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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                            ______________________

                                  FORM 10-KSB

                ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


                For the fiscal year ended         June 30, 1999
                                         ----------------------

                     Commission file number     000-21701
                                           --------------

                            CAROLINA FINCORP, INC.
                (Name of small business issuer in its charter)

              North Carolina                           56-1978449
      -------------------------------                 -------------
      (State or other jurisdiction of     (I.R.S. Employer Identification No.)
       incorporation or organization)

         115 South Lawrence Street
        Rockingham, North Carolina                     27380-1597
        -----------------------------                 ------------
  (Address of principal executive offices)             (Zip Code)

                                (910) 997-6245
                          ---------------------------
                          (Issuer's telephone number)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

    Common Stock, no par value                 Nasdaq SmallCap Market
----------------------------------   -------------------------------------------
(Title of class)                     (Name of each exchange on which registered)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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   X       No ____
     ---

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.                  [X]

State issuer's revenues for its most recent fiscal year $9,156,438

State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.

Common Stock, no par value -- $13,844,678 (based on the price at which the stock
was sold on September 7, 1999).

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.

     Common Stock, no par value                      1,871,545
     --------------------------          ----------------------------------
              (Class)                    (Outstanding at September 7, 1999)


                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Stockholders for the year ended June 30, 1999
(the "1999 Annual Report"), are incorporated by reference into Part I and Part
II.

Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held on November 17, 1999 (the "Proxy Statement"), are incorporated by reference
into Part III.

     Transitional Small Business Disclosure Format (Check one):  Yes __  No  X
                                                                            ---
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                                    PART I

ITEM 1. DESCRIPTION OF BUSINESS

General

     Prior to November 22, 1996, Richmond Savings, Inc., SSB (the "Bank")
operated as a mutual North Carolina-chartered savings bank. On November 22,
1996, the Bank converted from a North Carolina-chartered mutual savings bank to
a North Carolina-chartered stock savings bank (the "Conversion"). In connection
with the Conversion, all of the issued and outstanding capital stock of the Bank
was acquired by Carolina Fincorp, Inc., a North Carolina corporation (the
"Company"), which was organized to become the Bank's holding company and
incorporated on June 5, 1996. At that time, the Company had an initial public
offering of its common stock, no par value (the "Common Stock").

     The Company is a bank holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") under the Bank
Holding Company Act of 1956, as amended (the "BHCA") and the savings bank
holding company laws of North Carolina. The Company's and the Bank's principal
office is located at 115 South Lawrence Street, Rockingham, North Carolina. The
Company's activities consist of holding the indebtedness outstanding from the
Richmond Savings Bank, Inc., SSB Employee Stock Ownership Plan (the "ESOP"),
investing any remaining proceeds of the Conversion which were retained at the
holding company level, and owning the Bank. The Company's principal sources of
income are interest payments received from the ESOP with respect to the ESOP
loan and dividends paid by the Bank to the Company, if any.

     The Bank was organized in 1906, and has been a member of the Federal Home
Loan Bank (the "FHLB") system and its deposits have been federally insured since
1957.  The deposits of the Bank are insured by the Savings Association Insurance
Fund (the "SAIF") of the Federal Deposit Insurance Corporation (the "FDIC") to
the maximum amount permitted by law.

     The Bank conducts business through two full service offices in Rockingham
and three full services offices in Southern Pines, Ellerbe, and Laurinburg,
North Carolina.  Under FDIC regulations, stock repurchases may be made by the
savings bank only upon receipt of FDIC approval.  The Bank's primary market area
consists of Richmond, Moore and Scotland counties in North Carolina.  At June
30, 1999, the Company had total assets of $119.2 million, net loans of $89.3
million, deposits of $10.2 million, investment securities of $17.4 million and
stockholders' equity of $15.8 million.

     At June 30, 1999, the Company and the Bank had a total of 46 full-time
employees and 2 part-time employees.

     The Company has no operations and conducts no business of its own other
than owning the Bank, lending funds to the ESOP, and investing its portion of
the net proceeds received in the Conversion.  Accordingly, the discussion of the
business which follows in this Form 10-KSB concerns the business conducted by
the Bank, unless otherwise indicated.

Lending Activities

     The Bank is engaged primarily in the business of attracting deposits from
the general public and using such deposits to make mortgage loans secured by
real estate.  The Bank's primary source of revenue is interest income from its
lending activities, consisting primarily of mortgage loans for the purchase or
refinancing of one-to-four family residential real property located in its
primary market area.  The Bank also makes home equity loans and loans secured by
multi-family and commercial properties, construction loans, home improvement
loans, savings accounts loans and various types of consumer loans.  Over 88.6%
of the Bank's loan portfolio, before net items, is secured by real estate.

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On June 30, 1999, the Bank's largest single outstanding loan had a balance of
approximately $1.5 million. This loan was performing in accordance with its
original terms. In addition to interest earned on loans, the Bank receives fees
in connection with loan originations, loan servicing, loan modifications, late
payments, loan assumptions and other miscellaneous services. Adjustable rate
loans are generally originated with the intention that they be held in the
Bank's portfolio. Fixed rate one-to-four family residential loans are generally
originated in conformity with secondary market purchase requirements and sold in
the secondary market. During fiscal 1999, 1998, and 1997, the Bank sold $13.1
million, $6.4 million, and $1.0 million, respectively, of fixed rate loans in
order to better manage its interest rate risk.

     The Bank's net loan portfolio totaled approximately $89.3 million at June
30, 1999 representing 74.9% of the Bank's total assets at such date. At June 30,
1999, 63.0% of the Bank's loan portfolio, before net items, was composed of one-
to-four family residential mortgage loans. Home equity and home improvement
loans represented 11.7% of the Bank's loan portfolio, before net items, and
multi-family residential and commercial and construction loans represented 14.1%
of the Bank's loan portfolio, before net items, on such date. As of June 30,
1999, 70.4% of the loans in the Bank's loan portfolio had adjustable interest
rates. Loans maturing or repricing on or after June 30, 2000, consist of fixed
rate real estate loans of $16.4 million, adjustable rate real estate loans of
$35.7 million, other fixed rate loans of $9.0 million and other adjustable rate
loans of $234,000. See Note C - Loans Receivable to the Financial Statements
Contained in the 1999 Annual Report.

Investment Securities

     Interest and dividend income from other investment securities provide the
second largest source of income to the Bank after distribution from the Bank.
Interest and dividend income from investment securities also generally provide
the second largest source of income to the Company after interest on loans.  In
addition, the Company and the Bank receive interest income from  deposits in
other financial institutions.  At June 30, 1999, the Company and Bank's
investment securities portfolio totaled approximately $25.2 million and
consisted of U.S. government and agency securities, mortgage-backed securities,
municipal bonds, interest-earning deposits in other financial institutions,
stock of the FHLB of Atlanta, and investments in corporate debt securities of
large financial institutions.

