<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-KSB

[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

        For the fiscal year ended December 31, 1999

                                      OR

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

                        Commission File Number: 0-25478

                        FIRST SOUTHERN BANCSHARES, INC.
-------------------------------------------------------------------------------
                (Name of small business issuer in its charter)


                   Delaware                              63-1133624
                  ----------                             -----------
        (State or other jurisdiction        (I.R.S. Employer Identification No.)
      of incorporation or organization)

  102 South Court Street, Florence, Alabama                    35630
  -----------------------------------------                   ------
   (Address of principal executive offices                   (Zip Code)

          Issuer's telephone number                        (256) 764-7131

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under
  Section 12(g) of the Exchange Act:  Common Stock, par value $0.01 per share
                                      ---------------------------------------
                                                 (Title of Class)

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 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 the registrant's knowledge, in definitive proxy or
other information statements incorporated by reference in Part III of this Form
10-KSB or any amendments to this Form 10-KSB.

The issuer's revenues for the fiscal year ended December 31, 1999 were
$14,733,000.

The aggregate market value of the outstanding voting stock held by nonaffiliates
of the Registrant, based on the average of the bid and ask prices of the
registrant's Common Stock as quoted on The Nasdaq National Market under the
symbol "FSTH" on March 10, 2000, was $8,623,189 (851,673 shares at $10.125 per
share). It is assumed for purposes of this calculation that the issuer's
executive officers, directors and 5% stockholders are affiliates.

As of March 10, 2000, the issuer has 1,268,626 shares outstanding.


                      DOCUMENTS INCORPORATED BY REFERENCE

1.      Portions of Annual Report to Stockholders for the Fiscal Year Ended
        December 31, 1999 ("Annual Report"). (Parts I and II)
2.      Portions of Proxy Statement for the Annual Meeting of Stockholders
        ("Proxy Statement"). (Parts III and IV)

Transitional Small Business Disclosure Format        Yes    No X
                                                        ---   ---
<PAGE>

        This report contains certain "forward-looking statements" concerning the
future operations of First Southern Bancshares, Inc. and its wholly-owned
subsidiary, First Southern Bank. Forward-looking statements are used to describe
future plans and strategies, including expectations of future financial results.
Management's ability to predict results or the effect of future plans or
strategies is inherently uncertain. Factors which could affect actual results
include interest rate trends, the general economic climate in the market area in
which First Southern Bancshares, Inc. and First Southern Bank operate, as well
as nationwide, First Southern Bancshares, Inc.'s and First Southern Bank's
abilities to control costs and expenses, competitive products and pricing, loan
delinquency rates, and changes in federal and state legislation and regulation.
These factors should be considered in evaluating the forward-looking statements
and undue reliance should not be placed on such statements.

                                     PART I

Item 1.  Description of Business
--------------------------------

General

         First Southern Bancshares, Inc. ("Company"), a Delaware corporation,
was organized on November 22, 1994 for the purpose of becoming the holding
company for First Federal Savings and Loan Association of Florence
("Association") upon the Association's conversion from a federally chartered
mutual savings and loan association to a federally chartered capital stock
savings and loan association ("Stock Conversion") and then to an Alabama
chartered commercial bank ("Bank Conversion"). The Stock Conversion was
consummated on April 13, 1995 through the issuance and sale by the Company of
2,049,875 shares of common stock, $0.01 par value, at $10.00 per share to
depositors of the Association and the Association's employee stock ownership
plan. The Bank Conversion was consummated on June 10, 1995, with the Association
changing its name to "First Southern Bank" ("Bank"). At December 31, 1999, the
Company had total assets of $178.8 million, total deposits of $126.9 million and
stockholders' equity of $14.0 million. The Company has not engaged in any
significant activity other than holding all of the outstanding capital stock of
the Bank. Accordingly, the information set forth in this report, including
financial statements and related data, relates primarily to the Bank.

         The Company is a registered bank holding company regulated by the
Federal Reserve Board ("FRB"). The Bank's primary regulator is the
Superintendent of Banks of the State of Alabama ("Superintendent"). The Bank's
deposits are insured up to applicable limits under the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Company ("FDIC"). The
Bank is a member of the Federal Home Loan Bank ("FHLB") System.

         The Bank conducts its business through six office facilities located in
Lauderdale and Colbert Counties in northwestern Alabama, which the Bank
considers as its primary market area. See "-- Properties." The two largest
industries in this area are Wise Alloys and the Tennessee Valley Authority. The
University of North Alabama and the Eliza Coffee Memorial Hospital are located
in Florence, Alabama, and both have a significant economic impact on the Bank's
primary market area. The textile industry has become an increasingly significant
segment of the local economy, with many small textile businesses located in the
Bank's primary market area.

Competition

         The Bank faces strong competition in the attraction of savings deposits
(its primary source of lendable funds) and in the origination of real estate and
consumer loans. Its most direct competition for savings deposits and loans has
historically come from other thrift institutions and from commercial banks
located in its primary market area in Lauderdale and Colbert counties of the
State of Alabama. The Bank competes for loans primarily through the interest
rates and loan fees it charges, and the prompt, efficient, and quality service
it provides to its borrowers, real estate brokers, and home builders. Primary
competition for loans are from other thrift institutions, commercial banks,
mortgage banking companies, insurance companies, and credit unions.


                                        1
<PAGE>

Selected Financial Condition, Operating and Other Data and Key Operating Ratios

        This information is incorporated by reference to pages 3 and 4 of the
        Annual Report.

Average Balance Sheets

        This information is incorporated by reference to page 5 of the Annual
        Report.

Rate/Volume Analysis

        This information is incorporated by reference to page 6 of the Annual
        Report.

Interest Rate Sensitivity Analysis

        This information is incorporated by reference to page 7 of the Annual
        Report.

Lending Activities

         General. The Bank's primary lending activity is the origination of
mortgage loans for the purchase and re-finance of one- to four-family
owner-occupied residences. The Bank also actively originates commercial loans,
construction loans, consumer loans, and multi-family residential real estate
loans, principally in the Bank's primary market area, as part of its commercial
banking strategy. These other types of lending are generally considered to
involve greater credit risks than one- to four-family mortgage lending. See "--
Lending Activities -- Multi-Family Loans," "-- Commercial Real Estate and
Commercial Business Loans."



                                        2
<PAGE>

         Loan Portfolio Analysis. The following table sets forth the composition
of the Bank's loan portfolio as of the dates indicated.

<TABLE>
<CAPTION>
                                                                      At December 31,
                                        ---------------------------------------------------------------------------
                                                  1997                      1998                     1999
                                        ------------------------  ------------------------ ------------------------
                                          Amount       Percent      Amount       Percent      Amount      Percent
                                        -----------  -----------  -----------  ----------- ------------  ----------
                                                                  (Dollars in thousands)
<S>                                     <C>          <C>          <C>          <C>          <C>          <C>
Mortgage loans:
   One- to four-family residential(1).    $  58,339       36.52%    $  53,019       34.60%     $ 49,808      31.97%
   Multi-family residential...........       11,020        6.90         6,473        4.22         4,132       2.65
   Commercial.........................       37,535       23.49        33,516       21.87        29,792      19.12
                                        -----------    --------     ---------     --------   ----------    -------
      Total non-construction
         mortgage loans...............      106,894       66.91        93,008       60.69        83,732      53.74
                                        -----------    --------     ---------     --------   ----------    -------

Construction loans:
   One- to four-family residential....        6,624        4.14        10,032        6.54         9,862       6.33
   Multi-family residential...........           --          --            --          --           255        .16
   Commercial.........................        1,606        1.01         2,050        1.34         4,467       2.87
                                        -----------    --------     ---------     --------   ----------    -------
      Total construction loans........        8,230        5.15        12,082        7.88        14,584       9.36
                                        -----------    --------     ---------     --------   ----------    -------

Total mortgage loans..................      115,124       72.06       105,090       68.57        98,316      63.10
                                        -----------    --------     ---------     --------   ----------    -------

Commercial business loans.............       27,792       17.40        29,010       18.93        36,332      23.32
                                        -----------    --------     ---------     --------   ----------    -------

Consumer loans:
   Home equity and second
      mortgage loans..................        9,999        6.26        10,140        6.62        11,757       7.55
   Automobile loans...................        3,152        1.97         3,953        2.58         4,019       2.58
   Savings loans......................          739        0.46           886        0.58         1,005        .64
   Other..............................        6,088        3.81         6,787        4.43         6,536       4.19
                                        -----------    --------     ---------     --------   ----------    -------
      Total consumer loans............       19,978       12.50        21,766       14.21        23,317      14.96
                                        -----------    --------     ---------     --------   ----------    -------

Total loans...........................      162,894      101.96       155,866      101.71       157,965     101.38
                                        -----------    --------     ---------     --------   ----------    -------
Less:
   Undisbursed loans in process.......        1,404        0.88         1,103        0.72           675       0.43
   Unamortized loan origination
      fees, net of direct costs.......          148        0.09            69        0.05            72       0.05
   Allowance for possible
      loan losses.....................        1,584        0.99         1,441        0.94         1,400       0.90
                                        -----------    --------     ---------     --------   ----------    -------
      Net loans receivable............     $159,758      100.00%     $153,253      100.00%     $155,818     100.00%
                                        ===========    ========     =========     ========   ==========    =======
</TABLE>
------------------------------
(1)  Includes loans held for sale.

         One- to Four-Family Residential Loans. The Bank presently originates
both fixed-rate mortgage loans and adjustable rate mortgage ("ARM") loans
secured by single-family properties with terms of 15 to 30 years, with an
emphasis on ARM loans. Borrower demand for ARM loans versus fixed-rate mortgage
loans is a function of the level of interest rates, the expectations of changes
in the level of interest rates and the difference between the initial interest
rates and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment.

                                        3
<PAGE>

         The Bank currently offers ARM loans with initial rates determined by
the Bank based on market factors and competitive rates for loans having similar
features offered by other lenders for such initial periods. The Bank originates
ARM loans that adjust annually with a maximum upward adjustment of 2% per year
and a 6% maximum adjustment over the life of the loan. Many of the ARM loans
have interest rate adjustment floors that do not permit the rate to be adjusted
below a certain rate. ARM loans are tied either to the one-year U.S. Treasury
Bill Index or the Cost of Funds Index. At December 31, 1999, the initial
interest rate on the Bank's ARM loans was 6.75% per annum. The Bank does not
originate negative amortization loans. The Bank originated $8.2 million of one-
to four-family ARM loans for the year ended December 31, 1999.

         The Bank underwrites ARM loans based on the borrower's ability to repay
the loan assuming a rate of 2.0% higher than the initial rate on the ARM loans
and that such rate will remain constant during the loan term. As a result, the
potential for a substantial increase in interest payments on ARMs decreases the
likelihood of delinquencies and defaults.

