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

                                   Form 10-KSB

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

                   For the fiscal year ended December 31, 2000
                                             -----------------

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

            For the transition period from ___________ to ___________

                        Commission file number 333-73385

                               HCNB Bancorp, Inc.
                 (Name of small business issuer in its charter)

              Maryland                                  52-2083046
--------------------------------------     -------------------------------------
    (State or other jurisdiction            (I.R.S. Employer Identification No.)
 of incorporation or organization)

1776 East Jefferson Street, Rockville, MD                 20852
-----------------------------------------  -------------------------------------
(Address of principal executive offices)                Zip Code

                    Issuer's telephone number (301) 468-8848
                                              --------------

         Securities registered under Section 12(b) of the Exchange Act:

                                           Name of each exchange on which
   Title of each class                             registered

          None                                        None
          ----                                        ----

         Securities registered under Section 12(g) of the Exchange Act:

                                      None
                                      ----
                                (Title of class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15 (d) of the  Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. [xx] Yes [ ] 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
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [xx]

The issuer's revenues for its most recent fiscal year.   $938,040
                                                         --------

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold as of March 15, 2001 was $5,217,490.  A stock price of $10.00 per share was
used to compute this value;  this was the price of the most recent sale of stock
which occurred on March 5, 2001.

As of March 15, 2001, 700,213 shares of the small business issuer's common stock
were issued and outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None

Traditional Small Business Disclosure Format (Check one): Yes     ; No xx
                                                             ----     ----
<PAGE>
                                TABLE OF CONTENTS

                                     Part I

Item l     Description of Business.............................................1

Item 2     Description of Property.............................................7

Item 3     Legal Proceedings...................................................8

Item 4     Submission of Matters to a Vote of Security Holders.................8

                                     Part II

Item 5     Market for Common Equity and Related Stockholder Matters............8

Item 6     Management's Discussion and Analysis of Financial Condition
           and Results of Operations...........................................8

Item 7     Financial Statements...............................................16

Item 8     Changes in and Disagreements with Accountants or
           Accounting and Financial Disclosure................................34

                                    Part III

Item 9     Directors, Executive Officers, Promoters and Control
           Persons; Compliance with Section 16(a) of the Exchange Act.........34

Item 10    Executive Compensation.............................................37

Item 11    Security Ownership of Certain Beneficial Owners and Management.....38

Item 12    Certain Relationships and Related Transactions.....................39

Item 13    Exhibits, Lists and Reports on Form 8-K............................39


<PAGE>
                                     PART I

Item l     DESCRIPTION OF BUSINESS

Organization. HCNB Bancorp, Inc. (the "Company") was incorporated under the laws
of the State of  Maryland  on  February  24,  1998,  to serve as a bank  holding
company for a newly formed  commercial  bank.  Harbor Capital National Bank (the
"Bank")  received its charter from the Office of the Comptroller of the Currency
on December 14, 1999 and commenced operations that day from its sole location at
1776 East Jefferson  Street,  Rockville,  Maryland.  The Bank is a member of the
Federal  Reserve  System and its  deposits  are insured by the  Federal  Deposit
Insurance Corporation.

The Company  completed its initial  offering of its shares of common stock ($.01
par value) in October,  1999. In the initial offering,  700,213 shares were sold
at a  price  of  $10.00  per  share;  total  proceeds  from  the  offering  were
$7,002,130.  After  offering  expenses,  the net  proceeds to the  Company  were
$6,828,075.  The Bank was initially  capitalized  by the Company in an amount of
$6,000,000.

Products and  Services.  The sole  function of the Company,  at this time, is to
hold all of the common stock in its  subsidiary,  Harbor Capital  National Bank.
Harbor Capital National Bank is a community bank providing  commercial  products
and  services  to its  business  and  professional  clients as well as  consumer
banking products and services to individuals.

The Bank offers a full range of deposit  products that are  typically  available
from most banking  institutions.  These products  include  business and personal
checking  accounts and savings/money  market deposit  accounts.  The Bank offers
certificates  of deposit  with  various  rate  structures  and  maturities.  All
accounts  currently  offered  are  insured  by  the  Federal  Deposit  Insurance
Corporation, subject to the aggregation limits set by the FDIC.

As of  December  31,  2000,  the Bank had total  deposits of  $12,298,855.  This
deposit base represented 616 accounts. The portfolio composition was as follows:

         Demand deposits                              $1,084,613
         Interest checking                             1,055,462
         Money market deposit accounts                 2,426,233
         Savings accounts                                361,103
         Certificates of deposit accounts              7,371,444

Of the total shown for demand  deposits,  $243,754  represented  deposits of the
Company.

The Bank also  offers a diverse  line of credit  facilities  to both  commercial
clients  and  individuals.   While  the  primary  target  for  loan  development
activities is small to mid-size businesses,  the Bank fully realizes the need to
be a credit source for individuals.

The Bank offers many forms of loans to  businesses,  including  lines of credit,
revolving credit,  term loans,  account  receivable  financing,  and asset-based
financing.  These loans may be made on a secured or  unsecured  basis,  based in
part on the credit  worthiness of the borrower and the type of loan.  Commercial
loans secured by real estate, for the purposes of land development, construction
and permanent financing, are solicited by the Bank.

Credit  facilities that are offered to the individual  consumer include lines of
credit, installment loans, demand loans and mortgage loans, though the Bank will
generally  not offer a loan term greater than five years,  unless the  repricing
option is five years or shorter.

As of  December  31,  2000,  the Bank had total loans of  $9,062,397.  This loan
amount represented 94 loan accounts and a composition by type as follows:

         Commercial loans                             $4,158,180
         Real estate loans                             3,293,754
         Consumer loans                                  213,146
         Personal lines of credit                      1,396,568
         Overdrafts                                          749


                                       1

<PAGE>

Ancillary  products and  services  that the Bank  provides  include safe deposit
boxes,  night  depository  services,  ATM access,  funds transfer  services both
domestic and foreign,  travelers  checks/money  orders, and retirements products
(IRA's). In 2000, the Bank implemented an internet banking/bill payer program, a
merchant  credit card program and,  through a strategic  partnership,  a private
label credit card program.

Markets.  The  Bank's  primary  service  area is  Montgomery  County,  Maryland.
Montgomery County comprises 495 square miles and is located in Central Maryland.
It is a suburb of  Washington,  DC and is  located  in the  Washington-Baltimore
market region.  The Bank's secondary  market area is the Washington,  DC region,
particularly Washington,  DC; Prince George's,  Howard and Frederick counties in
Maryland; and, Arlington, Loudoun and Fairfax counties in Virginia.

The Bank has targeted the market segment of the  Asian-American  community.  The
Asian-American  community in Montgomery  County is  substantial in both size and
growth  patterns.  The  provision  of  banking  products  and  services  to  the
Asian-American  community was a driving force for the  organization  of the Bank
and, while expectations for deposit growth have not been met, the Bank is firmly
committed to this market niche.

Delivery. The Bank provides banking products and services from its sole location
at 1776 East Jefferson Street, Rockville,  Maryland. The Bank is a member of the
Star ATM network and the CIRRUS interchange network,  whereby bank customers can
access their  deposits  from around the world,  and the Bank has  developed  and
implemented an internet banking program.

Competition.  The Bank operates in a highly competitive environment.  The wealth
and  sophistication  of the Bank's market area makes it attractive for companies
providing financial services. The Federal Deposit Insurance Corporation reported
there were,  as of March 2, 2001,  31  FDIC-insured  banking  institutions  with
offices in Montgomery County.  These institutions had 272 banking locations.  In
addition   to   the   traditional   competitors,    management   believes   that
non-traditional  financial  services  companies  and new internet  banks provide
additional competitive challenges.  The Bank attempts to differentiate itself by
focusing on the Asian-American community and providing quality customer service.

Competition  for  demand/checking  deposits is mostly  related to convenience of
location.  The Bank's  location  makes it convenient  for both small to mid-size
businesses and  individuals.  The Bank's location is adjacent to one of the most
highly developed  commercial areas in the county, the Route 355 corridor.  Small
retail businesses mix with larger national chains.  The shopping center in which
the Bank is located has about forty  retail  stores,  with  several  being major
merchandisers.  Convenient to the Bank's location is also high density  housing,
most occupied by senior  citizens.  The  Washington  Jewish Home complex is well
within walking distance to the Bank.

Competition for time deposits is mostly  controlled by interest rates.  The Bank
strives to position itself to be competitive within the local market.

Competition for loans is based upon  availability of funds,  interest rates, fee
pricing and time requirements. While insuring that credit quality is maintained,
the Bank is and expects to continue to be  competitive  in the terms of its loan
types.  The  competitive  advantage  for  a  small   locally-managed   financial
institution is the ability to have decision makers actively involved in the loan
transaction  from the early stages and to be able to make a decision is a timely
manner.

Customer Dependencies.  Bank activities to date have not revealed any dependence
on one or a few major customers.  Dependence within the loan portfolio is mostly
controlled by regulatory  limitations.  Dependence  within the deposit portfolio
will be monitored as a part of the Bank's risk management  activities.  The Bank
does not have or plan to accept brokered deposits.

Recent  Developments.  On March 8, 2001,  the Bank entered into a Memorandum  of
Understanding ("Memorandum") with the Office of the Comptroller of the Currency,
the Bank's primary  regulator,  as a result of the OCC's examination of the Bank
in December,  2000. The Memorandum is an informal agreement with the OCC that is
not enforceable by the OCC; entry into the Memorandum was a voluntary act by the
Bank. The Bank is required, among other things, to take the following actions:

                                       2


<PAGE>

     o    Retain a senior lending officer with appropriate qualifications;
     o    Review  and revise the Bank's  loan  policy,  so that the policy  more
          clearly   identifies   acceptable   levels  of  risk,   administrative
          responsibilities   and  acceptable   underwriting  and   documentation
          standards;
     o    Correct  certain credit and  collateral  exceptions on loans that have
          such  deficiencies,  and make future grants,  extensions,  renewals or
          restructuring  of credit only after a credit analysis is performed and
          all necessary credit information is obtained;
     o    Retain an independent  person or firm to perform  on-going loan review
          and develop a loan review system that will contain certain information
          requested by the OCC; and,
     o    Develop   and  adhere  to  written   programs,   including   an  asset
          diversification   program,  a  program  regarding  maintenance  of  an
          adequate  allowance  for loan and lease  losses,  a program to improve
          construction  loan  underwriting  standards and a consumer  compliance
          program.

The Bank has  established  a  Compliance  Committee of the Board of Directors to
address the issues in the  Memorandum,  and management is committed to complying
with the terms of the Memorandum as quickly as possible.

Supervision  and Regulation.  The Bank received its charter to conduct  business
from the Office of the  Comptroller of the currency;  has received  insurance of
accounts from the Federal Deposit Insurance Corporation;  and, has been accepted
for membership in the Federal Reserve  system.  The Company has been approved by
the Federal Reserve System to be a bank holding company.

The  Company and the Bank are subject to  extensive  regulation  under state and
federal banking laws and  regulations.  These laws impose specific  requirements
and  restrictions  on virtually  all aspects of  operations,  and  generally are
intended to protect depositors,  not stockholders.  The following  discussion is
only a summary  and you should  refer to  particular  statutory  and  regulatory
provisions  for more  detailed  information.  Any change in  applicable  laws or
regulations may have a material effect on our business and prospects.  Beginning
with  the  enactment  of  the  Financial   Institutions  Reform,   Recovery  and
Enforcement   Act  of  1989  and  most   recently  with  the  enactment  of  the
Gramm-Leach-Bliley Act of 1999, numerous additional regulatory requirements have
been placed on the banking industry.  We cannot predict the nature or the extent
of the effect on our  business and  earnings  that fiscal or monetary  policies,
economic conditions, or new federal or state legislation may have in the future.

         HCNB Bancorp.  The Company is a bank holding company  registered  under
the Bank Holding Company Act of 1956, as amended,  and is subject to supervision
by the Board of  Governors  of the Federal  Reserve  System.  As a bank  holding
company,  the  Company is required  to file with the  Federal  Reserve  Board an
annual report and such other additional information as the Federal Reserve Board
may require by statute.  The Federal Reserve Board may also make examinations of
the Company and each of its subsidiaries.

The Federal Reserve Board must approve, among other things, the acquisition by a
proposed  bank holding  company of control of more than five percent (5%) of the
voting shares,  or  substantially  all the assets,  of any bank or the merger or
consolidation  by a bank holding  company with another bank holding  company.  A
bank holding company may acquire control of substantially  all the assets of any
bank located in a state other than the home state of the bank  holding  company,
except where the bank has not been in existence  for the minimum  period of time
required by state law. If the bank has been in existence  for the required  time
period, the Federal Reserve Board may approve the acquisition.

With certain  limited  exceptions,  a bank holding  company is  prohibited  from
acquiring  control of any voting  shares of any  company  which is not a bank or
bank holding  company and from  engaging  directly or indirectly in any activity
other than banking or managing or controlling  banks or furnishing  services for
its authorized  subsidiaries.  A bank holding  company may,  however,  engage in
activities which the Federal Reserve Board has determined by order or regulation
to be so closely  related to banking or managing or controlling  banks, as to be
"properly incident thereto." In making such a determination, the Federal Reserve
Board is required to consider  whether the  performance  of such  activities can
reasonably be expected to produce  benefits to the public,  such as convenience,
increased  competition or gains in efficiency,  which outweigh  possible adverse
effects,  such  as  undue  concentration  of  resources,   decreased  or  unfair
competition,  conflicts of interest or unsound  banking  practices.  The Federal
Reserve Board is also empowered to differentiate between activities commenced de
novo and  activities  commenced by the  acquisition,  in whole or in part,  of a
going  concern.  Some of the  activities  that the  Federal  Reserve  Board  has
determined  by  regulation to be closely  related to banking  include  making or
servicing  loans,  performing  certain  data  processing  services,  acting as a
fiduciary  or  investment  or  financial  advisor,  and  making  investments  in
corporations or projects designed primarily to promote community welfare.

