<PAGE>

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                  FORM 10-KSB

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

For the Fiscal Year Ended December 31, 1999

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

For the transition period from __________ to __________

Commission file number 000-26033

                         First Deposit Bancshares, Inc.
                 (Name of small business issuer in its charter)

            Georgia                                          58-2443683
(State or other jurisdiction                                   (I.R.S.
of incorporation or organization)                   Employer Identification No.)

       8458 Campbellton Street
        Douglasville, Georgia                                 30134-1803
(Address of principal executive offices)                      (Zip code)

Issuer's telephone number  (770) 942-5108

Securities Registered pursuant to Section 12(b) of the Act:  None

Securities Registered pursuant to Section 12(g) of the Act:  Common Stock, no
  par

     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.  Yes  X
                                                                        ---
No
   ---

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

     State issuer's revenues for its most recent fiscal year:  $8,739,704

     State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price of which the common
equity was sold, or the average bid and asked price of such common equity as of
March 15, 2000.  $11,590,750

     State the number of shares outstanding at each of the issuer's classes of
common equity as of March 15, 2000.  1,449,000 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy Statement for the 2000 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission within 120 days of the
Registrant's 1999 fiscal year end are incorporated by reference into Part III of
this report.
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                                    PART I
                                    ------

ITEM 1.   DESCRIPTION OF BUSINESS

The Company

     First Deposit Bancshares, Inc. ("First Deposit") is a Georgia corporation
was organized on February 22, 1999 for the purpose of acquiring all the capital
stock of Douglas Federal Bank, FSB (the "Bank").  First Deposit is a savings
association holding company and is regulated by the Office of Thrift
Supervision.  On July 8, 1999, First Deposit completed an initial public
offering and conversion of the Bank from a mutual organization to a stock
organization.  First Deposit was capitalized from the sale of 1,575,000 shares
of common stock to the public, or $15,750,000 in total subscriptions.

The Bank

     General.  The Bank was originally organized in 1960 as a federally-
chartered savings bank. The Bank's deposit accounts are insured to the maximum
allowable amount by the Savings Association Insurance Fund as administered by
the Federal Deposit Insurance Corporation.

     The Bank is a community-oriented savings institution whose principal
business consists of accepting retail deposits from the general public in its
primary market area. The Bank's primary market area for lending consists of
Douglas and Paulding Counties, Georgia. The Bank invests those deposits,
together with funds generated from operations and borrowings, primarily in one-
to four-family residential mortgage loans, construction loans, commercial real
estate loans, automobile loans and, to a much lesser extent, commercial loans
and consumer loans. The Bank also invests in government issued and sponsored
mortgage- backed securities, securities issued by the U.S. Government and
agencies thereof, and other investments permitted by applicable laws and
regulations.

     The Bank has a wholly-owned service subsidiary, Pinehurst Properties, LLC,
that holds the Bank's real estate owned and owns real property for residential
development purposes.

     Market Area and Competition.  The Bank is headquartered in Douglasville,
Georgia.  The Bank's primary market area is comprised of the counties of Douglas
and Paulding, Georgia, which are serviced through the main office and a full
service branch office. The main office is located in downtown Douglasville, and
the branch office is located approximately 10 miles from the main office.

     Douglasville is located approximately 25 miles from Atlanta, Georgia and is
accessible from Interstate 20, a major Interstate running east to west through
Georgia. The easy accessibility to Douglas County and its close proximity to
Atlanta, Georgia has resulted in the Douglas County being among one of the
fastest growing areas in the country in recent years. Management believes that
our market area continues to show economic growth with stable to moderately
increasing real estate values.

     The Bank faces significant competition both in generating loans and in
attracting deposits. The Bank's primary market area is highly competitive and
the Bank faces direct competition from a significant number of financial
institutions, many with a statewide or regional presence and, in some cases, a
national presence. Many of these financial institutions are significantly larger
and have greater financial resources than the Bank. Competition for loans comes
principally from commercial banks, savings banks, credit unions, mortgage
brokers, mortgage banking companies, and insurance companies. In addition, the
Bank has recently faced significant competition for first mortgage loans on new
home construction from builders who have been offering financing for purchasers
of new homes in the builders' development projects. The Bank's most direct
competition for deposits has historically come from savings, commercial banks,
and credit unions. In addition, the Bank faces significant competition for
deposits from non-bank institutions such as brokerage firms and insurance
companies in such instruments as short-term money market funds, corporate and
government securities funds, mutual funds, and annuities. Competition may also
increase as a result of the lifting of restrictions on the interstate operations
of financial institutions. The Bank has also experienced significant competition
from credit unions, which have a competitive
<PAGE>

advantage because they do not pay state or federal income taxes. Such
competitive advantage has placed increased pressure in respect to loan and
deposit pricing.

     Lending Activities.  The Bank's loan portfolio consists primarily of first
mortgage loans secured by one- to four-family residences.   The types of loans
originated are subject to federal laws and regulations. Interest rates charged
on loans are affected by the demand for such loans, the supply of money
available for lending purposes and the rates offered by competitors. These
factors are, in turn, affected by, among other things, economic conditions,
monetary policies of the federal government, including the Federal Reserve Board
and legislative tax policies.

     The Bank's mortgage lending activities are conducted primarily by loan
personnel operating in two offices. In- market loan originations are generated
by our marketing efforts, which include print, radio and television advertising,
lobby displays and direct contact with local civic organizations, as well as
present customers, walk-in customers and referrals from real estate agents,
brokers and builders. The Bank underwrites loans it originates pursuant to
policies and procedures and generally underwrites in accordance with Fannie Mae,
Freddie Mac, Federal Housing Administration, and Department of Veterans Affairs
underwriting standards. The Bank originates both adjustable-rate and fixed-rate
loans. It's ability to originate fixed- or adjustable-rate loans is dependent
upon the relative customer demand for such loans, which is affected by the
current and expected future level of interest rates. In recent years, the Bank
has originated primarily fixed-rate loans as a result of low customer demand for
adjustable-rate loans given the prevailing low interest rate environment.
Generally, the Bank holds loans originated for investment, although the Bank
frequently sells fixed-rate loans originated through the secondary market.

     Included in the one- to four-family loan portfolio are home equity loans.
The Bank originates home equity loans that are secured by a lien on the
borrower's residence and generally do not exceed $250,000. The Bank uses the
same underwriting standards for home equity loans as for one- to four-family
residential mortgage loans. Home equity loans are generally originated in
amounts which, together with all prior liens on such residence, do not exceed
90.0% of the appraised value of the property securing the loan. The interest
rates for home equity loans either float at a stated margin over the prime rate
or have fixed interest rates.

     The Bank originates commercial real estate loans that are generally secured
by properties used for business purposes such as office buildings, schools,
nursing homes, retail stores and churches located in its primary market area.
The Bank lends to local churches to fund construction of or renovations to
church facilities. Such loans are adjustable rate mortgages and fixed-rate loans
with a maximum loan to value ratio of 80.0%.  Commercial real estate loans
generally have adjustable rates and terms to maturity that do not exceed 15
years. The Bank's current lending guidelines generally require that the loan to
value ratio on property securing commercial real estate loans and multi-family
loans not exceed 80.0%. Adjustable-rate commercial real estate loans provide for
interest at a margin over a designated index, often a designated prime rate,
with periodic adjustments, generally at frequencies of up to five years.

     The Bank originates construction loans for the development of residential
and commercial property, including speculative loans. Construction loans are
offered primarily to experienced local developers and builders operating in the
Bank's market area. The majority of construction loans are originated to finance
the construction by developers and builders of one- to four-family residential
real estate and, to a lesser extent, multi-family and commercial real estate
properties located in the Bank's primary market area. Construction loans are
generally offered with terms of up to 12 months and may be made in amounts of up
to 75.0% of the appraised value of the property on multi-family and commercial
real estate construction and 80.0% on one- to four-family residential
construction. Land loans are made in amounts up to 60.0% of the appraised value
of the land securing the loan.

     The Bank originates consumer loans which consist primarily of new and used
automobile loans and loans secured by deposit accounts. Such loans are generally
originated in the Bank's primary market area and generally are secured by
deposit accounts, personal property and automobiles.
<PAGE>

     The Bank's Board of Directors establishes the Bank's lending policies. Such
policies provide that the President, Executive Vice President and other Vice
Presidents may approve installment loans up to $25,000 and personal loans up to
$5,000. The Bank's Executive Committee may approve loans in excess of these
limits. The Executive Committee approves all new loans over $300,000 and all
maturing loans with aggregate balances over $500,000. The Bank has loan review
personnel who submit a written report to the Executive Committee and the full
Board of Directors each quarter, evaluating the quality and trend of the loan
portfolio. Loan review personnel are independent of loan officers and lending
responsibilities.

     Federal regulations and the Bank's Asset Classification Policy require that
management utilize an internal asset classification system as a means of
reporting problem and potential problem assets. The Bank has incorporated the
Office of Thrift Supervision internal asset classifications as a part of its
credit monitoring system. The Bank currently classifies problem and potential
problem assets as "Substandard," "Doubtful" or "Loss" assets. An asset is
considered "Substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "Doubtful" have all of the weaknesses
inherent in those classified "Substandard" with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions and values, "highly questionable and
improbable." Assets classified as "Loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets which do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "Special Mention."

     When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
General valuation allowances represent loss allowances which have been
established to recognize the inherent risk associated with lending activities,
but which, unlike specific allowances, have not been allocated to particular
problem assets. When an insured institution classifies one or more assets, or
portions thereof, as "Loss," it is required either to establish a specific
allowance for losses equal to 100% of the amount of the asset so classified or
to charge off such amount.

     A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
Office of Thrift Supervision which can order the establishment of additional
general or specific loss allowances. The Office of Thrift Supervision, in
conjunction with the other federal banking agencies, has adopted an interagency
policy statement on the allowance for loan and lease losses. The policy
statement provides guidance for financial institutions on both the
responsibilities of management for the assessment and establishment of adequate
allowances and guidance for banking agency examiners to use in determining the
adequacy of general valuation guidelines. Generally, the policy statement
recommends that institutions have effective systems and controls to identify,
monitor and address asset quality problems; that management has analyzed all
significant factors that affect the collectibility of the portfolio in a
reasonable manner; and that management has established acceptable allowance
evaluation processes that meet the objectives set forth in the policy statement.
Although management believes that, based on information currently available to
it at this time, its allowance for loan losses is adequate, actual losses are
dependent upon future events and, as such, further additions to the level of
allowances for loan losses may become necessary.

     The Bank's Investment Committee reviews and classifies it's assets on a
regular basis and the Board of Directors reviews the results of the reports on a
quarterly basis. The Bank classifies assets in accordance with the management
guidelines described above.

     The Bank's policy is to cease accruing interest on loans 90 days or more
past due and to charge-off all accrued interest. The Bank does, however,
continue accruing interest on loans 90 days or more past due that are in the
process of being renewed or extended.

     The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of the risks inherent in our loan
portfolio and the general economy. The allowance for loan losses is
<PAGE>

maintained at an amount management considers adequate to cover estimated losses
on loans which are deemed probable and estimable based on information currently
known to management. The allowance is based upon a number of factors, including
economic conditions, actual loss experience and industry trends. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review our allowance for loan losses. Such agencies may require us
to make additional provisions for estimated loan losses based upon judgments
different from those of management. The Bank continually monitors the allowance
for loan losses as conditions dictate. While management believes the allowance
for loan losses is sufficient to cover losses inherent in the loan portfolio, no
assurances can be given that the level of allowance for loan losses will be
sufficient to cover loan losses incurred, or that future adjustments to the
allowance for loan losses will not be necessary if economic and other conditions
differ substantially from the economic and other conditions used by management
to determine the current level of the allowance for loan losses.

     Investment Activities.  The Bank invests in various types of liquid assets,
including U.S. Treasury obligations with terms of five years or less and are
rated by a highly regarded rating service, such as Standard & Poors, as AA or
better. The Bank also invests in mutual funds whose assets conform to the
investments that the Bank is otherwise authorized to make directly, including
equity securities, such as Freddie Mac and Fannie Mae stock.

     Generally, the Bank's investment policy is to invest funds among various
categories of investments and maturities based upon its need for liquidity, to
achieve the proper balance between it's desire to minimize risk and maximize
yield, and, to a much lesser extent, to provide collateral for borrowings and to
fulfill our asset/liability management policies. The Bank's investment strategy
has been directed toward high-quality assets with short and intermediate terms
to maturity. These high quality assets consist primarily of U.S. Treasury
obligations, Federal agency obligations and high-grade corporate debt
securities.

     Management determines the appropriate classification of securities at the
time of purchase. If management has the intent and ability to hold debt
securities to maturity, they are stated at amortized cost. If securities are
purchased for the purpose of selling them in the near term, they are classified
as trading securities and are reported at fair value with unrealized holding
gains and losses reflected in current earnings. All other debt and equity
securities are classified as securities available for sale and are reported at
fair value, with net unrealized gains or losses reported, net of income taxes,
as a separate component of equity. As a member of the Federal Home Loan Bank of
Atlanta, The Bank is required to hold Federal Home Loan Bank of Atlanta stock
which is carried at cost since there is no readily available market value.
Historically, the Bank has not held any securities considered to be trading
securities.

     Sources of Funds.  Deposits, loan repayments and prepayments, maturities of
securities and cash flows generated from operations are the primary sources of
our funds for use in lending, investing and for other general purposes.

     The Bank offers a variety of deposit accounts with a range of interest
rates and terms. These deposits consist of passbook and statement savings
accounts, money market accounts, transaction accounts and time deposits
currently ranging in terms from one to five years.  The flow of deposits is
influenced significantly by general economic conditions, changes in money market
rates, prevailing interest rates and competition. These deposits are obtained
predominantly from the areas surrounding the Bank's offices. The Bank has
historically relied primarily on providing a higher level of customer service
and long-standing relationships with customers to attract and retain these
deposits and also rely on competitive pricing policies and advertising; however,
market interest rates and rates offered by competing financial institutions
significantly affect our ability to attract and retain deposits. The Bank has
become more susceptible to short-term fluctuations in deposit flows, as
customers have become more interest rate conscious. The Bank manages the pricing
of deposits in keeping with the asset/liability management, liquidity and
profitability objectives. Based on experience, management believes that passbook
and statement savings, money market accounts and transaction accounts are
relatively stable sources of deposits. Time deposits have been a relatively
stable source of funds as well, however, the ability to attract and maintain
time deposits and the rates paid on these deposits has been and will continue to
be significantly affected by market conditions.
<PAGE>

     As part of the Bank's operating strategy, management has utilized advances
from the Federal Home Loan Bank as an alternative to retail deposits to fund
operations when borrowings are less costly and can be invested at a positive
interest rate spread or when the Bank needs additional funds to satisfy loan
demand. By utilizing Federal Home Loan Bank advances, which possess varying
stated maturities, the Bank can meet liquidity needs without otherwise being
dependent upon retail deposits and revising deposit rates to attract retail
deposits, which have no stated maturities, except for certificates of deposit,
which are interest rate sensitive and which are subject to withdrawal from us at
any time. These Federal Home Loan Bank advances are collateralized primarily by
certain mortgage loans and secondarily by capital stock of the Federal Home Loan
Bank. Federal Home Loan Bank advances are made pursuant to several different
credit programs, each of which has its own interest rate and range of
maturities. The maximum amount that the Federal Home Loan Bank will advance to
member institutions, including us, fluctuates from time to time in accordance
with the policies of the Federal Home Loan Bank.

Pinehurst Properties, LLC

     The Bank's service corporation subsidiary, Pinehurst Properties, LLC, is
involved in the development of residential real estate. Pinehurst Properties is
involved in two developments. One is a gated residential community consisting of
33 lots, of which 29 had been sold as of December 31, 1999. The second
development is a more traditional subdivision project that has been divided into
two phases; Phase I consists of 61 lots and Phase II consists of 81 lots.
Fifty-six lots in aggregate have been sold as of December 31, 1999.