         While single-family residential real estate loans are normally
originated with 15- and 30-year terms and the Bank permits its ARM loans to be
assumed by qualified borrowers, such loans typically remain outstanding for
substantially shorter periods. This is because borrowers often prepay their
loans in full upon sale of the property pledged as security or upon refinancing
the original loan. In addition, substantially all mortgage loans in the Bank's
loan portfolio contain due-on-sale clauses providing that the Bank may declare
the unpaid amount due and payable upon the sale of the property securing the
loan. The Bank enforces these due-on-sale clauses to the extent permitted by law
and as business judgment dictates. Thus, average loan maturity is a function of,
among other factors, the level of purchase and sale activity in the real estate
market, prevailing interest rates and the interest rates payable on outstanding
loans.

         The retention of ARM loans in the Bank's loan portfolio helps reduce
the Bank's exposure to changes in the interest rates. There are, however,
unquantifiable credit risks resulting from the potential of increased costs due
to changed rates to be paid by the customer. It is possible that, during periods
of rising interest rates, the risk of default on ARM loans may increase as a
result of repricing and the increased costs to the borrower. Furthermore, the
ARM loans originated by the Bank generally provide, as a marketing incentive,
for initial rates of interest below the rates which would apply were the
adjustment index used for pricing initially (discounting). These loans are
subject to increased risks of default or delinquency because of this. Another
consideration is that although ARM loans allow the Bank to increase the
sensitivity of its asset base to changes in the interest rates, the extent of
this interest sensitivity is limited by the periodic and lifetime interest rate
adjustment limits. Because of these considerations, the Bank has no assurance
that yields on ARM loans will be sufficient to offset increases in the Bank's
cost of funds.

         The Bank also originates conventional fixed-rate mortgage loans on one-
to four-family residential properties and is a direct endorsed lender for
Federal Home Administration ("FHA") and Veterans Administration ("VA") loans.
Substantially all FHA and VA loans were originated for sale. See "-- Loan
Originations, Sales and Purchases."

         The Bank requires title insurance insuring the status of its lien on
all of the real estate secured loans and also requires that the fire and
extended coverage casualty insurance (and, if appropriate, flood insurance) be
maintained in an amount at least equal to the outstanding loan balance.

         The Bank's lending policies generally limit the maximum loan-to-value
ratio on mortgage loans secured by owner-occupied properties to 80% of the
lesser of the appraisal value or the purchase price, with the condition that
private mortgage insurance is required on loans with loan-to-value ratios of
greater than 80%. The maximum loan-to- value ratio for construction-permanent
loans is also 80% of the appraised value or cost, whichever is less. The Bank
requires private mortgage insurance for loan-to-value ratios in excess of 80%.

         The maximum financing on refinance loans is limited to 80% of the
appraised value and such loans require private mortgage insurance above 80%
loan-to-value, or 80% loan to appraised value if a portion of the funds advanced
by the Bank will be used for purposes other than paying off the existing
mortgage debt.


                                        4
<PAGE>

         Multi-Family Loans. Multi-family loans are comprised primarily of loans
secured by income producing properties such as apartments with five to 50 units.
Multi-family real estate loans are generally originated at 80% of the appraised
value of the property or selling price, whichever, is less, and are generally
originated for ten- to 25-year terms.

         Multi-family lending is generally viewed as exposing the lender to a
greater risk of loss than one- to four-family residential lending. Such loans
typically involve higher loan principal amounts and loan repayment is largely
dependent on sufficient income generated by the project to cover operating
expenses and loan repayments. Market values may vary as a result of economic
events or governmental regulations outside of the control of the borrower or
lender, such as rent control laws, which impact the future cash flows of the
affected properties. Corresponding to the greater lending risk is a generally
higher interest rate applicable to multi-family lending. The Bank generally
requires that the security property generate positive cash flow after debt
service and other expenses. The Bank's underwriting criteria includes an
evaluation of the borrower's reputation, the amount of borrower's equity in the
project, sales and leasing information, and cash flow projections. At December
31, 1999, the Bank had no nonperforming (i.e. loans accounted for on a
nonaccrual basis and accruing loans contractually past due 90 days or more)
multi-family residential loans.

         At December 31, 1999, the three largest multi-family loans were $1.4
million loan secured by an apartment building in Muscle Shoals, Alabama, $1.0
million loan secured by an apartment building in Tampa, Florida, and a $420,000
loan secured by an apartment building in Muscle Shoals, Alabama. All three loans
were current at December 31, 1999.

         Construction Loans. The Bank originates residential construction
mortgage loans to residential owner- occupants (custom construction loans) and
to local contractors building residential properties for resale, as well as
construction loans for multi-family residential properties and land development
on properties located within its primary market area. Construction loans to
owner-occupants generally have a term of six months and then are converted to
permanent loans. The construction loans to builders generally are made with a
six-month term. The Bank's construction loans bear interest rates which adjust
with the U.S. Treasury Index.

         Construction lending is generally considered to involve a higher degree
of credit risk than long-term financing of residential properties. The risk of
loss on a construction loan is dependent largely upon the accuracy of the
initial estimate of the property's value at completion of construction or
development and the estimated cost (including interest) of construction. If the
estimate of construction cost and the marketability of the property upon
completion of the project prove to be inaccurate, the Bank may be compelled to
advance additional funds to complete the development. If the borrower is unable
to sell the completed project in a timely manner or obtain adequate proceeds to
repay the loan, the loan may become nonperforming. Furthermore, if the estimate
of value proves to be inaccurate, the Bank may be confronted with, at or prior
to the maturity of the loan, a project with a value which is insufficient to
assure full repayment. The ability of the developer or builder to sell developed
lots or completed dwelling units will depend on, among other things, demand,
pricing and availability of comparable properties, and economic conditions.

         The Bank's underwriting criteria are designed to evaluate and minimize
the risks of each construction loan. Among other things, the Bank considers
evidence of the availability of permanent financing for the borrower, the
reputation of the borrower, the amount of the borrower's equity in the project,
the independent appraisal and review of cost estimates, the pre-construction
sale and leasing information, and the cash flow projections of the borrower. In
addition, most of the construction loans granted by the Bank are secured by
property in the Bank's local market area.

         At December 31, 1999, the Bank had three construction loans with
committed balances of more than $1.0 million, all of which were current at that
date. The first is a 34% participation interest in a $5.2 million loan
commitment secured by land and a shopping center in Killen, Alabama. The Bank's
interest amounts to $1.8 million. At December 31, 1999, there was $5.2 million
outstanding under the commitment, in which the Bank had a 34% interest. The
second is a $1.2 million loan secured by a residential sub-division development
located in Tuscumbia, Alabama, with an outstanding balance of $1.2 million at
December 31, 1999. The third is a $1.1 million loan secured

                                        5
<PAGE>

by a residential sub-division development in Athens, Alabama with an outstanding
balance of $1.1 million at December 31, 1999. This loan was paid in full
February 1, 2000.

         Consumer Loans. Consumer loans generally have shorter terms to maturity
or repricing and higher interest rates than the long-term, fixed-rate mortgage
loans. The Bank's consumer loans consist of loans secured by automobiles, boats
and recreational vehicles, mortgages on residences and savings accounts, and
unsecured loans for any personal or household purposes. The Bank has not
actively marketed its consumer loans and the majority of such loans originated
by the Bank have been made to its existing customers. The Bank, however, subject
to market conditions, intends to actively market consumer loans beyond its
existing customer base to prospective borrowers within its primary market area.

         The Bank offers closed-end, fixed-rate home equity and second mortgage
loans that are made on the security of residences. Loans normally do not exceed
89% of the appraised value of the residence, less the outstanding principal of
the first mortgage and have terms of up to 15 years requiring monthly payments
of principal and interest.

         The Bank offers automobile loans on both new and used vehicles.
Automobile loans are generally made at fixed interest rates, with terms up to 60
months and loan-to-value ratios up to 90%.

         The Bank makes savings account loans for up to 97% of the depositor's
savings account balance. The interest rate is normally 2% above the rate paid on
the savings account, and the account must be pledged as collateral to secure the
loan. Savings account loans are payable in monthly payments of principal and
interest or in a single payment.

         Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciating assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount which can
be recovered on such loans. Such loans may also give rise to claims and defenses
by a consumer loan borrower against an assignee of such loans such as the Bank,
and a borrower may be able to assert against such assignee claims and defenses
that it has against the seller of the underlying collateral. At December 31,
1999, $158,000, or .68%, of the Bank's consumer loan portfolio was accounted for
on a nonaccrual basis or was contractually past due 90 days or more.

         Commercial Real Estate Loans. The Bank originates loans secured by
commercial real estate located primarily within the Bank's market area, and to a
lesser extent outside of Alabama. Commercial real estate loans are generally
secured by small commercial properties such as doctor's offices and strip
shopping centers. Commercial real estate loans are written for terms of five,
ten or 20 years with interest rates tied to the comparable U.S. Treasury
Constant Maturity Index or prime rates. Since the size of commercial real estate
loans creates greater potential for loss, the Bank attempts to apply
conservative underwriting standards to this type of lending. The Bank primarily
limits such lending to properties located in its primary market area and to
borrower's who are well known to the Bank. The Bank generally requires annual
financial statements from its commercial real estate borrowers and personal
guarantees if the borrower is a corporation. Commercial real estate lending
generally involves greater risk than residential mortgage lending. The risks
associated with the commercial real estate lending as similar to those
associated with multi-family real estate lending. See "-- Multi-Family Loans."

         At December 31, 1999, the three largest commercial real estate loans
were a $2.0 million loan secured by country club and golf course located in
Muscle Shoals, Alabama, a $1.3 million loan secured by five furniture stores in
north Alabama, and a $896,000 loan secured by commercial land in Tuscumbia,
Alabama. All three loans were current at December 31, 1999.


                                        6
<PAGE>

         At December 31, 1999, nonperforming (i.e. loans accounted for on a
nonaccrual basis and accruing loans contractually past due 90 days or more)
commercial real estate loans totaled $59,000. See " -- Nonperforming Assets and
Delinquencies."

         Commercial Business Loans. Commercial business loans generally include
equipment loans with terms ranging up to seven years and working capital lines
of credit secured by inventory and accounts receivable. Commercial business
loans are generally made in amounts up to $100,000. Unsecured lines of credit
are made for up to $300,000. Working capital lines of credit are generally
renewable and made for a one-year term without a requirement that the borrower
extinguish any outstanding balance for a particular time period during the year.
Interest rates on commercial business loans are generally indexed to the prime
rate. As with commercial real estate loans, the Bank generally requires annual
financial statements from its commercial business borrowers and personal
guarantees if the borrower is a corporation.

         At December 31, 1999, the three largest commercial business loans had
outstanding balances of $2.1 million, $1.4 million and $1.1 million and were
collateralized by non-real estate business assets. At December 31, 1999, each
loan was performing in accordance with its terms.

         Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential, commercial and multi-family real estate lending.
Real estate lending is generally considered to be collateral based lending with
loan amounts based on predetermined loan to collateral values and liquidation of
the underlying real estate collateral is viewed as the primary source of
repayment in the event of borrower default. Although commercial business loans
are often collateralized by equipment, inventory, accounts receivable or other
business assets, the liquidation of collateral in the event of a borrower
default is often not a sufficient source of repayment because accounts
receivable may be uncollectible and inventories and equipment may be obsolete or
of limited use, among other things. Accordingly, the repayment of a commercial
business loan depends primarily on the creditworthiness of the borrower (and any
guarantors), while liquidation of collateral is a secondary and often
insufficient source of repayment.