     Investments in mortgage-backed securities involve a risk that, because of
changes in the interest rate environment, actual prepayments will be greater
than estimated prepayments over the life of the security, which may require
adjustments to the amortization of any premium or accretion of any discount
relating to such instruments, thereby reducing the net yield on such securities.
There is also reinvestment risk associated with the cash flows from such
securities.  In addition, the market value of such securities may be adversely
affected by changes in interest rates.  See Note B - Investment Securities to
the Financial Statements Contained in the 1999 Annual Report.

     As a member of the FHLB of Atlanta, the Bank is required to maintain an
investment in stock of the FHLB of Atlanta equal to the greater of 1% of the
Bank's outstanding home loans or 5% of its outstanding advances from the FHLB of
Atlanta.  No ready market exists for such stock, which is carried at cost.  As
of June 30, 1999, the Bank's investment in stock of the FHLB of Atlanta was
$727,000.

     North Carolina regulations require the Bank to maintain a minimum amount of
liquid assets which may be invested in specified short-term securities.  See "--
Regulation of the Bank - Liquidity."  The Bank is also permitted to make certain
other securities investments.

Deposits and Borrowings

     Deposits.  Deposits are the primary source of the Bank's funds for lending
and other investment purposes.  The Bank attracts both short-term and long-term
deposits from the general public by offering a variety of accounts and rates.
The Bank offers passbook savings accounts, statement savings accounts, demand
deposit accounts, negotiable order of withdrawal accounts, individual retirement
accounts, and fixed rate certificates with varying maturities.  At June 30,
1999, 11.1% of the Bank's deposits consisted of passbook and statement savings
accounts, 12.8% consisted of interest-

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bearing transaction accounts and 3.0% consisted of noninterest-bearing
transaction accounts. Although the vast majority of the Bank's deposits are
authentic deposit accounts, management of the Bank believes that it has been
successful in maintaining a high percentage of demand deposit and transaction
accounts which are generally considered to be less interest rate sensitive than
certificated accounts. This is consistent with the Bank's asset/liability
management strategies. Deposit flows are greatly influenced by economic
conditions, the general level of interest rates, competition, and other factors,
including the restructuring of the thrift industry. The Bank's savings deposits
traditionally have been obtained primarily from its primary market area. The
Bank utilizes traditional marketing methods to attract new customers and savings
deposits, including print media advertising and direct mailings. The Bank does
not advertise for deposits outside of its local market area or utilize the
services of deposit brokers. See Note G - Deposit Accounts to the Financial
Statements contained in the 1999 Annual Report.

     In addition to deposits, the Bank derives funds from loan principal
repayments, interest payments, investment income and principal repayments,
interest from its own interest-earning deposits, interest income and repayments
from mortgage-backed securities and otherwise from its operations.  Loan
repayments are a relatively stable source of funds while deposit inflows and
outflows may be significantly influenced by general interest rates and money
market conditions.

     Borrowings. Borrowings may be used on a short-term basis to compensate for
reductions in the availability of funds from other sources. They may also be
used on a longer term basis for general business purposes. Although it has not
done so in several years, the Bank may obtain advances from the FHLB of Atlanta
to supplement its liquidity needs. The FHLB system functions in a reserve credit
capacity for savings institutions. As a member, the Bank is required to own
capital stock in the FHLB of Atlanta and is authorized to apply for advances
from the FHLB of Atlanta on the security of that stock and a floating lien on
certain of its real estate secured loans and other assets. Each credit program
has its own interest rate and range of maturities. Depending on the program,
limitations on the amount of advances are based either on a fixed percentage of
an institution's net worth or on the FHLB of Atlanta's assessment of the
institution's creditworthiness. As of June 30, 1999, the Bank had no outstanding
advances from the FHLB of Atlanta. See Note F B Advances from Federal Home Loan
Bank and Other Borrowed Funds contained in the 1999 Annual Report.

Results of Operations

     The Bank's results of operations are dependent primarily on net interest
income, which is the difference between the income earned on its interest-
earning assets, such as loans and investments, and the cost of its interest-
bearing liabilities, consisting of deposits. The Bank's operations are affected
to a much lesser degree by non-interest income, such as transaction and other
service fee income, and other sources of income. The Bank's net income is also
affected by, among other things, provisions for loan losses and operating
expenses. The Bank's principal operating expenses, aside from interest expense,
consist of compensation and employee benefits, office occupancy costs, data
processing expenses and federal deposit insurance premiums. The Bank's results
of operations are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government legislation and policies concerning monetary and fiscal affairs,
housing and financial institutions and the attendant actions of regulatory
authorities.

Market Area

     The Bank's primary market area consists of Richmond, Moore and Scotland
Counties in North Carolina.  Richmond County, which contains Rockingham, is
located in south central North Carolina near the North Carolina-South Carolina
boundary, and is the home of the North Carolina Motor Speedway, location of two
Winston-Cup stock car races annually. Moore County, which is immediately north
of Richmond County, is the home of several retirement communities and golf
resorts, including Pinehurst and Southern Pines. Scotland County, which includes
Laurinburg, is located east of Richmond County. Richmond and Scotland Counties
have experienced relatively slow growth during the last five (5) years. Moore
County, which includes the resort and retirement communities of Pinehurst and
Southern

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Pines, has experienced greater growth. The economy of the Bank's primary market
area is largely rural, with employment diversified among manufacturing,
agricultural, retail and wholesale trade, government, services and utilities.
Major area employers include UCO Fabrics, Burlington Industries, Sara Lee
Hosiery, Perdue Farms, Inc., Richmond Memorial Hospital, FirstHealth Moore
Regional Hospital, Gullistan Carpets, Resorts of Pinehurst, Campbell Soup
Company, WestPoint Stevens, Abbott Laboratories and LOF Glass.

Subsidiaries

     The Bank is the only subsidiary of the Company. As a North Carolina
chartered savings bank, the Bank is able to invest up to 10% of its total assets
in subsidiary service corporations. However, any investment in a service
corporation which would cause the Bank to exceed an investment of 100% of its
Tier One Capital must receive prior approval of the FDIC.

     The Bank has one wholly-owned subsidiary, Richmond Investment Services,
Inc., a North Carolina corporation ("R.I.S."). R.I.S. acts as an agent in the
sale of annuities, Medicare and Medicaid supplements, and major medical and life
insurance policies, and it provides certain investment brokerage services
through UVEST Investment Services. In addition, R.I.S. owns certain real
property. Regulations of the North Carolina Administrator, Savings Institutions
Division, North Carolina Department of Commerce (the "Administrator") and the
FDIC place limitations upon the activities of subsidiaries of North Carolina-
chartered savings banks. The total assets of R.I.S. at June 30, 1999 were
$227,000, and the net income for that subsidiary for the year ended June 30,
1999 was $24,000.

Competition

     The Bank faces strong competition both in attracting deposits and making
real estate and other loans.  Its most direct competition for deposits has
historically come from other savings institutions, credit unions and commercial
banks located in its primary market area, including large financial institutions
which have greater financial and marketing resources available to them.  The
Bank has also faced additional significant competition for investors' funds from
short-term money market securities and other corporate and governmental
securities.  The ability of the Bank to attract and retain savings deposits
depends on its ability to generally provide a rate of return, liquidity and risk
comparable to that offered by competing investment opportunities.