Employees

     As of December 31, 1999, the Bank had 48 total employees and 46 full-time
equivalent employees.  The Bank is not a party to any collective bargaining
agreement and, in the opinion of management, the Bank enjoys satisfactory
relations with its employees.  There currently are no employees of First
Deposit.


                           REGULATION AND SUPERVISION

General

     The Bank is subject to extensive regulation, examination, and supervision
by the Office of Thrift Supervision ("OTS"), as its chartering agency, and the
Federal Deposit Insurance Corporation ("FDIC"), as its deposit insurer. The
Bank's deposit accounts are insured up to applicable limits by the SAIF
administered by the FDIC, and the Bank is a member of the Federal Home Loan Bank
of Atlanta. The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, and it must obtain regulatory approvals
prior to entering into certain transactions, such as mergers with, or
acquisitions of other depository institutions. The OTS and the FDIC conduct
periodic examinations to assess the Bank's compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which a savings association can engage and is
intended primarily for the protection of the insurance fund and depositors. The
Company, as a savings association holding company, is also required to file
certain reports with, and otherwise comply with, the rules and regulations of
the OTS and of the Securities and Exchange Commission (the "SEC") under the
federal securities laws.

     The OTS and the FDIC have a significant discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
policies, whether by the OTS, the FDIC or the Congress, could have a material
adverse impact on the Company, the Bank and the operations of both.

     The following discussion is intended to be a summary of the material
statutes and regulations applicable to savings associations and their holding
companies, and it does not purport to be a comprehensive description of all such
statutes and regulations.
<PAGE>

Financial Services Modernization Legislation

     On November 12, 1999, President Clinton signed into law the Gramm-Leach-
Bliley Financial Services Modernization Act of 1999 (the "GLBA"), federal
legislation intended to modernize the financial services industry by
establishing a comprehensive framework to permit affiliations among commercial
banks, insurance companies, securities firms and other financial service
providers. Generally, the GLBA:

  .  repeals the historical restrictions and eliminates many federal and state
     law barriers to affiliations among banks, securities firms, insurance
     companies and other financial service providers;

  .  provides a uniform framework for the functional regulation of the
     activities of banks, savings institutions and their holding companies;

  .  broadens the activities that may be conducted by national banks, banking
     subsidiaries of bank holding companies and their financial subsidiaries;

  .  provides an enhanced framework for protecting the privacy of consumer
     information;

  .  adopts a number of provisions related to the capitalization, membership,
     corporate governance and other measures designed to modernize the Federal
     Home Loan Bank system;

  .  modifies the laws governing the implementation of the Community
     Reinvestment Act; and

  .  addresses a variety of other legal and regulatory issues affecting both
     day-to-day operations and long-term activities of financial institutions.

     The GLBA also restricts the powers of new unitary savings and loan
association holding companies. Unitary savings and loan holding companies that
are "grandfathered," i.e., unitary savings and loan holding companies in
existence or with applications filed with the OTS on or before May 4, 1999, such
as the Company, retain their authority under the prior law. All other unitary
savings and loan holding companies are limited to financially related activities
permissible for bank holding companies, as defined under the GLBA. The GLBA also
prohibits non-financial companies from acquiring grandfathered unitary savings
and loan association holding companies.

     The GLBA also requires financial institutions to disclose, on ATM machines,
any non-customer fees and to disclose to their customers upon the issuance of an
ATM card any fees that may be imposed by the institutions on ATM users. For
older ATMs, financial institutions will have until December 31, 2004 to provide
such notices.

     The OTS has recently proposed regulations implementing the privacy
protection provisions of the GLBA. The proposed regulations would require each
financial institution to adopt procedures to protect customers' and consumers'
"nonpublic personal information" by November 13, 2000. The Bank would be
required to disclose its privacy policy, including identifying with whom it
shares "nonpublic personal information," to customers at the time of
establishing the customer relationship and annually thereafter. In addition, the
Bank would be required to provide its customers with the ability to "opt-out" of
having the Bank share their personal information with unaffiliated third
parties. The GLBA also provides for the ability of each state to enact
legislation that is more protective of consumers' personal information.

     The Company believes that the GLBA will not have a material adverse effect
on its operations or those of the Bank in the near-term. However, to the extent
that it permits banks, securities firms and insurance companies to affiliate,
the financial services industry may experience further consolidation. This could
result in a growing number
<PAGE>

of larger financial institutions that offer a wider variety of financial
services than the Bank currently offers and that can aggressively compete in the
markets the Bank currently serves.


Regulations of Federal Savings Associations

     Business Activities. The Bank derives its lending and investment powers
from the Home Owners' Loan Act, as amended (the "HOLA"), and the regulations of
the OTS thereunder. Under these laws and regulations, the Bank may invest in
mortgage loans secured by residential and commercial real estate, commercial and
consumer loans, certain types of debt securities, and certain other assets. The
Bank may also establish service corporations that may engage in activities not
otherwise permissible for the Bank, including certain real estate equity
investments and securities and insurance brokerage. These investment powers are
subject to various limitations, including (a) a prohibition against the
acquisition of any corporate debt security that is not rated in one of the four
highest rating categories; (b) a limit of 20% of an association's assets on the
aggregate amount of commercial loans; (d) a limit of 35% of an association's
assets on the aggregate amount of consumer loans and acquisitions of certain
debt securities; (e) a limit of 5% of assets or an association's capital on
certain construction loans made for the purpose of financing what is or is
expected to become residential property.

     Loans to one borrower. Under the HOLA, savings associations are generally
subject to the same limits on loans to one borrower as are imposed on national
banks. Generally, under these limits, a savings association may not make a loan
or extend credit to a single or related group of borrowers in excess of 15% of
the association's unimpaired capital and surplus. Additional amounts may be
lent, not in excess of 10% of impaired capital and surplus, if such loans or
extensions of credit are fully secured by readily marketable collateral. Such
collateral is defined to include certain debt and equity securities and bullion
but generally does not include real estate. At December 31, 1999, the Bank's
regulatory limit on loans to one borrower was approximately $2,599,000. The Bank
is in compliance with all applicable limitations on loans to one borrower.

     QTL Test. The HOLA requires a savings association to meet a qualified
thrift lender, or "QTL" test. Under the QTL test, a savings association is
required to maintain at least 65% of its "portfolio assets" in certain
"qualified thrift investments" in at least nine months of the most recent 12-
month period. "Portfolio assets" means in general, an association's total assets
less the sum of (a) specified liquid assets up to 20% of total assets, (b)
certain intangibles, including goodwill and credit card and purchased mortgage
servicing rights, and (c) the value of property used to conduct the
association's business. "Qualified thrift investments" includes various types of
loans made for residential and housing purposes, investments related to such
purposes, including certain mortgage-backed and related securities, consumer
loans, small business loans, educational loans, and credit card loans. At
December 31, 1999, the Bank maintained 81.59% of its portfolio assets in
qualified thrift investments. The Bank had also met the QTL test in each of the
prior 12 months and was, therefore, a qualified thrift lender. A savings
association may also satisfy the QTL test by qualifying as a "domestic building
and loan association" as defined in the Internal Revenue Code of 1986.

     A savings association that fails the QTL test must either operate under
certain restrictions on its activities or convert to a bank charter. The initial
restrictions include prohibitions against (a) engaging in any new activity not
permissible for a national bank, (b) paying dividends not permissible under
national bank regulations, (c) obtaining new advances from any Federal Home Loan
Bank and (d) establishing any new branch office in a location not permissible
for a national bank in the association's home state. In addition, within one
year of the date that a savings association ceases to meet the QTL test, any
company controlling the association would have to register under, and become
subject to the requirements of, the Bank Holding Company Act of 1956, as amended
(the "BHC Act"). If the savings association does not requalify under the QTL
test within the three-year period after it failed the QTL test, it would be
required to terminate any activity and to dispose of any investment not
permissible for a national bank and would have to repay as promptly as possible
any outstanding advances from a Federal Home Loan Bank. A savings association
that has failed the QTL test may requalify under the QTL test and be free of
such limitations, but it may only do so once.
<PAGE>

     Capital Requirements. The OTS regulations require savings associations to
meet three minimum capital standards: a tangible capital to adjusted total
assets as adjusted under the OTS regulations, a leverage ratio requirement of 4%
of core capital to such adjusted assets and a risk-based capital ratio
requirement of 8% of total risk-based capital to total risk-weighted assets. In
determining compliance with the risk-based capital requirement, a savings
association must compute its risk-weighted assets by multiplying its assets and
certain off balance sheet items by risk weights, which range from 0% for cash
and obligations issued by the United States Government or its agencies to 100%
for consumer and commercial loans, as assigned by the OTS capital regulations
based on the risks the OTS believes are inherent in the type of asset. Tangible
capital is defined, generally, as common shareholders' equity (including
retained earnings), certain noncumulative perpetual preferred stock and related
earnings), certain noncumulative perpetual preferred stock and related earnings
and minority interests in equity accounts of fully consolidated subsidiaries,
less intangibles (other than certain purchased mortgage servicing rights) and
investments in and loans to subsidiaries engaged in activities not permissible
for a national bank. Core capital is defined similarly to tangible capital, but
core capital also includes certain qualifying supervisory goodwill and certain
purchased credit card relationships. Supplementary capital currently includes
cumulative and other perpetual preferred stock, mandatory convertible
securities, subordinated debt and intermediate preferred stock and the allowance
for loan and lease losses. The allowance for loan and lease losses includable in
supplementary capital is limited to a maximum of 1.25% of risk- weighted assets,
and the amount of supplementary capital that may be included as total capital
cannot exceed the amount of core capital. The OTS has promulgated a regulation
that requires a savings association with "above normal" interest rate risk, when
determining compliance with its risk-based capital requirement, to hold
additional capital to account for its "above normal" interest rate risk. Pending
resolution of related regulatory issues, the OTS has deferred enforcement of
this regulation. An institution with assets of less than $300 million and risk-
based capital ratio in excess of 12% is not subject to the interest rate risk
component, unless the OTS determines otherwise. The rule also provides that the
Director of the OTS may waive or defer an institution's interest rate risk
component on a case- by case basis. The OTS has indefinitely deferred the
implementation of the interest rate component in the computation of an
institution's risk-based capital requirements. The OTS continues to monitor the
interest rate risk of individual institutions and retains the right to impose
additional capital requirements on individual institutions.

     Limitations on Capital Distributions. OTS regulations currently impose
limitations upon capital distributions by savings associations, such as cash
dividends, payments to repurchase or otherwise acquire its shares, payments to
shareholders of another institution in a cash-out merger and other distributions
charged against capital. At least 30-days written notice must be given to the
OTS of a proposed capital distribution by a savings association, and capital
distributions in excess of specified earnings or by certain institutions are
subject to approval by the OTS. An association that has capital in excess of all
fully phased-in regulatory capital requirements before and after a proposed
capital distribution may, after prior notice but without the approval of the
OTS, make capital distributions during a calendar year equal to the greater of
(a) 100% of its net earnings to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (b) 75% of its net earnings for the previous four quarters. Any
additional capital distributions would require prior OTS approval. In addition,
the OTS can prohibit a proposed capital distribution, otherwise permissible
under the regulations, if the OTS has determined that the association is in need
of more than normal supervision or if it determines that a proposed distribution
by an association would constitute an unsafe or unsound practice.

     Assessments. Savings associations are required by OTS regulations to pay
assessments to the OTS to fund the operations of the OTS. The general
assessment, paid on a semiannual basis, is computed upon the savings
association's total assets, including consolidated subsidiaries, as reported in
the association's latest quarterly Thrift Financial Report. During 1999, the
Bank paid total assessments of $54,384.

     Branching. Subject to certain limitations, the HOLA and the regulations of
the OTS permit federally chartered savings associations to establish branches in
any state of the United States. The authority to establish such branches is
available (a) in states that expressly authorize branches of savings
associations located in another state or (b) to an association that either
satisfies the "QTL" test for a qualified thrift lender or qualifies as a
"domestic building and loan association" under the Internal Revenue Code of
1986, which composes qualification requirements similar to those for a
"qualified thrift lender" under the HOLA. The authority for a federal savings
<PAGE>

association to establish an interstate branch network would facilitate a
geographic diversification of the association's activities. This authority under
the HOLA and the OTS regulations preempts any state law purporting to regulate
branching by federal savings associations.

     Community Reinvestment. Under the Community Reinvestment Act (the "CRA"),
as implemented by OTS regulations, a savings association has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. 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. The CRA
requires the OTS, in connection with its examination of a savings association,
to assess the association's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such association. The CRA also requires all institutions to make public
disclosure of their CRA ratings. The Bank received an "Outstanding" CRA rating
in its most recent examination.

     In April 1995, the OTS and the other federal banking agencies adopted
amendments revising their CRA regulations. Among other things, the amended CRA
regulations substitute for the prior process-based assessment factors a new
evaluation system that would rate an institution based on its actual performance
in meeting community needs. In particular, the system will focus on three tests:
(a) a lending test, to evaluate the institution's record of making loans in its
assessment areas; (b) an investment test, to evaluate the institutions record of
investing in community development projects, affordable housing, and programs
benefiting low or moderate income individuals and businesses; and (c) a service
test, to evaluate the institution's delivery of services through its branches,
ATMs and other offices. The amended CRA regulations also clarify how an
institution's CRA performance would be considered in the application process.

     Transactions with Related Parties. The Bank's authority to engage in
transactions with its "affiliates" is limited by the OTS regulations and by
Sections 23A and 23B of the Federal Reserve Act (the "FRA"). In general, an
affiliate of the Bank is any company that controls the Bank or any other company
that is controlled by a company that controls the Bank or any other company that
is controlled by a company that controls the Bank, excluding the Banks'
subsidiaries other than those that are insured depository institutions. The OTS
regulations prohibit a savings association (a) from lending to any of its
affiliates that is engaged in activities that are not permissible for bank
holding companies under Section 4(c) at the BHC Act and (b) from purchasing the
securities of any affiliates other than a subsidiary. Section 23A limits the
aggregate amount of transactions with all affiliates to 20% of the savings
association's capital and surplus. 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. Section 23B provides that certain transactions with affiliates,
including loans and asset purchases, must be on terms and under circumstances,
including credit standards, that are substantially the same or at least as
favorable to the association as those prevailing at the time for comparable
transactions with nonaffiliated companies. In the absence of comparable
transactions, such transactions may only occur under terms and circumstances,
including credit standards, which in good faith would be offered to or would
apply to nonaffiliated companies.

     The Bank's authority to extend credit to its directors, executive officers,
and 10% or more shareholders, as well as to entities controlled by such persons,
is currently governed by the requirements of Section 22(g) and 22(h) of the FRA
and Regulation O. Among other things, these provisions require that extensions
of credit to insiders (a) be made on terms that are substantially the same as,
and follow credit underwriting procedures that are not less stringent than,
those prevailing for comparable transactions with unaffiliated persons and that
do not involve more than the normal risk of repayment or present other
unfavorable features and (b) not exceed certain limitations on the amount of
credit extended to such persons, individually and in the aggregate, which limits
are based, in part, on the amount of the association's capital. In addition,
extensions of credit in excess of certain limits must be approved by the
association's board of directors.