                                       3
<PAGE>

Subsidiary  banks of a bank holding company are subject to certain  restrictions
imposed by statute on any  extensions  of credit to the bank holding  company or
any of its subsidiaries,  or investments in their stock or other securities, and
on taking such stock or  securities  as  collateral  for loans to any  borrower.
Further,  a holding company and any subsidiary bank are prohibited from engaging
in certain tie-in  arrangements  in connection  with the extension of credit.  A
subsidiary  bank may not extend  credit,  lease or sell  property or furnish any
services,  or fix or vary  the  consideration  for any of the  foregoing  on the
condition  that:  (i) the  customer  obtain or provide some  additional  credit,
property or services from or to such bank other than a loan,  discount,  deposit
or trust service;  (ii) the customer obtain or provide some  additional  credit,
property  or  service  from or to the  Company  or any other  subsidiary  of the
Company, or (iii) the customer not obtain some other credit, property or service
from competitors,  except for reasonable requirements to assure the soundness of
credit extended.

In accordance with Federal Reserve Board policy,  the Company is expected to act
as a source of financial strength to the Bank and to commit resources to support
the Bank in  circumstances  in which the Company  might not otherwise do so. The
Federal  Reserve  Board may  require a bank  holding  company to  terminate  any
activity or  relinquish  control of a nonbank  subsidiary  (other than a nonbank
subsidiary  of a bank)  upon  the  Federal  Reserve's  determination  that  such
activity or control  constitutes  a serious risk to the  financial  soundness or
stability of any subsidiary depository  institution of the bank holding company.
Further,  federal bank  regulatory  authorities  have  additional  discretion to
require  a bank  holding  company  to  divest  itself  of any  bank  or  nonbank
subsidiary if the agency  determines  that  divestiture  may aid the  depository
institution's financial condition.

As a Maryland  incorporated bank holding company, the Company is also subject to
certain limitations and restrictions under applicable Maryland corporate law and
the Maryland Financial Institutions Code.

On November 12, 1999,  President Clinton signed into law the  Gramm-Leach-Bliley
Act ("GLBA").  Effective March 11, 2000, pursuant to authority granted under the
GLBA, a bank holding company may elect to become a financial holding company and
thereby  engage in a broader  range of financial and other  activities  than are
permissible for traditional bank holding companies.  In order to qualify for the
election,  all of the depository  institution  subsidiaries  of the bank holding
company must be well capitalized and well managed, as defined by regulation, and
all of its insured depository institution subsidiaries have achieved a rating of
"satisfactory" or better with respect to meeting community credit needs.

Pursuant to the GLBA, financial holding companies will be permitted to engage in
activities  that are  "financial  in  nature"  or  incidental  or  complementary
thereto, as determined by the Federal Reserve Board. The GLBA identifies several
activities  as  "financial  in  nature,"  including,   among  others,  insurance
underwriting  and agency,  investment  advisory  services,  merchant banking and
underwriting,  and dealing or making a market  insecurities.  Being designated a
financial holding company will allow insurance companies, securities brokers and
other types of financial  companies to affiliate with and or acquire  depository
institutions.  These financial  holding  companies'  resources are substantially
greater than those of the Company or the Bank and may now compete  directly with
the Company and the Bank in their lines of business.  HCNB Bancorp, Inc. has not
applied for the designation as a financial holding company.

         Harbor  Capital   National  Bank.  The  Bank,  as  a  national  banking
association whose accounts are insured by the Bank Insurance Fund of the FDIC up
to the maximum legal limits,  is subject to regulation,  supervision and regular
examinations  by the OCC.  The Bank is a member of the Federal  Reserve  System,
and, as such, is subject to certain  regulations  issued by the Federal  Reserve
Board.  The Bank is also subject to  applicable  banking  provisions of Maryland
law,  insofar as they do not conflict  with or are not preempted by federal law.
The  regulations  of these  various  agencies  govern most aspects of The Bank's
business,   including  setting  required   reserves  against  deposits,   loans,
investments,  mergers and  acquisitions,  borrowing,  dividends and location and
number of branch offices.

Competition among commercial banks,  savings and loan  associations,  and credit
unions has increased  following  enactment of legislation which greatly expanded
the ability of banks and bank holding companies to engage in interstate  banking
or acquisition activities. Banks in the Washington,  D.C./Maryland/Virginia area
can, subject to limited restrictions, acquire or merge with a bank in another of
the jurisdictions, and can branch de novo in any of the jurisdictions.

Under the GLBA,  subject to limitations  on investment,  a national bank that is
well  capitalized  and  well  managed,  as  defined  by  regulation,  and  has a
satisfactory  or better  community  reinvestment  rating,  may engage  through a
financial

                                       4
<PAGE>

subsidiary of the bank in activities  that are financial in nature or incidental
thereto. Existing authority of the Office of the Comptroller of the Currency and
the FDIC to review subsidiary activities are preserved. No decision has, at this
time, been made with respect to the establishment of new financial  subsidiaries
of either the Bank or the Company.

         Branching  and  Interstate  Banking.  Beginning  on June 1,  1997,  the
federal  banking  agencies  were  authorized to approve  interstate  bank merger
transactions without regard to whether such transaction is prohibited by the law
of any  state,  unless  the home  state of one of the banks has opted out of the
interstate  bank merger  provisions of the  Riegle-Neal  Interstate  Banking and
Branching  Efficiency Act of 1994.  Interstate  acquisitions of branches will be
permitted  only if the law of the state in which the branch is  located  permits
such acquisitions.

The Riegle-Neal Act authorizes the OCC and FDIC to approve interstate  branching
de novo by national and state banks, but only in states which specifically allow
for such  branching.  The District of Columbia,  Maryland and Virginia  have all
enacted laws which permit interstate acquisitions of banks and bank branches and
permit out-of-state banks to establish de novo branches.

         Capital Adequacy Guidelines. The Federal Reserve Board, the OCC and the
FDIC have all  adopted  risk based  capital  adequacy  guidelines  by which they
assess the  adequacy  of capital in  examining  and  supervising  banks and bank
holding  companies and in analyzing bank  regulatory  applications.  Risk- based
capital  requirements,  determine  the  adequacy  of  capital  based on the risk
inherent in various classes of assets and off-balance sheet items.

Since  December 31, 1992,  national  banks have been expected to meet a minimum,
ratio  of  total  qualifying  capital  (the  sum of core  capital  (Tier  1) and
supplementary  capital (Tier 2)) to risk weighted assets of 8%. At least half of
this amount (4%) should be in the form of core capital. These requirements apply
to Harbor  Capital  Bank and will apply to HCNB  Bancorp  once its total  assets
equal $150,000,000 or more, it engages in certain highly leveraged activities or
it has  publicly  held  debt  securities.  Tier I  Capital  for  national  banks
generally  consists  of the sum of common  stockholders'  equity  and  perpetual
preferred  stock  (subject in the case of the latter to  limitations on the kind
and  amount  of such  stock  which  may be  included  as Tier 1  Capital),  less
goodwill,  without  adjustment  in  accordance  with  SFAS  115.  Tier 2 Capital
consists of the following: hybrid capital instruments; perpetual preferred stock
which  is  not  otherwise  eligible  to be  included  as  Tier I  Capital;  term
subordinated  debt  and  intermediate-term  preferred  stock;  and,  subject  to
limitations,  general allowances for loan losses.  Assets are adjusted under the
risk-based guidelines to take into account different risk characteristics,  with
the categories ranging from 0% (requiring no risk-based capital) for assets such
as cash,  to 100% for the bulk of  assets  which  are  typically  held by a bank
holding company,  including certain multifamily  residential and commercial real
estate loans,  commercial  business loans and consumer loans.  Residential first
mortgage  loans  on one to four  family  residential  real  estate  and  certain
seasoned  multi-family  residential real estate loans,  which are not 90 days or
more  past-due or  non-performing  and which have been made in  accordance  with
prudent underwriting  standards,  are assigned a 50% level in the risk-weighting
system, as are certain privately-issued  mortgage-backed securities representing
indirect  ownership of such loans.  Off-balance sheet items also are adjusted to
take into account certain risk characteristics.

In addition to the risk based capital  requirements,  the OCC has  established a
minimum 3%  Leverage  Capital  Ratio (Tier 1 Capital to total  adjusted  assets)
requirement for the most highly-rated national banks, with an additional cushion
of at  least  100 to 200  basis  points  for all  other  national  banks,  which
effectively increases the minimum Leverage Capital Ratio for such other banks to
4%-5% or more. Under the OCC's regulations,  highest-rated  banks are those that
the OCC determines are not anticipating or experiencing  significant  growth and
have well  diversified  risk,  including no undue  interest rate risk  exposure,
excellent asset quality,  high liquidity,  good earnings and, in general,  those
which are  considered a strong  banking  organization.  A national bank that has
less than the minimum  Leverage  Capital  Ratio  requirement  must submit to the
applicable  district office for review and approval a reasonable plan describing
the means and timing by which the bank will achieve its minimum Leverage Capital
Ratio requirement. A national bank which fails to file such plan is deemed to be
operating  in  an  unsafe  and  unsound  manner,  and  could  be  subject  to  a
cease-and-desist order.

The OCC's regulations also provide that any insured depository  institution with
a Leverage  Capital  Ratio that is less than 2% is deemed to be  operating in an
unsafe or unsound  condition and is subject to potential  termination of deposit
insurance.  However,  such an institution  will not be subject to an enforcement
proceeding  solely on account of its capital ratios,  if it has entered into and
is in compliance with a written  agreement with the OCC to increase its Leverage
Capital Ratio to such level as the OCC deems  appropriate and to take such other
action as may be  necessary  for the  institution  to be  operated in a safe and
sound manner. The capital regulations also provide,  among other things,

                                       5

<PAGE>

for the issuance by the OCC or its designee(s) of a capital directive,  which is
a final  order  issued to a bank that fails to  maintain  minimum  capital or to
restore its capital to the minimum capital  requirement  within a specified time
period.   Such   directive  is  enforceable  in  the  same  manner  as  a  final
cease-and-desist order.

         Prompt  Corrective  Action.  Each federal banking agency is required to
implement  a system  of  prompt  corrective  action  for  institutions  which it
regulates.  Under applicable regulations, a bank will be deemed to be: (i) "well
capitalized" if it has a Total Risk Based Capital Ratio of 10% or more, a Tier 1
Risk Based Capital  Ratio of 6% or more, a Leverage  Capital Ratio of 5% or more
and is not subject to any written capital order or directive;  (ii)  "adequately
capitalized"  if it has a Total Risk Based  Capital  Tier Ratio of 8% or more, a
Tier 1 Risk  Based  Capital  Ratio of 4% or more and a Tier I  Leverage  Capital
Ratio of 4% or more (3% under certain circumstances);  (iii)  "undercapitalized"
if it has a Total Risk Based  Capital  Ratio that is less than 8%, a Tier 1 Risk
Based  Capital  Ratio that is less than 4% or a Leverage  Capital  Ratio that is
less  than  4%  (3.3%  under   certain   circumstances);   (iv)   "significantly
undercapitalized"  if it has a Total Risk Based  Capital Ratio that is less than
6%, a Tier 1 Risk Based Capital Ratio that is less than 3% or a Leverage Capital
Ratio that is less than 3% or a Leverage Capital Ratio that is less than 3%; and
(v) "critically  undercapitalized" if it has a ratio of tangible equity to total
assets that is equal to or less than 2%.

An institution  generally  must file a written  capital  restoration  plan which
meets specified  requirements with an appropriate  federal banking agency within
45 days of the date the institution  receives notice or is deemed to have notice
that  it  is  undercapitalized,  significantly  undercapitalized  or  critically
undercapitalized.  A federal  banking agency must provide the  institution  with
written  notice of  approval  or  disapproval  within 60 days after  receiving a
capital  restoration  plan,  subject to extensions by the applicable  agency. An
institution  which  is  required  to  submit a  capital  restoration  plan  must
concurrently  submit a  performance  guaranty by each company that  controls the
institution.  A  "critically  undercapitalized  institution"  is to be placed in
conservatorship  or  receivership  within  90  days  unless  the  FDIC  formally
determines  that  forbearance  from such action would better protect the deposit
insurance fund. Unless the appropriate  federal banking  regulatory agency makes
specific  further  findings and certifies that the  institution is viable and is
not expected to fail, an institution that remains critically undercapitalized on
average during the fourth calendar quarter after the date it becomes  critically
undercapitalized must be placed in receivership.

Immediately upon becoming  undercapitalized,  an institution  becomes subject to
statutory  provisions  which (i) restrict payment of capital  distributions  and
management  fees;  (ii)  require that the  appropriate  federal  banking  agency
monitor the condition of the institution and its efforts to restore its capital;
(iii) require submission of a capital restoration plan; (iv) restrict the growth
of the institution's assets; and (v) require prior approval of certain expansion
proposals.  The  appropriate  federal  banking  agency  for an  undercapitalized
institution also may take any number of discretionary supervisory actions if the
agency determines that any of these actions is necessary to resolve the problems
of the institution at the least possible long-term cost to the deposit insurance
fund,  subject in certain  cases to specified  procedures.  These  discretionary
supervisory  actions  include:  requiring the  institution  to raise  additional
capital; restricting transactions with affiliates;  requiring divestiture of the
institution or the sale of the institution to a willing purchaser; and any other
supervisory  action  that the agency  deems  appropriate.  These and  additional
mandatory  and  permissive  supervisory  actions  may be taken  with  respect to
significantly undercapitalized and critically undercapitalized institutions.

         Regulatory  Enforcement  Authority.  The Financial Institutions Reform,
Recovery,   and  Enforcement  Act  of  1989  ("FIRREA")   included   substantial
enhancement to the enforcement  powers available to federal banking  regulators.
This enforcement  authority includes,  among other things, the ability to assess
civil  money  penalties,  to issue  cease-and-desist  or  removal  orders and to
initiate    injunctive    actions    against    banking     organizations    and
institution-affiliated   parties,  as  defined  in  FIRREA.  In  general,  these
enforcement  actions may be initiated for violations of laws and regulations and
unsafe or unsound  practices.  Other  actions or inactions may provide the basis
for  enforcement  action,  including  misleading or untimely  reports filed with
regulatory authorities. FIRREA significantly increased the amount of and grounds
for civil money  penalties  and requires,  except under  certain  circumstances,
public disclosure of final enforcement actions by the federal banking agencies.