     The Bank experiences strong competition for real estate loans from other
savings institutions, commercial banks, and mortgage banking companies.  The
Bank competes for loans primarily through the interest rates and loan fees its
charges, the efficiency and quality of service it provides borrowers, and its
more flexible underwriting standards.  Competition may increase as a result of
the continuing reduction of restrictions on the interstate operations of
financial institutions.

Supervision and Regulation

     Bank holding companies and state savings banks are extensively regulated
under both federal and state law. The following is a brief summary of certain
statutes and rules and regulations that affect or will affect the Company and
the Bank. This summary is qualified in its entirety by reference to the
particular statute and regulatory provisions referred to below and is not
intended to be an exhaustive description of the statutes or regulations
applicable to the business of the Company and the Bank. Supervision, regulation
and examination of the Company and the Bank by the regulatory agencies are
intended primarily for the protection of depositors rather than shareholders of
the Company.

Regulation of the Company

     General.  The Company was organized for the purpose of acquiring and
holding all of the capital stock of the Bank to be issued in the Conversion.  As
a savings bank holding company subject to the Bank Holding Company Act of 1956,
as amended ("BHCA"), the Company is subject to certain regulations of the
Federal Reserve.  Under the

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BHCA, the Company's activities and those of its subsidiaries are limited to
banking, managing or controlling banks, furnishing services to or performing
services for its subsidiaries or engaging in any other activity which the
Federal Reserve determines to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. The BHCA prohibits the
Company from acquiring direct or indirect control of more than 5% of the
outstanding voting stock or substantially all of the assets of any bank or
savings bank or merging or consolidating with another bank holding company or
savings bank holding company without prior approval of the Federal Reserve.

     Additionally, the BHCA prohibits the Company from engaging in, or acquiring
ownership or control of, more than 5% of the outstanding voting stock of any
company engaged in a nonbanking business unless such business is determined by
the Federal Reserve to be so closely related to banking as to be properly
incident thereto.  The BHCA does not place territorial restrictions on the
activities of such non-banking related activities.

     Similarly, Federal Reserve approval (or, in certain cases, non-disapproval)
must be obtained prior to any person acquiring control of the Company.  Control
is conclusively presumed to exist if, among other things, a person acquires more
than 25% of any class of voting stock of the holding company or controls in any
manner the election of a majority of the directors of the holding company.
Control is presumed to exist if a person acquires more than 10% of any class of
voting stock and the stock is registered under Section 12 of the Exchange Act or
the acquiror will be the largest shareholder after the acquisition.

     There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss to the depositors of such
depository institutions and the FDIC insurance funds in the event the depository
institution becomes in danger of default or in default. For example, to avoid
receivership of an insured depository institution subsidiary, a bank holding
company is required to guarantee the compliance of any insured depository
institution subsidiary that may become "undercapitalized" with the terms of any
capital restoration plan filed by such subsidiary with its appropriate federal
banking agency up to the lesser of (i) an amount equal to 5% of the
institution's total assets at the time the institution became undercapitalized
or (ii) the amount which is necessary (or would have been necessary) to bring
the institution into compliance with all acceptable capital standards as of the
time the institution fails to comply with such capital restoration plan. Under a
policy of the Federal Reserve with respect to bank holding company operations, a
bank holding company is required to serve as a source of financial strength to
its subsidiary depository institutions and to commit resources to support such
institutions in circumstances where it might not do so absent such policy. The
Federal Reserve under the BHCA also has the authority to require a bank holding
company to terminate any activity or to relinquish control of a nonbank
subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve's determination that such activity or control constitutes a serious risk
to the financial soundness and stability of any bank subsidiary of the bank
holding company.

     In addition, insured depository institutions under common control are
required to reimburse the FDIC for any loss suffered by either the SAIF or the
Bank Insurance Fund (the "BIF") as a result of the default of a commonly
controlled insured depository institution or for any assistance provided by the
FDIC to a commonly controlled insured depository institution in danger of
default.  The FDIC may decline to enforce the cross-guarantee provisions if it
determines that a waiver is in the best interest of the SAIF or the BIF or both.
The FDIC's claim for damages is superior to claims of stockholders of the
insured depository institution or its holding company but is subordinate to
claims of depositors, secured creditors and holders of subordinated debt (other
than affiliates) of the commonly controlled insured depository institutions.

     Federal regulations require that the Company must notify the Federal
Reserve Bank of Richmond prior to repurchasing Common Stock in excess of ten
percent of its net worth during a rolling twelve month period unless the Company
(i) both before and after the redemption satisfies capital requirements for
"well capitalized" state member banks, (ii) received a one or two rating in its
last examination, and (iii) is not the subject of any unresolved supervisory
issues. As a result of the Company's ownership of the Bank, the Company is
registered under the savings bank holding

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company laws of North Carolina. Accordingly, the Company is also subject to
regulation and supervision by the Administrator.

     Capital Adequacy Guidelines for Holding Companies. The Federal Reserve has
adopted capital adequacy guidelines for bank holding companies and banks that
are members of the Federal Reserve system and have consolidated assets of $150
million or more. For bank holding companies with less than $150 million in
consolidated assets, the guidelines are applied on a bank-only basis unless the
parent bank holding company (i) is engaged in nonbank activity involving
significant leverage or (ii) has a significant amount of outstanding debt that
is held by the general public.

     Bank holding companies subject to the Federal Reserve's capital adequacy
guidelines are required to comply with the Federal Reserve's risk-based capital
guidelines. Under these regulations, the minimum ratio of total capital to risk-
weighted assets (including certain off-balance sheet activities, such as standby
letters of credit) is 8%. At least half of the total capital is required to be
"Tier I capital," principally consisting of common stockholders' equity,
noncumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less certain goodwill items. The remainder ("Tier II
capital") may consist of a limited amount of subordinated debt, certain hybrid
capital instruments and other debt securities, perpetual preferred stock, and a
limited amount of the general loan loss allowance. In addition to the risk-based
capital guidelines, the Federal Reserve has adopted a minimum Tier I capital
(leverage) ratio, under which a bank holding company must maintain a minimum
level of Tier I capital to average total consolidated assets of at least 3% in
the case of a bank holding company which has the highest regulatory examination
rating and is not contemplating significant growth or expansion. All other bank
holding companies are expected to maintain a Tier I capital (leverage) ratio of
at least 1% to 2% above the stated minimum.

Federal Securities Law

     The Company has registered its Common Stock with the SEC pursuant to
Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act") and
will not deregister the Common Stock for a period of three years following the
completion of the Conversion.  As a result of such registration, the proxy and
tender offer rules, insider trading reporting requirements, annual and periodic
reporting and other requirements of the Exchange Act are applicable to the
Company.

Regulation of the Bank

     General. Federal and state legislation and regulation significantly affect
the operations of federally insured savings institutions and other federally
regulated financial institutions. The operations of regulated depository
institutions, including the Bank, is subject to changes in applicable statutes
and regulations from time to time. Such changes may or may not be favorable to
the Bank.