     Enforcement. Under the Federal Deposit Insurance Act (the "FDIC Act"), the
OTS has primary enforcement responsibility over savings associations and has the
authority to bring enforcement action against all
<PAGE>

"institution affiliated parties," including any controlling stockholder,
attorney, appraiser or accountant who knowingly or recklessly participates in
any violation of applicable law or regulation or breach of fiduciary duty or
certain other wrongful actions that causes or is likely to cause more than a
minimal loss or other significant adverse effect on an insured savings
association. Civil penalties cover a wide range of violations and actions and
range from $5,000 for each day during which violations of law, regulations,
orders, and certain written agreements and conditions continue, up to $1 million
per day for such violations if the person obtained a substantial pecuniary gain
as a result of such violation or knowingly or recklessly caused a substantial
loss to the institution. Criminal penalties for certain financial institution
crimes include fines up to $1 million and imprisonment for up to 30 years. In
addition, regulators have substantial discretion to take enforcement action
against an institution that fails to comply with its regulatory requirements,
particularly with respect to its capital requirements. Possible enforcement
actions range from the imposition of a capital plan and capital directive to
receivership, conservatorship, or the termination of deposit insurance. Under
the FDI Act, the FDIC has the authority to recommend to the Director of OTS that
enforcement action be taken with respect to a particular savings association. If
action is not taken by the Director of the OTS, the FDIC has authority to take
such action under certain circumstances.

     Standards for Safety and Soundness. Pursuant to the FDIC Act, as amended by
FDICIA and the Riegle Community Development and Regulatory Improvement Act of
1994 (the "Community Development Act"), the OTS and the federal bank regulatory
agencies have adopted a set of guidelines prescribing safety and soundness
standards pursuant to FDICIA, as amended. The guidelines establish general
standards relating to internal controls and information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, asset quality, earnings standards, and compensation, fees and benefits.
In general, the guidelines require, among other things, appropriate systems and
practices to identify and manage the risks and exposures specified in the
guidelines. The guidelines prohibit excessive compensation as an unsafe and
unsound practice and describe compensation as excessive when the amounts paid
are unreasonable or disproportionate to the services performed by an executive
officer, employee, director or principal stockholder. In addition, the OTS
adopted regulations that authorize, but do not require, the OTS to order an
institution that has been given notice by the OTS that it is not satisfying any
of such safety and soundness standards to submit a compliance plan. If, after
being so notified, an institution fails to submit an acceptable compliance plan
or fails in any material respect to implement an acceptable compliance plan, the
OTS must issue an order directing action to correct the deficiency and may issue
an order directing other actions of the types to which an undercapitalized
association is subject under the "prompt corrective action" provisions of
FDICIA. If an institution fails to comply with such an order, the OTS may seek
to enforce such order in judicial proceedings and to impose civil money
penalties.

     Real Estate Lending Standards. The OTS and other federal banking agencies
adopted regulations to prescribe standards for extensions of credit that (a) are
secured by real estate or (b) are made for the purpose of financing the
construction of improvements on real estate. The OTS regulations require each
savings association to establish and maintain written internal real estate
lending standards that are consistent with safe and sound banking practices and
appropriate to the size of the association and the nature and scope of its real
estate lending activities. The standards also must be consistent with
accompanying OTS guidelines, which include loan-to-value ratios for the
different types of real estate loans. Associations are also permitted to make a
limited amount of loans that do not conform to proposed loan-to-value
limitations so long as such exemptions are reviewed and justified appropriately.
The guidelines also list a number of lending situations in which exceptions to
the loan-to-value standards are justified.

     Prompt Corrective Regulatory Action. Under the OTS prompt corrective action
regulations, the OTS is required to take certain, and is authorized to take
other, supervisory actions against undercapitalized savings associations. For
this purpose, a savings association would be placed in one of five categories
based on the association's capital.

     Generally, a savings association is treated as "well capitalized" if its
ratio of total risk-based capital to risk-weighted assets is at least 10.0%, its
ratio of Tier I capital to risk weighted assets is at least 6.0%, its ratio of
leverage (core) capital to adjusted total assets is at least 5.0%, and it is not
subject to any order or directive by the OTS to meet a specified capital level.
A savings association will be treated as "adequately capitalized" if its ratio
of total risk-based capital to risk-weighted assets is at least 8.0%, its ratio
of Tier I capital to risk weighted assets is at
<PAGE>

least 4.0%, and its ratio of leverage (core) capital to adjusted total assets is
at least 4.0%, (3.0% leverage ratio if the association receives the highest
rating on the CAMELS financial institution rating system). A savings association
that has a total risk based capital to risk-weighted assets ratio of less than
8.0% or a leverage (core) ratio of or a Tier 1 capital ratio that is less than
4.0% (3.0% leverage ratio if the association receives the highest rating on the
CAMELS financial institutions rating system) is considered to be
"undercapitalized." A savings association that has a total risk based capital to
risk-weighted assets ratio of less than 6.0% or a Tier 1 risk based capital
ratio or a leverage (core) of less than 3.0% is considered to be "significantly
undercapitalized". A savings association that has a tangible capital to assets
ratio equal to or less than 2% is deemed to be "critically undercapitalized."
The elements of an association's capital for purposes of the prompt corrective
action regulations are defined generally as they are under the regulations for
minimum capital requirements.

     The severity of the action authorized or required to be taken under the
prompt corrective action regulations increases as an association's capital
deteriorates within the three undercapitalized categories. All associations are
prohibited from paying dividends or other capital distributions or paying
management fees to any controlling person if, following such distribution, the
association would be undercapitalized. An undercapitalized association is
required to file a capital restoration plan within 45 days of the date the
association receives notice that it is within any of the three undercapitalized
categories. The OTS is required to monitor closely the condition of an
undercapitalized association and to restrict the asset growth, acquisitions,
branching, and new lines of business of such an association. Significantly
undercapitalized associations are subject to restrictions on compensation of
senior executive officers; such an association may not, without OTS consent, pay
any bonus or provide compensation to any senior executive officer at a rate
exceeding the officer's average rate of compensation (excluding bonuses, stock
options and profit-sharing) during the 12 months preceding the month when the
association became undercapitalized. A significantly undercapitalized
association may also be subject, among other things, to forced changes in the
composition of its board of directors or senior management, additional
restrictions on transactions with affiliates, restrictions on acceptance of
deposits from correspondent associations, further restrictions on asset growth,
restrictions on rates paid on deposits, forced termination or reduction of
activities deemed risky, and any further operational restrictions deemed
necessary by the OTS.

     If one or more grounds exist for appointing a conservator or receiver for
an association, the OTS may require the association to issue additional debt or
stock, sell assets; be acquired by a depository institution holding company or
combine with another depository institution. The OTS and the FDIC have a broad
range of grounds under which they may appoint a receiver or conservator for an
insured depository institution holding company or combine with another
depository institution. Under FDICIA, the OTS is required to appoint a receiver
(or with the concurrence of the FDIC, a conservator) for a critically
undercapitalized association within 90 days after the association becomes
critically undercapitalized or, with the concurrence of the FDIC, to take such
other action that would better achieve the purposes of the prompt corrective
action provisions. Such alternative action can be renewed for successive 90-day
periods. However, if the association continues to be critically undercapitalized
on average during the quarter that begins 270 days after it first became
critically undercapitalized, a receiver must be appointed, unless the OTS makes
certain findings with which the FDIC concurs and the Director of the OTS and the
Chairman of the FDIC certify that the association is viable. In addition, an
association that is critically undercapitalized is subject to more severe
restrictions on its activities, and is prohibited, without prior approval of the
FDIC from, among other things, entering into certain material transactions or
paying interest on new or renewed liabilities at a rate that would significantly
increase the association's weighted average cost of funds.

     When appropriate, the OTS can require corrective action by a savings
association holding company under the "prompt corrective action" provisions of
FDICIA.

Insurance of Deposit Accounts

     The Bank is a member of the SAIF, and the Bank pays its deposit insurance
assessments to the SAIF.  The FDIC also maintains another insurance fund, the
BIF, which primarily insures the deposits of banks and state chartered savings
banks.
<PAGE>

     Pursuant to FDICIA, the FDIC adopted a risk-based assessment system for
insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities.  The risk-
based assessment system, which went into effect on January 1, 1994, assigns an
institution to one of three capital categories: (i) well capitalized; (ii)
adequately capitalized; and (iii) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. An institution is also
assigned by the FDIC to one of three supervisory subgroups within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information which the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance assessment rate is
then determined based on the capital category and supervisory category to which
it is assigned. Under the final risk-based assessment system, there are nine
assessment risk classifications (i.e., combinations of capital groups and
supervisory subgroups) to which different assessment rates are applied.
Assessment rates for members of both the Bank Insurance Fund ("BIF") and the
Savings Association Insurance Fund ("SAIF") for the first half of 1995, as they
had been during 1994, ranged from 23 basis points (0.23% of deposits) for an
institution in the highest category (i.e., "well capitalized" and "healthy") to
31 basis points (0.31% of deposits) for an institution in the lowest category
(i.e., "undercapitalized" and "substantial supervisory concern"). These rates
were established for both funds to achieve a designated ratio of reserves to
insured deposits (i.e., 1.25%) within a specified period of time.

     Once the designated ratio for the BIF was reached in May 1995, the FDIC
reduced the assessment rate applicable to BIF deposits in two stages, so that,
beginning in 1996, the deposit insurance premiums for 92% of all BIF members in
the highest capital and supervisory categories were set at $2,000 per year,
regardless of deposit size.  The FDIC elected to retain the existing assessment
rate range of 23 to 31 basis points for SAIF members for the foreseeable future
given the undercapitalized nature of that insurance fund.

     Recognizing that the disparity between the SAIF and BIF premium rates have
adverse consequences for the SAIF insured institutions and other banks with SAIF
assessed deposits, including reduced earnings and an impaired ability to raise
funds in capital markets and to attract deposits, in July 1995, the FDIC, the
Treasury Department, and the OTS released statements outlining a proposed plan
to recapitalize the SAIF, the principal feature of which was a special one-time
assessment on depository institutions holding SAIF-insured deposits, which was
intended to recapitalize the SAIF at a reserve ratio of 1.25%.  This proposal
contemplated elimination of the disparity between the assessment rates on BIF
and SAIF deposits following recapitalization of the SAIF.

     A variation of this proposal designated the Deposit Insurance Funds Act of
1996 ("DIFA") was enacted by Congress as part of the omnibus budget legislation
and signed into law on September 30, 1996.  As directed by DIFA, the FDIC
implemented a special one-time assessment of approximately 65.7 basis points
(0.657%) on a depository institution's SAIF-insured deposits held as of March
31, 1995 (or approximately 52.6 basis points on SAIF deposits acquired by banks
in certain qualifying transactions).  In addition, the FDIC has implemented a
revision in the SAIF assessment rate schedule which effected, as of October 1,
1996 (i) a widening in the assessment rate spread among institutions in the
different capital and risk assessment categories, (ii) an overall reduction of
the assessment rate range assessable on SAIF deposits of from 0 to 27 basis
points, and (iii) a special interim assessment rate range for the last quarter
of 1996 of from 18 to 27 basis points on institutions subject to FICO
assessments.  Effective January 1, 1997, assessments to help pay off the $780
million in annual interest payments on the $8 billion financing corporation
("FICO") bonds issued in the late 1980's as part of the government rescue of the
thrift industry are imposed on both BIF- and SAIF-insured deposits in annual
amounts presently estimated at 1.29 basis points and 6.44 basis points,
respectively.  Beginning in January, 2000, BIF- and SAIF-insured institutions
will share the FICO interest costs at equal rates currently estimated at 2.43
basis points.

     Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
<PAGE>

Regulations of Savings Association Holding Companies

     The Company is a non-diversified unitary savings association holding
company within the meaning of the HOLA. As such, the Company is required to
register with the OTS and is subject to OTS regulations, examinations,
supervision and reporting requirements. In addition, the OTS has enforcement
authority of the Company and its  non-savings association subsidiaries, if any.
Among other things, this authority permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the financial safety,
soundness, or stability of a subsidiary savings association.

     The HOLA prohibits a savings association holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring another savings
association or holding company thereof, without prior written approval of the
OTS; acquiring or retaining, with certain exceptions, more than 5% of a non-
subsidiary savings association, a non-subsidiary holding company, or a non-
subsidiary company engaged in activities other than those permitted by the HOLA;
or acquiring or retaining control of a depository institution that is not
insured by the FDIC.  In evaluating an application by a holding company to
acquire a savings association, the OTS must consider the financial and
managerial resources and future prospects of the company and savings association
involved, the effect of the acquisition on the risk to the insurance funds, the
convenience and needs of the community and competitive factors.

     As a unitary savings association holding company, the Company is not
restricted under existing laws as to the types of business activities in which
it may engage, provided that the Bank continues to satisfy the QTL test. Upon
any non-supervisory acquisition by the Company of another savings association or
savings bank that meets the QTL test and is deemed to be a savings association
by the OTS and that will be held as a separate subsidiary, the Company would
become a multiple savings association holding company and would be subject to
limitations on the types of business activities in which it could engage. The
HOLA limits the activities of a multiple savings association holding company and
its non-insured association subsidiaries primarily to activities permissible for
bank holding companies under Section 4(c)(8) of the BHC Act, subject to the
prior approval of the OTS, and to other activities authorized by OTS regulation.

     The OTS is prohibited from approving any acquisition that would result in a
multiple savings association holding company controlling savings associations in
more than one state, subject to two exceptions: an acquisition of a savings
association in another state (a) in a supervisory transaction or (b) pursuant to
authority under the laws of the state of the association to be acquired that
specifically permit such acquisitions.  The conditions imposed upon interstate
acquisitions by those states that have enacted authorizing legislation vary.
Some states impose conditions of reciprocity, which have the effect of requiring
that the laws of both the state in which the acquiring holding company is
located (as determined by the location of its subsidiary savings association)
and the state in which the association to be acquired is located, have each
enacted legislation allowing its savings associations to be acquired to out-of-
state holding companies on the condition that the laws of the other state
authorize such transactions on terms no more restrictive than those imposed on
the acquirer by the state of the target association. Some of these states also
impose regional limitations, which restrict such acquisitions to states within a
defined geographic region. Other states allow full nationwide banking without
any condition of reciprocity. Some states do not authorize interstate
acquisitions of savings associations.

Federal Home Loan Bank System

     The Bank is a member of the FHLB of Atlanta, which is one of the regional
Federal Home Loan Banks composing the Federal Home Loan Bank System. Each
Federal Home Loan Bank provides a central credit facility primarily for its
member institutions. The Bank, as a member of the FHLB of Atlanta, is required
to acquire and hold shares of capital stock in the FHLB of Atlanta in an amount
at least equal to the greater of 1% of the aggregate principal amount of its
unpaid residential mortgage loans and similar obligations at the beginning of
each year or 1/20 of its advances (borrowings) from the FHLB of Atlanta. The
Bank was in compliance with this requirement with an investment in the capital
stock of the FHLB of Atlanta at December 31, 1999, of $733,600. Any advance from
a Federal Home Loan Bank must be secured by specified types of collateral, and
all long-term advances may be obtained only for the purpose of providing funds
for residential housing finance.
<PAGE>

     The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts and to contribute funds for affordable housing
programs. These requirements could reduce the amount of earnings that the
Federal Home Loan Banks can pay as dividends to their members and could also
result in the Federal Home Loan Banks imposing a higher rate of interest on
advances to their members. The Bank earned dividends on the FHLB of Atlanta
capital stock in amounts equal to $55,146 and $53,065 during the years ended
December 31, 1999 and 1998, respectively. If dividends were reduced, or interest
on future Federal Home Loan Bank advances increased, the Bank's net interest
income would likely also be reduced.

     Title 6 of the GLBA, entitled the Federal Home Loan Bank System
Modernization Act of 1999 (FHLB Modernization Act), has amended the FHLB Act by
allowing for voluntary membership and modernizing the capital structure and
governance of the FHLB system. The new capital structure established under the
FHLB Modernization Act sets forth new leverage and risk-based capital
requirements based on permanence of capital. It also requires some minimum
investment in FHLB stock of all member entities. Capital will include retained
earnings and two forms of stock: Class A stock redeemable within six months,
written notice and Class B stock redeemable within five years, written notice.
The FHLB Modernization Act provides a transition period to the new capital
regime, which will not be effective until the FHLB enacts implementing
regulations. The FHLB Modernization Act also reduces the period of time in which
a member exiting the FHLB system must stay out of the system.

