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   December 31, 2000
                                           -----------------
                                       OR

  [   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

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


                           Commission File No: 0-24479

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

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

                               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 January 31, 2001 there were 1,053,678 shares of the Registrant's common
stock issued and 1,049,379 shares of the Registrant's common stock outstanding,
$.01 par value

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


<PAGE>




<TABLE>

<CAPTION>

                               AF BANKSHARES, INC.
                                    CONTENTS


PART I - FINANCIAL INFORMATION                                                          Pages
                                                                                        -----

         Item 1.  Financial Statements
<S>                                                                                    <C>

Condensed Consolidated Statements of Financial Condition as of
   December 31, 2000 (unaudited) and June 30, 2000                                      1
Condensed Consolidated Statements of Income and Comprehensive Income for
   the Three and Six Months ended December 31, 2000 and 1999 (unaudited)                2
Condensed Consolidated Statements of Cash Flows for the Six Months ended
   December 31, 2000 and 1999 (unaudited)                                               3 - 4


Notes to Condensed Consolidated financial statements                                    5 - 7

Item 2.  Management's Discussion and Analysis                                           8 - 13

PART II - OTHER INFORMATION

         Item 1.  Legal Proceedings                                                     14
         Item 2.  Changes in Securities and Use of Proceeds                             14
         Item 3.  Defaults upon Senior Securities                                       14
         Item 4.  Submission of Matters to a Vote of Security Holders                   14
         Item 5.  Other Information                                                     14
         Item 6.  Reports on Form 8-K                                                   15
         Signatures                                                                     16

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
AF BANKSHARES, INC. AND SUBSIDIARIES


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


ASSETS
                                                                  December 31,      June 30,
                                                                    2000              2000
---------------------------------------------------------------------------------------------------
                                                                 (Unaudited)          Note
<S>                                                          <C>               <C>
Cash and cash equivalents:
   Interest-bearing deposits                                   $    2,857,337     $   2,599,071
   Noninterest-bearing deposits                                     7,987,090         4,823,781
Certificates of deposit, at cost                                       99,000            99,000
Securities held to maturity                                           100,000           100,000
Securities available for sale                                       8,029,480         8,860,452
Federal Home Loan Bank stock                                          999,400           775,700
Loans receivable, net                                             121,787,826       108,778,257
Real estate owned                                                     241,941           289,441
Office properties and equipment, net                                4,302,446         4,183,610
Accrued interest receivable on loans                                  959,842           605,749
Accrued interest receivable on investment securities                   89,630            82,647
Prepaid expenses and other assets                                     574,495           562,317
Deferred income taxes, net                                            399,266           499,045
Intangible assets                                                   1,650,882         1,111,333
                                                                --------------------------------
                              TOTAL ASSETS                     $  150,078,635     $ 133,370,403
                                                                ================================
LIABILITIES AND EQUITY
Liabilities:
   Savings deposits                                            $  117,365,691     $ 102,679,834
   Note payable                                                     1,296,942           700,000
   Note payable - ESOP                                                216,237           229,878
   Advances from Federal Home Loan Bank                            16,987,286        15,513,007
   Accounts payable and other liabilities                           1,136,361         1,630,313
   Redeemable common stock held by the ESOP, net of
      unearned ESOP shares                                             95,602            77,116
                                                                --------------------------------
                              TOTAL LIABILITIES                   137,098,119       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 December 31, 2000 and June 30, 2000                       10,537            10,537
   Additional paid-in capital                                       4,587,621         4,591,555
   Retained earnings, substantially restricted                      8,517,336         8,331,965
   Deferred recognition and retention plan                           (182,036)         (281,344)
   Accumulated other comprehensive income                             130,908           (28,608)
                                                                --------------------------------
                                                                   13,064,366        12,624,105
    Less the cost of 4,300 shares of treasury stock                   (83,850)          (83,850)
                                                                --------------------------------
                TOTAL STOCKHOLDERS' EQUITY                         12,980,516        12,540,255
                                                                --------------------------------
                TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      $ 150,078,635     $ 133,370,403
                                                                ================================
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