         At December 31, 1999, nonperforming (i.e. loans accounted for on a
nonaccrual basis and accruing loans contractually past due 90 days or more)
commercial business loans aggregated $1.1 million.



                                        7
<PAGE>

Loan Maturity

         The following table sets forth scheduled contractual amortization of
loans and mortgage-backed securities at December 31, 1999 and the dollar amount
of such securities and loans which are scheduled to mature after one year which
have fixed or adjustable interest rates. Demand loans, loans having no stated
schedule of repayments and no stated maturity and overdraft loans are reported
as due in one year. All loans held for sale are also reported as due within one
year.

<TABLE>
<CAPTION>

                                                             At December 31, 1999
                                                                        Commercial
                                                 Mortgage    Consumer    Business      Total
                                                  Loans       Loans       Loans        Loans
                                                ----------  ---------- ------------  ----------
                                                                (In thousands)
Amounts due:
<S>                                               <C>         <C>          <C>        <C>
   Within one year(1).........................     $33,185     $ 8,459      $22,883    $ 64,527
   After one year through three years.........      10,742       6,386        8,195      25,323
   After three years through five years.......      17,624       7,735        3,376      28,735
   After five years...........................      36,765         737        1,878      39,380
                                                   -------     -------      -------    --------
      Total...................................     $98,316     $23,317      $36,332    $157,965
                                                   =======     =======      =======    ========

Interest rate terms on amounts due after one year:
   Fixed......................................     $29,188     $14,462      $ 8,428    $52,078
   Adjustable.................................      35,943         396        5,021     41,360
</TABLE>
------------------------------
(1)  Includes loans held for sale.


         Loan Solicitation and Processing. Loan applicants come through direct
solicitation by Bank personnel and referrals by realtors and builders. All loans
are serviced from the main office in Florence. Applications for fixed-rate and
adjustable-rate mortgages on one- to four-family properties are underwritten and
closed based on Freddie Mac standards, and other loan applications are
underwritten and closed based on the Bank's own guidelines. Residential mortgage
loans are required to have title insurance, as well as fire and extended
coverage insurance. All mortgage loans require fire and extended coverage on
appurtenant structures.

         Upon receipt of a loan application from a prospective borrower, a
credit report and other data are obtained to verify specific information
relating to the loan applicant's employment, income and credit standing. An
appraisal of the real estate offered as collateral is undertaken by a fee
appraiser approved by the Bank and licensed or certified by the State of
Alabama.

         Residential loans up to $300,000 may be approved by the President, the
Senior Lending Officer, the Senior Consumer Loan Officer or the Senior
Commercial Non-Real Estate Officer, with any two approving. Secured consumer and
real estate commercial loans up to $200,000 and $300,000, respectively, may also
be approved by the President, the Senior Lending Officer, the Senior Consumer
Loan Officer, or the Senior Commercial Non-Real Estate Officer, with any two
approving. Loans over $300,000 for one- to four-family residential units;
$400,000 for multi-family units; and $400,000 for commercial units must be
approved by the Bank's Loan/Investment Committee, which has the authority to
approve loans in the amount of $600,000 or less. Loans in excess of $600,000
must be approved by the Bank's Board of Directors.


                                        8
<PAGE>

         Loan applicants are promptly notified of the decision of the Bank.
Interest rates are subject to change if the approved loan is not closed within
the time of the commitment.

         Loan Originations, Sales and Purchases. The Bank originates fixed and
adjustable rate residential mortgage loans that meet or exceed the applicable
underwriting requirements of the FHLMC. The Bank generally sells all FHA and VA
loans on a servicing released basis. During the year ended December 31, 1999,
the Bank sold $18.6 million of loans, resulting in net gains on sale of
$193,000. The total of loans serviced for others as of December 31, 1999 was
approximately $16.6 million.

         During the year ended December 31, 1999, the Bank's total mortgage loan
originations was $60.9 million, of which 38% was subject to periodic interest
rate adjustments and 62% was fixed-rate loans.

         The Bank purchases loan participation interests periodically. At
December 31, 1999, the outstanding balance of purchased participation interests
was approximately $3.3 million and was secured by various commercial real
estate, one- to four-family residential and multi-family properties located in
Alabama and Tennessee. At December 31, 1999, all of these participation
interests were current.

         The following table sets forth total mortgage loans originated,
purchased, sold and repaid during the years indicated.

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                                     --------------------------------------
                                                                         1997          1998         1999
                                                                         ----          ----         ----
                                                                                 (In thousands)
<S>                                                                    <C>          <C>         <C>
Total mortgage loans at beginning of period........................     $118,639      $115,124     $105,090
                                                                        --------      --------     --------

Loans originated:
   Single-family residential.......................................       27,707        38,175       30,575
   Multi-family residential and commercial real estate.............       16,171        15,450       13,811
   Construction loans..............................................        8,316        10,837       16,522
                                                                        --------      --------     --------
      Total loans originated.......................................       52,194        64,462       60,908
                                                                        --------      --------     --------

Loans purchased:
   Single-family residential.......................................           --            --           --
   Other...........................................................           --            --           --
                                                                        --------      --------     --------
      Total loans purchased........................................           --            --           --
                                                                        --------      --------     --------
         Total loans originated and purchased......................       52,194        64,462       60,908
                                                                        --------      --------     --------

Loans sold:
   Total whole loans sold..........................................       17,327        22,608       14,855
   Other...........................................................           --           683        3,727
                                                                        --------      --------     --------
      Total loans sold.............................................       17,327        23,291       18,582

Mortgage loan principal repayments.................................       37,593        49,207       48,407
Other (increase) decrease).........................................          789         1,998          693
                                                                        --------      --------     --------
   Total net loan decreases........................................       55,709        74,496       67,682
                                                                        --------      --------     --------
Net  loan activity.................................................       (3,515)      (10,034)      (6,774)
                                                                        --------      --------     --------

Total gross mortgage loans at end of period........................     $115,124      $105,090      $98,316
                                                                        ========      ========   ==========
</TABLE>


                                        9
<PAGE>

         Loan Commitments. The Bank issues commitments for fixed- and
adjustable-rate single-family residential mortgage loans conditioned upon the
occurrence of certain events. Such commitments are made in writing on specified
terms and conditions and are honored for up to 60 days from application. A fee
of 1% is charged for each loan commitment. At December 31, 1999, the Bank had
$724,000 of outstanding net loan commitments and $11.5 million of unused
portions on lines of credit, and $10,000 of outstanding letters of credit. See
Note 17 to Notes to Consolidated Financial Statements.

         Loan Origination and Other Fees. The Bank, in most instances, receives
loan origination fees and discount "points." Loan fees and points are a
percentage of the principal amount of the mortgage loan which are charged to the
borrower for funding the loan. The amount of points charged by the Bank varies,
though the range generally is between 1 and 2 points. Current accounting
standards require fees received (net of certain loan origination costs) for
originating loans to be deferred and amortized into interest income over the
contractual life of the loan. Net deferred fees associated with loans that are
prepaid are recognized as income at the time of prepayment. The Bank had $72,000
of net deferred mortgage loan fees at December 31, 1999.

         Nonperforming Assets and Delinquencies. When a mortgage loan borrower
fails to make a required payment when due, the Bank institutes collection
procedures. The first notice is mailed to the borrower 15 days after the payment
due date with a late fee assessed the borrower and, if necessary, a second
written notice follows after 30 days. After 45 days of the payment due date, the
Bank mails a letter to the borrower. Attempts to contact the borrower by
telephone generally begin approximately 60 days after the payment due date. If a
satisfactory response is not obtained, continuous follow-up contacts are
attempted until the loan has been brought current. In most cases, delinquencies
are cured promptly; however, if by the 90th day of delinquency, or sooner if the
borrower is chronically delinquent and all reasonable means of obtaining payment
on time have been exhausted, foreclosure, according to the terms of the security
instrument and applicable law, is initiated. If management determines on the
90th day of delinquency that all remedies to cure the delinquency have been
exhausted, management classifies the loan nonaccrual and records the impairment,
if any, through the allowance for losses.

         If the borrower cannot be reached and does not respond to collection
efforts, a personal collection visit or property inspection is made. The
physical condition and occupancy status of the property is determined before
recommending further servicing action. Such inspection normally takes place
before the 90th day of delinquency.

         When a consumer loan borrower fails to make a required payment on a
consumer loan by the payment due date, the Bank institutes collection
procedures. The first notice is mailed to the borrower 30 days following the
payment due date. If necessary, a letter is mailed the following month. The
customer is contacted by telephone to ascertain the nature of the delinquency
and is then notified in writing that counseling is available for eligible
borrowers.

         In most cases, delinquencies are cured promptly; however, if, by the
60th day following the grace period of delinquency no progress has been made, a
written notice is mailed informing the borrowers of their right to cure the
delinquency within 90 days and of the Bank's intent to begin legal action if the
delinquency is not corrected. Depending on the type of property held as
collateral, the Bank either obtains a judgment in small claims court or takes
action to repossess the collateral.

         The Bank's Board of Directors is informed monthly as to the status of
all loans delinquent 90 days or more, of all loans in foreclosure and of all
foreclosed and repossessed property owned by the Bank.


                                       10
<PAGE>

         The following table sets forth information with respect to the Bank's
nonperforming assets at the dates indicated. At the dates indicated, the Bank
had no restructured loans within the meaning of Statement of Financial
Accounting Standards ("SFAS") No. 15. At December 31, 1999, the Bank had
$683,000 of impaired loans within the meaning of SFAS No. 114.

<TABLE>
<CAPTION>
                                                                              At December 31,
                                                        -----------------------------------------------------------
                                                           1995        1996        1997        1998        1999
                                                        ----------  ----------  ----------  ----------  -----------
                                                                          (Dollars in thousands)
<S>                                                      <C>        <C>         <C>           <C>        <C>
Loans accounted for on a nonaccrual basis:
   Real estate:
      One- to four-family.............................    $     36    $     --     $    --    $    132      $    --
      Commercial......................................         270          --         401          --           --
   Commercial business................................          50          --         135         782          683
   Consumer...........................................          --          18          25          --           --
                                                          --------    --------     -------    --------      -------
         Total........................................         356          18         561         914          683
                                                          --------    --------     -------    --------      -------

Accruing loans which were contractually
 past due 90 days or more:
 Real estate:
      One- to four-family.............................         324         508         216       1,553          952
      Commercial......................................         770         489          --         243           59
      Construction....................................          --         327          --         112           --
   Commercial business................................           3          39         148         432          398
   Consumer...........................................          33          60         181         105          158
                                                          --------    --------     -------    --------      -------
         Total........................................       1,130       1,423         545       2,445        1,567
                                                          --------    --------     -------    --------      -------

         Total of nonaccrual and 90 days
            past due loans............................       1,486       1,441       1,106       3,359        2,250
Real estate owned.....................................       1,098         198         100         710          918
                                                          --------    --------     -------    --------      -------
         Total nonperforming assets...................      $2,584      $1,639      $1,206      $4,069       $3,168
                                                          ========    ========     =======    ========      =======

Total loans delinquent 90 days
   or more to net loans...............................        0.98%       0.90%       0.69%       2.19%        1.44%
Total loans delinquent 90 days
   or more to total assets............................        0.82%       0.78%       0.60%       1.88%        1.26%
Total nonperforming assets
   to total assets....................................        1.43%       0.89%       0.66%       2.28%        1.77%
</TABLE>

         Real Estate Owned. Real estate acquired by the Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
(foreclosed real estate) until it is sold. When property is acquired it is
recorded at fair value at the time of foreclosure, less estimated costs of
disposal. Subsequent to foreclosure, the property is carried at the lower of the
foreclosed amount or net realizable value. At December 31, 1999, the Bank's real
estate owned consisted of four single-family properties and one commercial
property.