     The Bank is a North Carolina-chartered savings bank, is a member of the
FHLB system, and its deposits are insured by the FDIC through the SAIF. It is
subject to examination and regulation by the FDIC and the Administrator and to
regulations governing such matters as capital standards, mergers, establishment
of branch offices, subsidiary investments and activities, and general investment
authority. Generally, North Carolina state chartered savings banks whose
deposits are issued by the SAIF are subject to restrictions with respect to
activities and investments, transactions with affiliates and loans-to-one
borrower similar to those applicable to SAIF insured savings associations. Such
examination and regulation is intended primarily for the protection of
depositors and the federal deposit insurance funds.

     The Bank is subject to various regulations promulgated by the Federal
Reserve including, without limitation, Regulation B (Equal Credit Opportunity),
Regulation D (Reserves), Regulation E (Electronic Fund Transfers), Regulation O
(Loans to Executive Officers, Directors and Principal Shareholders), Regulation
Z (Truth in Lending), Regulation CC (Availability of Funds) and Regulation DD
(Truth in Savings). As creditors of loans secured by real property and as owners
of real property, financial institutions, including the Bank, may be subject to
potential liability

                                       6
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under various statutes and regulations applicable to property owners generally,
including statutes and regulations relating to the environmental condition of
real property.

     The FDIC has extensive enforcement authority over North Carolina-chartered
savings banks, including the Bank.  This enforcement authority includes, among
other things, the ability to assess civil money penalties, to issue cease and
desist or removal orders and to initiate injunctive actions.  In general, these
enforcement actions may be initiated in response to violations of laws and
regulations and unsafe or unsound practices.

     The grounds for appointment of a conservator or receiver for a North
Carolina savings bank on the basis of an institution's financial condition
include: (i) insolvency, in that the assets of the savings bank are less than
its liabilities to depositors and others; (ii) substantial dissipation of assets
or earnings through violations of law or unsafe or unsound practices; (iii)
existence of an unsafe or unsound condition to transact business; (iv)
likelihood that the savings bank will be unable to meet the demands of its
depositors or to pay its obligations in the normal course of business; and (v)
insufficient capital or the incurring or likely incurring of losses that will
deplete substantially all of the institution's capital with no reasonable
prospect of replenishment of capital without federal assistance.

     Transactions with Affiliates. Under current federal law, transactions
between the Bank and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act. An affiliate of the Bank is any company or entity that
controls, is controlled by or is under common control with the savings bank.
Generally, subsidiaries of a bank, other than a bank subsidiary, and certain
other types of companies are not considered to be affiliates. Generally,
Sections 23A and 23B (i) establish certain collateral requirements for losses to
affiliates; (ii) limit the extent to which the Bank or its subsidiaries may
engage in "covered transactions" with any one affiliate to an amount equal to
10% of such the Bank's capital stock and surplus, and contain an aggregate limit
on all such transactions with all affiliates to an amount equal to 20% of such
capital stock and surplus and (iii) require that all such transactions be on
terms substantially the same, or at least as favorable, to the Bank or the
subsidiary as those provided to a nonaffiliate. The term "covered transaction"
includes the making of loans or other extensions of credit to an affiliate, the
purchase of assets from an affiliate, the purchase of, or an investment in, the
securities of an affiliate, the acceptance of securities of an affiliate as
collateral for a loan or extension of credit to any person, or issuance of a
guarantee, acceptance or letter of credit on behalf of an affiliate.

     Further, current federal law has extended to savings banks the restrictions
contained in Section 22(h) of the Federal Reserve Act and its implementing
regulations with respect to loans to directors, executive officers and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who own more than 10% of a savings bank, and certain affiliated
entities of any of the foregoing, may not exceed, together with all other
outstanding loans to such person and affiliated entities, the savings bank's
loans-to-one borrower limit as established by federal law and all loans to such
persons may not exceed the institution's unimpaired capital and unimpaired
surplus. Section 22(h) also prohibits loans above amounts prescribed by the
appropriate federal banking agency to directors, executive officers and
stockholders who own more than 10% of a savings bank, and their respective
affiliates, unless such loan is approved in advance by a majority of the
disinterested directors of the board of directors of the Bank. Any "interested"
director may not participate in the voting. The Federal Reserve has prescribed
the loan amount (which includes all other outstanding loans to such person), as
to which such prior board of director approval is required, as being the greater
of $25,000 or 5% of unimpaired capital and unimpaired surplus (up to $500,000).
Further, pursuant to Section 22(h), the Federal Reserve requires that loans to
directors, executive officers, and principal stockholders be made on terms
substantially the same as offered in comparable transactions to other persons
and not involve more than the normal risk of repayment or present other
unfavorable features. Section 22(h) also generally prohibits a depository
institution from paying the overdrafts of any of its executive officers or
directors.

     Insurance of Deposit Accounts. The FDIC administers two separate deposit
insurance funds. The SAIF maintains a fund to insure the deposits for most
savings institutions and the BIF maintains a fund to insure the deposits of most
commercial banks. The Bank is a member of the SAIF of the FDIC.

                                       7
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     The Bank is required to pay assessments to the FDIC based on a percentage
of its insured deposits.  Under the FDIC's risk-based deposit insurance
assessment system, the assessment rate for an insured depository institution
depends on the assessment risk classification assigned to the institution by the
FDIC, which is determined by the institution's capital level and supervisory
evaluations.  Based on the data reported to regulators for the date closest of
the last day of the seventh month preceding the semi-annual assessment period,
institutions are assigned to one of three capital groups B well capitalized,
adequately capitalized or undercapitalized B using the same percentage criteria
as in the prompt corrective action regulations.  See "-- Prompt Corrective
Regulatory Action."

     Within each capital group, institutions are assigned to one of three
subgroups on the basis of supervisory evaluations by the institution's primary
supervisory authority and such other information as the FDIC determines to be
relevant to the institution's financial condition and the risk posed to the
deposit insurance fund.  Subgroup A consists of financially sound institutions
with only a few minor weaknesses.  Subgroup B consists of institutions that
demonstrate weaknesses which, if not corrected, could result in significant
deterioration of the institution and increased risk of loss to the deposit
insurance fund.  Subgroup C consists of institutions that pose a substantial
probability of loss to the deposit insurance fund unless effective corrective
action is taken.

     The assessment rate for SAIF members had ranged from 0.23% of deposits for
well capitalized institutions in Subgroup A to 0.31% of deposits for
undercapitalized institutions in Subgroup C while assessments for over 90% of
the BIF members had been the statutory minimum of $2,000. However, recently
enacted legislation provided for a one-time assessment equal to 65.7 basis
points times insured deposits as of March 31, 1995. This assessment fully
capitalized the SAIF. Accordingly, although the special assessment resulted in a
$519,000 one-time charge of the Bank, the recapitalization of the SAIF had the
effect of reducing the Bank's future deposit insurance premiums to the SAIF.
Under the recently enacted legislation, most BIF members will be assessed
approximately 1.3 basis points while the rate for most SAIF members will be
approximately 6.4 basis points until January 1, 2000. At that time, BIF and SAIF
members will begin pro rata sharing of the payment at an expected rate of 2.43
basis points.