Note: The Condensed Consolidated Statement of Financial Condition as of June 30,
2000 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 AND SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999

                                              Three Months Ended      Six Months Ended
                                                December 31,            December 31,
-------------------------------------------------------------------------------------------
                                               2000        1999         2000        1999
-------------------------------------------------------------------------------------------
<S>                                        <C>         <C>          <C>         <C>
Interest and dividend income:
  Loans                                    $2,758,817  $2,055,109   $5,313,209  $3,926,776
  Investment securities                       155,118     144,619      306,952     313,347
  Interest-bearing deposits                    52,822      31,442       83,967     102,566
                                           ----------------------   ----------------------
         TOTAL INTEREST INCOME              2,966,757   2,231,170    5,704,128   4,342,689
                                           ----------------------   ----------------------

Interest expense:
  Deposits                                  1,309,249     999,146    2,474,931   1,935,698
  Federal Home Loan Bank advances             283,193     177,957      526,568     258,833
  Notes payable                                18,828       4,880       28,453      10,685
                                           ----------------------   ----------------------
                                            1,611,270   1,181,983    3,029,952   2,205,216
                                           ----------------------   ----------------------
         NET INTEREST INCOME                1,355,487   1,049,187    2,674,176   2,137,473
Provision for loan losses                      20,000         -         79,000       9,000
                                           ----------------------   ----------------------
         NET INTEREST INCOME AFTER
         PROVISION FOR LOAN LOSSES         $1,335,487  $1,049,187   $2,595,176  $2,128,473
                                           ----------------------   ----------------------
Noninterest income:
  Insurance commissions                       362,611     186,474      701,662     412,911
  Gain on sale of investments                       -      63,994            -      63,994
  available for sale                          176,132     168,983      385,414     329,865
  Other                                    ----------------------   ----------------------
                                              538,743     419,451    1,087,076     806,770
                                           ----------------------   ----------------------

Noninterest expense:
  Compensation and employee benefits          952,930     748,658    1,868,776   1,461,398
  Occupancy and Equipment                     227,051     131,573      412,824     258,294
  Deposit insurance premiums                    5,094      13,520       10,314      26,455
  Computer processing charges                  77,363      62,865      157,022     136,259
  Amortization                                 29,378      14,226       55,451      28,452
  Other                                       396,639     365,605      707,002     679,708
                                           ----------------------   ----------------------
                                            1,688,455   1,336,447    3,211,389   2,590,566
                                           ----------------------   ----------------------
         INCOME BEFORE INCOME TAXES           185,775     132,191      470,863     344,677
  Income taxes                                 69,944      50,144      181,806     132,973
                                           ----------------------   ----------------------
         NET INCOME                           115,831      82,047      289,057     211,704
                                           ----------------------   ----------------------
  Other comprehensive income (loss),
    net of tax:
    Unrealized gain (loss) on securities,
    net of tax                                118,075     (60,604)     159,516    (121,468)
      Less:  reclassification adjustment
      for gains included in net income,
      net of tax                                    -      43,900            -      43,900
                                           ----------------------   ----------------------
         COMPREHENSIVE INCOME              $  233,906  $   65,343   $  448,573  $  134,136
                                           ==========  ==========   ==========  ==========
  Basic Earnings per share of              $     0.11  $     0.08   $     0.28  $     0.21
     common stock (Note 3)                 ==========  ==========   ==========  ==========
  Diluted Earnings per share of            $     0.11  $     0.08   $     0.28  $     0.21
     common stock (Note 3)                 ==========  ==========   ==========  ==========
  Cash dividends per share                 $     0.05  $     0.05   $     0.10  $     0.10
                                           ==========  ==========   ==========  ==========
</TABLE>




  See Notes to Condensed Consolidated Financial Statements.