         Transactions  with Affiliates and Insiders.  The Bank is subject to the
provisions of Section 23A of the Federal  Reserve Act, which place limits on the
amount of loans or  extensions  of credit to,  investments  in or certain  other
transactions  with  affiliates,  and on the amount of advances to third  parties
collateralized  by the  securities or  obligations  of  affiliates.  Section 23A
limits the aggregate amount of transactions with any individual affiliate to ten
percent  (10%) of the  capital  and  surplus  of the Bank  and also  limits  the
aggregate amount of transactions  with all

                                       6

<PAGE>

affiliates  to twenty  percent  (20%) of capital and surplus.  Loans and certain
other  extensions  of  credit  to  affiliates  are  required  to be  secured  by
collateral in an amount and of a type described in Section 23A, and the purchase
of low quality assets from affiliates is generally prohibited.

The Bank is also subject to the provisions of Section 23B of the Federal Reserve
Act which, among other things,  prohibit an institution from engaging in certain
transactions  with  certain  affiliates  unless  the  transactions  are on terms
substantially  the same,  or at least as  favorable to such  institution  or its
subsidiaries,  as those prevailing at the time for comparable  transactions with
non-  affiliated  companies.  In the absence of  comparable  transactions,  such
transactions  may only occur under  terms and  circumstances,  including  credit
standards,   that  in  good  faith  would  be  offered  to  or  would  apply  to
non-affiliated companies.

The Bank is subject to certain restrictions on extensions of credit to executive
officers, directors, certain principal stockholders and their related interests.
Such  extensions  of credit (i) must be made on  substantially  the same  terms,
including  interest rates and  collateral,  as those  prevailing at the time for
comparable  transactions  with third parties and (ii) must not involve more than
the normal risk of repayment or present other unfavorable features.

         Community  Reinvestment  Act. The  Community  Reinvestment  Act ("CRA")
requires that, in connection with examinations of financial  institutions within
their respective jurisdictions,  the Federal Reserve Board, the FDIC, the OCC or
the Office of Thrift  Supervision  shall  evaluate  the record of the  financial
institution  in meeting the credit needs of their local  communities,  including
low and  moderate  income  neighborhoods,  consistent  with the  safe and  sound
operation of those  institutions.  The CRA does not establish  specific  lending
requirements  or  programs  for  financial  institutions  nor  does it  limit an
institution's  discretion  to develop the types of products and services that it
believes are best suited to its particular  community,  consistent with the CRA.
These  factors  are   considered  in  evaluating   mergers,   acquisitions   and
applications  to  open  a  branch  or  facility.   The  CRA  also  requires  all
institutions to make public disclosure of their CRA ratings.

Employees.  As of December 31, 2000, the Company had no employees other than its
officers;  the Bank had a total of twelve  employees,  ten of whom were employed
full time.


Item 2     DESCRIPTION OF PROPERTY

The Company entered into a lease agreement with Federal Realty  Investment Trust
on December 23, 1998 for the Company's and Bank's offices. This location is 1776
East Jefferson Street, Rockville, Maryland. It is Suite 119 of the Federal Plaza
Shopping Center. The leased space comprises  approximately 4,153 square feet and
includes a remote  drive in facility  located in the shopping  center's  parking
lot. The drive in facility houses a drive-up automated teller machine.

The  initial  term of the lease was two years and the Company had one eight year
option.  The initial term of the lease expired on February 28, 2001. The Company
exercised the eight year option and has  transferred the lease to Harbor Capital
National Bank.

The lease expense commitment is as follows:

         Year 1                               $87,213.00
         Year 2                                90,244.69
         Year 3                                93,442.50
         Year 4                                96,681.84
         Year 5                               100,087.30
         Year 6                               104,074.18
         Year 7                               108,227.18
         Year 8                               112,587.83
         Year 9                               117,073.07
         Year 10                              121,765.96

In addition to the lease expense,  the Bank is responsible for the tax liability
on the lease space and a common area maintenance assessment.

                                       7

<PAGE>

Item 3     LEGAL PROCEEDINGS

There are no pending legal proceedings to which the Company or Bank is a party.


Item 4     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters  that were  submitted  to a vote of the  security  holders
during the fourth quarter of 2000.


                                     Part II

Item 5     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market for Common Stock; Dividends.  The Company's common stock is not traded on
any organized  exchange or on the Nasdaq National Market or the Nasdaq Small Cap
Market.  There is no  active  market  for the  Company's  stock and there are no
assurances that one will develop in the foreseeable future. Since the closing of
the initial stock  offering no market makers have made a market in the Company's
stock,  but there have been several  private  trades.  The sale price in each of
these  trades,  as reported to the Company by the sellers,  has been the same as
the initial stock price of $10.00 per share.

At March 15,  2001,  there were 171  holders of record of the  Company's  common
stock.

It is  anticipated  that the Bank would incur losses during its initial phase of
operations,  therefore,  it is not anticipated that any dividend will be paid by
the Bank or the Company for, at least,  two years.  Even if the Bank and Company
have earnings in an amount  sufficient to pay dividends,  the Board of Directors
may decide to retain  earnings  for the  purpose  of  funding  the growth of the
Company and Bank.

There were no sales of unregistered shares of the Company in 2000.


Item 6     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

Overview
--------
The Company's sole function, at this time, is to serve as the holding company of
the Bank. The Bank began  operations on December 14, 1999 after having  received
its charter from the Office of the Comptroller of the Currency. The consolidated
financial  statements of the Company at and for the year ended December 31, 2000
mostly  reflect  operating  results  of the  Bank;  operating  results  for 1999
primarily  reflect  organizational  activities as the Bank was only in operation
for 17 days. A discussion  comparing the operating results of the past two years
would not be meaningful  and  therefore  will not be provided.  This  discussion
should  be read in  conjunction  with the  accompanying  consolidated  financial
statements and related notes included elsewhere in this annual report.

In 2000,  the Bank  began to offer its  products  and  services  to its  defined
market.  Both loan and deposit growth were less than anticipated,  due mostly to
the  competitive  environment  and  limited  resources  allocated  to  marketing
activities.  While the  competitive  environment is not expected to change,  the
Bank will commit  additional  resources  to  marketing  activities  and plans to
enhance its business development staff.

Operating  results for the Bank's  first full year of  operations  were  heavily
impacted by its allocations  for loan losses.  An analysis of the loan portfolio
identified  higher  than  normal  risks  due to  credit  underwriting  and  loan
structure  deficiencies.  In 2000, the Bank allocated  $412,650 in its provision
for loan losses.  Operating results, other than the loan loss allocation totaled
a loss of $549,996 and were as projected. The consolidated net loss for 2000 was
$962,646.

Forward Looking Statements
--------------------------
Some of the information in this discussion  section and elsewhere in this annual
report includes "forward-looking statements". These statements use words such as
"may", "will", "expect", "anticipate", "plan", "estimate", or similar

                                       8
<PAGE>

words,  and they  discuss  our future  expectations,  projections  of  financial
results or strategies that are subject to risks and uncertainties. When you read
a forward-looking  statement, you should keep in mind the risk factors described
below and any other information contained in this annual report which identifies
a risk or  uncertainty.  Our  actual  results  and  the  actual  outcome  of our
expectations  and strategies could be different from what have been described in
this report because of these risks and uncertainties.

We have limited operating history upon which to evaluate future success,  and we
do not expect to be  profitable  in 2001.  Harbor  Capital  National  Bank,  the
primary subsidiary of HCNB Bancorp,  began offering banking services on December
14, 1999. For the Bank's first full year of operation,  a net loss was incurred.
This was anticipated due to the overhead burden. It is also anticipated that the
Bank will operate at a loss for the year ending  December 31, 2001. If we decide
to open new branch  offices,  that  decision  may  further  delay  profitability
because of the increased  expenses of expansion and because the branches may not
enhance our results of operations as anticipated.

Our lending strategy involves risks resulting from our choice of loan portfolio.
Different  types of loans have different  risks.  Unsecured loans have more risk
that secured loans.  Loan secured by residential real estate have a lower degree
of  credit  risk than most  other  loans.  Commercial  real  estate,  commercial
business,  construction  and consumer loans  generally  carry a higher degree of
credit risk than residential real estate loans. The Bank has chosen to limit the
terms  of its  loans  to five  years,  therefore  the  Bank  generally  is not a
competitor for first lien mortgages.  The Bank has been successful in developing
a market in second trusts.

Provisions for loan losses could adversely affect our results of operations. The
Bank  maintains  an allowance  for loan losses to provide for loan  defaults and
nonperformance.  The allowance is based on, among other things, prior experience
with  loan  losses  and an  evaluation  of the risks in the  current  portfolio.
Operating results for 2000 were greatly affected by the allocations made in that
year.  Future  adjustments  to the  allowance  may be necessary  based upon risk
assessments   of  the  loan  portfolio  or  changes  in  economic  or  operating
conditions.  While increases to the allowance are not anticipated in 2001, these
are a possibility  and if increases  are  necessary,  operating  results will be
adversely affected.

We cannot  guarantee our expansion  strategies will be successful.  We intend to
expand our business in the future by opening branches and/or  considering  other
opportunities  when  they  arise.  If we are not  able to  expand  our  business
successfully,  our  competitive  position  and our  results of  operations  will
suffer. At this time, we are considering  several options relating to making our
banking  services more  convenient to the  commercial  and retail markets in the
District of Columbia and to developing several strategic  relationships  whereby
the Bank will realize  increased  deposit  growth.  Our success in expanding our
business  will depend on, among other things,  our ability to obtain  regulatory
approvals,  our access to capital,  our ability to manage growth and our ability
to attract and train qualified  employees.  We cannot  guarantee that we will be
able to do any of these things.

Government  regulation may negatively impact our operating results. HCNB Bancorp
and Harbor Capital National Bank operate in a highly  regulated  environment and
are subject to examination,  supervision and comprehensive regulation by several
federal and state regulatory agencies.  Banking regulations,  designed primarily
for the safety of depositors, may limit the growth of the Bank and the return to
investors by restricting  activities  such as the payment of dividends,  mergers
with or  acquisitions  by other  institutions,  investments,  loans and interest
rates,  interest rates paid on deposits and the creation of branch offices. Laws
and regulations could change at any time, and changes could adversely affect our
ability  to  operate  profitably.  See  "Supervision  and  Regulation"  for more
information about applicable banking regulations.

The Bank will face  substantial  competition  which could  adversely  affect our
growth and operating  results.  The Bank  operates in a  competitive  market for
financial  services and faces  intense  competition  both in making loans and in
attracting deposits.  Many of these financial institutions have been in business
for many years, are significantly  larger,  have established  customer bases and
greater  financial  resources  and  lending  limits  that  the Bank and they are
willing to offer certain services that the Bank is not able or willing to offer.

The  Bank's  ability  to  compete  may  suffer if it cannot  take  advantage  of
technological  changes.  The market for financial  services,  including  banking
services and consumer financial services,  is increasingly affect by advances in
technology,  including  developments  in  telecommunications,  data  processing,
computers,  automation,  internet-based banking,  telephone banking, debit cards
and so-called "smart cards".  Our ability to compete  successfully may depend on
the extent to which the Bank can take advantage of technological changes.

                                       9

<PAGE>

The Company's  profitability  will depend,  to some degree, on economic policies
and factors beyond its control.  The operating income of the Bank depends,  to a
great  extent,  on "rate  differentials",  the  difference  between the interest
yields that Bank receives on its loans,  securities  and other  interest-bearing
assets and the interest rates it pays on its interest-bearing deposits and other
liabilities. These rates are highly sensitive to many factors beyond the control
of the Bank, including general economic conditions,  the competitive environment
and the policies of various governmental and regulatory agencies.


Results of Operations
---------------------
GENERAL. For the year ended December 31, 2000, the Company reported consolidated
net loss of $962,646 ($1.37 basic and diluted loss per share),  as compared to a
loss of $766,603  ($1.09  basic and  diluted  loss per share) for the year ended
December 31, 1999.

NET INTEREST  INCOME.  The primary  component of the Company's  consolidated net
income is its net interest income which is the difference  between income earned
on assets,  loans and  investments,  and interest paid on the deposits and other
borrowings  used to fund them.  Net interest  income is determined by the spread
between the yields on the Company's  interest-earning  assets and the rates paid
on interest-bearing  liabilities, as well as the relative amounts of such assets
and liabilities.

The  following  tables  depict for the year ended  December  21,  2000,  certain
information  related to the  Company's  average  balance  sheet and its  average
yields on assets and average  costs on  liabilities.  Such yields are derived by
dividing income or expense by the average balance of the corresponding  asset or
liability.

<TABLE>
<CAPTION>
                      AVERAGE BALANCES, INTEREST AND YIELD

                                                              AVERAGE            INCOME/
INTEREST EARNING ASSETS                                       BALANCE            EXPENSE              YIELD
<S>                                                        <C>                  <C>       <C>       <C>
Federal funds sold                                         $  3,868,949         $245,286             6.34%
Securities                                                    2,864,137          171,339              5.98
Loans                                                         4,402,344          502,275             11.41

Total interest earning assets                               $11,135,430         $918,900              8.25

INTEREST BEARING LIABILITIES
Interest bearing checking,  money
    market & savings deposits                              $  2,341,881         $ 78,052             3.33%
Time deposits                                                 3,190,981          188,200              5.90
Other borrowings                                                      0                0               .00

Total interest bearing liabilities                          $ 5,532,862         $266,252              4.81


Average yield on interest-earning assets                                                    8.25%
Average rate paid on interest-bearing liabilities                                           4.81
Net interest spread                                                                         3.44
Net interest margin (net interest income divided                                            5.86
  By average total interest-earning assets)
Return on average assets                                                                   (7.88)
Return on average equity                                                                  (17.11)
</TABLE>

PROVISION FOR LOAN LOSSES.  During 2000, the Company  allocated  $412,650 to its
provision  for loan  losses.  The level of the  provision  for 2000 was computed
after an analysis of the loan  portfolio  and reflects a higher than normal risk
exposure.  This exposure is mostly due to loan underwriting and structure issues
as well as credit administration concerns.  Management is committed to improving
its lending  practices and  operations and to enhancing its staff by employing a
qualified  community  bank  lending   professional  and  a  support  staff.