     Community Reinvestment Act. The Bank, like other financial institutions, is
subject to the Community Reinvestment Act, as amended ("CRA"). A purpose of the
CRA is to encourage financial institutions to help meet the credit needs of its
entire community, including the needs of low- and moderate-income neighborhoods.
Financial institutions' compliance with the CRA is regularly evaluated by their
regulatory agencies. Under recently adopted regulations, institutions are first
evaluated and rated under three categories: a lending test, an investment test
and a service test. For each of these three tests, the institution is given a
rating of either "outstanding," "high satisfactory," "low satisfactory," "needs
to improve" or" substantial non-compliance." A set of criteria for each rating
has been developed and is included in the regulation. If an institution
disagrees with a particular rating, the institution has the burden of rebutting
the presumption by clearly establishing that the quantitative measures do not
accurately present its actual performance, or that demographics, competitive
conditions or economic or legal limitations peculiar to its service area should
be considered. The ratings received under the three tests are used to determine
the overall composite CRA rating. The composite ratings are "outstanding,"
"satisfactory," "needs to improve" or "substantial non-compliance."

     During the Bank's last compliance examination the Bank received a
"satisfactory" rating with respect to CRA compliance.  The Bank's rating with
respect to CRA compliance would be a factor to be considered by the Federal
Reserve and FDIC in considering applications submitted by the Bank to acquire
branches or to acquire or combine with other financial institutions and take
other actions and could result in the denial of such applications.

     Capital Requirements Applicable To The Bank.  The FDIC requires the Bank to
have a minimum leverage ratio of Tier I capital (principally consisting of
common stockholders' equity, noncumulative perpetual preferred stock and
minority interests in consolidated subsidiaries, less certain intangible items,
goodwill items, identified losses and investments in securities subsidiaries) to
total assets of at least 3%; provided, however that all institutions, other than
those (i) receiving the highest rating during the examination process and (ii)
not anticipating or experiencing any significant growth, are required to
maintain a ratio of 1% or 2% above the stated minimum, with an absolute minimum
leverage ratio of not less than 4%.  The FDIC also requires the Bank to have a
ratio of total capital to risk-weighted

                                       8
<PAGE>

assets, including certain off-balance sheet activities, such as standby letters
of credit, of at least 8%. At least half of the total capital is required to be
Tier I capital. The remainder ("Tier II capital") may consist of a limited
amount of subordinated debt, certain hybrid capital instruments, other debt
securities, certain types of preferred stock and a limited amount of loan loss
allowance.

     An institution which fails to meet minimum capital requirements may be
subject to a capital directive which is enforceable in the same manner and to
the same extent as a final cease and desist order, and must submit a capital
plan within 60 days to the FDIC. If the leverage ratio falls to 2% or less, the
Bank may be deemed to be operating in an unsafe or unsound condition, allowing
the FDIC to take various enforcement actions, including possible termination of
insurance or placement of the institution in receivership. At June 30, 1999, the
Bank had a leverage ratio of 12.7%.

     The Administrator requires that net worth equal at least 5% of total
assets. Intangible assets must be deducted from net worth and assets when
computing compliance with this requirement.

     At June 30, 1999, the Bank complied with each of the capital requirements
of the FDIC and the Administrator.

     Each federal banking agency is required to establish risk-based capital
standards that take adequate account of interest rate risk, concentration of
credit risk, and the risk of nontraditional activities, as well as reflect the
actual performance and expected risk of loss on multifamily mortgages.

     On August 2, 1995, the federal banking agencies issued a joint notice of
adoption of final risk based capital rules to take account of interest rate
risk. The final regulation required an assessment of the need for additional
capital on a case-by-case basis, considering both the level of measured exposure
and qualitative risk factors. The final rule also stated an intent to, in the
future, establish an explicit minimum capital charge for interest rate risk
based on the level of a bank's measured interest rate risk exposure.

     Effective June 26, 1996, the federal banking agencies issued a joint policy
statement announcing the agencies' election not to adopt a standardized measure
and explicit capital charge for interest rate risk at that time. Rather, the
policy statement (i) identifies the main elements of sound interest rate risk
management, (ii) describes prudent principles and practices for each of those
elements, and (iii) describes the critical factors affecting the agencies'
evaluation of a bank's interest rate risk when making a determination of capital
adequacy.

     Loans-To-One-Borrower. The Bank is subject to the Administrator's loans-to-
one-borrower limits. Under these limits, no loans and extensions of credit to
any borrower outstanding at one time and not fully secured by readily marketable
collateral shall exceed 15% of the net worth of the savings bank. Loans and
extensions of credit fully secured by readily marketable collateral may comprise
an additional 10% of net worth. Notwithstanding the limits just described,
savings institutions may make loans-to-one-borrower, for any purpose, in an
amount up to $500,000. A savings institution is also authorized to make loans-
to-one-borrower to develop domestic residential housing units, not to exceed the
lesser of $30 million or 30% of the savings institution's net worth, provided
that (i) the purchase price of each single-family dwelling in the development
does not exceed $500,000; (ii) the savings institution is in compliance with its
fully phased-in capital requirements; (iii) the laws comply with applicable
loan-to-value requirements; (iv) the aggregate amount of loans made under this
authority does not exceed 150% of net worth; and (v) the institution's regulator
issues an order permitting the savings institution to use this higher limit.
These limits also authorize a savings bank to make loans-to-one-borrower to
finance the sale of real property acquired in satisfaction of debts in an amount
up to 50% of net worth.

     As of  June 30, 1999, the largest aggregate amount of loans which the Bank
had to any one borrower was $1.5 million.  These loans were performing in
accordance with their original terms as of June 30, 1999. The Bank had no loans
outstanding which management believes violate the applicable loans-to-one-
borrower limits.  The Bank does not believe that the loans-to-one-borrower
limits will have a significant impact on its business, operations and earnings.

                                       9
<PAGE>

     Limitations on Rates Paid for Deposits. Regulations promulgated by the FDIC
place limitations on the ability of insured depository institutions to accept,
renew or roll over deposits by offering rates of interest which are
significantly higher than the prevailing rates of interest on deposits offered
by other insured depository institutions having the same type of charter in such
depository institution's normal market area. Under these regulations, "well
capitalized" depository institutions may accept, renew or roll such deposits
over without restriction, "adequately capitalized" depository institutions may
accept, renew or roll such deposits over with a waiver from the FDIC (subject to
certain restrictions on payments of rates) and "undercapitalized" depository
institutions may not accept, renew or roll such deposits over. The definitions
of "well capitalized," "adequately capitalized" and "undercapitalized" are the
same as the definitions adopted by the FDIC to implement the corrective action
provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991.
See "--Prompt Corrective Regulatory Action." As of June 30, 1999, the Bank was
considered "well capitalized" and, thus, was not subject to the limitations on
rates payable on its deposits.