Liquidity

     The Bank is required to maintain an average daily balance of liquid assets
(cash, certain time deposits, bankers' acceptances, specified United States
Government, state or federal agency obligations, shares of certain mutual funds
and certain corporate debt securities and commercial paper) equal to a monthly
average of not less than a specified percentage of its net withdrawable deposit
accounts plus short-term borrowings. This liquidity requirement may be changed
from time to time by the OTS to any amount within the range of 4% to 10%
depending upon economic conditions and the savings flows of member institutions,
and is currently 4%. Monetary penalties may be imposed for failure to meet these
liquidity requirements. The Bank's average long-term liquidity ratio for the
month ended December 31, 1999 was 21.54%, which exceeded the applicable
requirements. The Bank has never been subject to monetary penalties for failure
to meet its liquidity requirements.

Year 2000

     Based on a review of the Bank's and the Company's business since January 1,
2000, the Company has not experienced any material effects of the Year 2000
problem. Although the Company has not been informed of any material risks
associated with the Year 2000 problem from third parties, there can be no
assurance that the Company will not be impacted in the future. The Company will
continuously monitor its business applications and maintain contact with its
third party vendors and key business partners to resolve any Year 2000 problems
that may arise in the future.

Federal Securities Laws

  The Company's common stock is registered with the SEC under Section 12 (g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company is subject to information, proxy solicitation, insider trading
restrictions and other requirements of the Exchange Act.
<PAGE>

ITEM 2.   DESCRIPTION OF PROPERTY

     The Company and Bank conduct their business from its main office and a full
service branch office. The Bank owns both offices. The following table sets
forth information regarding these properties.

                                             Original Year
         Location                              Acquired

         Main Branch Office:
         8458 Campbellton Street
         Douglasville,
         Georgia 30134-1803                   September 1969

         Branch Office:
         1855 Thornton Road
         Lithia Springs, Georgia 30122-2619        June 1973

     The Bank also owns property for possible branch expansion or a new main
office located at Chapel Hill Road and Interstate 20, Douglasville, Georgia.
The Bank also owns property for possible branch expansion located at Douglas
Boulevard and Brightstar Road in Douglasville.  All properties are owned by the
Company or Bank and are adequately insured, including contents.

     Pinehurst Properties, LLC, owns approximately 80 acres of real property
located in Douglasville, Georgia, that has been subdivided and is being
currently developed and sold as residential lots.

ITEM 3.  LEGAL PROCEEDINGS

     The Company is not a party to, nor is any of its property the subject of,
any material pending legal proceedings, other than ordinary routine proceedings
incidental to the business of the Bank, nor to the knowledge of the management
of the Company are any such proceedings contemplated or threatened against the
Company or Bank.

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

     There were no matters submitted to a vote of security holders during the
fourth quarter of 1999.
<PAGE>

                                    PART II
                                    -------

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Prices

The common stock of the Company is quoted on The OTC Bulletin Board operated by
the National Association of Securities Dealers, Inc. under the symbol "FDBI."
The following table sets forth the high and low closing sale prices for the
Company's common stock as reported on the respective market.  The sales prices
indicated reflect inter-dealer prices, without mark-up, mark-down or commission,
and may not represent actual transactions.  Prior the initial stock offering,
there was no outstanding common or preferred stock.

                                                       Sales Price
                         Calendar Period           Low           High
                         -----------------------------------------------
                         1999
                         First Quarter            $    n/a      $    n/a
                         Second Quarter                n/a           n/a
                         Third Quarter             11.1875         12.00
                         Fourth Quarter            11.3125        11.875

Shareholders

As of March 15, 2000, there were approximately 365 holders of record of the
Company's common stock.

Dividends

The Company paid a $.075 per share cash dividend on its common stock for the
year ended December 31, 1999.  The Company anticipates paying a quarterly
dividend in the future.  Any declaration and payment of dividends will be based
on the Company's earnings, economic conditions, and the Board of Directors'
evaluation of other relevant factors.  The Company's ability to pay dividends
will also be dependent on cash dividends paid to it by the Bank.  The ability of
the Bank to pay dividends to the Company is restricted by applicable regulatory
requirements.  See "Supervision and Regulation - Payment of Dividends."
<PAGE>

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

General

     Our results of operations are dependent primarily on net interest income,
which is the difference between the income earned on our loan and investment
portfolios and our cost of funds, consisting of the interest paid on deposits
and borrowings.  Results of operations are also affected by our provision for
loan losses and fees and other service charges.  Our noninterest expense
principally consists of compensation and employee benefits, occupancy and
equipment expense, federal deposit insurance premiums, data processing,
advertising and business promotion and other expenses.  Results of operations
are also significantly affected by general economic and competitive conditions,
particularly changes in interest rates, government policies and actions of
regulatory authorities.  Future changes in applicable law, regulations or
government policies may materially impact us.

     The purpose of this discussion is to focus on information about the
Company's financial condition and results of operations which is not otherwise
apparent from the financial statements included in this Annual Report.
Reference should be made to those statements and the selected financial data
presented elsewhere in this report for an understanding of the following
discussion and analysis.  Historical results of operations and any trends which
may appear, are not necessarily indicative of the results to be expected in
future years.

Forward-Looking Statements

     This annual report contains certain forward-looking statements which are
based on certain assumptions and describe future plans, strategies and our
expectations.   These forward-looking statements are generally identified by use
of the words "believe," "expect," "intend," "anticipate," "estimate," "project,"
or similar expressions.  Our ability to predict results or the actual effect of
future plans or strategies is inherently uncertain.  Factors which could have a
material adverse effect on our operations include, but are not limited to,
changes in: interest rates, general economic conditions, legislative/regulatory
changes, monetary and fiscal policies of the U.S. Government, including policies
of the U.S. Treasury and the Federal Reserve Board, the quality or composition
of our loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in our market area and accounting
principles and guidelines.  You should consider these risks and uncertainties in
evaluating forward-looking statements and should not place undue reliance on
such statements.  We will not publicly release the result of any revisions which
may be made to any forward-looking statements to reflect events or circumstances
after the date of such statements or to reflect the occurrence of anticipated or
unanticipated events.

Management Strategy

     Traditionally, management's primary goal has been to control growth and
maintain our profitability, market share, asset quality and our capital position
by:

  .  Investing primarily in one- to four-family loans secured by properties
     located in our primary market area;

  .  Investing in non-residential and construction and development loans secured
     by properties located in our primary market area, to the extent that such
     loans meet our general underwriting criteria including, but not limited to,
     satisfaction of certain loan-to-value ("LTV") and debt service coverage
     ratios and satisfaction that the borrower is experienced in these types of
     real estate projects;

  .  Investing in consumer loans;

  .  Investing funds not utilized for loan investments in short-term U.S.
     Treasury and agency obligations, including mortgage-backed and mortgage-
     related securities; and
<PAGE>

  .  Building capital while controlling operating expenses.

     In the future, we intend to seek growth opportunities and means of
lessening our exposure to interest rate risk while avoiding investments we
believe bear risks inconsistent with our investment policies.  We intend to grow
by expanding the products and services we offer, as necessary, in order to
improve our market share in our primary market area as well as seeking
opportunities to expand our market share and product line through acquisitions,
although we have no specific acquisition plans.  We are reviewing other products
and services, including products that would attract more local business.  We
will also seek to expand consumer loans, including home equity loan
originations.  Finally, depending upon market conditions, management may
implement leverage strategies to enhance income.  Such strategies would be to
increase borrowings and invest the borrowed funds in secured investments to
enhance income from the spread between the cost of the borrowed funds and the
investment yield.

Management of Interest Rate Risk and Market Risk Analysis

  Qualitative Analysis

     The principal objective of our interest rate risk management function is to
evaluate the interest rate risk included in certain balance sheet accounts,
determine the appropriate level of risk given our business strategy, operating
environment, capital and liquidity requirements and performance objectives and
manage the risk consistent with our Board of Directors' approved guidelines.
Through such management, we seek to reduce the vulnerability of our operations
to changes in interest rates, while not subjecting us to undue credit or
investment risk.  We monitor our interest rate risk as such risk relates to our
operating strategies.  Our Board of Directors has established an Asset/Liability
Committee, responsible for reviewing our asset/liability policies and interest
rate risk position, which meets on a regular basis, and reports trends and
interest rate risk position to our Board of Directors on a quarterly basis.  The
extent of the movement of interest rates is an uncertainty that could have a
negative impact on our earnings.

     In recent years, we have become subject to the increasing risk that
interest rates may rise due to the substantial levels of fixed-rate loans we
have been originating to satisfy the high customer demand for such products in
our primary market area.  As discussed above, we have sought to offset the
interest rate risk associated with originating primarily fixed-rate loans in a
low interest rate environment by investing in short-term U.S. Treasury and
agency obligations, enabling us to reinvest relatively quickly in higher
yielding investments if interest rates rise.  In the future, depending upon
market conditions, we intend to seek opportunities to increase our investment in
short-term adjustable rate mortgage-backed securities.  We generally sell a
portion of the long-term fixed-rate loans in the secondary market.  Currently,
management believes that our strong capital position and level of liquidity
coupled with low operating expenses would enable us to continue operating
profitably in the event of a rapid rise in interest rates, because we are
positioned to invest in higher yielding investments to offset the negative
impact of our high fixed-rate loan portfolio.  Depending upon the magnitude of
any change in interest rates, we may not be able to react quickly enough to
reinvest such funds.  We therefore may experience a decrease in earnings
following a significant increase in interest rates.  We may also increase non-
deposit borrowings which would further enable us to invest in higher yielding
instruments in an increasing interest rate environment.

  Quantitative Analysis

     Net Portfolio Value.  As part of our interest rate risk analysis, we use an
interest rate sensitivity model which generates estimates of the change in our
net portfolio value or NPV over a range of interest rate scenarios and which is
prepared by our regulators on a quarterly basis.  NPV is the present value of
expected cash flows from assets, liabilities, and off-balance sheet contracts.
The NPV ratio, under any interest rate scenario, is defined as the NPV in that
scenario divided by the market value of assets in the same scenario.  Our
regulators produce such analysis using their own model, based upon data
submitted on our quarterly regulatory reports, including estimated loan
prepayment rates, reinvestment rates and deposit decay rates.  The following
table sets forth our NPV as of December 31, 1999 as calculated by our
regulators.
<PAGE>

<TABLE>
<CAPTION>
                                                                            NPV as % of
                                                                          Portfolio Value
                                         Net Portfolio Value                 of Assets
                                --------------------------------------------------------
Change in Interest Rates in                                            NPV
Basis Points (Rate Shock)        Amount     $ Change     % Change     Ratio     Change(1)
----------------------------    --------------------------------------------------------
                                                 (Dollars in thousands)
<S>                               <C>         <C>          <C>          <C>       <C>
+300                               $16,536     $(5,989)         (27)%   14.20%      (418)
+200                                18,650      (3,875)         (17)    15.72       (265)
+100                                20,714      (1,812)          (8)    17.16       (122)
Static                              22,525           -            -     18.37          -
-100                                23,756       1,231            5     19.18         80
-200                                24,750       2,224           10     19.81        144
-300                                25,670       3,145           14     20.40        202
-----------------
(1) Expressed in basis points.
</TABLE>

  Shortcomings are inherent in the methodology used in the above interest rate
risk measurements.  Modeling changes in NPV require making certain assumptions
which may or may not reflect the manner in which the actual yields and costs
respond to changes in market interest rates.  In this regard, the NPV model
presented assumes that the composition of our interest sensitive assets and
liabilities existing at the beginning of a period remains constant over the
period being measured and also assumes that a particular change in interest
rates is reflected uniformly across the yield curve regardless of the duration
to maturity or repricing of specific assets and liabilities.  Accordingly, the
NPV measurements and net interest income models provide only an indication of
our interest rate risk exposure at a particular point in time.  Such
measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on our net interest income and will
differ from actual results.

Impact of Inflation and Changing Prices

  The financial statements and notes presented in this annual report have been
prepared in accordance with generally accepted accounting principals which
provide for the measurement of financial position and operating results
generally in terms of historical dollar amounts without considering the changes
in the relative purchasing power of money over time due to inflation.  The
impact of inflation is reflected in the increased cost of our operations.
Unlike industrial companies, nearly all of our assets and liabilities are
monetary in nature.  As a result, interest rates have a greater impact on our
performance than do the effects of general levels of inflation.  Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of our goods and services.

Analysis of Net Interest Income

  Net interest income represents the difference between income on interest-
earning assets and expense on interest-bearing liabilities.  Net interest income
depends upon the relative amounts of interest-earning assets and interest-
bearing liabilities and the interest rate earned or paid on them.

  Average Balance Sheets.  The following tables set forth certain information
relating to us at December 31, 1999, and for the years ended December 31, 1999
and 1998.  The average yields and costs are derived by dividing income or
expense by the average balance of interest-earning assets or interest-bearing
liabilities, respectively, for the periods shown except where noted otherwise
and reflect annualized yields and costs.  Average balances are derived from
average daily balances.  The yields and costs include fees which are considered
adjustments to yields.  Loan interest and yield data does not include any
accrued interest from non-accruing loans.

<PAGE>

<TABLE>
<CAPTION>
                                                       For the Years Ended December 31,
                                           ----------------------------------------------------------
                                                       1999                          1998
                                           ---------------------------   ----------------------------
                                                               Average                       Average
                                           Average              Yield/   Average              Yield/
                                           Balance   Interest    Cost    Balance   Interest    Cost
                                          ---------  --------  --------  --------  --------  --------
                                                            (Dollars in Thousands)
<S>                                       <C>        <C>       <C>       <C>       <C>       <C>
Assets
 Interest-earning assets:
   Mortgage loans, net..................  $ 85,641     $6,783     7.92%  $79,751     $6,473     8.12%
   Consumer and other loans.............     1,148        100     8.71     1,098         97     8.83
   Overnight and short-term
     deposits...........................     7,469        333     4.46     4,724        230     4.87
   Securities(1)........................    11,357        701     6.17     5,837        362     6.20
                                          --------     ------            -------     ------
     Total interest-earning assets......   105,615      7,917     7.50    91,410      7,162     7.84
                                                       ------                        ------
   Noninterest-earning assets...........     4,729                         4,225
                                          --------                       -------
     Total assets.......................   110,344                        95,635
                                          ========                       =======

Liabilities and Equity
 Interest-bearing liabilities:
  Transaction accounts..................    14,118        448     3.17    11,204        388     3.46
  Savings accounts......................    21,207        802     3.78    16,177        696     4.30
  Certificates of deposit...............    47,946      2,544     5.31    49,078      2,837     5.78
                                          --------     ------            -------     ------
   Total deposits.......................    83,271      3,794     4.56    76,459      3,921     5.13
  FHLB advances.........................     5,762        323     5.61     5,307        305     5.75
                                          --------     ------            -------     ------
   Total interest-bearing
     liabilities........................    89,033      4,117     4.62    81,766      4,226     5.17
                                                                                     ------
  Other liabilities.....................     8,078                         4,633
                                          --------                       -------
   Total liabilities....................    97,111                        86,399
  Equity capital........................    13,233                         9,236
                                          --------                       -------
   Total liabilities and equity.........  $110,344                       $95,635
                                          ========                       =======
 Net interest income/Net interest rate
  spread(2).............................               $3,800     2.88%              $2,936     2.67%
                                                       ======     ====               ======     ====
 Net earning assets/Net interest
  margin(3).............................    16,582                3.60%    9,644                3.21%
                                          ========                ====   =======                ====
 Ratio of interest-earning assets to
  interest-bearing liabilities              118.62%                       111.79%
                                          ========                       =======

</TABLE>
(1) Includes investment securities available-for-sale, investment securities
    held-to-maturity, stock in Freddie Mac, Fannie Mae, and Federal Home Loan
    Bank Atlanta.
(2) Net interest rate spread represents the difference between the weighted
    average yield on interest-earning assets and the weighted average cost of
    interest-bearing liabilities.
(3) Net interest margin represents net interest income as a percentage of
    average total interest-earning assets.