<PAGE>
AF BANKSHARES, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999

                                                                              Six Months Ended
                                                                          2000                1999
-------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                 <C>
Cash Flows from Operating Activities
  Net income                                                         $   289,057         $    211,704
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Provision for loan losses and REO                                     79,000                9,000
    Provision for depreciation                                           284,657              182,099
    Loss on disposition of office properties and equipment                 7,838                 --
    Amortization of goodwill and non-compete covenants                    55,451               28,452
    Change in operating assets and liabilities:
      Accrued interest receivable                                       (361,076)            (114,187)
      Accrued interest payable                                            57,259                6,265
      Prepaid and other assets                                           (12,178)             166,456
      Accounts payable and other liabilities                            (493,952)             470,186
      Other                                                              115,990              138,009

             NET CASH PROVIDED BY OPERATING ACTIVITIES                    22,046            1,097,984
Cash Flows from Investing Activities
    Proceeds from certificates of deposit                                   --                 99,000
    Increase in Federal Home Loan Bank stock                            (223,700)            (129,000)
    Purchases of securities available for sale                              --               (500,000)
    Proceeds from securities available for sale                        1,088,169            1,778,122
    Net originations of loans receivable                             (13,088,568)         (16,581,803)
    Purchases of office properties and equipment                        (411,332)            (767,411)
    Purchase of goodwill and noncompete agreements                      (595,000)            (682,215)
    Proceeds from foreclosed real estate                                  47,500               11,500

             NET CASH USED IN INVESTING ACTIVITIES                   (13,182,931)         (16,771,807)
Cash Flows from Financing Activities
    Net increase in savings deposits                                  14,628,599            4,378,525
    FHLB Advances                                                      1,474,279           10,474,339
    Notes Payable                                                        583,301                 --
    Dividends paid                                                      (103,719)            (102,860)
             NET CASH PROVIDED BY FINANCING ACTIVITIES                16,582,460           14,750,004
             NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS      3,421,575             (923,819)
Cash and cash equivalents:
    Beginning                                                          7,422,852           12,395,060
    Ending                                                           $10,844,427         $  11,471,241
</TABLE>

<PAGE>
AF BANKSHARES, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999

                                                                2000                 1999
---------------------------------------------------------------------------------------------
<S>                                                        <C>                  <C>
Supplemental Schedule of Cash and Cash Equivalents
  Cash:
    Interest-bearing deposits                              $  2,857,337         $    385,697
    Noninterest-bearing                                       7,987,090           11,085,544
                                                            --------------------------------
                                                           $ 10,844,427         $ 11,471,241
                                                            ================================
Supplemental Disclosures of Cash Flow Information
  Cash payments for:
    Interest                                               $  2,963,068         $  2,198,951
                                                            ================================
    Income taxes                                           $     88,463         $     87,769
                                                            ================================
</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, 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, Jefferson, and Boone, 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 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

                                       5

<PAGE>

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 November 1, 2000, the Company purchased the assets of an insurance agency in
Boone, North Carolina. 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,
as well as improving the economies of scope, and adding to the products that are
available for delivery to the Company's customers. Of course, management is
equally committed to protecting and expanding market share in the Company's
existing markets, too. As evidence of the commitment, a definitive agreement has
been executed to allow AF Bank to be the only financial institution located
inside the new Wal-Mart under construction in West Jefferson, North Carolina. In
addition, plans call for the bank to build a freestanding, full-service branch
adjacent to Wal-Mart. Thus, customers will enjoy the convenience of banking
where they shop - - as well as access to a comprehensive array of financial
services at the freestanding branch office (including drive-through lanes and a
commercial depository). The Company continues to seek opportunities for
increasing 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. 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 and six
month period ended December 31, 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 and six month
period ended

                                       6

December 31, 2000 are based on weighted averages of 1,022,650, and 1,020,839,
respectively, assumed to be outstanding for the period. Options to purchase
21,322 shares of common stock at $18.50 per share were outstanding during the
second 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 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 $16,987,286 and $15,513,007 at December
31, 2000 and June 30, 2000 respectively, from the Federal Home Loan Bank (`the
FHLB"). Interest at December 31, 2000 is payable at rates ranging from 5.43% 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, $837,500 is due August
2002, $149,786 is due January 2007, $5.0 million is due September 2010, and $7.0
million is due November 2010.