                                       11
<PAGE>

         Allowance for Loan Losses. The Bank has established a systematic
methodology for the determination of provisions for loan losses, which includes
techniques such as loan grading and monitoring of financial information. The
methodology is set forth in a formal policy and takes into consideration the
need for an overall general valuation allowance as well as specific allowances
that are tied to individual loans. The allowance for loan losses is increased by
charges to income and decreased by charge-offs (net of recoveries). Management's
periodic evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay the estimated value
of any underlying collateral, and current economic conditions. Uncollectible
interest on loans that are contractually past due is charged off, or an
allowance is established based on management's periodic evaluation. The
allowance is established by a charge to interest income equal to all interest
previously accrued and unpaid, and income is subsequently recognized only to the
extent that cash payments are received until, in management's judgment, the
borrower's ability to make periodic interest and principal payments is back to
normal, in which case the loan is returned to accrual status.

         In originating loans, the Bank recognizes that losses will be
experienced and that the risk of loss will vary with among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan, general economic conditions and, in the case of a secured loan, the
quality of the security for the loan. The Bank increases its allowance for loan
losses by charging provisions for loan losses against the Bank's income.

         The general valuation allowance is maintained to cover yet unidentified
losses in the loan portfolio. Management reviews the adequacy of the allowance
at least quarterly based on its knowledge of the portfolio including current
asset classifications, the Bank's write-off history, economic conditions
affecting the real estate markets and industry standards.

         Specific valuation allowances are established to absorb losses on loans
for which full collectibility may not be reasonably assured. The amount of the
allowance is based on the estimated value of the collateral securing the loan
and other analysis pertinent to each situation.

         Charge-offs occur when loans with specific reserves are impaired,
in-substance foreclosed, or foreclosed. The specific reserve, along with any
additional amounts necessary to reduce the carrying value to fair market value,
net of estimated selling costs, is charged-off. Foreclosed assets are thereafter
carried at the lower of the asset's newly established net fair value or its net
realizable value. When a foreclosed asset is sold, any excess/(deficiency) over
the carrying value is reflected on the books as a gain/(loss) on the sale of
real estate owned.

         Management believes that the amount maintained in the allowances will
be adequate to absorb losses in the portfolio. Although management believes that
it uses the best information available to make such determinations, future
adjustments to the allowance for loan losses may be necessary and results of
operations could be significantly and adversely affected if circumstances differ
substantially from the assumptions used in making the determinations.

         The Bank's market area is heavily concentrated in Lauderdale and
Colbert counties. Real estate values have been stable to slightly increasing
over the past three years. There can be no assurance as to the future
performance of real estate markets, including those in which the Bank primarily
operates. A downturn in the Alabama real estate markets could have a material
adverse effect on the Bank's operations. For example, depressed real estate
values may result in increases in nonperforming assets, hamper disposition of
such nonperforming assets and result in losses upon such disposition.

         While the Bank believes it has established its existing allowance for
loan losses in accordance with generally accepted accounting principles, there
can be no assurance that regulators, in reviewing the Bank's loan portfolio,
will not request the Bank to increase significantly its allowance for loan
losses. In addition, because future events affecting borrowers and collateral
cannot be predicted with certainty, there can be no assurance that the existing
allowance for loan losses is adequate or that substantial increases will not be
necessary should the quality of any loans deteriorate as a result of the factors
discussed above. Any material increase in the allowance for loan losses may
adversely affect the Bank's financial condition and results of operations.

                                       12
<PAGE>

         The following table sets forth an analysis of the Bank's gross
allowance for loan losses for the periods indicated. Where specific loan loss
reserves have been established, any difference between the loss reserve and the
amount of loss actually realized has been charged or credited to current income.
<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                -----------------------------------------------------------
                                                    1995        1996        1997         1998        1999
                                                ----------- ----------- -----------  ----------  ----------
                                                                (Dollars in thousands)

<S>                                               <C>         <C>          <C>       <C>          <C>
Allowance at beginning of period............       $1,100      $1,509      $1,659      $1,584      $1,441
                                                   ------      ------      ------      ------      ------

Provision for loan losses...................          565         270         242         605         528
                                                   ------      ------      ------      ------      ------
Recoveries:
   Residential real estate..................           --          20           9          --           2
   Commercial business......................           --          70          17           1         114
   Consumer and other.......................           41          --           4          31          19
                                                   ------      ------      ------      ------      ------
      Total recoveries......................           41          90          30          32         135
                                                   ------      ------      ------      ------      ------

Chargeoffs:
   Residential real estate..................           (4)        (13)        (52)        (36)        (56)
   Commercial real estate...................           --         (25)       (185)         --          (2)
   Commercial business......................           --        (172)        (54)       (496)       (421)
   Consumer and other.......................         (193)         --         (56)       (248)       (225)
                                                   ------      ------      ------      ------      ------
      Total chargeoffs......................         (197)       (210)       (347)       (780)       (704)
                                                   ------      ------      ------      ------      ------

      Net chargeoffs........................         (156)       (120)       (317)       (748)       (569)
                                                   ------      ------      ------      ------      ------

Balance at end of period....................       $1,509      $1,659      $1,584      $1,441      $1,400
                                                   ======      ======      ======      ======      ======

Ratio of allowance to net loans
   outstanding at the end of the period.....         0.99%       1.04%       0.99%       0.94%       0.90%
Ratio of net chargeoffs to average loans
   outstanding during the period............         0.11%       0.08%       0.19%       0.49%       0.38%
</TABLE>

         The following table sets forth the Bank's allowance for loan losses by
loan category at the dates indicated.

<TABLE>
<CAPTION>
                                                                         At December 31,
                                  -----------------------------------------------------------------------------------------
                                        1995              1996              1997              1998               1999
                                  -----------------  ----------------  ----------------  ----------------  ----------------
                                           As a %             As a %            As a %            As a %            As a %
                                           of Out-           of Out-           of Out-           of Out-           of Out-
                                           standing          standing          standing          standing          standing
                                           Loans in          Loans in          Loans in          Loans in          Loans in
                                  Amount   Category  Amount  Category  Amount  Category  Amount  Category  Amount  Category
                                  -------  --------  ------- --------  ------- --------  ------  --------  ------  --------
                                                                 (Dollars in thousands)
<S>                            <C>        <C>       <C>      <C>      <C>       <C>     <C>      <C>     <C>         <C>
Real estate mortgage loans:
   Residential................    $   331   0.39%    $  261    0.33%   $   234    0.34%  $   217   0.36%   $  270      0.50%
   Other......................        441   1.25        167    0.43        210    0.46       188   0.41       222      0.50
Consumer and commercial busines       729   2.00        580    1.29        614    1.29       651   1.28       298      0.50
Impaired loans................         --   --           --      --         --      --        --     --       200     29.28
Unallocated...................          8   --          651      --        526      --       385     --       410        --
                                  -------           -------            -------           -------           ------
    Total allowance for loan
        losses                    $ 1,509           $ 1,659            $ 1,584           $ 1,441           $1,400
                                  =======           =======            =======           =======           ======

</TABLE>

                                       13
<PAGE>

Investment Activities

         The Bank has authority to invest in various types of liquid assets,
including United States Treasury obligations, securities of various federal
agencies and of state and municipal governments, deposits at the FHLB of
Atlanta, certificates of deposit of federally insured institutions, certain
bankers' acceptances and federal funds. The Company also invests in
mortgage-backed securities. See Notes 3 and 4 of Notes to Consolidated Financial
Statements.

         The Bank is required under Alabama law to maintain at all times a
reserve (comprised of cash) based upon average daily deposits of the Bank. At
December 31, 1999, the Bank's qualifying reserves of $3.2 million exceeded the
required reserve of $292,000. The balance of the Bank's investments in
short-term securities in excess of regulatory requirements reflects management's
response to the significantly increasing percentage of deposits with short-term
maturities. Management intends to hold securities with short-term maturities in
the Bank's investment portfolio in order to enable the Bank to provide liquidity
and to match more closely the interest-rate sensitivities of its assets and
liabilities.

         The Investment/Loan Committee, comprised of the two outside directors,
determines appropriate investments in accordance with the Board of Directors'
approved investment policies and procedures. Investments are made following
certain considerations, which include the Bank's liquidity position and
anticipated cash needs and sources (which in turn include outstanding
commitments, upcoming maturities, estimated deposits, anticipated loan
amortization and repayments, and amortization of mortgage-backed securities).
Further, the effect that the proposed investment would have on the Bank's "gap"
position, credit and interest rate risk, and risk-based capital is given
consideration during the evaluation. The interest rate, yield, settlement date
and maturity are also reviewed.




                                       14
<PAGE>

         The following table sets forth the cost and market values of the
investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
                                                                            At December 31,
                                          -----------------------------------------------------------------------------
                                                           1997                                   1998
                                          -------------------------------------- --------------------------------------
                                           Amortized     Market      Percent of   Amortized      Market     Percent of
                                            Cost(1)       Value      Portfolio     Cost(1)       Value       Portfolio
                                          -----------  -----------  ------------ ------------ ------------  -----------
                                                                        (Dollars in thousands)
<S>                                         <C>         <C>           <C>          <C>         <C>           <C>
Corporate Bonds.........................     $     --     $     --            --%    $     --     $     --           --%
U.S. Government and agency
   obligations..........................        7,998        7,993        100.00        1,998        2,016       100.00
                                               ------       ------        ------       ------       ------       ------
   Total................................       $7,998       $7,993        100.00%      $1,998       $2,016       100.00%
                                               ======       ======        ======       ======       ======       ======

<CAPTION>
                                                    At December 31,
                                          ------------------------------------
                                                         1999
                                          ------------------------------------
                                          Amortized     Market     Percent of
                                           Cost(1)      Value      Portfolio
                                          ---------  -----------  ------------
                                                (Dollars in thousands)
<S>                                       <C>        <C>          <C>
Corporate Bonds.........................     $3,081       $2,923         67.26%
U.S. Government and agency
   obligations..........................      1,500        1,485         32.74
                                             ------       ------        ------
   Total................................     $4,581       $4,408        100.00%
                                             ======       ======        ======
</TABLE>
------------------
(1)  Percentage of portfolio value computed based upon carrying value of
     securities. Prior to January 1, 1994, securities were recorded at amortized
     cost. In 1994 the Company adopted the provisions of SFAS No. 115 under
     which the Company has classified 100% of its investment securities as
     "available for sale," which securities were therefore recorded at market
     value.