  Rate/Volume Analysis:  The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected our interest income and interest
expense during the periods indicated.  Information is provided in each category
with respect to:

  .  changes attributable to changes in volume (changes in volume multiplied by
     prior year rate);

  .  changes attributable to changes in rate (changes in rate multiplied by
     prior year volume); and

  .  the net change (changes attributable to the combined impact of volume and
     rate have been allocated on a proportional basis between changes in rate
     and volume).
<PAGE>

<TABLE>
<CAPTION>
                                                                             Year Ended
                                                                          December 31, 1999
                                                                             Compared to
                                                                             Year Ended
                                                                          December 31, 1998
                                                                   ------------------------------
                                                                        Increase
                                                                       (Decrease)
                                                                         Due to
                                                                   ------------------
                                                                   Volume       Rate        Net
                                                                   ------      -------     ------
<S>                                                                <C>         <C>         <C>
                                                                          (In thousands)
Interest-earning assets:
     Mortgage loans, net                                           $466         $(156)      $ 310
     Consumer and other loans                                         4            (1)          3
     Overnight and short term deposits                              120           (17)        103
     Securities                                                     341            (2)        339
                                                                   ----         -----       -----
          Total interest-earning assets                            $931         $(176)      $ 755
                                                                   ----         -----       -----

Interest-bearing liabilities:
     Transaction accounts                                          $ 88         $ (28)      $  60
     Savings accounts                                               173           (67)        106
     Certificates of deposit                                        (64)         (229)       (293)
     FHLB advances                                                   25            (7)         18
                                                                   ----         -----       -----
          Total interest-bearing liabilities                       $222         $(331)      $(109)
                                                                   ----         -----       -----
          Net interest income                                      $709         $ 155       $ 864
                                                                   ====         =====       =====
</TABLE>

Comparison of Financial Condition at December 31, 1999 and December 31, 1998

     Total assets were $117.9 million at December 31, 1999, an increase of $17.0
million, or 16.85%, from $100.9 million at December 31, 1998.  The majority of
this increase is directly related to the conversion and issuance of stock during
1999 which netted $15.0 million.  The increase in the loan portfolio was $5.5
million and securities increased $14.0 million for the year ended December 31,
1999 as compared to 1998.  Cash, due from banks and Federal funds sold decreased
during the same period by $2.2 million.  Total deposits decreased by $1.9
million, from $85.7 million at December 31, 1998 to $83.8 million at December
31, 1999.  FHLB advances increased $4 million from $5 million at December 31,
1998 to $9 million at December 31, 1999.

     Loans.  The increase in total loans was primarily due to increases in
residential real estate loans and real estate construction loans which increased
$2.1 million and $1.6 million, respectively, for the year ended December 31,
1999.  All other categories of loans reported moderate increases for the year.
The total growth in loans was 6.1% for the year compared to 12.3% for the year
ended 1998.  The decline in growth in loans during 1999 is partially
attributable to rising mortgage rates which has a direct impact on the Company's
loan volume.

     Allowance for Loan Losses.  The allowance for loan losses increased by
$57,000 to $1.1 million at December 31, 1999 from $1 million at December 31,
1998. This increase is consistent with the increase in loan volume. The adequacy
of the allowance for loan losses is evaluated monthly by management based upon a
review of significant loans, with particular emphasis on nonperforming and
delinquent loans that management believes warrant special attention. The
allowance for loan losses to total loans was 1.17% at December 31, 1999 as
compared to 1.18% at December 31, 1998. At December 31, 1999, the allowance for
loan losses provided coverage of 625.18% of total nonperforming loans,
significantly up from 101.73% at December 31, 1998. The significant increase in
the coverage ratio is directly related to the decrease in nonperforming loans of
$814,000 for the year. As of December 31, 1999 and 1998, management believes
that the allowance for loan losses is adequate to absorb losses in the loan
portfolio.
<PAGE>

     Investment Securities.  The most significant increase in securities was an
increase of $12.7 million in securities available-for-sale.  This increase was
funded through the proceeds from the stock issuance.  These purchases in 1999
were strictly invested in U.S. Government and Agency securities and classified
as available-for-sale.  These securities typically provide moderate returns at
time of purchase with limited risk of loss.  As of December 31, 1999, an
unrealized loss of $271,000 was reported in those same securities.  This loss
would be recognized in the event of sale or in the event there was a permanent
decline in the value of the underlying securities.  Management has not
specifically identified any securities with a permanent decline and has not
identified any securities for sale in future periods which, if so designated,
would require a charge to operations if the market value would not be reasonably
expected to recover prior to the time of sale.

     Deposits.  Total deposits decreased $1.9 million, or 2.15% from December
31, 1998 to December 31, 1999. Of this total decrease, other time deposits
decreased $2.4 million, or 4.67%, noninterest-bearing accounts increased
$548,000, and interest-bearing demand and savings decreased $31,000. Interest-
bearing demand accounts include interest-bearing transaction accounts and money
market accounts. The decrease in deposits is believed to be related to the
conversion from a mutual to stock organization. Specifically, some deposit
holders converted deposits into common stock.

Comparison of Operating Results for the Years Ended December 31, 1999 and 1998

     General.  Net income for the year ended December 31, 1999 increased by
$489,0000 or 62.79% to $1,269,000 compared to $780,000 for the year ended
December 31, 1998.  Net interest income for the years ended December 31, 1999
and 1998 was $3.8 million and $2.9 million, respectively.  The increase in net
interest income of $865,000 for the year ended December 31, 1999 represents an
increase of $755,000 in interest income coupled with a decrease in interest
expense of $110,000.  Noninterest income increased by $78,000 in 1999.
Noninterest expense increased by $199,000 to $2.6 million for the year ended
December 31, 1999 compared to $2.4 million for the prior year.  The return on
average assets increased from .81% for the year ended December 31, 1998 to 1.26%
for the year ended December 31, 1999.  The return on average equity also
increased from 8.43% for the year ended December 31, 1998 to 9.59% for the year
ended December 31, 1999.

     Interest Income.  Interest income for the year ended December 31, 1999 was
$7.9 million, an increase of $755,000 or 10.54% from $7.2 million for the year
ended December 31, 1998.  The largest component of interest income is interest
on loans.  Interest on loans increased from $6.6 million for the year ended
December 31, 1998 to $6.9 million for the year ended December 31, 1999.  This
increase of $313,000 or 4.76% is primarily the result of loan volume increases.
The average balance of mortgage loans increased $5.9 million to $85.6 million,
while the yield on mortgage loans decreased 20 basis points from 8.12% to 7.92%,
partially offsetting the increase due to volume.  The increase in interest on
loans was complemented by an increase in interest on securities and short-term
deposits.  Interest income on securities increased $339,000 and interest income
on short-term deposits increased by $103,000.  The increase in interest income
on securities is directly attributable to the increase in volume.  The average
balance of securities increased from $5.8 million for the year ended December
31, 1998 to $11.4 million for the year ended December 31, 1999.  The increase in
interest income on short-term deposits is attributable to increased volume.  The
average balance of short-term deposits increased by $2.7 million with a decrease
in yield of 41 basis points.   Average interest-earning assets were $105.6
million for the year ended December 31, 1999, an increase of $14.2 million, or
15.54%, from $91.4 million for the year ended December 31, 1998.  The average
yield on interest earning assets decreased 34 basis points to 7.50% for the year
ended December 31, 1999, from 7.84% for the year ended December 31, 1998.

     Interest Expense.  Interest expense decreased during the year ended
December 31, 1999 to $4.1 million, from $4.2 million for the year ended December
31, 1998. Substantially all, 92% and 93%, respectively, of the interest expense
is attributable to interest-bearing deposits. The largest category of interest-
bearing deposits is certificates of deposit. Interest on certificates of deposit
for the year ended December 31, 1999 was $2.5 million, down $293,000 from $2.8
million in 1998, which was primarily the result of a decrease in the average
balance on certificates of deposit, combined with a decrease of 47 basis points
in the rates paid on these deposits. Interest expense on savings accounts
increased $106,000, from $696,000 for the year ended December 31, 1998 to
$802,000
<PAGE>

for the year ended December 31, 1999. Interest expense on transaction accounts
increased $60,000, from $388,000 for the year ended December 31, 1998 to
$448,000 for the year ended December 31, 1999. This increase is attributable to
an increase in the average balance of transaction accounts, which increased $2.9
million during 1999, offset by a decrease of 29 basis points in the rates paid
on these accounts, from 3.46% to 3.17%. Interest expense on FHLB advances
increased $18,000 from $305,000 for the year ended December 31, 1998 to $323,000
for the year ended December 31, 1999. This increase is primarily attributable to
the increase in average advances outstanding from $5.3 million for the year
ended December 31, 1998 to $5.8 million for the year ended December 31, 1999.
The factors contributing to a decrease in interest expense was representative of
a 55 basis point decrease in the cost of interest-bearing liabilities.

     Net Interest Income.  Net interest income for the year ended December 31,
1999 was $3.8 million, compared to $2.9 million for the year ended December 31,
1998. The yield on average interest-earning assets decreased from 7.84% to
7.50%, while the average yield on interest-bearing liabilities decreased from
5.17% for the year ended December 31, 1998 to 4.62% for the year ended December
31, 1999. As a result, the interest rate spread increased from 2.67% to 2.88%
while the net interest margin increased from 3.21% to 3.60%. The decrease in the
yield on interest-earning assets is due to the significant volume of residential
real estate loans which carry rates normally lower than other types of loans.
The mortgage rates have been at all time lows in recent years. The increase in
mortgage rates experienced in the third and fourth quarters of 1999 will not
begin to have an impact until later years when the volume of loans at the higher
rates increases. However, due to the significant increase in volume of total
interest-earning assets combined with decreasing rates paid on liabilities, the
Company was able to record increased net interest income.

     Provision for Loan Losses.  The provision for loan losses decreased from
$108,000 for the year ended December 31, 1998 to $60,000 for the year ended
December 31, 1999.  This decrease is primarily the result of the decrease in
nonaccrual loans for the year ended December 31, 1999.  Average impaired loans
decreased from $1,017,000 for the year ended December 31, 1998 to $602,000 for
the year ended December 31, 1999.

     Noninterest Income.  Total noninterest income increased $78,000, or 10.47%
to $822,000 for the year ended December 31, 1999, compared to $744,000 for the
same period in 1998. Noninterest income primarily consists of deposit account
service charges, gains on sale of securities and gain on sale of real estate
held for development and sale. The most significant changes in noninterest
income was an increase of $221,000 in gain on sale of other real estate held for
development and sale and an increase of $87,000 in gain on sale of loans.

     Noninterest Expense.  Total noninterest expense increased $199,000 to $2.6
million for the year ended December 31, 1999, up from $2.4 million for the prior
year.  Increases in compensation and benefits of $137,000, equipment and
occupancy expenses of $10,000 and an increase in other expenses of $52,000 make
up the increase in noninterest expense.  Significant increases included in other
expenses were increases in data processing of $36,000 and transaction account
expenses of $33,000.  The increases in noninterest expense represent normal
increases for the year ended December 31, 1999.

     Income Taxes.  Income tax expense increased from $405,000 for the year
ended December 31, 1998 to $706,000 for the year ended December 31, 1999. The
increase is primarily the result of an increase in income from operations of
$791,000 for the year ended December 31, 1999. The effective tax rate for the
years ended December 31, 1999 and 1998 was 36% and 34%, respectively.

Liquidity and Capital Resources

     Our primary sources of funds are deposits, principal and interest payments
on loans, mortgage-backed and investment securities and Federal Home Loan Bank
advances. While maturities and scheduled amortization of loans are predictable
sources of funds, deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions and competition. We have
continued to maintain the required levels of liquid assets as defined by Office
of Thrift Supervision regulations. These requirements, which may be varied at
the direction of the Office of Thrift Supervision depending upon economic
conditions and deposit flows, are based upon a percentage of deposits and short-
term borrowings. Our currently required liquidity ratio is 4.00%. At
<PAGE>

December 31, 1999 and December 31, 1998, our liquidity ratio was 21.54% and
12.03%, respectively. Management's current strategy is to maintain liquidity as
close as possible to the minimum regulatory requirement and to invest any excess
liquidity in higher yielding interest-earning assets. We manage our liquidity
position and demands for funding primarily by investing excess funds in short-
term investments and utilizing Federal Home Loan Bank advances in periods when
our demands for liquidity exceed funding from deposit inflows.

     Our most liquid assets are cash, cash equivalents and securities available-
for-sale.  The levels of these assets are dependent on our operating, financing,
lending and investing activities during any given period.  At December 31, 1999,
cash and cash equivalents and securities available-for-sale totaled $22.5
million, or 19.06% of total assets.

     We have other sources of liquidity if a need for additional funds arises.
At December 31, 1999, we had $9 million in advances outstanding from the Federal
Home Loan Bank and, at December 31, 1999, had an additional overall borrowing
capacity from the Federal Home Loan Bank of $10 million. Depending on market
conditions, the pricing of deposit products and Federal Home Loan Bank advances,
we may continue to rely on Federal Home Loan Bank borrowings to fund asset
growth.

     At December 31, 1999, we had commitments to fund loans and unused
outstanding lines of credit, unused standby letters of credit and undisbursed
proceeds of construction mortgages totaling $10.9 million. We anticipate that we
will have sufficient funds available to meet our current loan origination
commitments. Certificate accounts, including Individual Retirement Accounts and
Keogh accounts which are scheduled to mature in less than one year from December
31, 1999 totaled $35.9 million. Based upon experience, management believes the
majority of maturing certificates of deposit will remain with us. In addition,
our management believes that we can adjust the rates offered on certificates of
deposit to retain deposits in changing interest rate environments. In the event
that we do not retain a significant portion of these deposits, we would be able
to utilize Federal Home Loan Bank advances to fund deposit withdrawals, which
would result in an increase in interest expense to the extent that the average
rate paid on such advances exceeds the average rate paid on deposits of similar
duration.

     At December 31, 1999, we exceeded all minimum regulatory capital
requirements with a tangible capital level of $16.3 million, or 13.96% of total
adjusted assets, which exceeds the required level of $1.7 million, or 1.50%;
core capital of $16.3 million, or 13.96% of total adjusted assets, which exceeds
the required level of $3.0 million, or 3.00%; and total risk-based capital of
$25.4 million, or 39.46% of risk-weighted assets, which exceeds the required
level of $5.1 million, or 8.00%.
<PAGE>

                              SECURITIES PORTFOLIO

The carrying amounts of securities at the dates indicated are as follows:
<TABLE>
<CAPTION>

                                                December 31,
                                           ----------------------
                                              1999        1998
                                           -----------  ---------
                                           (Dollars in Thousands)
<S>                                        <C>          <C>

U.S. Treasury and other U.S. Government
    agency securities                          $15,225     $2,504
Mortgage-backed securities                       2,275      1,042
Equity securities                                1,242      1,203
                                               -------     ------
                                               $18,742     $4,749
                                               =======     ======
</TABLE>
(1)  Equity securities consist of Federal Home Loan Bank stock, Freddie Mac
     stock, and FNMA stock.  For presentation purposes, the equity securities
     are not included in the maturity table below because they have no
     contractual maturity dates.