     Federal Home Loan Bank System. The FHLB system provides a central credit
facility for member institutions. As a member of the FHLB of Atlanta, the Bank
is required to own capital stock in the FHLB of Atlanta in an amount at least
equal to the greater of 1% of the aggregate principal amount of its unpaid
residential mortgage loans, home purchase contracts and similar obligations at
the end of each calendar year, or 5% of its outstanding advances (borrowings)
from the FHLB of Atlanta. On June 30, 1999, the Bank was in compliance with this
requirement with an investment in FHLB of Atlanta stock of $727,000.

     Each FHLB is required to contribute a portion of its reserves and undivided
profits to fund the principal and a portion of the interest on certain bonds and
certain other obligations which are used to fund the resolution of troubled
savings association cases, and to transfer a percentage of its annual net
earnings to the Affordable Housing Program.  These contributions continue to
reduce the FHLB of Atlanta's earnings and the Bank's dividends on its FHLB of
Atlanta stock.

     Federal Reserve System. Regulation D, promulgated by the Federal Reserve,
imposes reserve requirements on all depository institutions, including savings
banks and savings institutions, which maintain transaction accounts or non-
personal time deposits. Checking accounts, NOW accounts and certain other types
of accounts that permit payments or transfers to third parties fall within the
definition of transaction accounts and are subject to Regulation D reserve
requirements, as are any non-personal time deposits (including certain money
market deposit accounts) at a savings institution. For 1999, a depository
institution must maintain average daily reserves equal to 3% of the first $47.8
million of net transaction accounts, plus 10% of that portion of total
transaction accounts in excess of $47.8 million. The first $4.7 million of
otherwise reservable balances are exempt from the reserve requirements. These
percentages and threshold limits are subject to adjustment by the Federal
Reserve.

     Restrictions on Acquisitions. Federal law generally provides that no
"person," acting directly or indirectly or through or in concert with one or
more other persons, may acquire "control," as that term is defined in FDIC
regulations, of an insured institution without giving at least 60 days' written
notice to the FDIC and providing the FDIC an opportunity to disapprove the
proposed acquisition. Pursuant to regulations governing acquisitions of control,
control of an insured institution is conclusively deemed to have been acquired,
among other things, upon the acquisition of more than 25% of any class of voting
stock. In addition, control is presumed to have been acquired, subject to
rebuttal, upon the acquisition of more than 10% of any class of voting stock.
Such acquisitions of control may be disapproved if it is determined, among other
things, that (i) the acquisition would substantially lessen competition; (ii)
the financial condition of the acquiring person might jeopardize the financial
stability of the savings bank or prejudice the interests of its depositors; or
(iii) the competency, experience or integrity of the acquiring person or the
proposed management personnel indicates that it would not be in the interest of
the depositors or the public to permit the acquisitions of control by such
person.

     Liquidity.  The Bank is subject to the Administrator's requirement that the
ratio of liquid assets to total assets equal at least 10%.  The computation of
liquidity under North Carolina regulation allows the inclusion of mortgage-
backed securities and investments which, in the judgment of the Administrator,
have a readily marketable

                                       10
<PAGE>

value, including investments with maturities in excess of five years. At June
30, 1999, the Bank's liquidity ratio, calculated in accordance with North
Carolina regulations, was approximately 21.0%.

     Prompt Corrective Regulatory Action. The Federal Deposit Insurance
Corporation Improvement Act of 1991 provided the federal banking agencies with
broad powers to take corrective action to resolve problems of insured depository
institutions. The extent of these powers depends upon whether the institutions
in question are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." Under the FDIC regulations applicable to the Bank, an
institution is considered "well capitalized" if it has (i) a total risk-based
capital ratio of 10% or greater, (ii) a Tier I risk-based capital ratio of 6% or
greater, (iii) a leverage ratio of 5% or greater and (iv) is not subject to any
order or written directive to meet and maintain a specific capital level for any
capital measure. An "adequately capitalized" institution is defined as one that
has (i) a total risk-based capital ratio of 8% or greater, (ii) a Tier I risk-
based capital ratio of 4% or greater and (iii) a leverage ratio of 4% or greater
(or 3% or greater in the case of an institution with the highest examination
rating and which is not experiencing or anticipating significant growth). An
institution is considered (A) "undercapitalized" if it has (i) a total risk-
based capital ratio of less than 8%, (ii) a Tier I risk-based capital ratio of
less than 4% or (iii) a leverage ratio of less than 4% (or 3% in the case of an
institution with the highest examination rating and which is not experiencing or
anticipating significant growth); (B) "significantly undercapitalized" if the
institution has (i) a total risk-based capital ratio of less than 6%, or (ii) a
Tier I risk-based capital ratio of less than 3% or (iii) a leverage ratio of
less than 3% and (C) "critically undercapitalized" if the institution has a
ratio of tangible equity to total assets equal to or less than 2%. The Bank is
considered to be "well capitalized" under the rules set forth above.

     Interstate Banking.  The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act"), effective September 29,
1995, permits adequately capitalized bank and savings bank holding companies to
acquire control of banks and savings banks in any state.

     Such interstate acquisitions are subject to certain restrictions. States
may require the bank or savings bank being acquired to have been in existence
for a certain length of time but not in excess of five years. In addition, no
bank or saving bank may acquire more than 10% of the insured deposits in the
United States or more than 30% of the insured deposits in any one state, unless
the state has specifically legislated a higher deposit cap. States are free to
legislate stricter deposit caps.

     The Interstate Banking Act also provides for interstate branching,
effective June 1, 1997, allowing interstate branching in all states, provided
that a particular state has not specifically denied interstate branching by
legislation prior to such time. Unlike interstate acquisitions, a state could
deny interstate branching if it specifically elected to do so by June 1, 1997.
States could choose to allow interstate branching prior to June 1, 1997 by
opting-in to a group of states that permitted these transactions. These states
generally allow interstate branching via a merger of an out-of-state bank with
an in-state bank, or on a de novo basis. North Carolina enacted legislation
permitting branching transactions prior to June 1, 1997, and did not adopt
legislation electing to deny interstate branching.

     Restrictions on Dividends and Other Capital Distributions. A North
Carolina-chartered stock savings bank may not declare or pay a cash dividend on,
or repurchase any of, its capital stock if the effect of such transaction would
be to reduce the net worth of the institution to an amount which is less than
the minimum amount required by applicable federal and state regulations. In
addition, a North Carolina-chartered stock savings bank, for a period of five
years after its conversion from mutual to stock form, must obtain the written
approval from the Administrator before declaring or paying a cash dividend on
its capital stock in an amount in excess of one-half of the greater of (i) the
institution's net income for the most recent fiscal year end, or (ii) the
average of the institution's net income after dividends for the most recent
fiscal year end and not more than two of the immediately preceding fiscal year
ends, if applicable.

     Also, without the prior written approval of the Administrator, a North
Carolina-chartered stock savings bank, for a period of five years after its
conversion from mutual to stock form, may not repurchase any of its capital
stock. The Administrator will give approval to repurchase only upon a showing
that the proposed repurchase will not adversely

                                       11
<PAGE>

affect the safety and soundness of the institution. Under FDIC regulations,
stock repurchases may be made by the savings bank only upon receipt of FDIC
approval.