                                       10
<PAGE>

The allocation to the loan loss reserve was computed based upon the  methodology
established by the Office of the Comptroller of the Currency.  This  methodology
takes into consideration  both external and internal risk factors.  In addition,
management  makes  specific  risk  assessments  of each loan and will adjust the
allocation percentage accordingly.

The Company recorded no charge-offs during the year ended December 31, 2000, nor
in 1999. The current provision is considered adequate as of December 31, 2000.

NON-INTEREST  INCOME.  Non-interest income is mostly income derived from service
charges on deposit  accounts and fees  associated  with  ancillary  products and
services.  To a large  extent,  it is driven by the size of the Bank's  customer
base. For the year ended December 31, 2000,  the Company  recorded  non-interest
income of $19,140. There were no extraordinary items and all funds were realized
through normal Bank operations.

NON-INTEREST EXPENSES.  Non-interest expenses are basically the costs associated
with Company and Bank  operations.  For the year ended  December  31, 2000,  the
Company recorded non-interest expenses of $1,221,784.  Of this amount,  $624,805
was  associated  with salaries and employee  benefits.  There were no unusual or
extraordinary expenses during the year.

The table below sets forth the  composition  of Other  Operating  Expenses as of
December 31, 2000 and as noted in the consolidated  financial  statements of the
Company

         Insurance                                       $  17,357
         Internet banking                                   13,615
         Employee travel                                     8,437
         Dues & subscriptions                                5,405
         Meals & entertainment                               3,243
         Convention & meetings                               2,920
         Business development                                1,613
         Other                                              10,189

         Total                                           $  62,779

Financial Condition
-------------------

The Company's total assets at December 31, 2000 were  $17,332,808 as compared to
$7,102,060 at December 31, 1999; this  represents a growth of $10,230,748.  This
increase  reflected growth in the lending  activities of the Bank, funded by its
deposit  growth.  Funds not used to fund loan  requests  were  maintained in the
Bank's investment portfolio, mostly as federal funds sold.

The Company's  loan  portfolio  grew to  $8,634,181  at December 31, 2000.  This
figure is net of the  allowance  for loan losses of $412,650 and  deferred  loan
fees of  $15,565.  The  outstanding  loan  portfolio  at  December  31, 2000 was
$9,062,397 and represents an increase of $9,037,597  over December 31, 1999. The
growth in the loan  portfolio was  anticipated  based upon business  development
activities of directors and a longer than anticipated  organizational period for
both the Company and the Bank.  However,  loan growth did not meet  projections.
This is, in part,  due to the  failure of the Bank to reach  anticipated  growth
goals for deposits.  It is a target strategy for the loan portfolio to be 75% of
the Bank's deposit base.

                                       11

<PAGE>

The following  table sets forth  information  concerning the  composition of the
Company's loan  portfolio in dollar  amounts and  percentages as of December 31,
2000.

<TABLE>
<CAPTION>
                                                              Amount               Percentage
TYPE OF LOAN
<S>                                                          <C>                      <C>
         Commercial                                          $4,158,180               45.89%
         Real estate                                          3,293,754               36.35
         Consumer                                               213,146                2.35
         Personal lines of credit                             1,396,568               15.41
         Overdrafts                                                 749                 .00

         Total loans                                         $9,062,397              100.00%
</TABLE>

The  following  table  sets forth  certain  information  at  December  31,  2000
regarding the dollar amount of loans  maturing in the Company's  loan  portfolio
based on the date that final  payment is due. This schedule does not reflect the
effects  of  possible   prepayments  or  enforcement  of  due-on-sale   clauses.
Management  expects that prepayments will cause actual  maturities to be shorter
than contractual maturities.

<TABLE>
<CAPTION>
                                                                           Remaining Maturities
                                                              One year          Over one to        Over five
TYPE OF LOAN                                   Amount          or less          five years           years
<S>                                          <C>               <C>              <C>                 <C>
         Commercial                          $4,158,180        $2,529,392       $1,628,788
         Real estate                          3,293,754           116,132        2,784,772          $392,850
         Consumer                               213,146             1,137          212,009
         Personal lines of credit             1,396,568           788,639          607,929
         Overdrafts                                 749               749

         Total                               $9,062,397        $3,436,049       $5,233,498          $392,850
</TABLE>

There were no  non-performing  loans or loans past due for more than thirty days
as of December 31, 2000.

Funds not used to satisfy credit demand were maintained in the Bank's investment
portfolio.  At December 31, 2000,  investment  securities and federal funds sold
totaled $6,876,755 as compared to $5,777,648 at December 31, 1999. The Bank made
an active  decision to maintain a strong Federal funds sold position during 2000
as the interest rate environment was favorable to that position.

The following  table sets forth the carrying  value of the Company's  investment
portfolio as of December 31, 2000:

<TABLE>
<CAPTION>
                                                                   Gross           Gross
                                              Amortized         Unrealized      Unrealized
                                                Cost               Gain            Loss            Fair Value
<S>                                          <C>                  <C>            <C>              <C>
     U.S. Governments & its agencies         $1,500,575           $26,338                         $1,526,913
     FRB stock                                  180,000                                              180,000
     Other (Bank CD)                            100,000                                              100,000

     Total                                   $1,780,575           $26,338                         $1,806,913
</TABLE>

                                       12

<PAGE>

The  following  table sets forth the  maturities  of  investment  securities  at
December 31, 2000 and the weighted average yield on such securities.

<TABLE>
<CAPTION>
                                                                 Weighted
                                                                 Amortized                            Average
                                                                   Cost          Fair Value            Yield
<S>                                                            <C>              <C>                      <C>
         Due in one year or less                               $1,500,575       $1,526,913               6.63%
         Due after one year through five years                    100,000          100,000               6.60
         Due after five years through ten years                         0                0
         Due after ten years                                            0                0
         FRB stock                                                180,000          180,000               6.00
</TABLE>

During 2000,  there were no material  changes in the Bank's holdings of property
and equipment.  There are no expectations of large expenditures in this area for
2001.

Consolidated  deposits as of December 31, 2000 totaled $12,055,101,  an increase
of $11,190,765  for the year.  This increase was anticipated due to the start-up
nature of the  banking  operation.  However,  growth  projections  were not met.
Strong   competition   for   deposits,   the   Bank's   unwillingness   to   pay
top-of-the-market interest rates and limited marketing activities contributed to
the growth results.

The  following  table sets forth the deposits of the Company by category and the
percentage of the portfolio as of December 31, 2000.

<TABLE>
<CAPTION>
                                                                    2000
                                                     Amount                  Percentage
<S>                                              <C>                          <C>
         Demand deposit accounts                 $     840,859                   6.98%
         Interest-bearing checking                   1,055,462                   8.75
         Money market accounts                       2,426,233                  20.13
         Savings accounts                              361,103                   3.00
         Time deposits less than $100,000            2,733,036                  22.67
         Time deposits of $100,000 or more           4,638,408                  38.47

         Total                                     $12,055,101                 100.00
</TABLE>

The  following  table sets forth the amount of the  Company's  time  deposits of
$100,000 or more by their remaining maturity as of December 31, 2000.

         Three months of less                          $1,351,501
         Over three months to six months                  634,026
         Over six months to 12 months                   2,339,375
         Over twelve months                               313,506

         Total                                         $4,638,408

The Company  experienced  a $962,646  decrease in  stockholders'  equity in 2000
which  represented the operating loss of the Company.  No dividends were paid in
2000  and  no  dividend  payments  are  anticipated  in  2001,  as  the  Company
anticipates a loss from operations.

Asset/Liability Management
--------------------------
Net interest income,  the primary component of the Company's net income,  arises
from the difference between the yield on interest-earning assets and the cost of
interest-bearing  liabilities  and  the  relative  amounts  of such  assets  and
liabilities.  Effective asset/liability  management involves managing the levels
of and gap between  interest-rate  sensitive  assets and liabilities to minimize
changes in net interest  income and in the economic  value of its equity despite
changes in market  interest rates. An effective "gap" report measures the dollar
differences between the amount of interest-earning  assets and  interest-bearing
liabilities  subject to repricing within a given time period. A perfect match of
interest  sensitive  assets and  interest  sensitive  liabilities  would mean no
changes to net interest  income as

                                       13


<PAGE>

market interest rates change, assuming that both assets and liabilities are tied
to the same market rates.  During a period of rising  interest rates, a negative
gap position  whereby rate sensitive  liabilities  exceed rate sensitive  assets
would have an adverse effect on net interest income. Conversely, during a period
of falling  interest  rates, a negative gap position would result in an increase
in net  interest  income.  If the Bank was in a positive  gap  position,  rising
interest  rates would  increase net interest  income and falling  interest rates
would adversely effect net interest income.

The following table sets forth the Bank's interest-rate  sensitivity at December
31, 2000.

<TABLE>
<CAPTION>
                                                         Maturity or Repricing Terms
                                         3 months         3 months-         1 year-          3 years-           Over
                       Amount            or less          1 year            3 years          5 years            5 years
<S>                   <C>               <C>             <C>                 <C>             <C>                  <C>
Rate Sensitive
Assets
Fed Funds Sold        $5,276,180        $5,276,180
Investments            1,780,575         1,780,575
Loans                  9,062,397         5,151,610         $511,626          $ 46,245        $3,310,116          $42,800

Total                $16,119,152       $12,208,365         $511,626           $46,245        $3,310,116          $42,800

Rate Sensitive
Liabilities
Deposits             $11,214,242        $6,255,128       $4,411,617          $351,586         $189,118            $6,793


GAP                   $4,904,910        $5,953,237      ($3,899,991)        ($305,341)      $3,120,998           $36,007
Cumulative GAP                          $5,953,237       $2,053,246        $1,747,905       $4,868,903        $4,904,910
Cum GAP/Total Assets                         34.37%           11.85%            10.09%           28.11%            28.31%
</TABLE>

The foregoing  analysis assumes that the Bank's assets and liabilities move with
rates at their earliest opportunity. If rates are variable on loans, investments
and  deposits,  repricing  can  occur  daily.  It the  rate  paid  on the  loan,
investment  or  deposit is fixed,  repricing  can occur at the  maturity  of the
instrument.

The Bank is in a positive GAP position  meaning that it has more rate  sensitive
assets  than it has rate  sensitive  liabilities.  In a  falling  interest  rate
environment,  this GAP position may have an adverse  impact on nterest income if
the Bank matches the changes in external  interest rates. In an effort to better
manage this risk position,  management has altered its investment  practices and
has extended the maturity or repricing terms of its  investments.  Management is
also more  inclined to secure fixed rate credits  versus  credits with  floating
interest  rates. On the liability  side,  management has lowered  interest rates
paid on fixed rate  certificates  of deposit and  positioned  its variable  rate
deposit products to be very competitive in the market.

Liquidity and Capital Resources
-------------------------------
The Company  currently has no business  other than that of the Bank and does not
currently have any material funding commitments.  The Company's principal source
of  liquidity is cash on hand.  The Company has  received no dividends  from the
Bank and none are anticipated in the near future.

The Bank's  principal  sources of funds for operations  are the initial  capital
infusion  in 1999 and  deposits  from its primary  market  area.  Its  principal
funding commitments are for the origination of loans,  including purchases,  and
payment of maturing  deposits.  The Bank's most liquid  assets are cash and cash
equivalents, which are cash on hand, amounts due from financial institutions and
federal funds sold.  The  variations in liquid assets are  influenced by deposit
flows and lending and investment activities.

                                       14
<PAGE>

The  following  table sets forth the maturity  schedule for the  Company's  time
deposits as of December 31, 2000.

         Three months or less                                 $2,402,330
         Over three months through one year                    4,411,617
         Over one year to three years                            361,586
         Over three years                                        195,911

         Total                                                $7,371,444

At December 31, 2000,  cash and cash  equivalents  totaled  $6,273,849;  federal
funds sold  represented  $5,276,180  of the total.  This total far  exceeds  the
anticipated  cash needs of the Bank and,  based upon the current  interest  rate
environment,  the Bank will look to reduce its  federal  funds sold  position by
increasing its investment securities.

In an effort to more  effectively  manage its liquidity risk, the Bank will look
to establish lines of credit with its  correspondent  banks. Due to the start-up
nature  of the  banking  operations,  it was  necessary  for  the  Bank  to show
operating  results  for a full  fiscal  year  before  applying  for  the  credit
relationship.

Federal  banking  regulations  require the Bank to maintain  specific  levels of
capital.  At December 31, 2000, the Bank was in compliance with all requirements
and the Bank met the criteria for designation as a well  capitalized  depository
institutions  under the  regulations  of the  Office of the  Comptroller  of the
Currency.




                                       15
<PAGE>

Item 7     FINANCIAL STATEMENTS

                        HCNB BANCORP, INC. AND SUBSIDIARY


                                TABLE OF CONTENTS

                                                                          Page
                                                                          ----

Report of Independent Public Accountants                                    17

Financial statements

  Consolidated Balance Sheets                                               18

  Consolidated Statements of Operations                                     19

  Consolidated Statements of Stockholders' Equity                           20

  Consolidated Statements of Cash Flows                                21 - 22

Notes to Consolidated Financial Statements                             23 - 33


                                       16

<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS





To the Board of Directors of HCNB Bancorp, Inc.
Rockville, Maryland


We have audited the  accompanying  consolidated  balance sheets of HCNB Bancorp,
Inc.  and  subsidiary  as  of  December  31,  2000  and  1999  and  the  related
consolidated statements of operations,  stockholders' equity, and cash flows for
the years  ended  December  31,  2000 and  1999.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of HCNB Bancorp,  Inc.
and  subsidiary  as of  December  31,  2000 and 1999  and the  results  of their
operations  and their cash flows for the years ended  December 31, 2000 and 1999
in conformity with generally accepted accounting principles.




/s/ Jameson & Associates, P.A.