Maturities

The amounts of securities as of December 31, 1999 are shown in the following
table according to contractual maturities classified as; (1) one year or less,
(2) after one year through five years, (3) after five years through ten years
and (4) after ten years.
<TABLE>
<CAPTION>

                                        U.S. Treasury
                                          and U.S.
                                          Government Agencies      Mortgage-backed
                                            and Corporations         Securities
                                        ------------------------  -----------------
                                           Amount      Yield (1)  Amount  Yield (1)
                                        -------------  ---------  ------  ---------
                                                  (dollars in thousands)
<S>                                     <C>            <C>        <C>     <C>
Maturity:
  One year or less                            $ 1,492      6.09%  $   13     10.50%
  After one year through five years            10,805      6.04        -         -
  After five years through ten years            2,928      7.40      127      8.00
  After ten years                                   -         -    2,135      5.80
                                              -------             ------

                                              $15,225      6.31   $2,275      5.94%
                                              =======             ======
</TABLE>
(1)  Yields were computed using coupon interest rates, including discount
     accretion and premium amortization.  The weighted average yield for each
     maturity range was computed using the carrying value of each security in
     that range.
<PAGE>

                                 LOAN PORTFOLIO

Types of Loans

Loans by type of collateral are presented below:
<TABLE>
<CAPTION>

                                           December 31,
                                     ------------------------
                                        1999         1998
                                     -----------  -----------
                                      (Dollars in Thousands)
<S>                                  <C>          <C>

  Commercial                            $ 1,326      $ 1,268
  Real estate-construction                8,316        6,765
  Real estate-one- to four-family        71,456       69,327
  Real estate - home equity               3,891        3,547
  Real estate - commercial                3,351        2,529
  Consumer and other loans                1,195          962
                                        -------      -------
                                         89,535       84,398
  Deferred loan fees and costs             (202)        (209)
  Less allowance for loan losses         (1,057)      (1,000)
                                        -------      -------
          Net loans                     $88,276      $83,189
                                        =======      =======
</TABLE>
Maturities and Sensitivities of Loans to Changes in Interest Rates

Total loans as of December 31, 1999 are shown in the following table according
to repricing opportunities (1) one year or less, (2) after one year through five
years, and (3) after five years.
<TABLE>
<CAPTION>
                                                (Dollars in Thousands)
<S>                                             <C>
Maturity
     One year or less                                    $27,380
     After one year through five years                    13,395
     After five years                                     48,760
                                                         -------
                                                         $89,535
                                                         =======
</TABLE>

The following table summarizes loans at December 31, 1999 with the due dates
after one year for predetermined and floating or adjustable interest rates.
<TABLE>
<CAPTION>

                                             (Dollars in Thousands)
<S>                                          <C>

     Predetermined interest rates                          $   938
     Floating or adjustable interest rates                  61,217
                                                           -------
                                                           $62,155
                                                           =======
</TABLE>
Records were not available to present the above two tables by category and could
not be reconstructed without undue burden or cost to the Company.
<PAGE>

Risk Elements

The following table presents the aggregate of nonperforming loans for the
categories indicated:
<TABLE>
<CAPTION>
                                                                              December 31,
                                                                         -----------------------
                                                                         1999            1998
                                                                         -----          --------
                                                                         (Dollars in Thousands)
<S>                                                                      <C>            <C>

     Loans accounted for on a nonaccrual basis                           $ 169          $   983

     Installment loans and term loans contractually past due
        90 days or more as to interest or principal payments
        and still accruing                                                   -                -
     Loans, the terms of which have been renegotiated to
        provide a reduction or deferral of interest or
        principal because of deterioration in the financial
        position of the borrower                                             -                -

     Loans now current about which there are serious doubts
        as to the ability of the borrower to comply with present
        loan repayment terms                                                 -                -

The reduction in interest income associated with nonaccrual loans as of December 31, 1999 is as follows:

                                                                       (Actual Dollars)

     Interest income that would have been recorded
     on nonaccrual loans under original terms                               $45,409
                                                                            =======

     Interest income that was recorded on nonaccrual loans                  $30,629
                                                                            =======
</TABLE>

As of December 31, 1999 and 1998, management included nonaccrual loans as
impaired loans as determined by Financial Accounting Standards Board Statement
Numbers 114 and 118.

The Company's policy is to discontinue the accrual of interest income when, in
the opinion of management, collection of such interest becomes doubtful.  This
status is determined when (1) there is a significant deterioration in the
financial condition of the borrower and full repayment of principal and interest
is not expected; and (2) the principal or interest is more than 90 days past
due, unless the loan is both well-secured and in the process of collection.
Accrual of interest on such loans is resumed when, in management's judgment, the
collection of interest and principal becomes probable.  Loans classified for
regulatory purposes as loss, doubtful, substandard, or special mention that have
not been included in the table above do not represent or result from trends or
uncertainties which management reasonably expects will materially impact future
operating results, liquidity, or capital resources.  These classified loans do
not represent material credits about which management is aware and which causes
management to have serious doubts as to the ability of such borrowers to comply
with the loan repayment terms.  In the event of non-performance by the borrower,
these loans have collateral pledged which could prevent the recognition of
substantial losses.
<PAGE>

                        SUMMARY OF LOAN LOSS EXPERIENCE

The following table summarizes average loan balances for the year determined
using the daily average balances during the year; changes in the allowance for
loan losses arising from loans charged off and recoveries on loans previously
charged off; additions to the allowance which have been charged to operating
expense; and the ratio of net charge-offs during the period to average loans.
<TABLE>
<CAPTION>

                                                               Years Ended December 31,
                                                              --------------------------
                                                                  1999          1998
                                                              ------------  ------------
                                                                (Dollars in Thousands)
<S>                                                           <C>           <C>
     Average amount of loans outstanding                          $86,789       $80,849
                                                                  =======       =======
     Balance of allowance for loan losses
       at beginning of year                                       $ 1,000       $   866
                                                                  -------       -------
     Loans charged off:
       Real estate                                                      -             -
       Commercial                                                       -             -
       Consumer                                                        (5)           (1)
                                                                  -------       -------
                                                                       (5)           (1)
                                                                  -------       -------
     Recoveries of loans previously charged off:
       Real estate                                                      -             -
       Commercial                                                       -             -
       Consumer                                                         2            27
                                                                  -------       -------
                                                                        2            27
                                                                  -------       -------
     Net loans charged off (recovered) during the year                 (3)           26
                                                                  -------       -------
     Additions to allowance charged to
       expense during year                                             60           108
                                                                  -------       -------
     Balance of allowance for loan losses
       at end of year                                             $ 1,057       $ 1,000
                                                                  =======       =======
     Ratio of net loans charged off (recovered) during the
     year to average loans outstanding                                -  %          .03%
                                                                  =======       =======
</TABLE>

Allowance for Loan Losses

The allowance for loan losses is created by direct charges to income.  Losses on
loans are charged against the allowance in the year in which such loans, in
management's opinion, become uncollectible.  Recoveries during the year are
credited to this allowance.  The factors that influence management's judgment in
determining the amount charged to income are past loan loss experience,
composition of the loan portfolio, evaluation of trends and possible losses,
current economic conditions and other relevant factors.  The Company's allowance
for loan losses was approximately $1,057,000 at December 31, 1999, representing
1.17% of total loans, compared with $1,000,000 at December 31, 1998, which
represented 1.18% of total loans.  The allowance for loan losses is evaluated
and adjusted periodically based on management's evaluation of current risk
characteristics of the loan portfolio, as well as the impact of prevailing and
expected economic business conditions.  Management considers the allowance for
loan losses adequate to cover possible losses at December 31, 1999.
<PAGE>

                                    DEPOSITS

Average amount of deposits and average rates paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand and savings
deposits, and time deposits are presented below.(1)
<TABLE>
<CAPTION>
                                                 Years Ended December 31,
                                         --------------------------------------
                                              1999                  1998
                                         Amount   Percent      Amount   Percent
                                         -------  -------      ------   -------
                                                  (Dollars in Thousands)
<S>                                      <C>      <C>          <C>      <C>
Noninterest-bearing demand deposits     $ 6,878       --%       $3,338        --
Interest-bearing demand
   and savings deposits                  35,325     3.54        27,381      3.96
Time deposits                            47,946     5.31        49,078      5.78
                                        -------                -------
                                        $90,149     4.56       $79,797      5.13
                                        =======                =======
</TABLE>
(1)  Average balances were determined using the daily average balances.

The amounts of time certificates of deposit issued in amounts of $100,000 or
more as of December 31, 1999 are shown below by category, which is based on time
remaining until maturity or repricing of (1) three months or less, (2) over
three through twelve months, and (3) over twelve months.
<TABLE>
<CAPTION>
                                           (Dollars in Thousands)
<S>                                          <C>

  Three months or less                            $ 2,650
  Over three months through twelve months           6,670
  Over twelve months                                2,488
                                                  -------
       Total                                      $11,808
                                                  =======
</TABLE>

                          RETURN ON EQUITY AND ASSETS

The following rate of return information for the periods indicated is presented
below.
<TABLE>
<CAPTION>
                                 Years Ended December 31,
                                --------------------------
                                    1999          1998
                                -------------  -----------
<S>                             <C>            <C>

  Return on assets (1)                  1.26%         .81%
  Return on equity (2)                  9.59         8.43
  Dividend payout ratio (3)             8.52          N/A
  Equity to assets ratio (4)           13.19         9.66
</TABLE>
(1)  Net income divided by average total assets.
(2)  Net income divided by average equity.
(3)  Dividends declared per share divided by diluted earnings per share.
(4)  Average common equity divided by average total assets.
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   Consolidated Balance Sheets - December 31, 1999 and 1998

   Consolidated Statements of Income - Years Ended December 31, 1999 and 1998

   Consolidated Statements of Comprehensive Income - Years Ended December 31,
     1999 and 1998

   Consolidated Statements of Shareholders' Equity - Years Ended December 31,
      1999  and 1998

   Consolidated Statements of Cash Flows - Years Ended December 31, 1999 and
      1998

   Notes to Consolidated Financial Statements


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

   Not applicable

                                    PART III
                                    --------


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

  The information set forth under the caption "Election of Directors" and
"Executive Officers" in the Proxy Statement used in connection with the
Company's 2000 Annual Shareholders Meeting is incorporated herein by reference.


ITEM 10.  EXECUTIVE COMPENSATION

  The information set forth under the caption "Executive Compensation" in the
Proxy Statement used in connection with the Company's 2000 Annual Shareholders
meeting is incorporated herein by reference.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement used in connection with
the Company's 2000 Annual Shareholders meeting is incorporated herein by
reference.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  The information set forth under the caption "Certain Transactions" in the
Proxy Statement used in connection with the Company's 2000 Annual Shareholders
meeting is incorporated herein by reference.
<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8K

     (a)  Exhibits:

          Exhibit No.                       Description
          -----------     -----------------------------------------------------

             3.1          Articles of Incorporation of the Registrant
                          (incorporated herein by reference to Exhibit 3.1 of
                          the Registrant's Registration Statement on Form SB-2,
                          filed on March 18, 1999).

             3.2          By-Laws of the Registrant (incorporated herein by
                          reference to Exhibit 3.2 to the Registrant's
                          Registration Statement on Form SB-2, filed on March
                          18, 1999).

             3.3          Federal Stock Charter and Stock Bylaws of Douglas
                          Federal Bank, a Federal Savings Bank (incorporated
                          herein by reference to Exhibit 3.3 to the Registrant's
                          Registration Statement on Form SB-2, filed on March
                          18, 1999).

             4.1          Form of Common Stock Certificate (incorporated herein
                          by reference to Exhibit 4.1 to the Registrant's
                          Registration Statement on Form SB-2 filed on March 18,
                          1999.

             4.2          See Exhibits 3.1 and 3.2 herein for provisions of the
                          Registrant's Articles of Incorporation and By-Laws
                          which define the rights of the holders of Common Stock
                          of the Registrant.

            10.1          Employee Stock Ownership Plan of Douglas Federal Bank
                          (incorporated herein by reference to Exhibit 10.1 to
                          the Registrant's Registration Statement on Form SB-2,
                          filed on March 18, 1999).

            10.4          Employment Agreement by and between Douglas Federal
                          Bank and Alpha A. Fowler, Jr. (incorporated herein by
                          reference to Exhibit 10.4 to the Registrant's
                          Registration Statement on Form SB-2, filed on March
                          18, 1999).

            10.5          Employment Agreement by and between Douglas Federal
                          Bank and J. David Higgins (incorporated herein by
                          reference to Exhibit 10.5 to the Registrant's
                          Registration Statement on Form SB-2, filed on March
                          18, 1999).

            10.6          Employment Agreement by and between Douglas Federal
                          Bank and John L. King (incorporated herein by
                          reference to Exhibit 10.6 to the Registrant's
                          Registration Statement on Form SB-2, filed on March
                          18, 1999).

            21.1          Subsidiary of the Registrant.

            27.1          Financial Data Schedule (for SEC use only).

     (b)  Reports of Form 8-K:

          The Company did not file a report on Form 8-K during the last quarter
          of 1999.
<PAGE>

                                    SIGNATURES

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

FIRST DEPOSIT BANCSHARES, INC.

By:    /s/ Danny A. Belyeu                           March 27, 2000
       --------------------------------------------
          Danny A. Belyeu, Chairman of the Board

By:    /s/ Alpha A. Fowler, Jr.                      March 27, 2000
       --------------------------------------------
       Alpha A. Fowler, Jr., Vice Chairman
          of the Board

By:    /s/ J. David Higgins                          March 27, 2000
       --------------------------------------------
       J. David Higgins, President, Chief Executive
          Officer, Treasurer and Director

By:    /s/ John L. King                              March 27, 2000
       --------------------------------------------
       John L. King, Executive Vice President,
          Chief Financial Officer and Director

By:    /s/ Mac C. Abercrombie, Jr.                   March 27, 2000
       --------------------------------------------
       Mac C. Abercrombie, Jr., Director

By:    /s/ Joseph H. Fowler                          March 27, 2000
       --------------------------------------------
       Joseph H. Fowler, Director

By:    /s/ Carlton H. Boyd                           March 27, 2000
       --------------------------------------------
       Carlton H. Boyd, Director

By:    /s/ John B. Zellars                           March 27, 2000
       --------------------------------------------
       John B. Zellars, Director
<PAGE>

                           FIRST DEPOSIT BANCSHARES
                              INC. AND SUBSIDIARY

                         CONSOLIDATED FINANCIAL REPORT

                               DECEMBER 31 1999
<PAGE>

                        FIRST DEPOSIT BANCSHARES, INC.
                                AND SUBSIDIARY

                         CONSOLIDATED FINANCIAL REPORT
                               DECEMBER 31, 1999

                               TABLE OF CONTENTS

                                                                            Page

INDEPENDENT AUDITOR'S REPORT...........................................       1

CONSOLIDATED FINANCIAL STATEMENTS

  Consolidated balance sheets..........................................       2
  Consolidated statements of income....................................       3
  Consolidated statements of comprehensive income......................       4
  Consolidated statements of shareholders' equity......................       5
  Consolidated statements of cash flows................................ 6 and 7
  Notes to consolidated financial statements...........................    8-34

<PAGE>

                         INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
First Deposit Bancshares, Inc., and Subsidiary
Douglasville, Georgia

        We have audited the accompanying consolidated balance sheets of First
Deposit Bancshares Inc, and subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of income, comprehensive income, shareholders'
equity, and cash flows for the years then ended.  These financial statements are
the responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with generally accepted standards.
Those standards require that we plan and perform the audits 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 financial statements referred to above present
fairly, in all material respects, the financial position of First Deposit
Bancshares, Inc. and subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.

