management made additional provision in the amount of
$112,500 to the allowance for loan losses during the three-month period ended
September 30, 2002, compared to a $152,900 provision for loan losses made during
the three-month period ended September 30, 2001. 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



                                       11
<PAGE>

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, 2002 based upon an analysis of the quality of its loan
portfolio. At September 30, 2002, the Bank's level of general valuation
allowances for loan losses amounted to $1.2 million which management believes is
adequate to absorb any existing losses in its loan portfolio.

NON-INTEREST INCOME. Non-interest income increased by $167,351, or 24.5%, from
$684,322 for the three-month period ended September 30, 2001 to $851,673 for the
three months ended September 30, 2002. The increase for the three months ended
September 30, 2002, was primarily attributable to increased revenues generated
from insurance sales and increases in transaction fees on deposit accounts
during the three months ended September 30, 2002. The increased revenue
generated from insurance sales is due to widening market penetration and is
expected to continue to produce new growth in non-interest income. The increase
in transaction fees on deposit accounts is primarily attributable to an increase
in the number of transaction accounts and more aggressive collection efforts.

NON-INTEREST EXPENSE. Non-interest expense increased by $217,638 or 11.2% from
$1,950,151 for the three months ended September 30, 2001 to $2,167,789 for the
three months ended September 30, 2002. Increases in non-interest expense for the
three-month period ended September 30, 2002 are primarily attributable to an
increase in compensation costs, occupancy expenses and computer processing
charges associated with the remodeling costs of the Sparta facility and
increased staffing for the Financial Service Center located on Mount Jefferson
Road West Jefferson, North Carolina. Compensation costs increased by $115,879 or
9.7% for the three-month period ended September 30, 2002. Occupancy costs
increased by $48,909, or 21.2% for the three month-period ended September 30,
2002.

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.
The Company's primary sources of funds consist of deposits, borrowings,
repayment and prepayment of loans, sales and participations of loans, maturities
of securities and interest-bearing deposits, and funds provided from operations.
While scheduled repayments of loans and maturities of securities are predictable
sources of funds, deposit flows and loan prepayments are greatly influenced by
the general level of interest rates, economic conditions, and competition. The
Company uses its liquidity resources primarily to fund existing and future loan
commitments, to fund net deposit outflows, to invest in other interest-earning
assets, to maintain liquidity, and to meet operating expenses. For additional
information about cash flows from the Company's operating, financing and
investing activities, see "Condensed Consolidated Statements of Cash Flow."

Liquidity management is both a daily and long-term function of management. If
the Company requires funds beyond its ability to generate them internally, the
Company believes it could



                                       12
<PAGE>

borrow additional funds from the FHLB and use the wholesale deposit markets. At
September 30, 2002, the Company had borrowings of $25.1 million from the FHLB.

The Company anticipates that it will have sufficient funds available to meet its
current loan origination commitments. Certificates of deposit scheduled to
mature in one year or less totaled $50.4 million at September 30, 2002. Based
upon historical experience, management believes that a significant portion of
such deposits will remain with the Bank.

As of September 30, 2002, cash and cash equivalents, a significant source of
liquidity, totaled $8.7 million. The OTS regulations require the Company to
maintain sufficient liquidity to ensure its safe and sound operation. 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 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
residual effect of reducing the Company's historical exposure to interest rate
increases is a heightened exposure to interest rate decreases. Additionally, a
decline in rates for earning assets may occur more rapidly than a decline in
funding costs. Certificates of deposit represent the most interest sensitive
funding products and typically have terms ranging from three to thirty six
months. Consequently, the rates paid for these deposits cannot be adjusted until
the maturity date. Loans priced at prime or a margin thereto provide for
adjusting rates immediately when market rates change. In a rising rate
environment, that ability to make immediate rate adjustments serves to protect
the net interest margin against increases in rates at a more rapid speed than
the increase in funding. In a declining rate environment, the rates on prime



                                       13
<PAGE>

rate based loans decrease immediately while certificate rates lag causing the
interest margin to decline until the certificates mature offering an opportunity
for repricing.

Management believes that the Company's asset/liability management program
continues to function as a useful financial management tool; adequately
providing for the safe, sound and prudent management of the Company's exposure
to changes in interest rates.

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.