Jameson & Associates, P.A.
Baltimore, Maryland
January 11, 2001



                                       17
<PAGE>

                        HCNB BANCORP, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                        AS OF DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                           2000                   1999
                                                                       -------------          ------------
<S>                                                                    <C>                   <C>
                                ASSETS

Cash and cash equivalents:
   On-hand and due from banks                                              $ 997,669              $562,648
   Federal funds sold                                                      5,276,180             1,777,648
Investment securities, held to maturity                                    1,600,575             4,000,000
Loans receivable, net                                                      8,634,181                24,800
Investment in Federal Reserve Board stock, at cost                           180,000               180,000
Accrued interest receivable                                                  125,696                33,141
Property and equipment, net                                                  435,074               449,530
Other assets, net                                                             83,433                74,293
                                                                       -------------          ------------

       Total assets                                                      $17,332,808            $7,102,060
                                                                       =============          ============

                 LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
   Deposits
     Noninterest-bearing                                                   $ 840,859              $ 81,190
     Interest-bearing                                                     11,214,242               783,146
   Accounts payable and accrued expenses                                     133,765               131,136
                                                                       -------------          ------------

       Total liabilities                                                  12,188,866               995,472
                                                                       -------------          ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
   Preferred stock, par value $0.01 per share, 1,000,000 shares
     authorized, -0- shares issued and outstanding                                 -                     -
   Common stock, par value $0.01 per share, 9,000,000 shares
     authorized, 700,213 shares issued and outstanding                         7,002                 7,002
   Additional paid-in capital                                              6,995,128             6,995,128
   Accumulated deficit                                                    (1,858,188)             (895,542)
                                                                       -------------          ------------

       Total stockholders' equity                                          5,143,942             6,106,588
                                                                       -------------          ------------

       Total liabilities and stockholders' equity                        $17,332,808            $7,102,060
                                                                       =============          ============
</TABLE>



                These consolidated financial statements should be
                  read only in accordance with the accompanying
                 summary of significant accounting policies and
                        notes to consolidated statements.

                                       18
<PAGE>
                        HCNB BANCORP, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                             2000                  1999
                                                                         ------------          ------------
<S>                                                                       <C>                      <C>
INTEREST INCOME
   Interest income on loans                                                  $502,275                 $  46
   Interest income on investment securities                                   416,625               119,176
                                                                         ------------          ------------

     Total interest income                                                    918,900               119,222
                                                                         ------------          ------------

INTEREST EXPENSE
   Deposits                                                                   266,252                   703
   Borrowed funds                                                                   -                54,041
                                                                         ------------          ------------
                                                                              266,252                54,744
                                                                         ------------          ------------

     Net interest income                                                      652,648                64,478

PROVISION FOR LOAN LOSSES                                                     412,650                     -
                                                                         ------------          ------------
                                                                              239,998                64,478

NONINTEREST INCOME
   Service fees and charges                                                    19,140                   444
                                                                         ------------          ------------
                                                                              259,138                64,922
                                                                         ------------          ------------

NONINTEREST EXPENSES
   Salaries and benefits                                                      624,805               360,343
   Depreciation and amortization                                               47,641                 1,728
   Occupancy expense, equipment and supplies                                  202,371               149,875
   Marketing                                                                   48,926                19,183
   Professional fees including data processing                                171,370               253,032
   Regulatory expense                                                           9,242                22,475
   Directors fees                                                              54,650                     -
   Other operating expenses                                                    62,779                24,889
                                                                         ------------          ------------

     Total noninterest expenses                                             1,221,784               831,525
                                                                         ------------          ------------

     Loss before provision for income taxes                                  (962,646)             (766,603)

INCOME TAXES                                                                        -                     -
                                                                         ------------          ------------

     Net loss                                                              $ (962,646)           $ (766,603)
                                                                         ============          ============

NET LOSS PER SHARE - BOTH BASIC AND DILUTIVE

     NET LOSS PER SHARE                                                         $1.37                 $1.09

WEIGHTED AVERAGE SHARES OUTSTANDING                                           700,213               700,213
</TABLE>

                These consolidated financial statements should be
                  read only in accordance with the accompanying
                 summary of significant accounting policies and
                        notes to consolidated statements.

                                       19
<PAGE>
                        HCNB BANCORP, INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                          Additional
                                               Preferred              Common               Paid-in             Accumulated
                                                 Stock                Stock                Capital               Deficit
                                              ------------        --------------        --------------        -------------

<S>                                             <C>                   <C>                   <C>                 <C>
BALANCE, December 31, 1998                             $ -                   $ -                   $ -           $ (128,939)

   Net proceeds from issuance
     of common stock                                     -                 7,002             6,995,128                     -

   Net loss                                              -                     -                     -             (766,603)
                                              ------------        --------------        --------------        -------------

BALANCE, December 31, 1999                               -                 7,002             6,995,128             (895,542)

   Net loss                                              -                     -                     -             (962,646)
                                              ------------        --------------        --------------        -------------

BALANCE, December 31, 2000                             $ -                $7,002            $6,995,128          ($1,858,188)
                                              ============        ==============        ==============        =============
</TABLE>





                These consolidated financial statements should be
                  read only in accordance with the accompanying
                 summary of significant accounting policies and
                        notes to consolidated statements.


                                       20
<PAGE>
                        HCNB BANCORP, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                 2000                       1999
                                                                              ------------               -----------
<S>                                                                           <C>                        <C>
Cash flows from operating activities
   Cash inflows
   Interest income                                                               $ 826,345                  $ 86,081
   Fees and service charges                                                         19,140                       444
                                                                              ------------               -----------
                                                                                   845,485                    86,525
                                                                              ------------               -----------

Cash outflows
   General and administrative expenses                                           1,204,772                   790,234
   Interest on deposits                                                            242,134                    54,744
                                                                              ------------               -----------
                                                                                 1,446,906                   844,978
                                                                              ------------               -----------

     Net cash used in operating activities                                        (601,421)                 (758,453)
                                                                              ------------               -----------

Cash flows from investing activities
   Cash inflows
   Loan principal repayments                                                     1,687,636                         -
   Proceeds from sales and redemptions of securities                            15,605,433                         -
                                                                              ------------               -----------
                                                                                17,293,069                         -
                                                                              ------------               -----------

Cash outflows
   Purchase of securities held to maturity                                      13,206,008                 4,000,000
   Loan disbursements                                                           10,709,667                    24,800
   Purchase of property and equipment                                               33,185                   451,258
   Purchase of Federal Reserve stock                                                     -                   180,000
                                                                              ------------               -----------
                                                                                23,948,860                 4,656,058
                                                                              ------------               -----------

     Net cash used in investing activities                                      (6,655,791)               (4,656,058)
                                                                              ------------               -----------

Cash flows from financing activities
   Cash inflows
   Proceeds from common stock offering                                                   -                 7,002,130
   Net decrease in borrowed funds from related parties                                   -                  (120,000)
   Net increase in deposits                                                     11,190,765                   864,336
                                                                              ------------               -----------

     Net cash provided by financing activities                                  11,190,765                 7,746,466
                                                                              ------------               -----------

Net increase in cash and cash equivalents                                        3,933,553                 2,331,955
Cash and cash equivalents, beginning of year                                     2,340,296                     8,341
                                                                              ------------               -----------
Cash and cash equivalents, end of year                                         $ 6,273,849               $ 2,340,296
                                                                              ============               ===========
</TABLE>

                These consolidated financial statements should be
                  read only in accordance with the accompanying
                 summary of significant accounting policies and
                        notes to consolidated statements.

                                       21

<PAGE>


                        HCNB BANCORP, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (CONTINUED)

                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                      2000                1999
                                                                                    -----------        ------------

<S>                                                                                   <C>                 <C>

Reconciliation of net income to net cash provided by operating activities
   Net income                                                                         $(962,646)          $(766,603)
   Adjustments to reconcile net loss to net cash from operating activities
     Provision for loan losses                                                          412,650                   -
     Depreciation and amortization                                                       47,641               1,728
   Effects of changes in operating assets and liabilities
     Accrued interest receivable                                                        (92,555)            (33,141)
     Other assets                                                                        (9,140)            (34,871)
     Accounts payable and other liabilities                                               2,629              74,434
                                                                                    -----------        ------------

Net cash used in operating activities                                                 $(601,421)          $(758,453)
                                                                                    ===========        ============
</TABLE>




                These consolidated financial statements should be
                  read only in accordance with the accompanying
                 summary of significant accounting policies and
                        notes to consolidated statements.


                                       22

<PAGE>
                        HCNB BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

1.       ORGANIZATION

HCNB, Bancorp,  Inc. was incorporated under the laws of the State of Maryland on
February 24, 1998, primarily to hold all the outstanding shares of capital stock
of a national bank.

Effective,  October 1999, the Company  completed an initial  public  offering in
which it sold 700,213 shares of common stock for $10 per share. During 1999, the
Company received net proceeds from the Offering of $7,002,130.

On December 14,  1999,  the Bank  received  authority  from the Federal  Deposit
Insurance  Corporation  (FDIC) and  Office of the  Comptroller  of the  Currency
(O.C.C.) to begin banking operations.

As the Bank is a start-up operation, there can be no assurance that the Bank can
attract sufficient  depositors or issue sufficient quality loans to operate at a
profit.  The Bank is subject  to  certain  risks  inherent  in making  loans and
accepting deposits.

In addition to these risks, the Company is currently operating at a loss. Growth
of operations will be necessary for the Company to be able to cover overhead and
other operational costs.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying  consolidated financial statements include the activity of HCNB
Bancorp, Inc. and its wholly-owned subsidiary, Harbor Capital National Bank. All
intercompany transactions have been eliminated in consolidation.

The  accompanying  consolidated  financial  statements  have  been  prepared  in
accordance with generally accepted accounting  principles and conform to general
practices  within the banking  industry.  The Company's  primary  operations are
conducted by the Bank,  which  operates one branch in Rockville,  Maryland.  The
Bank is  principally  engaged in the  business of investing  in  commercial  and
consumer loans and attracting deposits.

Cash and Cash Equivalents

Cash  and  cash  equivalents  include  deposits  in other  banks  with  original
maturities of less than three months and Federal funds sold. Generally,  Federal
funds are purchased and sold for one-day periods.

Federal Reserve Board Stock

Federal Reserve Bank stock is carried at cost which approximates fair value.

Investment Securities

Debt  securities  that the Bank has the  positive  intent and ability to hold to
maturity are classified as held-to-maturity and recorded at amortized cost. Debt
not  classified  as   held-to-maturity   and  equity   securities  with  readily
determinable fair values are classified as trading securities if bought and held
principally for the purpose of selling them in the near term. Trading securities
are  reported  at fair  value,  with  unrealized  gains and losses  included  in
earnings.   Investments  not  classified  as  held-to-maturity  or  trading  are
considered  available-for-sale  and are reported at fair value,  with unrealized
gains and losses excluded from earnings and reported as a separate  component of
stockholders'  equity,  net of tax effects.  A fair value is determined based on
bid prices  published in financial  newspapers or bid  quotations  received from
securities  dealers.  For purposes of computing  realized gains or losses on the
sales of  investments,  cost is determined by using the specific  identification
method.  Gains and losses on sales of securities  are  recognized at the time of
sale.  Premiums and discounts on investment and  mortgage-backed  securities are
amortized  over the term of the  security  using  methods that  approximate  the
interest method.

                                       23

<PAGE>

                        HCNB BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

Loans Receivable and Allowance for Loan Losses

Loans receivable are stated at unpaid principal balances, less the allowance for
loan losses.

Interest  income is  accrued at the  contractual  rate on the  principal  amount
outstanding.  When scheduled principal or interest payments are past due 90 days
or more on any  loan,  the  accrual  of  interest  income  is  discontinued  and
recognized only as collected.  Previously  accrued but  uncollected  interest on
these loans is charged against interest income.  Generally, the loan is restored
to an accruing status when all amounts past due have been paid.

In accordance with Statements of Financial  Accounting Standards (SFAS) Nos. 114
and 118,  Accounting by Creditors for Impairment of a Loan, The Bank  identifies
impaired loans and measures  impairment based upon the present value of expected
future cash flows discounted at the loan's effective  interest rate, or the fair
value  of  the   collateral   if  the  repayment  is  expected  to  be  provided
predominantly  by the  underlying  collateral.  The  allowance  for loan  losses
related to these loans is included in the allowance  for loan losses  applicable
to other than impaired loans.

A loan is considered impaired,  based upon current information and events, if it
is probable that the Bank will not collect all  principal and interest  payments
according to the contractual terms of the loan agreement.  Generally,  a loan is
considered  impaired once either  principal or interest  payments become 90 days
past due at the end of a calendar  quarter.  A loan may be  considered  impaired
sooner if, in management's judgement,  such action is warranted.  The Bank loans
subject  to (SFAS)  Nos.  114 and 118 do not  include  large  groups of  smaller
balance  homogeneous loans that are evaluated  collectively for impairment (e.g.
residential mortgages and consumer installment loans).

The Bank  identifies  loans  subject to (SFAS) Nos. 114 and 118 by  individually
reviewing every loan 60 days or more  delinquent,  selected non delinquent loans
and other loans if there is an indication of a problem.

The  allowance  for  loan  losses  is  maintained  at a  level  that  represents
management's best estimates of losses in the loan portfolio at the balance sheet
date that were both probable and reasonably estimable.  Management's  assessment
includes  the  systematic  evaluation  of  several  factors:   current  economic
conditions and their impact on specific  borrowers;  the level of classified and
non performing  loans;  the historical loss experience by loan type; the results
of regulatory  examinations;  and, in specific  cases,  the  estimated  value of
underlying collateral.

The  allowance  is  increased  by the loan loss  provision  charged to operating
expenses and reduced by loan charge-offs,  net of recoveries.  The provision for
loan losses is based on losses that are probable and  reasonable  to estimate at
the date of the  financial  statements  and on a  continuing  review of the loan
portfolios  throughout  the year,  past loss  experience  and  current  economic
conditions which may affect borrowers ability to pay.

Property and equipment

Property and equipment are stated at cost,  less  accumulated  depreciation  and
amortization.  Depreciation is computed using the straight-line  method over the
estimated  useful lives of the respective  assets.  Leasehold  improvements  are
depreciated over 40 years. Furniture and equipment are depreciated over 7 years.
Software is depreciated over 5 years.