Atlanta, Georgia
February 18, 2000
<PAGE>

                        FIRST DEPOSIT BANCSHARES, INC.
                                AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS
                          DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>

                  Assets                                        1999          1998
                  ------                                    ------------  ------------
<S>                                                          <C>            <C>

Cash and due from banks                                      $ 4,598,908    $7,556,511
Federal funds sold                                             1,450,000       715,000
Securities held-to-maturity (fair value $2,275,988
   and $1,071,369)                                             2,274,839     1,042,000
Securities available-for-sale                                 16,466,986     3,706,925
Loans held for sale                                              538,000       188,350
Loans                                                         89,332,488    84,188,926
Less allowance for loan losses                                 1,056,562     1,000,000
                                                            ------------  ------------
   Loans, net                                                 88,275,926    83,188,926
Premises and equipment                                         1,880,584     1,777,472
Real estate held for development and sale                      1,338,135     1,744,502
Other assets                                                   1,086,932       972,306
                                                            ------------  ------------
          Total assets                                      $117,910,310  $100,891,992
                                                            ============= ============
      Liabilities and Shareholders' Equity
      ------------------------------------
Deposits
    Noninterest-bearing demand                              $  4,373,582  $  3,826,066
    Interest-bearing demand and savings                       31,319,791    31,350,310
    Time, $100,000 and over                                   11,807,646    12,756,042
    Other time                                                36,341,479    37,753,508
                                                            ------------  ------------
          Total deposits                                      83,842,498    85,685,926
Federal Home Loan Bank advances                                9,000,000     5,000,000
Accrued expenses and other liabilities                           730,874       543,709
                                                            ------------  ------------
          Total liabilities                                   93,573,372    91,229,635
                                                             ------------  ------------
Commitments and contingent liabilities

Shareholders' equity
    Preferred stock, no par value, 10,000,000 shares
       authorized, none issued                                        -             -
    Common stock, no par value, 10,000,000 shares
       authorized, 1,575,000 issued at December 31, 1999      15,021,237            -
    Retained earnings                                         10,793,110     9,632,457
    Accumulated other comprehensive income (loss)               -217,409        29,900
    Unearned ESOP shares                                      -1,260,000            -
                                                            ------------  ------------
          Total shareholders' equity                          24,336,938     9,662,357
                                                            ------------  ------------
          Total liabilities and shareholders' equity        $117,910,310  $100,891,992
                                                            ============= ============
See Notes to Consolidated Financial Statements.
</TABLE>


                                                                 2
<PAGE>

                        FIRST DEPOSIT BANCSHARES, INC.
                                 AND SUBSIDIARY

                       CONSOLIDATED STATEMENTS OF INCOME
                     YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>

                                                                     1999       1998
                                                                 ----------  ----------
<S>                                                              <C>         <C>
Interest income
    Loans                                                        $6,883,145  $6,570,447
    Taxable securities                                              701,478     362,076
    Interest-bearing deposits and Federal funds sold                332,761     229,780
                                                                 ----------  ----------
          Total interest income                                   7,917,384   7,162,303
                                                                 ----------  ----------

Interest expense
    Deposits                                                      3,793,407   3,921,464
    Federal Home Loan Bank advances                                 323,392     304,986
                                                                 ----------  ----------
          Total interest expense                                  4,116,799   4,226,450
                                                                 ----------  ----------

          Net interest income                                     3,800,585   2,935,853
Provision for loan losses                                            60,000     107,805
                                                                 ----------  ----------
          Net interest income after provision for loan losses     3,740,585   2,828,048
                                                                 ----------  ----------

Other income
    Service charges on deposit accounts                             250,543     203,420
    Loan servicing income                                            36,105      42,137
    Gain on sale of securities available-for-sale                         -     274,018
    Gain on sale of loans                                           173,147      85,880
    Gain on sale of real estate held
       for development and sale                                     334,199     113,682
    Other operating income                                           28,326      25,267
                                                                 ----------  ----------
          Total other income                                        822,320     744,404
                                                                 ----------  ----------

Other expenses
    Salaries and employee benefits                                1,264,693   1,127,935
    Equipment expenses                                              212,559     211,574
    Occupancy expenses                                              107,633      98,456
    Other operating expenses                                      1,002,365     949,928
                                                                 ----------  ----------
          Total other expenses                                    2,587,250   2,387,893
                                                                 ----------  ----------

          Income before income taxes                              1,975,655   1,184,559

Income tax expense                                                  706,327     404,813
                                                                 ----------  ----------
          Net income                                             $1,269,328  $  779,746
                                                                 ==========  ==========

Basic and diluted earnings per common share                      $     0.88  $      N/A
                                                                 ==========  ==========
</TABLE>
See Notes to Consolidated Financial Statements.



                                       3
<PAGE>

                        FIRST DEPOSIT BANCSHARES, INC.
                                 AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                     YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
                                                                       1999       1998
                                                                    ----------  ---------
<S>                                                                 <C>         <C>
Net income                                                          $1,269,328  $ 779,746
                                                                    ----------  ---------
Other comprehensive loss:

    Unrealized gains (losses) on securities available-for-sale:

        Unrealized holding gains (losses) arising during period,
            net of taxes (benefits) of $(151,325) and $29,355,
            respectively                                              (247,309)   142,804

         Reclassification adjustment for gains realized
            in net income, net of taxes of $ -- and
            $104,127, respectively                                           -   (169,891)
                                                                    ----------  ---------
Other comprehensive loss                                              (247,309)   (27,087)
                                                                    ----------  ---------
Comprehensive income                                                $1,022,019  $ 752,659
                                                                    ==========  =========
</TABLE>
See Notes to Consolidated Financial Statements.

                                       4

<PAGE>

                        FIRST DEPOSIT BANCSHARES, INC.
                                 AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
                     YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>

                                                                                      Accumulated
                                                  Common Stock                            Other        Unearned        Total
                                             -------------------------   Retained    Comprehensive       ESOP      Shareholders'
                                             Shares     Amount Paid In   Earnings    Income (Loss)      Shares        Equity
                                             ---------  --------------  -----------  -------------   -----------   ------------
<S>                                         <C>          <C>             <C>          <C>             <C>          <C>

Balance, December 31, 1997                           -     $         -  $ 8,852,711      $  56,987   $         -    $ 8,909,698
    Net income                                       -               -      779,746              -             -        779,746
    Other comprehensive loss                         -               -            -        (27,087)            -        (27,087)
                                             ---------  --------------  -----------  -------------   -----------    -----------
Balance, December 31, 1998                           -               -    9,632,457         29,900             -      9,662,357
    Net income                                       -               -    1,269,328              -             -      1,269,328
    Issuance of common stock                 1,575,000      15,750,000            -              -             -     15,750,000
    Stock issue costs                                -        (728,763)           -              -             -       (728,763)
    Increase in unearned ESOP shares                 -               -            -              -    (1,260,000)    (1,260,000)
    Dividends declared, $.075 per share              -               -     (108,675)             -             -       (108,675)
    Other comprehensive loss                         -               -            -       (247,309)            -       (247,309)
                                             ---------  --------------  -----------  -------------   -----------    -----------
Balance, December 31, 1999                   1,575,000     $15,021,237  $10,793,110      $(217,409)  $(1,260,000)   $24,336,938
                                             =========  ==============  ===========  =============   ===========    ===========
</TABLE>
See Notes to Consolidated Financial Statements.

                                       5

<PAGE>

                        FIRST DEPOSIT BANCSHARES, INC.
                                 AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>

                                                                           1999         1998
                                                                     ------------  -----------
<S>                                                                  <C>           <C>
OPERATING ACTIVITIES
    Net income                                                       $  1,269,328  $   779,746
    Adjustments to reconcile net income to net cash
        provided by operating activities:
        Depreciation                                                      182,787      177,844
        Provision for loan losses                                          60,000      107,805
        Deferred income taxes                                             (47,518)     (55,884)
        Gain on sale of other real estate owned                                 -       (4,558)
        Gain on sale of securities available-for-sale                           -     (274,018)
        Net (increase) decrease in loans held for sale                   (349,650)     192,612
        Gain on sale of real estate held for development and sale        (334,199)    (113,682)
        Increase in accrued interest receivable                          (206,441)      (2,320)
        Increase in accrued interest payable                                7,152       20,749
        Other operating activities                                        230,528     (214,630)
                                                                     ------------  -----------
              Net cash provided by operating activities                   811,987      613,664
                                                                     ------------  -----------

INVESTING ACTIVITIES
    Purchases of securities available-for-sale                        (15,403,611)  (2,672,935)
    Proceeds from maturities of securities available-for-sale           2,263,880      994,052
    Proceeds from sale of securities available-for-sale                         -      874,104
    Purchases of securities held-to-maturity                           (1,456,776)           -
    Proceeds from maturities of securities held-to-maturity               223,937   (3,332,402)
    Net increase in loans                                              (5,340,553)  (9,436,299)
    Net increase in Federal funds sold                                   (735,000)    (650,000)
    Purchase of premises and equipment                                   (285,899)    (128,619)
    Proceeds from sale of premises and equipment                                -        2,200
    Proceeds from sale of other real estate owned                         414,732      325,547
    Investment in other real estate owned                                       -       (8,069)
    Investment in real estate held for development and sale              (661,816)    (626,684)
    Proceeds from sale of real estate held for
       development and sale                                             1,402,382      464,676
    Loan to ESOP                                                       (1,260,000)           -
                                                                     ------------  -----------
              Net cash used in investing activities                   (20,838,724)  (7,529,625)
                                                                     ------------  -----------

FINANCING ACTIVITIES
    Net increase (decrease) in deposits                                (1,843,428)   9,809,044
    Net increase (decrease) in Federal Home Loan Bank
        advances                                                        4,000,000   (1,000,000)
    Dividends paid                                                       (108,675)           -
    Proceeds from issuance of common stock                             15,750,000            -
    Stock issue costs                                                    (728,763)           -
                                                                     ------------  -----------
              Net cash provided by financing activities                17,069,134    8,809,044
                                                                     ------------  -----------
Net increase (decrease) in cash and due from banks                     (2,957,603)   1,893,083

Cash and due from banks at beginning of year                            7,556,511    5,663,428
                                                                     ------------  -----------
Cash and due from banks at end of year                               $  4,598,908  $ 7,556,511
                                                                     ============  ===========
</TABLE>
                                       6

<PAGE>

                        FIRST DEPOSIT BANCSHARES, INC.
                                 AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------

                                                             1999        1998
                                                         ----------  ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
    INFORMATION
    Cash paid for:
        Interest                                         $4,109,647  $4,205,701

        Income taxes                                     $  452,500  $  568,691

SUPPLEMENTAL DISCLOSURES OF NONCASH
    INVESTING ACTIVITIES
    Transfer of loans to other real estate owned         $  193,553  $  188,381

    Unrealized losses on securities available-for-sale   $  398,634  $   38,117

See Notes to Consolidated Financial Statement

                                       7

<PAGE>

                         FIRST DEPOSIT BANCSHARES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Organization

           First Deposit Bancshares, Inc. (the "Company") was organized under
           the laws of the State of Georgia on February 22, 1999 to become the
           holding company for Douglas Federal Bank, FSB and subsidiary (the
           "Bank") pursuant to a Plan of Conversion (the "conversion").  As part
           of the conversion, the Bank became a wholly owned subsidiary of the
           Company.  The conversion was accounted for at historical cost in a
           manner similar to a pooling of interests.  In connection therewith,
           the Company sold 1,575,000 shares of common stock at an initial price
           of $10 per share in a subscription offering.  Costs associated with
           the conversion were $728,763.  On July 8, 1999, the issuance of
           common stock was completed.

          Nature of Business

           The Bank is a federally chartered thrift with operations in
           Douglasville, Douglas County, Georgia.  The Bank provides a full
           range of banking services in its primary market area of Douglas
           County, Georgia and the surrounding counties.  Pinehurst Corp. was
           originally incorporated in July 1995 and was a wholly-owned
           subsidiary of the Bank.  Pinehurst Corp. was reorganized in
           connection with the conversion into Pinehurst Properties, LLC
           ("Pinehurst"), and remains a wholly-owned subsidiary of the Bank.
           Pinehurst was organized for the purpose of developing and selling
           real estate in its primary market area of Douglas County.

          Basis of Presentation

            The consolidated financial statements include the accounts of the
            Company and its subsidiary.  Significant intercompany transactions
            and accounts are eliminated in consolidation.

            The preparation of financial statements in conformity with generally
            accepted accounting principles requires management to make estimates
            and assumptions that affect the reported amounts of assets and
            liabilities and disclosures of contingent assets and liabilities as
            of the balance sheet date 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 in the near term relate to the
            determination of the allowance for loan losses, the valuation of
            foreclosed real estate, and deferred tax assets.

                                       8
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          Cash and Due from Banks

           Cash on hand, cash items in process of collection and amounts due
           from banks are included in cash and due from banks.  At December 31,
           1999 and 1998, cash and due from banks included interest-bearing due
           from bank accounts in the amounts of $3,344,303 and $6,683,371,
           respectively.

           The Company maintains amounts due from banks which, at times, may
           exceed Federally insured limits.  The Company has not experienced any
           losses in such accounts.

          Securities

           Securities are classified based on management's intention on the date
           of purchase.  Securities which management has the intent and ability
           to hold to maturity are classified as held-to-maturity and recorded
           at amortized cost.  All other debt securities are classified as
           available-for-sale and recorded at fair value with net unrealized
           gains and losses reported in other comprehensive income (loss), net
           of tax.  Equity securities without a readily determinable fair value
           are classified as available-for-sale and recorded at cost.

           Interest and dividends on securities, including amortization of
           premiums and accretion of discounts, are included in interest income.
           Realized gains and losses from the sale of securities are determined
           using the specific identification method.

          Loans Held for Sale

           Loans held for sale consist of mortgage loans which are carried at
           the lower of aggregate cost or fair value.  The determination of fair
           value includes consideration of outstanding commitments from
           investors, related origination fees and costs, and commitment fees
           paid.  Gains and losses are recognized at settlement dates and are
           determined by the difference between the selling price and the
           carrying value of the loans sold.  The Company sells certain mortgage
           loans to third party investors.  The Company's practice is to
           originate these mortgage loans subject to existing purchase
           commitments from third party investors.

          Loans

           Loans are reported at their outstanding principal balances less
           deferred loan fees and costs and the allowance for loan losses.
           Interest income is accrued based on the principal balance
           outstanding.

                                       9
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          Loans (Continued)

           Loan origination fees and certain direct costs incurred in
           originating loans are deferred and recognized in income over the life
           of the loans.

           The accrual of interest on loans is discontinued when a loan is 90
           days or more past due or when, in management's opinion, the borrower
           may be unable to meet payments as they become due.  All interest
           accrued but not collected for loans that are placed on nonaccrual or
           charged off is reversed against interest income.  Interest income is
           subsequently recognized only to the extent cash payments are
           received.

           The allowance for loan losses is maintained at a level that
           management believes to be adequate to absorb losses in the loan
           portfolio.  Loan losses are charged against the allowance when
           management believes the uncollectibility of a loan is confirmed.
           Subsequent recoveries are credited to the allowance.  Management's
           determination of the adequacy of the allowance is based on an
           evaluation of the portfolio, past loan loss experience, current
           economic conditions, volume, growth, composition of the loan
           portfolio, and other risks inherent in the portfolio.  This
           evaluation is inherently subjective as it requires material estimates
           that are susceptible to significant change including the amounts and
           timing of future cash flows expected to be received on impaired
           loans.  In addition, regulatory agencies, as an integral part of
           their examination process, periodically review the Company's
           allowance for loan losses, and may require the Company to record
           additions to the allowance based on their judgment about information
           available to them at the time of their examinations.

           A loan is considered to be impaired when it is probable the Company
           will be unable to collect all principal and interest payments due in
           accordance with the contractual terms of the loan agreement.
           Individually identified impaired loans are measured based on the
           present value of expected payments, using the contractual loan rate
           as the discount rate, the loan's observable market price, or the fair
           value of the collateral, if the loan is collateral dependent.  If the
           recorded investment in the impaired loan exceeds the measure of fair
           value, a valuation allowance is established as a component of the
           allowance for loan losses.  Changes to the valuation allowance are
           recorded as a component of the provision for loan losses.