         The following table sets forth the maturities and weighted average
yields of the investment securities portfolio at December 31, 1999.


<TABLE>
<CAPTION>
                                                                                         Weighted
                                                                     Carrying             Average
                                                                        Value               Yield
                                                                   ------------         -----------
                                                                        (Dollars in thousands)

<S>                                                               <C>                  <C>
U.S. government and agency obligations:
   Due in one year or less...........................                $     --                  --%
   Due after one year through five years.............                   1,485                6.14
Corporate Bonds:
   Due after one year through  five years............                   2,923                6.27
                                                                       ------                ----
                                                                       $4,408                6.23%
                                                                       ======                ====
</TABLE>


                                       15
<PAGE>

         The following table sets forth the cost and market values of the
mortgage-backed securities portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                                              At December 31,
                                          -----------------------------------------------------------------------------------
                                                           1997                                   1998
                                          --------------------------------------       --------------------------------------
                                           Amortized     Market      Percent of          Amortized      Market     Percent of
                                             Cost         Value     Portfolio(1)            Cost        Value      Portfolio(1)
                                          -----------  -----------  ------------       ------------  ------------  ----------
                                                                             (Dollars in thousands)
<S>                                        <C>           <C>        <C>                <C>           <C>           <C>
FNMA certificates(2)....................      $  185      $  191        12.92%              $ 69         $ 78         7.30%
GNMA certificates(2)....................         587         613        40.99                402          426        42.54
FHLMC certificates(2)...................         660         681        46.09                474          490        50.16
                                          -----------  -----------  ------------       ------------  ------------  ----------
                                              $1,432      $1,485       100.00%              $945         $994       100.00%
                                          ===========  ===========  ============       ============  ============  ==========

<CAPTION>

                                                    At December 31,
                                          --------------------------------------
                                                        1999
                                          --------------------------------------
                                           Amortized     Market      Percent of
                                             Cost         Value     Portfolio(1)
                                          -----------  -----------  ------------
                                                  (Dollars in thousands)
<S>                                         <C>          <C>          <C>
FNMA certificates(2)....................      $   --      $   --           --%
GNMA certificates(2)....................       3,252       3,010        92.20
FHLMC certificates(2)...................         275         280         7.80
                                          -----------  -----------  ------------
                                              $3,527      $3,290       100.00%
                                          ===========  ===========  ============
</TABLE>
----------------
(1) Percentage of portfolio value computed based upon amortized cost of
    mortgage-backed securities.
(2) Classified as "held to maturity" at December 31, 1997, 1998 and 1999.

         The following table sets forth the maturities and weighted average
yields of the mortgage-backed securities portfolio at December 31, 1999.

<TABLE>
<CAPTION>

                                                                                        Weighted
                                                                   Carrying              Average
                                                                    Value                 Yield
                                                                 ----------           -------------
                                                                      (Dollars in Thousands)
<S>                                                             <C>                     <C>
Due in one year or less..............................                $   --                 --%
Due after one year through five years................                    41               8.68
Due after five years through ten years...............                   320               8.27
Due after ten years..................................                 3,166               6.66
                                                                     ------               ----
                                                                     $3,527               6.83%
                                                                     ======               ====
</TABLE>


                                       16
<PAGE>

Deposit Activities and Other Sources of Funds

         General. Deposits and loan repayments are the major sources of the
Bank's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. 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.

         Deposit Accounts. Deposits are attracted from within the Bank's primary
market area through the offering of a broad selection of deposit instruments,
including negotiable order of withdrawal ("NOW") accounts, money market deposit
accounts, statement savings accounts, certificates of deposit and retirement
savings plans. Deposit account terms vary, according to the minimum balance
required, the time periods the funds must remain on deposit and the interest
rate, among other factors. In determining the terms of its deposit accounts, the
Bank considers current market interest rates, profitability to the Bank,
matching deposit and loan products and its customer preferences and concerns.
The Bank generally reviews its deposit mix and pricing weekly.

         In the unlikely event the Bank is liquidated, depositors will be
entitled to full payment of their deposit accounts prior to any payment being
made to the Company, as stockholder of the Bank. Substantially all of the Bank's
depositors are residents of the State of Alabama.

          The following table indicates the amount of certificates of deposit
and other deposits with balances of $100,000 or greater by time remaining until
maturity as of December 31, 1999. Other deposits with balances of $100,000 or
greater aggregated $4.1 million, and have been shown in the following table as
having maturities of three months or less.

                    Maturity Period                    Amount
                    ---------------                    ------
                                                    (In thousands)

                  Three months or less                 $11,607
                  Three through twelve months            6,060
                  Over twelve months                     8,023
                                                         -----
                  Total                                $25,690
                                                        ======


                                       17
<PAGE>

Deposit Flow

<TABLE>
<CAPTION>

                                                                                  At December 31,
                                              --------------------------------------------------------------------------
                                                              1997                                  1998
                                              ------------------------------------  ------------------------------------
                                                             Percent     Increase                  Percent    Increase
                                                 Amount      of Total   (Decrease)     Amount      of Total  (Decrease)
                                              ------------  ----------  ----------  ------------  ---------- -----------
                                                                                (Dollars in thousands)

<S>                                           <C>             <C>       <C>             <C>         <C>         <C>
Noncertificate of deposit accounts(1):
   Noninterest-bearing......................    $    4,119      2.87%   $   (70)      $  5,939        4.65%    $ 1,820
   NOW checking.............................        11,015      7.66        271         11,757        9.22         742
   Regular savings accounts.................        15,918     11.08     (1,921)        15,415       12.09        (503)
   Money market deposit.....................         4,310      3.00      1,402          3,421        2.68        (889)
   Statement savings........................         1,400      0.97        (86)         2,300        1.80         900
Certificates of deposit(2)(3):
   Variable rate certificates which mature:
      Within one year.......................            --        --     (3,693)            --          --          --
      Within three years....................            --        --         --             --          --          --
   Fixed-rate certificates which mature:
      Within one year.......................        84,922     59.08     16,418         70,086       54.95     (14,836)
      Within three years....................        20,923     14.56     (2,428)        15,678       12.29      (5,245)
      After three years.....................         1,124      0.78      1,038          2,954        2.32       1,830
                                                  --------    -------    ------       --------      -------   ---------
         Total..............................      $143,731    100.00%   $10,931       $127,550      100.00%   $(16,181)
                                                  ========    =======   =======       ========      =======   =========

<CAPTION>

                                                 -----------------------------------
                                                               1999
                                                 -----------------------------------
                                                             Percent     Increase
                                                   Amount      of Total   (Decrease)
                                                ------------  ----------  ----------
                                                    (Dollars in thousands)
<S>                                              <C>           <C>       <C>
Noncertificate of deposit accounts(1):
   Noninterest-bearing......................      $  5,349      4.22%    $   (590)
   NOW checking.............................        11,316      8.92         (441)
   Regular savings accounts.................        14,218     11.21       (1,197)
   Money market deposit.....................         3,824      3.00          403
   Statement savings........................         2,664      2.10          364
Certificates of deposit(2)(3):
   Variable rate certificates which mature:
      Within one year.......................            --        --           --
      Within three years....................            --        --           --
   Fixed-rate certificates which mature:
      Within one year.......................        56,405     44.46      (13,681)
      Within three years....................        31,043     24.47       15,365
      After three years.....................         2,051      1.62         (903)
                                                  --------    -------     --------
         Total..............................      $126,870    100.00%    $   (680)
                                                  ========    =======    =========
</TABLE>
----------------------------
(1) Includes accounts with balances of $100,000 and greater of $4.6 million,
    $4.4 million and $4.1 million at December 31, 1997, 1998 and 1999,
    respectively.
(2) Includes certificates of deposit with balances of $100,000 and greater of
    $18.7 million, $16.1 million and $21.6 million at December 31, 1997, 1998
    and 1999, respectively.
(3) Includes IRA accounts of $8.0 million at December 31, 1997, $8.5 million at
    December 31, 1998, and $8.3 million at December 31, 1999.


                                       18
<PAGE>

Time Deposits by Rates

         The following table sets forth time deposits classified by rates as of
the dates indicated.

<TABLE>
<CAPTION>
                                                        At December 31,
                                       ---------------------------------------------------
                                              1997               1998             1999
                                              ----               ----             ----
                                                       (In thousands)
  <S>                                      <C>             <C>                <C>
   2.01 - 4.00%...................          $    605        $   200            $   177
   4.01 - 5.00%...................               706         18,160             42,829
   5.01 - 6.00%...................            64,433         62,697             32,731
   6.01 - 7.00%...................            38,524          6,835             13,249
   7.01 or greater................             2,701            826                513
                                            --------        -------            -------
     Total........................          $106,969        $88,718            $89,499
                                            ========        =======            =======
</TABLE>
    The following table sets forth the amount and maturities of time deposits at
December 31, 1999.

<TABLE>
<CAPTION>
                                                                        Amount Due
                                -----------------------------------------------------------------------------------------------
                                                                                                                  Percent
                                                                                                                  of Total
                                 Less Than     1-2            2-3         3-4           After                    Certificate
                                 One Year     Years          Years       Years        4 Years         Total       Accounts
                                 --------     -----          -----       -----        -------        ------       ---------
                                                                    (Dollars in thousands)
<S>                              <C>         <C>            <C>        <C>              <C>         <C>            <C>
2.00 - 4.00%.................     $   177     $    --        $   --     $   --           $ --        $   177          0.20%
4.01 - 5.00%.................      37,331       4,279           983         84            152         42,829         47.86
5.01 - 6.00%.................      17,113      13,005           864      1,640            109         32,731         36.57
6.01 - 7.00%.................       1,658      10,997           594         --             --         13,249         14.80
7.01 - or greater............         126          --           321         66             --            513          0.57
                                  -------     -------        ------     ------           ----        -------        ------
   Total.....................     $56,405     $28,281        $2,762     $1,790           $261        $89,499        100.00%
                                  =======     =======        ======     ======           ====        =======        ======
</TABLE>

         The following table sets forth the deposit activities of the Bank for
the periods indicated.

<TABLE>
<CAPTION>
                                      Years Ended December 31,
                                    -----------------------------
                                     1997       1998        1999
                                     ----       ----        ----
                                            (In thousands)

<S>                               <C>         <C>         <C>
Beginning balance.............     $132,800    $143,731    $127,550
                                   --------    --------    --------

Net increase (decrease)
 before interest credited.....        5,798     (20,910)     (5,065)

Interest credited.............        5,133       4,729       4,385
                                  ---------    --------  ----------

Net increase (decrease)
 in savings deposits..........       10,931     (16,181)       (680)
                                  ---------   ----------  ----------

Ending balance................     $143,731    $127,550    $126,870
                                   ========    ========    ========
</TABLE>


                                       19
<PAGE>

         Borrowings. Savings deposits are the primary source of funds for the
Bank's lending and investment activities and for its general business purposes.
The Bank may rely upon advances from the FHLB of Atlanta to supplement its
supply of lendable funds and to meet deposit withdrawal requirements. The FHLB
of Atlanta has, from time to time, served as one of the Bank's primary borrowing
sources. Advances from the FHLB of Atlanta are typically secured by the Bank's
first mortgage loans and certain investment and mortgage-backed securities. See
Note 10 of Notes to Consolidated Financial Statements.