Comprehensive Income

During 1997, the Financial  Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards ("SFAS") No. 130,  "Reporting  Comprehensive
Income" ("SFAS No. 130"),  which is effective for fiscal years  beginning  after
December 15, 1997.  This  statement  establishes  standards  for  reporting  and
display of  comprehensive  income and its  components.  Comprehensive  income is
defined as the change in equity of a business  enterprise  during a period  from
transactions and other events and circumstances from nonowner sources.  The Bank
adopted  this  standard  effective  January 1, 1999.  The Bank does not have any
adjustment  for  comprehensive  income for the years ended December 31, 2000 and
1999.  Comprehensive  income is the same as income reported in the  accompanying
statement of operations.

                                       24
<PAGE>
                        HCNB BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

Segments of an Enterprise

During  1997,  the FASB issued SFAS No. 131,  "Disclosure  About  Segments of an
Enterprise  and Related  Information"  ("SFAS No. 131"),  which is effective for
fiscal years  beginning  after December 15, 1997.  SFAS No. 131 introduces a new
model for segment reporting,  called the "management  approach".  The management
approach  is based  on the way the  chief  operating  decision  maker  organizes
segments  within  a  company  for  making  operating   decisions  and  assessing
performance.  Reportable segments are based on products and services, geography,
legal  structure,  management  structure  --  any  manner  in  which  management
desegregates a company.  The management approach replaces the notion of industry
and  geographic  segments  in  current  FASB  standards.  The  Bank has only one
reportable segment and,  accordingly,  no additional disclosure pursuant to SFAS
No. 131 is necessary.

Derivatives

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities".  SFAS No. 133  established  accounting and
reporting  standards  requiring  that  every  derivative  instrument  (including
certain derivative  instruments  embedded in other contracts) be recorded in the
balance sheet as either an asset or liability  measured at its fair value.  SFAS
No. 133  requires  that  changes in the  derivative's  fair value be  recognized
currently in earnings  unless specific hedge  accounting  criteria are met. SFAS
No. 133 is effective for fiscal years  beginning  after June 15, 1999 and cannot
be applied  retroactively.  The Bank adopted SFAS No. 133  effective  January 1,
2000.  The  adoption  of SFAS No.  133 does not have a  material  effect  on its
financial condition or results of operations.

Fair value of financial instruments

The fair value of cash and cash equivalents is the carrying  amount,  which is a
reasonable  estimate of fair value.  For  investment  securities,  fair value is
determined using quoted market prices.

Fair value of loans  receivable is estimated by  discounting  future cash flows,
taking into  consideration  future loan  losses,  using  current  rates at which
similar  loans would be made to borrowers  with similar  credit  ratings for the
same remaining maturities. For commitments to extend credit, the carrying amount
is a reasonable estimate of fair value.

With respect to deposits,  fair value of checking  and savings  deposits,  money
market  accounts,  certificates and IRA accounts is the amount payable on demand
at the reporting date. Fair value of fixed maturity term accounts and individual
retirement  accounts is estimated using rates currently  offered for accounts of
similar remaining maturities.

Loan Origination Fees

Loan  origination  fees,  net of certain  direct  loan  origination  costs,  are
deferred and recognized as an adjustment to interest income over the life of the
loans.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amount  of  assets  and  liabilities  and  disclosure  of
contingent assets and liabilities as of the date of the financial statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

Material  estimates that are  particularly  susceptible  to  significant  change
relate to the determination of the allowance for losses on loans.

While  management  uses  available  information  to  recognize  losses on loans,
further  reductions in the carrying  amounts of loans may be necessary  based on
changes in local economic conditions.  In addition,  regulatory agencies,  as an
integral part of their examination  process,  periodically  review the estimated
losses on loans.  Such  agencies  may require the Bank to  recognize  additional
losses based on their judgments about information  available to them at the time
of  their  examination.  Because  of  these  factors,  it is  possible  that the
estimated  losses on loans may change in the near term.  However,  the amount of
the change that is reasonably possible cannot be estimated.

                                       25

<PAGE>
                        HCNB BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

3.       INVESTMENT IN SECURITIES

The carrying amount and estimated fair market value of investment  securities at
December 31, 2000 are summarized as follows:

<TABLE>
<CAPTION>
                                                               Gross              Gross             Estimated
                                           Carrying          Unrealized        Unrealized            Market
                                            Amount              Gain              Loss                Value
                                          ------------       -----------      -------------       -------------
<S>                                         <C>                 <C>                     <C>          <C>
Securities held to maturity
 Federal agencies                           $1,500,575          $ 26,338                $ -          $1,526,913
 Certificates of deposit                       100,000                 -                  -             100,000
                                          ------------       -----------      -------------       -------------
                                            $1,600,575          $ 26,338                $ -          $1,626,913
                                          ============       ===========      =============       =============
</TABLE>

The carrying amount and estimated fair market value of investment  securities at
December 31, 1999 are summarized as follows:

<TABLE>
<CAPTION>
                                                               Gross              Gross             Estimated
                                           Carrying          Unrealized        Unrealized            Market
                                            Amount              Gain              Loss                Value
                                          ------------       -----------      -------------       -------------
<S>                                         <C>                      <C>                <C>          <C>
Securities held to maturity
 Federal agencies                           $4,000,000               $ -                $ -          $4,000,000
                                          ============       ===========      =============       =============
</TABLE>

The  scheduled  maturity of securities to be held to maturity were as follows as
December 31:

<TABLE>
<CAPTION>
                                                      2000                                  1999
                                         --------------------------------     ----------------------------------
                                                             Estimated            Gross             Estimated
                                           Carrying            Market          Unrealized            Market
                                            Amount             Value              Loss                Value
                                          ------------       -----------      -------------       -------------
<S>                                        <C>               <C>                <C>                 <C>
Within 1 year                               $1,500,575        $1,526,913         $4,000,000          $4,000,000
1-10 years                                     100,000           100,000                  -                   -
                                          ------------       -----------      -------------       -------------
                                            $1,600,575        $1,626,913         $4,000,000          $4,000,000
                                          ============       ===========      =============       =============
</TABLE>

Cost for these investments is calculated using specific identification.

As of December 31,  2000,  investment  securities  in the amount of $500,000 are
pledged to a  corresponding  financial  institution  as security  for a customer
letter of credit. This letter of credit has been subsequently satisfied.

4.       LOANS RECEIVABLE

As of December 31, loans receivable consist of:

<TABLE>
<CAPTION>
                                                                 2000               1999
                                                              -----------        -----------
<S>                                                            <C>                <C>
         Commercial                                            $4,158,180                $ -
         Real estate                                            3,293,755                  -
         Consumer                                                 198,328             24,800
         Personal lines of credit                               1,396,568                  -
                                                              -----------        -----------
                                                                9,046,831             24,800
         Less allowance for loan loss                             412,650                  -
                                                              -----------        -----------
         Loan receivable, net                                  $8,634,181           $ 24,800
                                                              ===========        ===========
</TABLE>

                                       26
<PAGE>
                        HCNB BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

4.       LOANS RECEIVABLE (CONTINUED)

Officers and directors  loans amounted to $367,000 and $-0- at December 31, 2000
and 1999, respectively.

Outstanding loan commitments,  which primarily represent undisbursed proceeds on
lines of credit, approximated $998,900 at December 31, 2000.

The allowance for loan loss activity at December 31, 2000 is as follows:

         Balance, beginning of year                         $      -
         Provision for loan loss                             412,650
                                                           ---------
         Balance, end of year                               $412,650
                                                           =========

5.       PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of December 31, 2000:

         Leasehold improvements                             $185,541
         Furniture and equipment                             298,902
                                                           ---------
                                                             484,443
         Less accumulated depreciation                        49,369
                                                           ---------
         Property and equipment, net                        $435,074
                                                           =========

Depreciation expense for the year ended December 31, 2000 was $47,641.

6.       DEPOSITS

As of December 31, 2000, deposits consisted of:

<TABLE>
<CAPTION>
                                            Weighted
                                         Average Rate at
                                        December 31, 2000             Amount                 Percent
                                    --------------------------    --------------           ----------
<S>                                          <C>                    <C>                       <C>
        Checking accounts                             -               $ 840,859                 7.0%
        NOW accounts                            2.0429%               1,055,462                 8.8%
        Money market accounts                   5.5112%               2,426,233                20.1%
        Certificates of deposit                 6.1755%               7,371,444                61.1%
        Savings                                 3.4194%                 361,103                 3.0%
                                                                    -----------             --------
                                                                    $12,055,101               100.0%
                                                                    ===========             ========
</TABLE>

A schedule of maturities of deposits as of December 31, 2000 is as follows:

         No contractual maturity                         $ 4,683,658
         Maturity within one year                          6,823,945
         Maturity in one to five years                       547,498
                                                         -----------
                                                         $12,055,101
                                                         ===========

The  aggregate  amount of deposits,  each with a minimum  balance of $100,000 or
more, was approximately  $5,933,861 as of December 31, 2000.  Deposits in excess
of $100,000 are not insured by the Federal Deposit Insurance Corporation.

                                       27
<PAGE>
                        HCNB BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

6.       DEPOSITS (CONTINUED)

As of December 31, 1999, deposits consisted of:

<TABLE>
<CAPTION>
                                                             Weighted
                                                         Average Rate at
                                                        December 31, 2000         Amount            Percent
                                                      -----------------------  --------------    --------------

<S>                                                        <C>                    <C>                   <C>
         Checking accounts                                            -             $ 81,190              9.4%
         NOW accounts                                             1.75%              182,661             21.1%
         Money market accounts                                    3.60%              220,107             25.5%
         Certificates of deposit                                  4.99%              379,178             43.9%
         Savings                                                  2.25%                1,200               .1%
                                                                                  ----------        ----------
                                                                                   $ 864,336            100.0%
                                                                                  ==========        ==========
</TABLE>

Officers and Directors savings accounts amounted to approximately $1,865,300 and
$420,000 at December 31, 2000 and 1999, respectively.

7.       INCOME TAXES

The  reconciliation of the federal statutory to the actual income tax rate is as
follows:

<TABLE>
<CAPTION>
                                                                 2000                1999
                                                               ---------          ---------

<S>                               <C>                           <C>                <C>
Statutory federal income tax rate (35%)                         $336,900           $268,300
State income tax benefit, net of federal
  income tax effect                                               48,100             38,300
Valuation allowances                                            (385,000)          (306,600)
                                                               ---------          ---------
Total                                                                $ -                $ -
                                                               =========          =========
</TABLE>

The Company has  recorded a 100%  valuation  allowance  against its deferred tax
asset as the Company is a start-up operation and it is more likely than not that
the deferred tax asset will not be realized.

The tax effect of temporary  differences  between the financial  reporting basis
and income tax basis of assets and  liabilities  relates to the  following as of
December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                 2000               1999
                                                               ---------          ---------
<S>                                                             <C>                     <C>
       Deferred tax assets:
       Allowance for loan losses                                $165,000                $ -
       Net operating loss carryforwards                          220,000            306,600
                                                               ---------          ---------

           Total gross deferred tax assets                       385,000            306,600

       Less:  Valuation allowance                               (385,000)          (306,600)
                                                               ---------          ---------

           Net deferred tax asset                                    $ -                $ -
                                                               =========          =========
</TABLE>

                                       28

<PAGE>
                        HCNB BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

8.       RELATED PARTY TRANSACTIONS

The insider founding  stockholders  that made advances to the development  stage
company are to be paid  interest in the amount of $14,508.  This  liability  was
accrued at December 31, 1999 and paid in the year ended December 31, 2000.

The officers and directors have deposits in the Company approximating $1,865,300
at December 31, 2000.

The officers and directors have loans from the Company approximating $367,000 at
December 31, 2000.

The Chairman of the Board was paid fees approximating  $35,850 and the remaining
directors  were paid fees  approximating  $18,800 for  services  rendered to the
Company.

9.       RETIREMENT PLAN

On April 27, 2000 the Board of Directors of the Bank approved the  establishment
of a savings incentive match plan for employees (SIMPLE) effective as of July 1,
2000. Each eligible employee may contribute up to $6,000 annually. The Bank will
contribute  for  each  participant  employee  an  amount  equal  to  the  amount
contributed up to 3% of annual compensation.  The Company's contribution expense
through December 31, 2000 was $12,788.

10.      REGULATORY MATTERS

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate certain mandatory - and possibly additional  discretionary - actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
Bank's financial  statements.  Under capital action, the Bank must meet specific
capital  guidelines  that involve  quantitative  measures of the Bank's  assets,
liabilities and certain  off-balance  sheet items as calculated under regulatory
accounting  practices.  The Bank's capital amounts and  classification  are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weighting and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum  amounts and ratios set forth in the table
below  of  total  and  Tier  I  capital  (as  defined  in  the  regulations)  to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 2000, that the Bank
meets all capital adequacy requirements to which it is subject.