The Company had Notes Payable outstanding of $1,296,942 and $700,000 at December
31, 2000 and June 30, 2000 respectively. Interest at December 31, 2000 is
payable at rates ranging from 5.50% to 9.50% with maturities between 9 and 10
years.

                                       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 these planned and uncontrollable dampening
factors -- THE COMPANY'S EARNINGS FOR THE MOST RECENTLY COMPLETED QUARTER REMAIN
POSITIVE.

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're purchasing mutual funds and annuities
through offices of banking organizations; and they're utilizing the services of
a financial planner at an insurance company to plan their retirements. 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 an established foundation to successfully compete in our
established markets. In all AF Bank markets, we now have the capability to
deliver comprehensive insurance services and the potential to deliver securities
services through AF Brokerage, Inc. The challenge facing us is to provide the
most economical, efficient - and most importantly - DESIRABLE platform to offer
our customers, clients, and prospects these services. It is a challenge
management is working hard to meet. In coming years, it is management's firm
belief that the Company's established foundation and emerging platform will
drive the

                                       8

<PAGE>

Company's long-term viability as a competitively superior financial
service provider in all markets.

There are a number of significantly positive factors and recent events, which
reflect the Company's progress toward its long-term goals in the just ended
period:

     o    An increase in net loans of $13.0 million or 12.0%;

     o    Asset growth of $16.7 million or 12.5%;

     o    An increase of $280,306 or 34.7% in noninterest income, as compared to
          the corresponding six months period ended December 31, 1999,
          reflecting the Company's continuing emphasis in the areas of insurance
          and securities services;

     o    Total stockholders' equity grew to $12,980,516 from $12,540,255 at
          June 30, 2000.

     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.

One exciting development is the execution of an exclusive agreement to allow AF
Bank to be the sole financial institution located inside the new Wal-Mart now
under construction in West Jefferson. That office, as well as a full-service AF
Bank branch planned adjacent to the Wal-mart property, will offer local
individuals, families, and businesses enhanced access and convenience
unparalleled by other financial services providers in Ashe County.

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


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

Total assets increased by $16.7 million, or 12.5%, to $150.1 million at December
31, 2000 from $133.4 million at June 30, 2000. The increase in assets was the
result of an increase of $13.0 million, or 12.0%, in loans receivable, net, from
June 30, 2000 to December 31, 2000. The increase in net loans receivable is
typical for the Bank, which operates in lending markets that have had sustained
loan demand over the last several years. Increases in net loans outstanding were
primarily funded by an increase of $14.7 million in deposits.

The Company's net investment in property and equipment increased $118,836 or
2.8% to $4.3 million at December 31, 2000, and was primarily a result of
purchasing a previously leased building in Lenoir, North Carolina, that is
occupied by a branch of the insurance subsidiary, and purchasing equipment for
the insurance agency acquisition in Boone, North Carolina.

The Bank's deposits increased by $14.7 million, or 14.3%, from $102.7 million at
June 30, 2000 to $117.4 million at December 31, 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 six-month period ending
December 31, 2000, the Bank's savings and transaction accounts increased $4.4
million from a net gain of 583 new accounts. Management intends to continue

                                       9

<PAGE>

its marketing efforts and to offer new products to increase these lower cost
core deposits. The increase in deposit accounts helped fund the $13.0 million
growth in net loans and the growth of $3.4 million in cash and cash equivalents.