     In addition, the Bank is not permitted to declare or pay a cash dividend on
or repurchase any of its capital stock if the effect thereof would be to cause
its net worth to be reduced below the amount required for the liquidation
account established in connection with the Bank's conversion from mutual to
stock ownership.

     Additional Limitations on Activities. Recent FDIC law and regulations
generally provide that the Bank may not engage as principal in any type of
activity, or in any activity in an amount, not permitted for national banks, or
directly acquire or retain any equity investment of a type or in an amount not
permitted for national banks. The FDIC has authority to grant exceptions from
these prohibitions (other than with respect to non-service corporation equity
investments) if it determines no significant risk to the insurance fund is posed
by the amount of the investment or the activity to be engaged in and if the Bank
is and continues to be in compliance with fully phased-in capital standards.
National banks are generally not permitted to hold equity investments other than
shares of service corporations and certain federal agency securities. Moreover,
the activities in which service corporations are permitted to engage are limited
to those of service corporations for national banks.

     Savings banks are also generally prohibited from directly or indirectly
acquiring or retaining any corporate debt security that is not of investment
grade (generally referred to as "junk bonds"). State savings banks are also
required to notify the FDIC at least 30 days prior to the establishment or
acquisition of any subsidiary, or at least 30 days prior to conducting any such
new activity. Any such activities must be conducted in accordance with the
regulations and orders of the FDIC and the Administrator.

     Other North Carolina Regulations. As a North Carolina-chartered savings
bank, the Bank derives its authority from, and is regulated by, the
Administrator. The Administrator has the right to promulgate rules and
regulations necessary for the supervision and regulation of North Carolina
savings banks under his jurisdiction and for the protection of the public
investing in such institutions. The regulatory authority of the Administrator
includes, but is not limited to, the establishment of reserve requirements; the
regulation of the payment of dividends; the regulation of stock repurchases, the
regulation of incorporators, stockholders, directors, officers and employees;
the establishment of permitted types of withdrawable accounts and types of
contracts for savings programs, loans and investments; and the regulation of the
conduct and management of savings banks, chartering and branching of
institutions, mergers, conversions and conflicts of interest. North Carolina law
requires that the Bank maintain federal deposit insurance as a condition of
doing business.

     The Administrator conducts regular examinations of North Carolina-chartered
savings banks. The purpose of such examinations is to assure that institutions
are being operated in compliance with applicable North Carolina law and
regulations and in a safe and sound manner. These examinations are usually
conducted on an alternating basis with the FDIC. In addition, the Administrator
is required to conduct an examination of any institution when he has good reason
to believe that the standing and responsibility of the institution is of
doubtful character or when he otherwise deems it prudent. The Administrator is
empowered to order the revocation of the license of an institution if he finds
that it has violated or is in violation of any North Carolina law or regulation
and that revocation is necessary in order to preserve the assets of the
institution and protect the interests of its depositors. The Administrator has
the power to issue cease and desist orders if any person or institution is
engaging in, or has engaged in, any unsafe or unsound practice or unfair and
discriminatory practice in the conduct of its business or in violation of any
other law, rule or regulation.

     A North Carolina-chartered savings bank must maintain net worth, computed
in accordance with the Administrator's requirements, of 5% of total assets and
liquidity of 10% of total assets, as discussed above.  Additionally, a North
Carolina-chartered savings bank is required to maintain general valuation
allowances and specific loss reserves in the same amounts as required by the
FDIC.

                                       12
<PAGE>

     Subject to limitation by the Administrator, North Carolina-chartered
savings banks may make any loan or investment or engage in any activity which is
permitted to federally chartered institutions. However, a North Carolina-
chartered savings bank cannot invest more than 15% of its total assets in
business, commercial, corporate and agricultural loans without the prior
approval of the Administrator. In addition to such to such lending authority,
North Carolina-chartered savings banks are authorized to invest funds, in excess
of loan demand, in certain statutorily permitted investments, including but not
limited to (i) obligations of the United States, or those guaranteed by it; (ii)
obligations of the State of North Carolina; (iii) bank demand or time deposits;
(iv) stock or obligations of the federal deposit insurance fund or a FHLB; (v)
savings accounts of any savings institution as approved by the board of
directors; and (vi) stock or obligations of any agency of the State of North
Carolina or of the United States or of any corporation doing business in North
Carolina whose principal business is to make education loans.

     North Carolina law provides a procedure by which savings institutions may
consolidate or merge, subject to approval of the Administrator. The approval is
conditioned upon findings by the Administrator that, among other things, such
merger or consolidation will promote the best interests of the members or
stockholders of the merging institutions. North Carolina law also provides for
simultaneous mergers and conversions and for supervisory mergers conducted by
the Administrator.

     Future Requirements. Statutes and regulations are regularly introduced
which contain wide-ranging proposals for altering the structures, regulations
and competitive relationships of financial institutions. It cannot be predicted
whether or what form any proposed statute or regulation will be adopted or the
extent to which the business of the Company and the Bank may be affected by such
statute or regulation.

ITEM 2. DESCRIPTION OF PROPERTY

     The following table sets forth the location of the Bank=s headquarters in
Rockingham, North Carolina, its four full-service branch offices and two vacant
lots owned by the Bank as well as certain other information relating to these
offices and vacant lots as of June 30, 1999:

<TABLE>
<CAPTION>
                                    Net Book Value
                                    of Property and
                                    Improvements        Own or Lease     Lease Expiration Date
                                    ------------        ------------     ---------------------
<S>                                 <C>                 <C>              <C>
Headquarters Office:
 115 South Lawrence Street
 Rockingham, NC                     $203,028            Owned                  N/A

Full-Service Branch Offices:
 Rockingham Road Office
 1222 Rockingham Road
 Rockingham, NC                     $484,594            Owned                  N/A

 Southern Pines Office
 495 Pinehurst Avenue
 Southern Pines, NC                 $685,128            Owned                  N/A

 Ellerbe Office
 115 West Sunset Avenue
 Ellerbe, NC                        $328,209            Owned                  N/A
</TABLE>

                                       13
<PAGE>

<TABLE>
<S>                                  <C>                <C>            <C>
Laurinburg Office
103 McRae Street
Laurinburg, NC                          -               Leased*        Month to Month basis

Vacant Lots:

 **Corner of Highway 5 and
        Trotter Drive
        Pinehurst, NC                $207,000           Owned                 N/A

***410 South Main Street
      Laurinburg, NC                 $ 89,500           Owned                 N/A
</TABLE>

*The Bank has leased the Laurinburg office property for a two year term with an
option for renewal for two additional terms of three years each.  The rent due
during the initial term is $1,050 per month, which shall increase if the Bank
exercises its renewal option.

**The Pinehurst lot is owned by the Bank. The Bank is pursuing a proposal to
construct a branch facility on the property. The Bank currently estimates the
cost of development to be $approximately $397,000.

***The Laurinburg lot is owned by Richmond Investment Services, Inc., a wholly
owned subsidiary of the Bank, and it may be purchased by the Bank in the future.
This lot is being held by the Bank as a possible future branch location.