                                       29

<PAGE>
                        HCNB BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

10.      REGULATORY MATTERS (CONTINUED)

As of December 31, 2000, the Bank has not been  categorized by the Office of the
Comptroller of the Currency  (O.C.C.) under the regulatory  framework for prompt
corrective action. To be categorized as well-capitalized, the Bank must maintain
minimum total risk-based, Tier I Risk-based, Tier 1 leverage ratios as set forth
in the table.  There are no conditions or events that management  believes would
prevent the Bank from being  categorized  as  well-capitalized.  The table below
shows the regulatory capital as of December 31, 2000 and 1999, respectively:

<TABLE>
<CAPTION>
                                                                                                 To be Well
                                                                                              Capitalized Under
                                                                         For Capital          Prompt Corrective
                                                   Actual             Adequacy Purposes       Action Provisions
                                          -------------------------  ---------------------  ----------------------
                                             Amount        Ratio       Amount      Ratio       Amount      Ratio
                                          -------------  ----------  ------------ --------  ------------- --------
<S>                                         <C>             <C>         <C>          <C>      <C>           <C>
As of December 31, 2000
 Total capital (to risk weighted assets)    $5,091,000      42.51%      $958,000     8.0%     $1,198,000    10.0%

Tier 1 Capital (to risk weighted assets)    $4,942,000      41.26%      $198,000     4.0%       $719,000     6.0%

Tier 1 Capital (to average assets)          $4,942,000      31.61%      $469,000     3.0%       $782,000     5.0%

As of December 31, 1999
 Total capital (to risk weighted assets)    $5,894,000     340.69%      $138,000     8.0%       $173,000    10.0%

Tier 1 Capital (to risk weighted assets)    $5,894,000     340.69%      $ 69,000     4.0%       $104,000     6.0%

Tier 1 Capital (to average assets)          $5,894,000      84.15%      $210,000     3.0%       $350,000     5.0%
</TABLE>

The following is a reconciliation of generally  accepted  accounting  principles
(GAAP) capital to regulatory capital at December 31, 2000:

<TABLE>
<CAPTION>
                                                                GAAP                Core          Risk-based
                                                               Capital            Capital          Capital
                                                            --------------      -------------    -------------

<S>                                                            <C>                <C>              <C>
GAAP capital                                                   $4,942,000         $4,942,000       $4,942,000
                                                             ============

Accumulated losses (gains) on certain
   available for sale securities                                                           -                -
Additional capital items
   General valuation allowance                                                             -          149,000
                                                                                  ----------       ----------
Regulatory capital - computed                                                      4,942,000        5,091,000
Minimum capital requirement                                                         (469,000)        (958,000)
                                                                                  ----------       ----------
Regulatory capital-excess                                                         $4,473,000       $4,133,000
                                                                                  ==========       ==========
</TABLE>

11.      SIGNIFICANT ESTIMATES

Generally accepted accounting principles require disclosure of information about
certain significant estimates which include the following:

         Interest rate risk

         The profitability of the Company is subject to interest rate risk. This
risk is based  on the gap  between  interest  earned  on  loans  and the rate of
interest paid on deposits.  A significant decrease in this gap could result in a
decrease in earnings.

                                       30
<PAGE>
                        HCNB BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

12.      COMMITMENTS

Outstanding loan commitments were as follows at December 31, 2000:

Financial instruments who contract amounts
   represent credit risk:
         Commercial                                     $553,400
         Real estate                                     200,000
         Consumer                                        202,500
         Personal lines of credit                         33,000
                                                      ----------
                                                        $988,900
                                                      ==========

         Total  commitments  to extend  credit at  December  31,  2000  included
$955,900  in  variable  loan   commitments   and  $33,000  in  fixed  rate  loan
commitments.   Fixed  rate  loan   commitments  were  at  current  market  rates
approximating  15% and variable  rate loan  commitments  were at current  market
rates ranging from prime to prime plus 1 1/2% at December 31, 2000.

13.      LEASE

The Company entered into a lease agreement on December 23, 1998 to lease banking
facilities and offices in Rockville,  Maryland. The lease is for a period ending
December  31, 2008.  Rent  expense was $115,200 for the year ended  December 31,
2000.

The minimum rental commitment is as follows:

         December 31, 2001                              $ 92,909
         December 31, 2002                                96,141
         December 31, 2003                                99,519
         December 31, 2004                               103,409
         December 31, 2005                               107,535
         December 31, 2006                               111,861
         December 31, 2007                               116,325
         December 31, 2008                               120,983
                                                      ----------
                                                        $848,682
                                                      ==========

14.      ADVERTISING

It is the policy of the Company to direct expense all  advertising and marketing
costs.  Advertising costs  approximated  $48,900 and $18,200 for the years ended
December 31, 2000 and 1999, respectively.

                                       31
<PAGE>
                        HCNB BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

15.      FINANCIAL INSTRUMENTS

In  accordance  with the  disclosure  requirements  of  Statement  of  Financial
Accounting  Standards  No.  107,  the  estimated  fair  value  of the  Company's
financial instruments at December 31, 2000 are as follows:

<TABLE>
<CAPTION>
                                                                             Estimated
                                                         Carrying              Fair
                                                          Amount              Value
                                                       -------------       -------------
<S>                                                     <C>                 <C>
Assets:
Cash and cash equivalents                               $ 6,273,849         $ 6,273,849
Investment securities                                     1,600,575           1,626,913
Loans receivable                                          8,634,181           8,634,181

Liabilities:
Deposit accounts                                         12,055,101          12,055,101

Off balance sheet instruments:
Commitments to extend credit                                      -             988,900
Unused lines of credit                                            -             988,900
</TABLE>

The fair value of cash and cash equivalents is the carrying  amount,  which is a
reasonable estimate of fair value.

Fair value of investment securities is determined using quoted market prices.

Fair value of loans  receivable is estimated by  discounting  future cash flows,
taking into  consideration  future loan  losses,  using  current  rates at which
similar  loans would be made to borrowers  with similar  credit  ratings for the
same remaining maturities. For commitments to extend credit, the carrying amount
is a reasonable estimate of fair value. Management estimates that the fair value
of loans  receivable  is  approximately  the carrying  amount as of December 31,
2000.

The carrying amount of prepaid  expenses and other assets  approximates its fair
value.

With respect to deposits,  fair value of checking  and savings  deposits,  money
market  accounts,  certificates and IRA accounts is the amount payable on demand
at the reporting date. Fair value of fixed maturity term accounts and individual
retirement  accounts is estimated using rates currently  offered for accounts of
similar  remaining  maturities.  Management  estimates  that the  fair  value of
deposits approximates the carrying amount as of December 31, 2000.

The carrying amount of accounts payable and other  liabilities  approximates its
fair value.

The off balance sheet instrument  contract  amounts are reasonable  estimates of
the fair value of these instruments.

The Company is a party to financial  instruments with off-balance  sheet risk in
the normal course of business to meet the  financing  needs of its customers and
to reduce its own exposure to fluctuations  in interest  rates.  These financial
instruments include commitments to extend credit.  Those instruments involve, to
varying  degrees,  elements  of credit and  interest-rate  risk in excess of the
amount  recognized in the consolidated  statements of financial  condition.  The
contract or  notional  amounts of those  instruments  reflect the extent of BUCS
Federal's involvement in particular classes of financial instruments.

The  Company's  exposure  to credit loss in the event of  nonperformance  by the
other party to the  financial  instrument  for  commitments  to extend credit is
represented by the contractual notional amount of those instruments. The Company
uses the same credit policies in making commitments and conditional  obligations
as it does for on-balance-sheet instruments.

Unless  noted  otherwise,  the  Company  does not  require  collateral  or other
security to support financial instruments with credit risks.

                                       32

<PAGE>
                        HCNB BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

15.      FINANCIAL INSTRUMENTS (CONTINUED)

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained,  if it is
deemed  necessary  by  The  Company  upon  extension  of  credit,  is  based  on
management's  credit evaluation of the counter-party.  Collateral held generally
consists of certificates of deposits, savings accounts and real estate.

16.      RECENT ACCOUNTING STANDARDS

In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
No. 133 (FAS 133), ACCOUNTING AND DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
In July 1999, the FASB issued Statement No. 137,  DEFERRAL OF THE EFFECTIVE DATE
OF FASB  STATEMENT No. 133,  which  deferred the effective date of FAS 133 to no
later  than  January 1, 2001 for the  Company's  financial  statements.  FAS 133
requires  derivatives to be recorded on the balance sheet at fair value. Changes
in the fair values of those  derivatives  would be reported in earnings or other
comprehensive  income  depending  on the use of the  derivative  and  whether it
qualifies for hedge  accounting.  The key criterion for hedge accounting is that
the  hedging  relationship  must be highly  effective  in  achieving  offsetting
changes in fair  value of assets or  liabilities  or cash flows from  forecasted
transactions.  In June 2000, the FASB issued  Statement No. 138,  ACCOUNTING FOR
CERTAIN DERIVATIVE  INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES,  an amendment of
FAS 133. The Company does not expect to implement FAS 133 before January 1, 2001
and has not completed the complex  analysis  required to determine the impact on
the financial  statements.  However,  the Company believes the implementation of
the  statement  will not have a material  impact on the  consolidated  financial
position or consolidated results of operations.


                                       33

<PAGE>
Item 8   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

There were no changes in or disagreements with accountants.

                                    Part III

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

Directors and officers.  The current Board has seven (7)  directors.  All of the
Company's  current  directors  were  organizers of the Company and Bank and were
duly elected or  appointed to the Board and will  continue to serve as directors
until  their  successors  are elected and  qualified.  At the Annual  Meeting of
Stockholders  in 2000,  directors were reelected to varying terms as is required
under the by-laws of the Company. Class A directors would serve until the Annual
Meeting of Stockholders in 2001;  Class B directors would serve until the Annual
Meeting of  Stockholders  in 2002;  and, Class C directors would serve until the
Annual Meeting of Stockholders in 2003.

Directors of the Bank are elected annually at the Annual Meeting of Stockholders
of Harbor Capital National Bank.

Set forth  below is a listing of all  directors  and  executive  officers of the
Company.  Each  director  also  serves  as a  director  of the  Bank.  Except as
expressly  indicated,  each person has been engaged in his principal  occupation
for, at least, five years.

<TABLE>
<CAPTION>
Name                     Age      Position
----                     ---      --------

<S>                      <C>      <C>
Michael J. Burke         51       Chairman (Class A Director)/President,
                                  HCNB Bancorp, Inc.
                                  Chairman, Harbor Capital National Bank

Chi Ping Chow            39       Class B Director, HCNB Bancorp, Inc.
                                  Director, Harbor Capital National Bank

Harvey S. Fenster        67       Class B Director, HCNB Bancorp, Inc.
                                  Director, Harbor Capital National Bank

Wayne A. Harrison        51       Class C Director, HCNB Bancorp, Inc.
                                  Director, Harbor Capital National Bank

Li-Min Lee               42       Class A Director/Treasurer, HCNB Bancorp, Inc.
                                  Director/Treasurer-Cashier,
                                  Harbor Capital National Bank

William J. Olsen         50       Class A Director/Vice President, HCNB Bancorp, Inc.
                                  Director/President, Harbor Capital National Bank

Robert K. Wang           46       Class C Director, HCNB Bancorp, Inc.
                                  Director, Harbor Capital National Bank
</TABLE>


Michael J. Burke serves as Chairman of the Board of Directors  and  President of
HCNB  Bancorp,  and is  Chairman  of the Board of  Directors  of Harbor  Capital
National  Bank.  Mr.  Burke is a certified  public  accountant  and has been the
president since 1996 and a principal  since 1971 of Yorke,  Burke and Lee, CPA's
P.A. Mr. Burke has been the president of East West  Communications,  Inc.  since
1989, and the president of Metro Billing  Corporation since 1993. Mr. Burke is a
director and secretary of Jerico  International,  Inc.;  the president of Jerico
Forensic  Acccouting LLC; and the managing member of YBL Financial Services LLC.
Mr. Burke served as president of Quads Trust Company from 1995 to 1996,  and was
a director from 1991 to 1996, and as the chief  financial  officer of The Parvus
Company, an international security firm, from 1986 to 1999.

                                       34
<PAGE>

Chi Ping Penny Chow is a director of HCNB  Bancorp,  and is a director of Harbor
Capital  National Bank.  From 1996 and until joining the  organizing  efforts of
Harbor Capital National Bank, Ms. Chow was the treasurer of the Development Bank
of  Singapore.  Ms.  Chow was a  senior  loan  processor  at  Fidelity  Mortgage
Services,  Inc.  from 1992 to 1994,  when she was  promoted  to the  position of
manager,  which she held from 1994 to 1996.  Ms. Chow served as a vice president
of the Bank from December, 1999 until March, 2001.

Harvey S. Fenster is a director of HCNB Bancorp and of Harbor  Capital  National
Bank. Dr. Fenster has practiced as an orthodontist  since 1964,  specializing in
orthodontics and dentofacial orthopedics. Dr. Fenster was an organizer, director
and vice  chairman  of the board of Kennedy  Bank & Trust  Company  from 1970 to
1982. In addition,  Dr. Fenster has been a director of East West Communications,
Inc. since 1985.

Wayne A. Harrison is a director of HCNB Bancorp and of Harbor  Capital  National
Bank.  Since 1983, Mr. Harrison has been the president of H.T.  Harrison & Sons,
Inc.,  a family  owned  roofing  and  building  contractor  which has been doing
business  in the  Washington,  D.C.  metropolitan  area for over 50  years.  Mr.
Harrison  has served as a director and  secretary  of East West  Communications,
Inc.  since 1995.  Mr.  Harrison is also the chairman and president of Twin Oaks
Stables, Inc.

Li-min Lee is Treasurer of HCNB  Bancorp.  She is a director of HCNB Bancorp and
of Harbor Capital National Bank. She is also the  Treasurer/Cashier of the Bank.
Ms. Lee is  currently a certified  public  accountant  and a principal of Yorke,
Burke and Lee, CPA's PA, where she has served as the vice president  since 1985.
Ms. Lee has served as vice president for Com-Tech International, Inc. since 1996
and as vice president of Crossover  International,  LLC since 1996. Ms. Lee is a
member of Jerico Forensic Accounting LLC and of YBL Financial Services LLC.

William J. Olsen is the President and Chief Executive  Officer of Harbor Capital
National Bank, and Vice President of HCNB Bancorp. He is also a director of HCNB
Bancorp and of Harbor Capital  National  Bank. Mr. Olsen,  also the Bank's Chief
Lending Officer,  is a credit trained  commercial banker with more than 26 years
of experience acquired at money center, regional and community banks. His client
base has included  professionals  as well as small to middle market  businesses,
and  his  primary   responsibilities   were  to  build  full   service   banking
relationships.  He moved to the  Baltimore-Washington  metropolitan area in 1993
and most  recently  served as a vice  president  at Crestar  Bank,  managing the
Maryland  region's  Professional  & Executive  and  Not-for-Profit  new business
efforts.

Robert K. Wang is a member of the board of  directors  of HCNB  Bancorp and Vice
Chairman of the Board of Harbor Capital National Bank. Mr. Wang is currently the
chairman and president of Comtech Micro Systems, Inc., which he founded in 1986.
Comtech Micro Systems,  Inc.  specializes in the manufacture and distribution of
micro  computers  and  related  products.  The  company  also  is an  authorized
distributor for major brand personal computers and related products.

Each  director and officer has served in their  respective  positions  since the
formation of the Company and Bank.