At December 31, 2000, retained earnings had increased $185,371 or 2.2% to $8.5
million as a result of earnings of $289,057, and a reduction for dividends of
$103,719. Deferred recognition and retention plan ("RRP") decreased by $99,308
as a result of recognizing the vesture of additional RRP shares. At December 31,
2000, the Bank's regulatory capital amounted to $12.3 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 $210,000 at December 31, 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 $20,600 during the six-month period ended
December 31, 2000 compared to net charge offs of $27,400 for the comparable
period ended December 31, 1999. As a result and based on management's analysis
of its allowances, a $79,000 provision for additional loan loss allowance was
made for the six-month period ended December 31, 2000.


COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31,
2000 AND 1999:

GENERAL. Net income for the three and six month periods ended December 31, 2000
was $115,831 and $289,057, respectively, or $33,784 more than the $82,047 and
$77,353 more than the $211,704 earned during the same periods in 1999. Changes
in net income during the comparable three and six month periods were primarily
attributable to an increase in interest income on loans due to both the volume
and rate of the institution's loan portfolio and the increase in noninterest
income due to increase commission income from the insurance subsidiary. This
increase was partially offset by the increase in interest expense in order to
fund the loan growth and increased compensation and employee benefit expenses
due to the addition of employees in order to prepare the Company for current and
future expansion. Management believes that these initial costs of expansion will
better position the Company for the future. In management's opinion, there has
not been a material change in interest rate risk from the end of the Company's
most recent fiscal year.

INTEREST INCOME. Interest income increased by $735,587 or 33.0% from $2,231,170
for the three-month period ended December 31, 1999 to $2,966,757 for the
three-month period ended December 31, 2000. Interest income increased by
$1,361,439 million or 31.4% from $4,342,689 for the six-month period ended
December 31, 1999 to $5,704,128 for the six-month period ended December 31,
2000. Interest income from loans increased $703,708 or 34.2% from $2,055,109 for
the three months ended December 31, 1999 to $2,758,817 for the three months
ended December 31, 2000. Interest income from loans increased $1,386,433 or
35.3% from $3,926,776 for the six-month period ended December 31, 1999 to
$5,313,209 for the six-month period ended December 31, 2000. This increase was
attributable to a change in the volume, rate and mix of net loans receivable.

INTEREST EXPENSE. Interest expense increased by $429,287 or 36.3% to $1,611,270
for the three-month period ended December 31, 2000 from $1,181,983 for the three
months ended December 31, 1999. Interest expense increased by $824,736 or 37.4%
to $3,029,952 for the six-month period ended December 31, 2000 from $2,205,216
for the six-


                                       10

<PAGE>

month period ended December 31, 1999. The increase is the result of both the
increase in advances outstanding at the Federal Home Loan Bank, and the $14.7
million increase in savings deposits for the six-month period ended December 31,
2000, both of which were used to fund loan demand and to increase the balance in
cash and cash equivalents.

NET INTEREST INCOME. Net interest income increased by $306,300 or 29.2% from
$1,049,187 for the three-month period ended December 31, 1999 to $1,355,487 for
the three-month period ended December 31, 2000. Net interest income increased by
$536,703 or 25.1% from $2,137,473 for the six-month period ended December 31,
1999 to $2,674,176 for the six-month period ended December 31, 2000. The
increase is a result of increased average outstanding balances in net loans
receivable.

PROVISION FOR LOAN LOSSES. Management did not make an additional provision for
loan losses during the three-month period ended December 31, 1999, compared to a
$20,000 provision for loan losses made during the three-month period ended
December 31 2000. Management made a $9,000 provision for loan losses during the
six-month period ended December 31, 1999, compared to a $79,000 provision made
during the six-month period ended December 31, 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 and six-month
period ended December 31, 2000 based upon an analysis of the quality of its loan
portfolio. The Bank's level of non-performing loans remained consistently low in
relation to prior periods and total loans outstanding during the three and six
month period ended December 31, 2000; however, due to changes in the mix of the
Bank's loan portfolio, management determined it was necessary to make an
additional provision. At December 31, 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 $119,292, or 28.4% from
$419,451 for the three-month period ended December 31, 1999 to $538,743 for the
three months ended December 31, 2000. Non-interest income increased by $280,306,
or 34.7% from $806,770 for the six-month period ended December 31, 1999 to
$1,087,076 for the six-month period ended December 31, 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 and
six months ended December 31, 2000. Both these areas of growth and widening
market penetration should continue to produce new growth in non-interest income.