         The FHLB of Atlanta functions as a central reserve bank providing
credit for savings and loan associations and certain other member financial
institutions. As a member, the Bank is required to own capital stock in the FHLB
of Atlanta and is authorized to apply for advances on the security of such stock
and certain of its mortgage loans and other assets (principally securities which
are obligations of, or guaranteed by, the United States government) provided
certain creditworthiness standards have been met. Advances are made pursuant to
several different credit programs. Each credit program has its own interest rate
and range of maturities. Depending on the program, limitations on the amount of
advances are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit.

         The Bank also has two outstanding credit facilities with two separate
third party financial institutions. See Note 10 to Notes to Consolidated
Financial Statements for further information.

         The following table sets forth certain information regarding short-term
borrowings by the Bank at the dates and for the periods indicated:

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                       -------------------------------------
                                                                        1997           1998            1999
                                                                        ----           ----            ----
                                                                               (Dollars in thousands)
<S>                                                                    <C>              <C>            <C>
Weighted average rate paid on:
FHLB advances...............................................              6.00%           5.61%           5.42%
Securities sold under agreements to repurchase..............                --              --            5.68
Other borrowings(1).........................................                --              --            8.62
</TABLE>

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                      --------------------------------------
                                                                       1997            1998            1999
                                                                       ----            ----            ----
                                                                               (Dollars in thousands)
<S>                                                                   <C>             <C>            <C>
Maximum amount of borrowings outstanding at any month end:
FHLB advances.................................................         $36,043         $35,392        $35,697
Securities sold under agreements to repurchase................              --              --          1,530
Other borrowings(1)...........................................             450           1,600          2,000

Approximate average outstanding:
FHLB advances.................................................         $26,221         $30,231        $31,939
Securities sold under agreements to repurchase................              --              --            225
Other borrowings(1)...........................................             195             297            397

Approximate weighted average rate paid on:
FHLB advances.................................................            5.88%           5.71%          5.65%
Securities sold under agreements to repurchase................              --              --           5.33
Other borrowings(1)...........................................            8.51            8.42           8.82
</TABLE>
------------------------
(1)      Credit facilities from third party financial institutions.


                                       20
<PAGE>

                                   REGULATION

The Bank

         General. As an Alabama-chartered, federally insured commercial bank,
the Bank is subject to extensive regulation. Lending activities and other
investments must comply with various statutory and regulatory requirements,
including prescribed minimum capital standards. The Bank is regularly examined
by the FDIC and the Superintendent and files periodic reports concerning the
Bank's activities and financial condition with its regulators. The Bank's
relationship with depositors and borrowers also is regulated to a great extent
by both federal law and the laws of the State of Alabama, especially in such
matters as the ownership of savings accounts and the form and content of
mortgage documents.

         Federal and state banking laws and regulations govern all areas of the
operation of the Bank, including reserves, loans, mortgages, capital, issuance
of securities, payment of dividends and establishment of branches. Federal and
state bank regulatory agencies also have the general authority to limit the
dividends paid by insured banks and bank holding companies if such payments
should be deemed to constitute an unsafe and unsound practice. The respective
primary federal regulators of the Company and the Bank have authority to impose
penalties, initiate civil and administrative actions and take other steps
intended to prevent banks from engaging in unsafe or unsound practices.

         State Regulation and Supervision. As a Alabama-chartered commercial
bank, the Bank is subject to applicable provisions of Alabama law and the
regulations of the Superintendent adopted thereunder. Alabama law and
regulations govern the Bank's ability to take deposits and pay interest thereon,
to make loans on or invest in residential and other real estate, to make
consumer loans, to invest in securities, to offer various banking services to
its customers, and to establish branch offices. The Bank is subject to periodic
examination and reporting requirements by and of the Superintendent.

         Deposit Insurance. The FDIC insures deposits at the Bank to the maximum
extent permitted by law. The Bank currently pays deposit insurance premiums to
the FDIC based on a risk-based assessment system established by the FDIC for all
SAIF-member institutions. Under applicable regulations, institutions are
assigned to one of three capital groups which are based solely on the level of
an institution's capital --"well capitalized," "adequately capitalized," and
"undercapitalized" -- which are defined in the same manner as the regulations
establishing the prompt corrective action system under Section 38 of the Federal
Deposit Insurance Act ("FDIA"), as discussed below. These three groups are then
divided into three subgroups which reflect varying levels of supervisory
concern, from those which are considered to be healthy to those which are
considered to be of substantial supervisory concern. This matrix results in nine
assessment risk classifications, with rates currently ranging from 0 basis
points for well capitalized, financially sound institutions with only a few
minor weaknesses to 27 basis points for undercapitalized institutions that pose
a substantial risk of loss to the SAIF unless effective corrective action is
taken. The FDIC is authorized to raise assessment rates in certain
circumstances. The Bank's assessments expensed for the year ended December 31,
1999, equaled $75,000.

          SAIF-insured institutions are also required to add to their
assessments to the FDIC points to help fund interest payments on certain bonds
issued by the Financing Corporation ("FICO"), an agency of the federal
government established to finance takeovers of insolvent thrifts. During fiscal
1999, the FICO assessment amounted to approximately 6.3 basis points. Effective
January 1, 2000, SAIF members and members of the Bank Insurance Fund will be
assessed at the same rate for FICO payments whereas previously SAIF members were
assessed at a rate five times that of BIF members.

         The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend deposit
insurance temporarily during the hearing process for the permanent termination
of insurance, if the institution has no tangible capital. If insurance of
accounts is terminated, the

                                       21
<PAGE>

accounts at the institution at the time of termination, less subsequent
withdrawals, shall continue to be insured for a period of six months to two
years, as determined by the FDIC. Management is aware of no existing
circumstances which could result in termination of the deposit insurance of the
Bank.

         Prompt Corrective Action. Each federal banking agency is required to
implement a system of prompt corrective action for institutions which it
regulates. The federal banking agencies have promulgated substantially similar
regulations to implement this system of prompt corrective action. Under the
regulations, an institution shall be deemed to be: (i) "well capitalized" if it
has a total risk-based capital ratio of 10.0% or more, has a Tier I risk-based
capital ratio of 6.0% or more, has a Tier I leverage capital ratio of 5.0% or
more and is not subject to specified requirements to meet and maintain a
specific capital level for any capital measure; (ii) "adequately capitalized" if
it has a total risk-based capital ratio of 8.0% or more, a Tier I risk-based
capital ratio of 4.0% or more and a Tier I leverage capital ratio of 4.0% or
more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized;" (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that is
less than 4.0% or a Tier I leverage capital ratio that is less than 4.0% (3.0%
under certain circumstances); (iv) "significantly undercapitalized" if it has a
total risk-based capital ratio that is less than 6.0%, a Tier I risk-based
capital ratio that is less than 3.0% or a Tier I leverage capital ratio that is
less than 3.0%; and (v) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%.

         A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or engaging in
an unsafe or unsound practice. (The FDIC may not, however, reclassify a
significantly undercapitalized institution as critically undercapitalized.)

         An institution generally must file a written capital restoration plan
which meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall become subject to various mandatory and
discretionary restrictions on its operations.

         At December 31, 1999, the Bank was categorized as "well capitalized"
under the prompt corrective action regulations of the FDIC.

         Standards for Safety and Soundness. The federal banking regulatory
agencies are required, by regulation, to prescribe standards for all insured
depository institutions relating various matters such as: (i) internal controls,
information systems and internal audit systems; (ii) loan documentation; (iii)
credit underwriting; (iv) interest rate risk exposure; (v) asset growth; and
(vi) compensation, fees and benefits. The federal banking agencies have adopted
final regulations and Interagency Guidelines Prescribing Standards for Safety
and Soundness ("Guidelines") to implement safety and soundness standards. The
Guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. Under the final regulations, if the FDIC
determines that the Bank fails to meet any standard prescribed by the
Guidelines, the agency may require the Bank to submit to the agency an
acceptable plan to achieve compliance with the standard. The final regulations
establish deadlines for the submission and review of such safety and soundness
compliance plans.

         Capital Requirements. The FDIC's minimum capital standards applicable
to FDIC-regulated banks and savings banks require the most highly-rated
institutions to meet a "Tier 1" leverage capital ratio of at least 3% of total
assets. Tier 1 (or "core capital") consists of common stockholders' equity,
noncumulative perpetual preferred stock and minority interests in consolidated
subsidiaries minus all intangible assets other than limited amounts of servicing
rights and certain other accounting adjustments. All other banks must have a
Tier 1 leverage ratio of at least 4%. The FDIC's capital regulations require
higher capital levels for banks which exhibit more than a moderate degree of
risk or exhibit other characteristics which necessitate that higher than minimum
levels of capital be maintained. Based on the

                                       22
<PAGE>

definitions contained in the FDIC's capital regulations, the Bank had a Tier 1
leverage capital ratio of 8.28% as of December 31, 1999.

         FDIC regulations also require that banks meet a risk-based capital
standard. The risk-based capital standard requires the maintenance of total
capital (which is defined as Tier 1 capital and Tier 2 or supplementary capital)
to risk weighted assets of 8% and Tier 1 capital to risk-weighted assets of 4%.
In determining the amount of risk-weighted assets, all assets, plus certain off
balance sheet items, are multiplied by a risk-weight of 0% to 100%, based on the
risks the FDIC believes are inherent in the type of asset or item. The
components of Tier 1 capital are equivalent to those discussed above under the
3% leverage requirement. The components of supplementary capital currently
include cumulative perpetual preferred stock, adjustable-rate perpetual
preferred stock, mandatory convertible securities, term subordinated debt,
intermediate-term preferred stock and allowance for possible loan and lease
losses. Allowance for possible loan and lease losses includable in supplementary
capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the
amount of capital counted toward supplementary capital cannot exceed 100% of
Tier 1 capital. Since September 1995, the FDIC includes in its evaluation of a
bank's capital adequacy an assessment of the exposure to declines in the
economic value of the bank's capital due to changes in interest rates.

         FDIC capital requirements are designated as the minimum acceptable
standards for banks whose overall financial condition is fundamentally sound,
which are well-managed and have no material or significant financial weaknesses.
The FDIC capital regulations state that, where the FDIC determines that the
financial history or condition, including off-balance sheet risk, managerial
resources and/or the future earnings prospects of a bank are not adequate and/or
a bank has a significant volume of assets classified substandard, doubtful or
loss or otherwise criticized, the FDIC may determine that the minimum adequate
amount of capital for that bank is greater than the minimum standards
established in the regulation.

         Activities and Investments of Insured State-Chartered Banks. Federal
law generally limits the activities and equity investments of FDIC-insured,
state-chartered banks to those that are permissible for national banks. Under
regulations dealing with equity investments, an insured state bank generally may
not directly or indirectly acquire or retain any equity investment of a type, or
in an amount, that is not permissible for a national bank. An insured state bank
is not prohibited from, among other things, (i) acquiring or retaining a
majority interest in a subsidiary, (ii) investing as a limited partner in a
partnership the sole purpose of which is direct or indirect investment in the
acquisition, rehabilitation or new construction of a qualified housing project,
provided that such limited partnership investments may not exceed 2% of the
bank's total assets, (iii) acquiring up to 10% of the voting stock of a company
that solely provides or reinsures directors', trustees' and officers' liability
insurance coverage or bankers' blanket bond group insurance coverage for insured
depository institutions, and (iv) acquiring or retaining the voting shares of a
depository institution if certain requirements are met.