ITEM 3.  CONTROLS AND PROCEDURES

During the 90-day period prior to the filing date of this report, management,
including the Company's President and Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the design and operation of
the Company's disclosure controls and procedures. Based upon, and as of the date
of that evaluation, the President and Chief Executive Officer and Chief
Financial Officer concluded that the disclosure controls and procedures were
effective, in all material respects, to ensure that information required to be
disclosed in the reports the Company files and submits under the Exchange Act is
recorded, processed, summarized and reported as and when required.

There have been no significant changes in the Company's internal controls or in
other factors which could significantly affect internal controls subsequent to
the date the Company carried out its evaluation. There were no significant
deficiencies or material weaknesses identified in the evaluation and therefore,
no corrective actions were taken.







                                       14
<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)  Exhibits

99.1      Section 906 of the Sarbanes-Oxley Act of 2002 CEO Certification

99.2      Section 906 of the Sarbanes-Oxley Act of 2002 CFO Certification


(b)  Reports on Form 8-K

          There were no reports on Form 8-K filed during the quarter for which
this report is filed.












                                       15
<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 13, 2002                  By:  /s/ James A. Todd
      -----------------                      ---------------------------------
                                         James A. Todd
                                         President and Chief Executive Officer

Dated November 13, 2002                  By:  /s/ Melaie Paisley Miller
      -----------------                      ---------------------------------
                                         Melanie Paisley Miller
                                         Executive Vice President, Secretary,
                                         Treasurer and Chief Financial Officer






                                       16
<PAGE>


                                 CERTIFICATIONS



          I, James A. Todd certify that:

1.   I have reviewed this quarterly report on Form 10-QSB of AF Bankshares,
     Inc.;

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report.

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     (a) designed such disclosure controls and procedures to ensure that
     material information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this quarterly report is being
     prepared;

     (b) evaluated the effectiveness of the registrant's disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     quarterly report (the "Evaluation Date"); and

     (c) presented in this quarterly report our conclusions about the
     effectiveness of the disclosure controls and procedures based on our
     evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of the registrant's board of directors (or persons performing the
     equivalent function):

     (a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

     (b) any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls; and

6.   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our



                                       17
<PAGE>

     most recent evaluation, including any corrective actions with regard to
     significant deficiencies and material weaknesses.


Date:  November 13, 2002                 /s/ James A. Todd
                                         ------------------------------------
                                         James A. Todd
                                         President and Chief Executive Officer









                                       18
<PAGE>



   I,   Melanie Paisley Miller, certify that:


1.   I have reviewed this quarterly report on Form 10-QSB of AF Bankshares,
     Inc.;

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report; and

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report.

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     (a) designed such disclosure controls and procedures to ensure that
     material information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this quarterly report is being
     prepared;

     (b) evaluated the effectiveness of the registrant's disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     quarterly report (the "Evaluation Date"); and

     (c) presented in this quarterly report our conclusions about the
     effectiveness of the disclosure controls and procedures based on our
     evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of the registrant's board of directors (or persons performing the
     equivalent function):

     (a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

     (b) any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls; and

6.   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our



                                       19
<PAGE>

     most recent evaluation, including any corrective actions with regard to
     significant deficiencies and material weaknesses.


Date:  November 13, 2002        /s/ Melanie Paisley Miller
                                ---------------------------------
                                Melanie Paisley Miller
                                Executive Vice President, Secretary, Treasurer
                                and Chief Financial Office









                                       20
<PAGE>


                                  CERTIFICATION
                      (PURSUANT TO 18 U.S.C. SECTION 1350)

The undersigned hereby certifies that (i) the foregoing Quarterly Report on Form
10-QSB filed by AF Bankshares, Inc. (the "Company") for the quarter ended
September 30, 2002 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, and (ii) the information contained
in that Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.



                               AF BANKSHARES, INC.


Dated November 13, 2002                  By:   /s/ James A. Todd
                                               -------------------------------
                                         James A. Todd
                                         President and Chief Executive Officer

Dated November 13, 2002                  By:   /s/ Melanie Paisley Miller
                                               -------------------------------
                                         Melanie Paisley Miller
                                         Executive Vice President, Secretary,
                                         Treasurer and Chief Financial Officer






                                       21
<PAGE>