NON-INTEREST EXPENSE. Non-interest expense increased by $352,008 or 26.3% from
$1,336,447 for the three months ended December 31, 1999 to $1,688,455 for the
three months ended December 31, 2000. Non-interest expense increased by $620,823
or 24.0% from $2,590,566 for the six months ended December 31, 1999 to
$3,211,389 for the six months ended December 31, 2000. Increases in non-interest
expense for the three and six-month

                                       11

<PAGE>

periods ended December 31, 2000 are primarily attributable to an increase in
compensation costs and in occupancy expenses. Compensation costs increased by
$204,272 or 27.3% for the three-month period ended December 31, 2000 and
increased by $407,378 or 27.9% for the six-month period ended December 31, 2000.
This increase is primarily the result of additional insurance employees acquired
with the Company's newest insurance acquisition. Occupancy cost increased by
$95,478, or 72.6% for the three-month period ended December 31, 2000 and
$154,530 or 59.8% for the six-month period ended December 31, 2000, due to the
costs associated with the new insurance offices.

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 December 31, 2000, cash and cash equivalents, a significant source of
liquidity, totaled $10.8 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 December 31, 2000, as
computed under OTS regulations, was considerably in excess of such requirements.
Given its level of liquidity and its ability to borrow from the FHLB, the Bank
believes that it will have sufficient funds available to meet anticipated future
loan commitments, unexpected deposit withdrawals, and other cash requirements.

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


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.

                                       12

<PAGE>

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.


                                       13

<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

     The Company held its Annual Meeting of Shareholders ("Meeting") on November
6, 2000. All of the proposals submitted to the shareholders at the Meeting were
approved. The proposals submitted to shareholders and the tabulation of votes
for each proposal is as follows:

          1. Election of three candidates to the Board of Directors, each to
          serve for a term of three years.

          The number of votes cast with respect to this matter was as follows:

---------------------- ---------------- ---------------- ----------------------
        Nominee              For           Withheld        Broker Non-Votes
---------------------- ---------------- ---------------- ----------------------
Jan R. Caddell             906,776          46,197              96,405
---------------------- ---------------- ---------------- ----------------------
Kenneth R. Greene          906,913          46,060              96,405
---------------------- ---------------- ---------------- ----------------------
James A. Todd              905,713          47,260              96,405
---------------------- ---------------- ---------------- ----------------------

          The following five directors were not up for reelection, however,
          remain on the board to serve their existing term: Wayne R. Burgess,
          Jimmy D. Reeves, Frank E. Roland, Jerry L. Roten, and John D. Weaver

          2.   Ratification of the appointment of McGladrey & Pullen, LLP as
               independent auditors for fiscal year ending June 30, 2001.

          The number of votes cast with respect to this matter was as follows:

--------------- ------------ ---------------- -----------------------
      For         Against       Abstained        Broker Non-Votes
--------------- ------------ ---------------- -----------------------
    950,313          0            2,660               96,405
--------------- ------------ ---------------- -----------------------

Item 5.  Other Information
         Not applicable

Item 6.  Exhibits and Reports on Form 8-K
(a)      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    February 8, 2001              By: /s/ James A. Todd
                                       James A. Todd
                                       President and Chief Executive Officer

Dated    February 8, 2001              By: /s/ Melanie Paisley Miller
                                       Melanie Paisley Miller
                                       Executive Vice President, Secretary,
                                       Treasurer and Chief Financial Officer





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