     In addition to the foregoing, the Bank is leasing a small tract of real
property (approximately 5,000 square feet) located on South Main Street in
Laurinburg, N.C. for a remote ATM location pursuant to a sublease which expires
on March, 2001.

     The Bank's management considers each of these properties to be in good
condition and is of the opinion that it is adequately covered by insurance. The
total net book value of the Bank's furniture, fixtures and equipment at June 30,
1999 was $620,000. Any property acquired as a result of foreclosure or by deed
in lieu of foreclosure is classified as real estate owned until such time as it
is sold or otherwise disposed of by the Bank in an effort to recover its
investment. As of June 30, 1999, the Bank owned real estate acquired in
settlement of loans with a carrying value of approximately $20,000.

ITEM 3.  LEGAL PROCEEDINGS

     In the opinion of management, neither the Company nor the Bank is involved
in any pending legal proceedings other than routine litigation that is
incidental to the business.

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

     No matter was submitted to a vote of the Company's stockholders during the
quarter ended June 30, 1998.

                                       14
<PAGE>

                                    PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     See the information under the section captioned "Common Stock Information"
on page 41 of the Company's 1999 Annual Report, which section is incorporated
herein by reference.  See "ITEM 1. DESCRIPTION OF BUSINESS -- Regulation of the
Bank -- Restrictions on Dividends and Other Capital Distributions" above for
regulatory restrictions which limit the ability of the Bank to pay dividends to
the Company.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS

     See the information set forth under ITEM 1 above and the information set
forth under the section captioned "Management's Discussion and Analysis" on
pages 4 through 12 in the Company's 1999 Annual Report, which section is
incorporated herein by reference.

ITEM 7.  FINANCIAL STATEMENTS

     The consolidated financial statements of the Company set forth on pages 14
through 40 in the Company's 1999 Annual Report are incorporated herein by
reference.

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

     N/A.

                                   PART III

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

     The information required by this Item regarding directors and executive
officers of the Company is set forth under the sections captioned "Proposal 1 -
Election of Directors" beginning on page 7 of the Proxy Statement and "Executive
Officers" beginning on page 10 of the Proxy Statement, which sections are
incorporated herein by reference.

     The information required by this Item regarding compliance with Section
16(a) of the Securities Exchange Act of 1934 is set forth under the section
captioned "Section 16(a) Beneficial Ownership Reporting Compliance" set forth on
page 7 of the Proxy Statement, which is incorporated herein by reference.

ITEM 10. EXECUTIVE COMPENSATION

     The information required by this Item is set forth under the sections
captioned "Proposal 1 - Election of Directors - Directors Compensation" on pages
10 and "- Executive Compensation" on pages 11 through 18 of the Proxy Statement,
which sections are incorporated herein by reference.

                                       15
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item is incorporated by reference from the
section captioned Security Ownership of Certain Beneficial Owners on pages 4
through 7 of the Proxy Statement.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     See also the section captioned "Certain Indebtedness and Transactions of
Management" on page 18 of the Proxy Statement, which section is incorporated
herein by reference.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

  (3)(i)  Articles of Incorporation, incorporated herein by reference to Exhibit
          3.1 to the Registration Statement on Form S-1, Registration No. 333-
          6855, dated July 26, 1996 and amended on September 10, 1996.

  (3)(ii) Amended and Restated Bylaws.

  (4)     Specimen Stock Certificate incorporated herein by reference to Exhibit
          4.1 to the Registration Statement on Form S-1, Registration No. 333-
          6855, dated July 26, 1996 and amended on September 10, 1996.

  10(a)   Employment Agreement with R. Larry Campbell incorporated herein by
          reference to Exhibit 10(a) to the Annual Report on Form 10-KSB for the
          1997 fiscal year end.

  10(b)   Employment Agreement with John W. Bullard incorporated herein by
          reference to Exhibit 10(b) to the Annual Report on Form 10-KSB for the
          1997 fiscal year end.

  10(c)   Nonqualified Supplemental Retirement Plan with R. Larry Campbell
          incorporated herein by reference to Exhibit 10(c) to the Annual Report
          on Form 10-KSB for the 1997 fiscal year end.

  10(d)   Nonqualified Supplemental Retirement Plan with John W. Bullard
          incorporated herein by reference to Exhibit 10(d) to the Annual Report
          on Form 10-KSB for the 1997 fiscal year end.

  10(e)   Management Recognition Plan of Richmond Savings Bank, Inc., SSB.

  10(f)   Stock Option Plan of Carolina Fincorp, Inc.

  (11)    Statement Regarding Computation of Per Share Earnings

  (13)    Select Portions of 1999 Annual Report to Stockholders

  (21)    See ITEM 1. - "DESCRIPTION OF BUSINESS --Subsidiaries." for discussion
          of subsidiaries

  (23)    Consent of Independent Certified Public Accountant

  (27)    Financial Data Schedule

                                       16
<PAGE>

Reports on Form 8-K

     On April 9, 1999, the Company filed a report on Form 8-K announcing the
Board of Directors' adoption of the Company's stock repurchase plan and
describing the terms thereof. Under the plan, management will be able to
repurchase up to five percent of the outstanding shares of Common Stock as of
the report date in accordance with certain limitations. The Company filed no
other reports on Form 8-K during the last quarter of the fiscal year ended June
30, 1999. However, the Company filed a report on Form 8-K on July 9, 1999
setting forth the recently adopted amendment of the Company's Bylaws regarding
the procedure for allowing shareholders to submit nominations for members of the
Board of Directors.

                                       17
<PAGE>

                                  SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                 CAROLINA FINCORP, INC.

Date: September 23, 1999         By:  /s/ R. Larry Campbell
                                      --------------------------------------
                                      R. Larry Campbell
                                      President and Chief Executive Officer

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

<TABLE>
<CAPTION>
Signature                                  Title                     Date
---------                                  -----                     ----
<S>                            <C>                            <C>

/s/ R. Larry Campbell          President, Chief Executive     September 23, 1999
----------------------------
R. Larry Campbell              Officer and Director

/s/ John W. Bullard            Executive Vice-President       September 23 1999
----------------------------
John W. Bullard                and Chief Operations Officer

/s/ Winston G. Dwyer           Treasurer and Chief Financial  September 23 1999
----------------------------
Winston G. Dwyer               Officer

/s/ J. Stanley Vetter          Chairman of the Board of       September 23, 1999
----------------------------
J. Stanley Vetter              Directors

/s/ John T. Page, Jr.          Vice Chairman of the           September 23, 1999
----------------------------
John T. Page, Jr.              Board of Directors

/s/ Russell E. Bennett, Jr.    Director                       September 23, 1999
----------------------------
Russell E. Bennett, Jr.

/s/ Buena Vista Coggin         Director                       September 23, 1999
----------------------------
Buena Vista Coggin

/s/ Joe M. McLaurin            Director                       September 23, 1999
----------------------------
Joe M. McLaurin

/s/ W. Jessee Spencer          Director                       September 23, 1999
----------------------------
W. Jesse Spencer

/s/ E.E. Vuncannon, Jr.        Director                       September 23, 1999
----------------------------
E.E. Vuncannon, Jr.
</TABLE>

                                       18