                                       35

<PAGE>

Board of Directors of the Bank. The following persons also serve as directors of
Harbor Capital National Bank.

Name                        Age          Position
----                        ---          --------

Craig S. Cohen              29           Director, Harbor Capital National Bank

Edward R. Kuan              42           Director, Harbor Capital National Bank

George H. Lowe, Jr.         39           Director, Harbor Capital National Bank

Stephen E. McGregor         51           Director, Harbor Capital National Bank

Marc L. Meisel              29           Director, Harbor Capital National Bank

James F. Whalen             39           Director, Harbor Capital National Bank

In addition, James M. Davin, age 55, has been nominated to serve on the Board of
Directors of Harbor Capital National Bank.  Before being considered  further for
election,  the nominee must be approved by the Office of the  Comptroller of the
Currency.

Craig S. Cohen is  currently  the Vice  President  of Leasing  for Ronald  Cohen
Investments, a real estate investment company located in Bethesda,  Maryland. He
has held that  position  since 1993.  Mr. Cohen is also a  stockholder,  officer
and/or partner in several other real estate holding companies.

James M.  Davin  is the  President  of  Davin  Capital  Corporation,  a  private
investment  company,  and the General Partner of Davin Capital,  L.P., a private
investment  partnership.  He has held these  positions  since 1994.  Previous to
these  positions,  Mr. Davin held several  senior level  positions in investment
banking companies,  including First Boston Corporation,  Drexel Burnham Lambert,
and Lehman Brothers. Mr. Davin served as Chairman and Vice Chairman of the Board
of Governors of the National  Association of Securities Dealers in 1987 and as a
board member from 1985 until 1988.

Edward R. Kuan is President of Belle Terre Development and Construction Company,
a real estate  development  firms, and of Monticello Homes Inc., a home building
company. Both are headquartered in Rockville,  Maryland.  Mr, Kuan is a licensed
building contractor.

George H. Lowe Jr. is the  President  and Chief  Executive  Officer of G. Lowe &
Associates,  Ltd.,  a  firm  involved  in  government  relations  and  financial
consulting.  Mr. Lowe is also the CEO of Potomac RiverJet,  Inc. and the General
Partner of Strategic  Investment  Holding,  LLC, an investment firm. Previous to
these positions,  Mr. Lowe was a commercial  banking officer with First American
Bank and Maryland National Bank.

Stephen E. McGregor is currently self employed as a financial  services advisor.
From 1997 until 1999,  Mr.  McGregor was the Executive  Vice President and Chief
Financial  Officer  of Key  Energy  Group,  Inc.  and from 1995 to 1997 he was a
Senior  Financial  Advisor of James D.  Wolfensohn,  Inc., a New York investment
banking firms.  Mr. McGregor is an attorney and has had extensive  experience at
the federal government level having served in both the Executive and Legislative
branches.

Marc L. Meisel is the Chief  Operating  Officer of Worldwide  Parking,  Inc., an
international  company  headquartered in Rockville,  Maryland.  He has held this
position since 1993.

James F. Whalen is President  and Owner of Investment  Properties,  Inc., a real
estate development company doing business in the Baltimore-Washington area.

Directors of Harbor Capital National Bank serve one year terms.

                                       36

<PAGE>

Executive officers of the Company and Bank
In addition to the officers who are also  directors of the Company and Bank,  as
noted  on the  preceeding  listing,  Michael  L.  Derr,  age 50,  serves  as the
Secretary of the Company and as Senior Vice President and Secretary of the Bank.

Michael  L.  Derr is the  Senior  Vice  President/Chief  Operating  Officer  and
Secretary of Harbor  Capital  National  Bank.  He is Secretary of HCNB  Bancorp.
Prior to joining the  organizing  efforts of Harbor  Capital  National Bank, Mr.
Derr was president of MLD Consulting,  Inc., a bank consulting company, which he
founded in 1998. Mr. Derr previously served as assistant vice president and vice
president of operations at The Bank of Glen Burnie from 1989 to 1998.  From 1972
to  1989,  Mr.  Derr  held  various  positions,   including  vice  president  of
operations, at Citizen Savings Bank, FSB.

There are no family  relationships among directors and executive officers of the
Company and/or Bank.


Section 16(a) Beneficial Ownership Reporting Compliance

No reports were filed under Section  16(a) of  Securities  Exchange Act of 1934.
The Company is not subject to the provisions of Section 16.


Item 10  EXECUTIVE COMPENSATION

For the years ended December 31, 2000 and 1999, no compensation  was paid by the
Company to any person serving as a director or officer.  All compensation  shown
on the consolidated statement of operations was paid by the Bank.

The following table sets forth the compensation  for Mr. Olsen,  Chief Executive
Officer of the Bank. Mr. Burke, Chief Executive Officer of the Company, received
no compensation from the Company as its Chief Executive Officer.

<TABLE>
<CAPTION>
                           Summary Compensation Table

Name & Principal Position                Year           Salary            Bonus           Other
---------------------------          ------------    -----------       -----------    -------------
<S>                                      <C>            <C>                 <C>             <C>
William J. Olsen                         2000           $129,308(1)         $4,375          $0
President/CEO,                           1999            $90,269(2)        $10,000          $0
Harbor Capital National Bank
<FN>

(1)      Of this salary amount, $12,000 was paid as an automobile allowance.

(2)      Of this salary amount, $9,500 was paid as an automobile allowance.
</FN>
</TABLE>

No other  executive  officer of the Bank had  compensation in excess of $100,000
for the fiscal years ended December 31, 1999 and 2000.

HCNB Bancorp entered into a written  employment  agreement with Mr. Olsen. Under
the  Agreement,  Mr. Olsen served as Vice President of HCNB Bancorp at an annual
base salary of $100,000, subject to annual review. The agreement terminated with
the opening of Harbor  Capital  National Bank and the execution of an employment
agreement with the Bank.

Under the  Agreement  with Harbor  Capital  National  Bank,  Mr. Olsen serves as
President of Harbor Capital  National Bank at an annual base salary of $100,000,
subject to annual  review,  and an initial  term of three  years,  automatically
renewable for one year terms unless  written  notice is provided by either party
90 days before  expiration of a term.  However,  either Harbor Capital  National
Bank or Mr. Olsen may terminate  his  employment at any time upon 30 days' prior
written  notice,  and Mr. Olsen may be terminated  for cause at any time without
prior  notice.  Harbor  Capital  National  Bank also  provides  Mr. Olsen with a
monthly  automobile  allowance  and benefits  available to other  employees.  At
December 31, 2000, Mr. Olsen annual base salary was $125,000.

                                       37

<PAGE>

Michael  J.  Burke,  Chairman  of the Board of  Harbor  Capital  National  Bank,
receives  compensation  in the annual  amount of $30,000 in  recognition  of his
responsibilities as Chairman.  Mr. Burke also receives  Board/committee  meeting
fees as outlined below.

All directors of Harbor Capital National Bank who are not salaried  employees of
the Bank  receive  fees for  attending  meetings  of the Board of  Directors  or
meetings of Board designated  committees.  For attendance at a Board meeting,  a
director  receives  $250;  for  attendance  at a committee  meeting,  a director
receives $100.

No directors fees were paid in 1999


Item 11  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following set forth information  regarding stock ownership of management and
holders of 5% or more of the Company's common stock as of March 15, 2001.

<TABLE>
<CAPTION>
                           Name & Address                         Amount & Nature of
Title of Class             Of Beneficial Owner                    Beneficial Ownership          Percent of Class
--------------             -------------------                    --------------------          ----------------

<S>                        <C>                                       <C>                               <C>
Common Stock               Warren Trepp                                69,300                            9.90
                           590 Lakeshore Boulevard                     (1)
                           Incline Village, NV  89450

Common Stock               Edward R. Kuan                              50,000                            7.14
                           11047 Cedarwood Drive                       Individual
                           Rockville, MD 20852

Common Stock               Sy-Pien Chow                                44,250                            6.32
                           706 Ivy League Lane                         Individual
                           Rockville, MD  20850

Common Stock               Michael J. Burke                            20,020                            2.86
                           21216 Christman Hill Terrace                (2)
                           Boyds, MD  20841

Common Stock               Chi Ping Chow                               17,700                            2.53
                           706 Ivy League Lane                         Individual
                           Rockville, MD  20852

Common Stock               Harvey S. Fenster                           10,100                            1.44
                           6316 Lenox Road                             (3)
                           Bethesda, MD  20817

Common Stock               Wayne A. Harrison                           21,094                            3.01
                           12709 High Meadow Road                      Individual
                           North Potomac, MD  20878

Common Stock               Li-Min Lee                                  47,750                            6.82
                           5 Maplecrest Court                          (4)
                           Potomac, MD  20854

Common Stock               William J. Olsen                            1,500                             0.21
                           8501 High Timber Court                      (5)
                           Ellicott City, MD  21043

                                       38
<PAGE>

<CAPTION>
                           Name & Address                         Amount & Nature of
Title of Class             Of Beneficial Owner                    Beneficial Ownership          Percent of Class
--------------             -------------------                    --------------------          ----------------

<S>                        <C>                                        <C>                               <C>
Common Stock               Robert K. Wang                              59,300                            8.47
                           9300 Inglewood Court                        (6)
                           Potomac, MD  20854

                           Officers and Directors                      178,464                          25.49%
                           As a group (8 persons)
<FN>

(1)  Stock is held in two separate  trusts,  34,650 shares in each, in which Mr.
     Trepp is the sole trustee.
(2)  Total includes  11,000 shares held  individually;  4,020 shares held in Mr.
     Burke's  IRA;  and,  5,000  shares held in a trust over which Mr. Burke has
     control.
(3)  Total  includes  100  shares  held  individually  and  10,000  held  by Dr.
     Fenster's pension plan.
(4)  Total  includes  4,150 shares held  individually;  3,080 shares held in Ms.
     Lee's IRA; and 34,750 shares held jointly with others.  In addition,  5,250
     shares are owned by Ms. Lee's  husband,  Dar-Ning  Kung, in his IRA and 520
     shares are held by her son, Albert Kung.
(5)  Total  includes 200 shares held  individually,  300 shares held jointly and
     1,000 shares held in Mr. Olsen's IRA.
(6)  Total includes 7,300 shares held  individually  and 52,000 shares held in a
     trust with Mr. Wang as sole trustee.
</FN>
</TABLE>


Item 12  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Bank has had, and expects to have in the future, banking transactions in the
ordinary  course of business with the Company's and Bank's  directors,  officers
and employees and their associates. In the past, all such transactions have been
on  the  same  terms,  including  interest  rates,   maturities  and  collateral
requirements as those  prevailing at the time for comparable  transactions  with
non-affiliated  persons  and  did not  involve  more  than  the  normal  risk of
collectibility or present other unfavorable features.


Item 13  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibit No.     Description of Exhibits

         3(i)            Articles of Incorporation of the Company  (incorporated
                         by  reference  to  Exhibit  3.1  of  the   Registration
                         Statement on Form SB-2, File No. 333-73385)

         3(ii)           Bylaws of the Company  (incorporated  by  reference  to
                         Exhibit 3.2 of the Registration Statement on Form SB-2,
                         File No. 333-73385)

         10.1            Employment  Agreement  between William J. Olsen and the
                         Bank  (incorporated by reference to Exhibit 10.3 of the
                         Registration   Statement   on  Form   SB-2,   File  No.
                         333-73385)

         10.2            Employment  Agreement  between  Michael L. Derr and the
                         Bank  (incorporated by reference to Exhibit 10.4 of the
                         Registration   Statement   on  Form   SB-2,   File  No.
                         333-73385)

         10.3            Lease Agreement between HCNB Bancorp,  Inc. and Federal
                         Realty  Investment Trust  (incorporated by reference to
                         Exhibit  10.5  of the  Registration  Statement  on Form
                         SB-2, File No. 333-73385).

         21              Subsidiaries   of  the  Registrant   (incorporated   by
                         reference to Exhibit 21.1 of the Registration Statement
                         on Form SB-2, File No. 333-73385)

(b) No reports on Form 8-K were filed by the Company  during the fourth  quarter
of the year ended December 31, 2000.

                                       39

<PAGE>

                                   Signatures

In  accordance  with  Section  13 or 15(d) of the  Securities  Act of 1934,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                              HCNB Bancorp, Inc.
                                              ----------------------------------
                                              (Registrant)
-
                                         By:  /s/ Michael J. Burke
                                              ----------------------------------
                                              Michael J. Burke.
                                              Chairman of the Board/President


Date:  March 27, 2001

In accordance  with the  Securities  Exchange Act of 1934,  this report has been
signed  below by the  following  persons  on  behalf  of the  registrant  and in
capacities and on the dates indicated.

       Signature                        Title                          Date
       ---------                        -----                          ----

/s/ Michael J. Burke        Chairman of the Board/President       March 27, 2001
-----------------------     (Principal Executive Officer)
Michael J. Burke

/s/ Chi Ping Chow           Director                              March 27, 2001
-----------------------
Chi Ping Chow

/s/ Harvey S. Fenster       Director                              March 27, 2001
-----------------------
Harvey S. Fenster

/s/ Wayne A. Harrison       Director                              March 27, 2001
-----------------------
Wayne A. Harrison

/s/ Li-Min Lee              Director/Treasurer                    March 27, 2001
-----------------------     (Principal Financial Officer and
Li-Min Lee                  Principal Accounting Officer)


/s/ William J. Olsen        Director/Vice President               March 27, 2001
-----------------------
William J. Olsen

/s/ Robert K. Wang          Director                              March 27, 2001
-----------------------
Robert K. Wang


                                       40

<PAGE>

           SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
         PURSUANT TO SECTION 15(d) OF THE EXCHANGE ACT BY NON-REPORTING
                                     ISSUERS


HCNB  Bancorp,  Inc. has not sent and will not send to its  security  holders an
annual report other than this Annual Report on Form 10-KSB.  HCNB Bancorp,  Inc.
intends to provide proxy materials to its security holders on or about April 23,
2001. A copy of such  materials will be furnished to the Securities and Exchange
Commission for its  information,  and HCNB Bancorp,  Inc.  understands that such
materials  will not be considered to be filed or subject to the  liabilities  of
Section 18 of the Exchange Act.




                                       41