         In addition, an insured state bank (i) that is located in a state which
authorized as of September 30, 1991 investment in common or preferred stock
listed on a national securities exchange ("listed stock") or shares of a
registered investment company ("registered shares"), and (ii) which during the
period beginning September 30, 1990 through November 26, 1991 ("measurement
period") made or maintained investments in listed stocks and registered shares,
may retain whatever shares that were lawfully acquired or held prior to December
19, 1991 and continue to acquire listed stock and registered shares, provided
that the bank does not convert its charter to another form or undergo a change
in control. In order to acquire or retain any listed stock or registered shares,
however, the bank must file a one-time notice with the FDIC which meets
specified requirements and which sets forth the bank's intention to acquire and
retain stocks or shares, and the FDIC must determine that acquiring or retaining
the listed stocks or registered shares will not pose a significant risk to the
deposit insurance fund of which the bank is a member.

         FDIC regulations provide that an insured state-chartered bank may not,
directly, or indirectly through a subsidiary, engage as "principal" in any
activity that is not permissible for a national bank unless the FDIC has
determined that such activities would pose no risk to the insurance fund of
which it is a member and the bank is in

                                       23
<PAGE>

compliance with applicable regulatory capital requirements. Any insured
state-chartered bank directly or indirectly engaged in any activity that is not
permitted for a national bank must cease the impermissible activity.

         Loans-to-One-Borrower. Under Alabama law the aggregate amount of loans
that the Bank is permitted to make to any one borrower, including related
entities, is generally 20% of the Bank's capital account (i.e., capital, surplus
and undivided profits) provided that loans in excess of 10% of the capital
account are fully secured. At December 31, 1999, the Bank's loans-to-one
borrower limit was approximately $2.9 million. At December 31, 1999, the largest
aggregate amount of loans by the Bank to any one borrower was approximately $2.7
million, which was comprised of 4 loans ($606,000 in commercial real estate and
$2.1 million in commercial non-real estate), all of which were performing
according to their terms.

         Federal Reserve System. Regulation D of the FRB requires all depository
institutions that maintain transaction accounts or nonpersonal time deposits.
These reserves may be in the form of cash or non-interest-bearing deposits with
the regional Federal Reserve Bank. NOW accounts and 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 nonpersonal time deposits at a bank. Under Regulation D, a bank must
establish reserves equal to 3% of the first $44.3 million of transaction
accounts, of which the first $5.0 million is exempt, and 10% on the remainder.
The reserve requirement on nonpersonal time deposits with original maturities of
less than 1-1/2 years is 0%. As of December 31, 1999, the Bank met its reserve
requirements.

         Affiliate Transactions. The Company and the Bank are separate and
distinct legal entities. Various legal limitations restrict the Bank from
lending or otherwise supplying funds to the Company (an "affiliate"), generally
limiting such transactions with each affiliate to 10% of the bank's capital and
surplus and limiting all transactions with all affiliates to 20% of the bank's
capital and surplus. Such transactions, including extensions of credit, sales of
securities or assets and provision of services, also must be on terms and
conditions consistent with safe and sound banking practices, including credit
standards, that are substantially the same or at least as favorable to the bank
as those prevailing at the time for transactions with unaffiliated companies.

         Federally insured banks are subject, with certain exceptions, to
certain restrictions on extensions of credit to their parent holding companies
or other affiliates, on investments in the stock or other securities of
affiliates and on the taking of such stock or securities as collateral from any
borrower. In addition, such banks are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit or the providing of any
property or service.

         Community Reinvestment Act. Banks are also subject to the provisions of
the Community Reinvestment Act of 1977, which requires the appropriate federal
bank regulatory agency, in connection with its regular examination of a bank, to
assess the bank's record in meeting the credit needs of the community serviced
by the bank, including low and moderate income neighborhoods. The regulatory
agency's assessment of the bank's record is made available to the public.
Further, such assessment is required of any bank which has applied, among other
things, to establish a new branch office that will accept deposits, relocate an
existing office or merge or consolidate with, or acquire the assets or assume
the liabilities of, a federally regulated financial institution. The Bank
received an "outstanding" CRA rating as a result of its most recent evaluation.

         Dividends. Dividends from the Bank constitute the major source of funds
for dividends which may be paid by the Company. The amount of dividends payable
by the Bank to the Company depend upon the Bank's earnings and capital position,
and is limited by federal and state laws, regulations and policies. According to
Alabama law, the Bank is required to transfer to surplus each year at least 10%
of its net earnings (and thus cannot declare or pay a dividend in excess of 90%
of net earnings) until its surplus equals at least 20% of its capital.
Furthermore, the Bank must obtain the approval of the Superintendent to declare
dividends in any calendar year in excess of the total of its net earnings of
that year combined with its retained net earnings of the preceding two years,
less any required transfers to surplus.


                                       24
<PAGE>

         At the time of the consummation of the Stock Conversion, OTS
regulations required the Association to establish a liquidation account for the
benefit of eligible account holders of the Association. This liquidation account
was assumed by the Bank at the time of the consummation of the Bank Conversion.
The Bank may not declare or pay a cash dividend on any of its capital stock that
would reduce the Bank's regulatory capital below the amount required for the
liquidation account. See Note 20 of the Notes to Consolidated Financial
Statements.

         Federal law further provides that no insured depository institution may
make any capital distribution (which would include a cash dividend) if, after
making the distribution, the institution would be "undercapitalized," as defined
in the prompt corrective action regulations. Moreover, the federal bank
regulatory agencies also have the general authority to limit the dividends paid
by insured banks if such payments should be deemed to constitute an unsafe and
unsound practice.

The Holding Company

         General. The Company, as the sole shareholder of the Bank, is a bank
holding company registered as such with the FRB. Bank holding companies are
subject to comprehensive regulation by the FRB under the Bank Holding Company
Act of 1956, as amended ("BHCA") and the regulations of the FRB. As a bank
holding company, the Company is required to file with the FRB annual reports and
such additional information as the FRB may require and is subject to regular
examinations by the FRB. The FRB also has extensive enforcement authority over
bank holding companies, including, among other things, the ability to assess
civil money penalties, to issue cease and desist or removal orders and to
require that a holding company divest subsidiaries (including its bank
subsidiaries). In general, enforcement actions may be initiated for violations
of law and regulations and unsafe or unsound practices.

         Under the BHCA, a bank holding company must obtain FRB approval before:
(1) acquiring, directly or indirectly, ownership or control of any voting shares
of another bank or bank holding company if, after such acquisition, it would own
or control more than 5% of such shares (unless it already owns or controls the
majority of such shares); (2) acquiring all or substantially all of the assets
of another bank or bank holding company; or (3) merging or consolidating with
another bank holding company.

         The BHCA prohibits a bank holding company, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company that is not a bank or bank holding company and from
engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. Under
the BHCA, the FRB is authorized to approve the ownership of shares by a bank
holding company in any company, the activities of which the FRB has determined
to be so closely related to the business of banking or managing or controlling
banks as to be a proper incident thereto. The list of activities determined by
regulation to be closely related to banking within the meaning of the BHCA
includes, among other things: operating a savings institution, mortgage company,
finance company, credit card company or factoring company; performing certain
data processing operations; providing certain investment and financial advice;
underwriting and acting as an insurance agent for certain types of
credit-related insurance; leasing property on a full-payout, non-operating
basis; selling money orders, travelers' checks and U.S. Savings Bonds; real
estate and personal property appraising; providing tax planning and preparation
services; and, subject to certain limitations, providing securities brokerage
services for customers. The Gramm-Leach-Bliley Act of 1999 authorizes a bank
holding company that meets specified conditions, including being "well
capitalized" and "well managed," to become a "financial holding company" and
thereby engage in a broader array of financial activities than previously
permitted. Such activities can include insurance underwriting and investment
banking. The Gramm-Leach-Bliley Act also authorizes banks to engage, through
"financial" subsidiaries in certain of the activities permitted for financial
holding companies.

         Dividends. The FRB has issued a policy statement on the payment of cash
dividends by bank holding companies, which expresses the FRB's view that a bank
holding company should pay cash dividends only to the extent that the company's
net income for the past year is sufficient to cover both the cash dividends and
a rate of earning retention that is consistent with the company's capital needs,
asset quality and overall financial condition. The FRB also

                                       25

<PAGE>

indicated that it would be inappropriate for a company experiencing serious
financial problems to borrow funds to pay dividends. Furthermore, under the
prompt corrective action regulations adopted by the FRB, the FRB may prohibit a
bank holding company from paying any dividends if the holding company's bank
subsidiary is classified as "undercapitalized" under the prompt corrective
action regulations.

         Bank holding companies, except for certain "well-capitalized" bank
holding companies, are required to give the FRB prior written notice of any
purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of their consolidated net worth. The FRB may
disapprove such a purchase or redemption if it determines that the proposal
would constitute an unsafe or unsound practice or would violate any law,
regulation, FRB order, or any condition imposed by, or written agreement with,
the FRB.

         Capital Requirements. The FRB has established capital adequacy
guidelines for bank holding companies that generally parallel the capital
requirements of the FDIC for the Bank. The FRB regulations provide that capital
standards will be applied on a consolidated basis in the case of a bank holding
company with $150 million or more in total consolidated assets. At December 31,
1999, the Company met its minimum regulatory capital requirements. See Note 14
to Notes to Consolidated Financial Statements.

                                    TAXATION

Federal Taxation

         General. The Company and the Bank report their income on a calendar
year basis using the accrual method of accounting. The Company and the Bank are
subject to federal income taxation in the same manner as other corporations with
some exceptions, including particularly the Bank's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Company and the Bank.

         Bad Debt Reserve. In years prior to the consummation of the Bank
Conversion, the Association, as a qualified thrift meeting certain eligibility
criteria prescribed in the Code, was able to determine its tax basis bad debt
reserve using the percentage of taxable income method ("PTI Method") set forth
in the Code. The Association's use of the PTI Method resulted in a significantly
greater tax basis reserve for bad debts than that recognized for financial
reporting purposes.

         Upon consummation of the Bank Conversion, the Bank became a "former
thrift institution" and, as such, under provisions of the Code, is no longer
eligible to maintain its tax basis bad debt reserve on the PTI Method. As a
financial institution with total assets less than $500 million, the Bank is
permitted to maintain its tax basis bad debt reserves on the experience method
("Experience Method"), which computes a tax basis bad debt reserve based upon a
six-year weighted-average calculation of actual bad debts experienced by the
Bank.

         Under applicable provisions of the Code, on a ratable basis over a
six-year period commencing in 1995, the Bank must include in income the excess
of the PTI Method bad debt reserve as of December 31, 1994 over its newly
adopted Experience Method tax basis reserve determined as of December 31, 1994.
See Note 11 of Notes to Consolidated Financial Statements.

         If the Bank's assets ever exceed the $500 million threshold, the Bank
would be required to recapture its newly adopted Experience Method tax basis bad
debt reserve in increasing increments over a four-year period. Thereafter, the
Bank would be required to use the direct or specific charge-off method
applicable to large banks in calculating the Bank's tax bad debt deduction.
Under the direct or specific charge-off method, the Bank would be entitled to a
bad debt deduction only in the taxable year in which a specific debt become
worthless or is shown to be recoverable only in part.


                                       26
<PAGE>

         The Bank Conversion occurred prior to the enactment of the Small
Business Job Protection Act of 1996 which repealed the PTI method but did not
require recapture of pre-1988 bad debt reserves.

         Distributions. To the extent that the Bank makes "nondividend
distributions" to shareholders, such distributions will be considered to result
in distributions from the balance of its bad debt reserve as of December 31,
1987 (or a lesser amount if the Bank's loan portfolio decreased since December
31, 1987) and then from the supplemental reserve for losses on loans ("Excess
Distributions"), and an amount based on the Excess Distributions will be
included in the Bank's taxable income. Nondividend distributions include
distributions in excess of the Bank's current and accumulated earnings and
profits, distributions in redemption of stock and distributions in partial or
complete liquidation. However, dividends paid out of the Bank's current or
accumulated earnings and profits, as calculated for federal income tax purposes,
will not be considered to result in a distribution from the Bank's bad debt
reserves.

         The amount of additional taxable income created from and Excess
Distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, approximately one and
one-half times the Excess Distribution would be includable in gross income for
federal income tax purposes, assuming a 34% federal corporate income tax rate.
See "REGULATION" for limits on the payment of dividends by the Bank. The Bank
does not intend to pay dividends that would result in a recapture of any portion
of its tax bad debt reserve.

         Corporate Alternative Minimum Tax. The Code imposes a tax on
alternative minimum taxable income ("AMTI") at a rate of 20%. AMTI is increased
by an amount equal to 75% of the amount by which the Bank's adjusted current
earnings exceeds its AMTI (determined without regard to this preference and
prior to reduction for net operating losses). For taxable years beginning after
December 31, 1986, and before January 1, 1996, an environmental tax of 0.12% of
the excess of AMTI (with certain modification) over $2.0 million is imposed on
corporations, including the Bank, whether or not an Alternative Minimum Tax
("AMT") is paid.

         Dividends-Received Deduction and Other Matters. The Holding Company may
exclude from its income 100% of dividends received from the Bank as a member of
the same affiliated group of corporations. The corporate dividends-received
deduction is generally 70% in the case of dividends received from unaffiliated
corporations with which the Holding Company and the Bank will not file a
consolidated tax return, except that if the Holding Company or the Bank owns
more than 20% of the stock of a corporation distributing a dividend, then 80% of
any dividends received may be deducted.

         Audits.  The Company's and the Bank's federal income tax returns have
been audited through 1996.

State Taxation

         Alabama Taxation.  The State of Alabama imposes a 6% excise tax on the
Bank's earnings. The Bank's state tax returns have not been audited during the
last five years.

         Delaware. As a Delaware holding company not earning income in Delaware,
the Company is exempt from Delaware corporate income tax, but is required to
file an annual report with and pay an annual franchise tax to the State of
Delaware.


                                       27
<PAGE>

Personnel

         As of December 31, 1999, the Bank had 62 full-time and 14 part-time
employees. The employees are not represented by a collective bargaining unit.
The Bank believes its relationship with its employees is good.


Item 2.  Description of Property
--------------------------------

         The following table sets forth certain information regarding the Bank's
offices as of December 31, 1999. The net book value of the Bank's investment in
office, properties and equipment totaled $3.7 million at December 31, 1999.

<TABLE>
<CAPTION>
                                                   Year        Building           Land           Building
Location                              County      Opened     Owned/Leased     Owned/Leased    Square Footage     Deposits
--------                              ------      ------     ------------     ------------    --------------     --------
                                                                                                              (In thousands)
Main Office
-----------
<S>                                <C>           <C>        <C>               <C>             <C>                <C>
102 South Court Street              Lauderdale     1935         Owned             Owned            45,000          $73,496
Florence, Alabama  35630

Branch Offices
---------------
U.S. Highway 72 E.                  Lauderdale     1977         Owned             Owned             1,890           10,800
Killen, Alabama  35645

U.S. Highway 72 E.                  Lauderdale     1977         Owned             Owned             1,890           11,825
Rogersville, Alabama  35652

2727 Mall Drive                     Lauderdale     1979         Owned             Owned             1,216           19,892
 Florence, Alabama  35630

1027 Avalon Avenue                  Colbert        1990         Owned             Owned             3,500            5,710
 Muscle Shoals, Alabama  35661

506 N. Main Street                  Colbert        1998         Owned             Owned             2,500            5,147
 Tuscumbia, Alabama  35674
</TABLE>

Item 3.  Legal Proceedings
---------------------------

         Periodically, there have been various claims and lawsuits involving the
Bank, mainly as a defendant, such as claims to enforce liens, condemnation
proceedings on properties in which the Bank holds security interests, claims
involving the making and servicing of real property loans and other issues
incident to the Bank's business. The Bank is not a party to any pending legal
proceedings that it believes would have a material adverse effect on the
financial condition or operations of the Bank.

Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------

         No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1999.



                                       28
<PAGE>

                                    PART II


Item 5.  Market for Common Equity and Related Stockholder Matters
------------------------------------------------------------------

         The information contained in the section captioned "Common Stock
Information" in the Annual Report is incorporated herein by reference.

Item 6.  Management's Discussion and Analysis or Plan of Operation
------------------------------------------------------------------

         The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.

Item 7.  Financial Statements
-----------------------------

         Independent Auditors' Report*
         Consolidated Statements of Financial Condition, December 31, 1998 and
          1999*
         Consolidated Statements of Income For the Years Ended December
          31, 1997, 1998 and 1999*
         Consolidated Statements of Changes in Shareholders' Equity For the
          Years Ended December 31, 1997, 1998 and 1999*
         Consolidated Statements of Cash Flows For the Years Ended December 31,
          1997, 1998 and 1999*
         Notes to Consolidated Financial Statements*
         --------------------
         * Contained in the Annual Report to Stockholders filed as an exhibit
         hereto and incorporated herein by reference. All schedules have been
         omitted as the required information is either inapplicable or contained
         in the Consolidated Financial Statements or related Notes contained in
         the Annual Report to Stockholders.

Item 8.  Changes in and Disagreements With Accountants on Accounting and
------------------------------------------------------------------------
         Financial Disclosure
         ---------------------

         No changes in and disagreements with the Company's independent
accountants on accounting and financial disclosure has occurred during the two
most recent fiscal years.


                                   PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
-----------------------------------------------------------------------
         Compliance with Section 16(a) of the Exchange Act
         --------------------------------------------------

         The information contained under the section captioned "Proposal I --
Election of Directors" in the Proxy Statement is incorporated herein by
reference. For information concerning the executive officers of the Bank, see
"Item I -- Business -- Executive Officers." The information contained under the
section captioned "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Proxy Statement is incorporated herein by reference.

Item 10.  Executive Compensation
--------------------------------

         The information contained under the section captioned "Proposal I --
Election of Directors" in the Proxy Statement is incorporated herein by
reference.


                                       29
<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------

         (a)      Security Ownership of Certain Beneficial Owners

                  Information required by this item is incorporated herein by
                  reference to the section captioned "Stock Ownership" of the
                  Proxy Statement.

         (b)      Security Ownership of Management

                  Information required by this item is incorporated herein by
                  reference to the sections captioned "Stock Ownership" of the
                  Proxy Statement.

         (c)      Changes in Control

                  The Company is not aware of any arrangements, including any
                  pledge by any person of securities of the Company, the
                  operation of which may at a subsequent date result in a change
                  in control of the Company.

Item 12.  Certain Relationships and Related Transactions
--------------------------------------------------------

         The information required by this item is incorporated herein by
reference to the section captioned "Proposal I -- Election of Directors" and
"Transactions With Management" of the Proxy Statement.

                                    PART IV

Item 13.  Exhibits, List Reports on Form 8-K
--------------------------------------------

        (a)  Exhibits

             (3a)    Certificate of Incorporation of the Company*
             (3b)    Bylaws of the Company*
             (10a)   1996 Stock Option Plan of the Company**
             (10b)   1996 Management Recognition and Development Plan of the
                      Company**
             (10c)   Employment Agreement with Charles L. Frederick, Jr.***
             (10d)   Employment Agreement with Thomas N. Ward***
             (13)    Annual Report to Stockholders
             (21)    Subsidiaries of the Registrant
             (23)    Consent of Marmann, McCrary & Associates, P.C.
             (27)    Financial Data Schedule
             ----------------
             *       Incorporated by reference to the Company's
                     Registration Statement on Form S-1, as subsequently
                     amended.
             **      Incorporated by reference to the Company's Proxy
                     Statement for the 1998 Annual Meeting of Stockholders.
             ***     Incorporated by reference to the Company's Annual
                     Report on Form 10-KSB for the year ended December 31,
                     1995.

        (b)  Report on Form 8-K

             No Forms 8-K were filed during the quarter ended December 31, 1999.

                                       30
<PAGE>

                                   SIGNATURES

        Pursuant to the requirements of section 13 or 15(d) 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.

                                          FIRST SOUTHERN BANCSHARES, INC.


Date:  March 27, 2000                     By:/s/Charles L. Frederick, Jr.
                                             ----------------------------
                                             Charles L. Frederick, Jr.
                                             President, Chief Executive Officer
                                               and Chairman of the Board
                                             (Duly Authorized Representative)


         Pursuant to the requirements of the Securities Exchange Act of 1934,
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>
<S>                                                                           <C>
By:/s/Charles L. Frederick, Jr.                                                 March 27, 2000
   ----------------------------
    Charles L. Frederick, Jr.
    President, Chief Executive Officer and Chairman of the Board
    (Principal Executive Officer and Principal
     Financial Officer)

By:/s/Thomas N. Ward                                                            March 27, 2000
   ----------------------------
    Thomas N. Ward
    Executive Vice President and Chief Operating Officer
    (Principal Accounting Officer)

By:/s/James E. Bishop                                                           March 27, 2000
   ----------------------------
    James E. Bishop
    Director

By:/s/Milka S. Duke                                                             March 27, 2000
   ----------------------------
    Milka S. Duke
    Director

By:/s/Gary A. Gamble                                                            March 27, 2000
   ----------------------------
    Gary A. Gamble
    Director

By:/s/J. Acker Rogers                                                           March 27, 2000
   ----------------------------
    J. Acker Rogers
    Director

By:/s/Kenneth A. Williams                                                       March 27, 2000
   ----------------------------
    Kenneth A. Williams
    Director

By:/s/Steve McKinney                                                            March 27, 2000
   ----------------------------
    Steve McKinney
    Director

By:/s/S. Greg Beadle                                                            March 27, 2000
   ----------------------------
    S. Greg Beadle
    Director
</TABLE>
                                      31