                                       10
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          Premises and Equipment

           Land is carried at cost.  Premises and equipment are carried at cost
           less accumulated depreciation computed principally on the straight-
           line and accelerated methods over the estimated useful lives of the
           assets.

          Other Real Estate Owned

           Other real estate owned represents properties acquired through
           foreclosure.  Other real estate owned is held for sale and is carried
           at the lower of the recorded amount of the loan or fair value of the
           properties less estimated selling costs.  Any write-down to fair
           value at the time of transfer to other real estate owned is charged
           to the allowance for loan losses.  Subsequent gains or losses on sale
           and any subsequent adjustment to the value are recorded as other
           expenses.  The carrying amount of other real estate owned at December
           31, 1999 and 1998 was $7,223 and $228,402, respectively.

          Real Estate Held for Development and Sale

           Real estate held for development and sale is carried at the lower of
           cost or net realizable value.  Carrying costs associated with the
           properties under development are capitalized as part of the
           construction costs during the construction period.

           Sales of real estate are recognized upon closing.  The recognition of
           gains is dependent upon and determined by the terms and conditions of
           the sale and whether the Company has provided financing to facilitate
           such sales.  If the transaction does not meet the initial investment
           requirements of Statement of Financial Accounting Standards ("SFAS")
           No. 66, "Accounting for Sales of Real Estate", income recognition is
           deferred until such requirements are met.  Gains recognized or
           deferred are based on the proceeds from sale, less selling costs and
           the carrying value of the real estate.  Any losses are recognized at
           time of sale.

          Income Taxes

           Income tax expense consists of current and deferred taxes.  Current
           income tax provisions approximate taxes to be paid or refunded for
           the applicable year.  Deferred income tax assets and liabilities are
           determined using the balance sheet method.  Under this method, the
           net deferred tax asset or liability is determined based on the tax
           effects of the differences between the book and tax bases of the
           various balance sheet assets and liabilities and gives current
           recognition to changes in tax rates and laws.

                                       11
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          Income Taxes (Continued)

           Recognition of deferred tax balance sheet amounts is based on
           management's belief that it is more likely than not that the tax
           benefit associated with certain temporary differences will be
           realized.  A valuation allowance would be recorded for those deferred
           tax items for which it is more likely than not that realization would
           not occur.

           The Company, the Bank, and Pinehurst each provide for income taxes
           based on its contribution to income taxes of the consolidated group.
           The Bank and Pinehurst file a consolidated income tax return.

          Earnings Per Common Share

           Basic earnings per common share are computed by dividing net income
           by the weighted-average number of shares of common stock outstanding.
           Diluted earnings per common share would be computed by dividing net
           income minus the income effect of potential common shares that are
           dilutive by the sum of the weighted-average number of shares of
           common stock outstanding and potential common shares.  There were no
           potential common shares outstanding at December 31, 1999 or 1998.
           The weighted average number of shares outstanding for the year ended
           December 31, 1999 was 1,449,000, assuming all shares issued in
           connection with the conversion were outstanding since January 1,
           1999.

           Allocated shares of the Company's Employee Stock Ownership Plan
           ("ESOP") are included in the weighted-average number of shares
           outstanding.  Unearned ESOP shares are not considered outstanding for
           purposes of calculating earnings per common share.  Earnings per
           common share is not presented in periods prior to the conversion due
           to the mutual form of ownership.

          Comprehensive Income

           SFAS No. 130 describes comprehensive income as the total of all
           components of comprehensive income, including net income.  Other
           comprehensive income refers to revenues, expenses, gains and losses
           that under generally accepted accounting principles are included in
           comprehensive income but excluded from net income.  Currently, the
           Company's other comprehensive income (loss) consists of unrealized
           gains and losses on available-for-sale securities.

                                       12
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          Recent Developments

           In June 1998, the Financial Accounting Standards Board issued SFAS
           No. 133, "Accounting for Derivative Instruments and Hedging
           Activities".  The effective date of this statement has been deferred
           by SFAS No. 137 until fiscal years beginning after June 15, 2000.
           However, the statement permits early adoption as of the beginning of
           any fiscal quarter after its issuance.  The Company expects to adopt
           this statement effective January 1, 2001.  SFAS No. 133 requires the
           Company to recognize all derivatives as either assets or liabilities
           in the balance sheet at fair value.  For derivatives that are not
           designated as hedges, the gain or loss must be recognized in earnings
           in the period of change.  For derivatives that are designated as
           hedges, changes in the fair value of the hedged assets, liabilities,
           or firm commitments must be recognized in earnings or recognized in
           other comprehensive income until the hedged item is recognized in
           earnings, depending on the nature of the hedge.  The ineffective
           portion of a derivative's change in fair value must be recognized in
           earnings immediately.  Management has not yet determined what effect
           the adoption of SFAS No. 133 will have on the Company's earnings or
           financial position.

           There are no other recent accounting pronouncements that have had, or
           are expected to have, a material effect on the Company's financial
           statements.

                                       13
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2.    SECURITIES

           The amortized cost and fair value of securities are summarized as
           follows:

<TABLE>
<CAPTION>
                                                              Gross         Gross
                                               Amortized   Unrealized     Unrealized       Fair
                                                 Cost         Gains         Losses         Value
                                             -----------   ---------      ----------    -----------
<S>                                          <C>           <C>            <C>           <C>
          Securities Available-for-Sale
            December 31, 1999:
              U. S. Government and
                agency securities            $15,496,596     $ 2,100     $(273,359)     $15,225,337
              Freddie Mac stock                  236,444           -       (47,111)         189,333
              FNMA stock                         350,755           -       (32,039)         318,716
              Federal Home Loan
                Bank stock                       733,600           -             -          733,600
                                             -----------     -------     ---------      -----------
                                             $16,817,395     $ 2,100     $(352,509)     $16,466,986
                                             ===========     =======     =========      ===========

            December 31, 1998:
              U. S. Government and
                agency securities            $ 2,491,538     $13,800     $  (1,126)     $ 2,504,212
              Freddie Mac stock                  178,014      20,252             -          198,266
              FNMA stock                         275,748      15,299             -          291,047
              Federal Home Loan
                Bank stock                       713,400           -             -          713,400
                                             -----------     -------     ---------      -----------
                                             $ 3,658,700     $49,351     $  (1,126)     $ 3,706,925
                                             ===========     =======     =========      ===========

          Securities Held-to-Maturity
            December 31, 1999:
              FHLMC Mortgage-backed
                securities                   $ 2,274,839     $12,366     $ (11,217)     $ 2,275,988
                                             ===========     =======     =========      ===========


            December 31, 1998:
              FHLMC Mortgage-backed
                securities                   $ 1,042,000     $29,369     $       -      $ 1,071,369
                                             ===========     =======     =========      ===========
</TABLE>

                                       14
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2.   SECURITIES (Continued)

          Securities with a carrying value of $607,480 and $751,475 at December
          31, 1999 and 1998, respectively, were pledged to secure public
          deposits and for other purposes.

          For the year ended December 31, 1998, gross gains on sales of
          securities available-for-sale were $274,018.  There were no sales of
          securities for the year ended December 31, 1999.

          The amortized cost and fair value of debt securities as of December
          31, 1999 by contractual maturity are shown below.  Maturities may
          differ from contractual maturities of mortgage-backed securities
          because the mortgages underlying the securities may be called or
          prepaid with or without penalty.  Therefore, these securities are not
          included in the maturity categories in the following summary.

<TABLE>
<CAPTION>
                                        Securities Available-for-Sale     Securities Held-to-Maturity
                                        -----------------------------     ---------------------------
                                         Amortized            Fair         Amortized          Fair
                                            Cost             Value            Cost            Value
                                         -----------      -----------     ----------       ----------
<S>                                      <C>              <C>             <C>              <C>
          Due in less than one year      $ 1,496,081      $ 1,492,420     $        -       $        -
          Due from one to five years      11,000,515       10,804,458              -                -
          Due from five to ten years       3,000,000        2,928,459              -                -
          Mortgage-backed securities               -                -      2,274,839        2,275,988
                                         -----------      -----------     ----------       ----------
                                         $15,496,596      $15,225,337     $2,274,839       $2,275,988
                                         ===========      ===========     ==========       ==========
</TABLE>

                                       15
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3.   LOANS AND ALLOWANCE FOR LOAN LOSSES

          The composition of loans is summarized as follows:

<TABLE>
<CAPTION>
                                                                              December 31,
                                                                    ------------------------------
                                                                        1999              1998
                                                                    -----------        -----------
<S>                                                                 <C>                <C>
             Commercial                                             $ 1,326,000        $ 1,268,000
             Real estate - construction                               8,316,000          6,765,000
             Real estate - one-to-four family                        71,455,884         69,327,272
             Real estate - home equity                                3,891,000          3,547,000
             Real estate - commercial                                 3,351,000          2,529,000
             Consumer and other loans                                 1,195,000            962,000
                                                                    -----------        -----------
                                                                     89,534,884         84,398,272
             Deferred fees and costs                                   (202,396)          (209,346)
             Allowance for loan losses                               (1,056,562)        (1,000,000)
                                                                    -----------        -----------
             Loans, net                                             $88,275,926        $83,188,926
                                                                    ===========        ===========
</TABLE>

          Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
                                                                        Years Ended December 31,
                                                                      ---------------------------
                                                                         1999             1998
                                                                      ----------       ----------
<S>                                                                   <C>              <C>
            Balance, beginning of year                                $1,000,000       $  865,558
              Provision for loan losses                                   60,000          107,805
              Loans charged off                                           (5,083)          (1,423)
              Recoveries of loans previously charged off                   1,645           28,060
                                                                      ----------       ----------
            Balance, end of year                                      $1,056,562       $1,000,000
                                                                      ==========       ==========
</TABLE>

          The following is a summary of information pertaining to impaired
          loans:
<TABLE>
<CAPTION>
                                                                             December 31,
                                                                        ----------------------
                                                                         1999          1998
                                                                        --------    ----------
<S>                                                                     <C>         <C>
            Impaired loans without a valuation allowance                $169,007    $  982,942
            Impaired loans with a valuation allowance                          -             -
                                                                        --------    ----------
            Total impaired loans                                        $169,007    $  982,942
                                                                        ========    ==========
            Valuation allowance related to impaired loans               $      -    $        -
                                                                        ========    ==========
            Average investment in impaired loans                        $602,417    $1,017,236
                                                                        ========    ==========
            Interest income recognized on a cash basis
               on impaired loans                                        $ 30,629    $   77,544
                                                                        ========    ==========
</TABLE>

                                       16
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3.   LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

          The Company has granted loans to certain related parties, including
          directors, executive officers, and their related entities.  The
          interest rates on these loans were substantially the same as rates
          prevailing at the time of the transaction and repayment terms are
          customary for the type of loan involved.  Changes in related party
          loans for the year ended December 31, 1999 are as follows:

             Balance, beginning of year                     $149,819
               Advances                                      101,659
               Repayments                                     (6,667)
                                                            --------
             Balance, end of year                           $244,811
                                                            ========

          As of December 31, 1999 and 1998, the Company was servicing loans for
          others with balances of $12,898,040 and $14,657,911, respectively.
          The Company originates mortgage loans which it sells to third party
          investors.  The majority of the loans originated for the years ended
          December 31, 1999 and 1998 were sold servicing released.  In the event
          the Company retains the servicing rights, the servicing fee earned
          approximates adequate compensation for the services provided.


NOTE 4.   PREMISES AND EQUIPMENT

          Premises and equipment are summarized as follows:

                                                      December 31,
                                                -------------------------
                                                   1999          1998
                                                ----------    -----------
            Land                                $  995,194    $   980,194
            Buildings                              842,390        728,593
            Equipment                              966,459      1,298,685
                                                ----------    -----------
                                                 2,804,043      3,007,472
            Accumulated depreciation              (923,459)    (1,230,000)
                                                ----------    -----------
                                                $1,880,584    $ 1,777,472
                                                ==========    ===========

                                       17
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5.   DEPOSITS

          Deposit accounts are summarized as follows:


<TABLE>
<CAPTION>
                                                            Balance             Weighted Average Rate
                                                          December 31,             at December 31,
                                                  --------------------------    ---------------------
                                                     1999           1998        1999             1998
                                                  -----------    -----------    ----             ----
<S>                                               <C>            <C>            <C>              <C>
                Noninterest bearing demand        $ 4,373,582    $ 3,826,066       -%               -%
                Interest bearing demand and
                  savings                          31,319,791     31,350,310    3.63             3.96
                Time deposits                      48,149,125     50,509,550    5.34             5.60
                                                  -----------    -----------
                                                  $83,842,498    $85,685,926    4.49             4.75
                                                  ===========    ===========
</TABLE>

          At December 31, 1999, scheduled maturities of time deposits are as
          follows:

            Years ended December 31,
                    2000                               $35,912,289
                    2001                                 8,028,850
                    2002                                 2,757,569
                    2003                                   997,037
                    2004                                   431,394
                    Thereafter                              21,986
                                                       -----------
                                                       $48,149,125
                                                       ===========

          Interest expense on deposits is summarized as follows:

                                         Years Ended December 31,
                                         ------------------------
                                           1999           1998
                                         ----------    ----------
                  Transaction accounts   $  318,150    $  387,983
                  Savings accounts          931,308       696,085
                  Time deposits           2,543,949     2,837,396
                                         ----------    ----------
                                         $3,793,407    $3,921,464
                                         ==========    ==========

                                       18
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6.   FEDERAL HOME LOAN BANK ADVANCES

          Federal Home Loan Bank advances consist of the following:
<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                             --------------------------
                                                                                1999            1998
                                                                             ----------      ----------
<S>                                                                          <C>             <C>
            Advance from the Federal Home Loan Bank with interest at 5.90%,
              due on July 3, 2000.                                           $1,000,000      $1,000,000
            Advance from the Federal Home Loan Bank with interest at 5.29%,
              due on September 18, 2000.                                      1,000,000       1,000,000
            Advance from the Federal Home Loan Bank with interest at 5.96%,
              due on July 2, 2001.                                            1,000,000       1,000,000
            Advance from the Federal Home Loan Bank with interest at 5.63%,
              due on August 28, 2001.                                         1,000,000       1,000,000
            Advance from the Federal Home Loan Bank with interest at 5.21%,
              due on October 1, 2001.                                         1,000,000       1,000,000
            Variable rate advance from the Federal Home Loan Bank
              at .25% plus the overnight investment rate, 4.55% at
              December 31, 1999, due on September 21, 2000.                   4,000,000               -
                                                                             ----------      ----------
                                                                             $9,000,000      $5,000,000
                                                                             ==========      ==========
</TABLE>

          The Federal Home Loan Bank advances are collateralized by a blanket
          floating lien on qualifying first mortgages and the Bank's Federal
          Home Loan Bank stock.

          Aggregate maturities of Federal Home Loan Bank advances at December
          31, 1999 are as follows:

                   2000                        $6,000,000
                   2001                         3,000,000
                                               ----------
                                               $9,000,000
                                               ==========

                                       19
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7.   EMPLOYEE STOCK OWNERSHIP PLAN

          In connection with the conversion, the Company sponsored a leveraged
          employee stock ownership plan ("ESOP") with an employer loan.  The
          purpose of the plan is to enable participating employees of the
          Company to acquire stock ownership in the Company, thereby permitting
          such employees to share in the growth and prosperity of the Company
          and to accumulate capital for their future economic security.
          Contributions to the plan for each plan year are at the discretion of
          the Board of Directors and in no event shall the total contribution
          for any plan year exceed the maximum amount deductible by the Company
          for such year for Federal income tax purposes.  For the period ended
          December 31, 1999 the Company did not make a cash contribution to the
          plan.

          The Company makes annual contributions to the ESOP equal to the ESOP's
          debt service less dividends received by the ESOP. All dividends
          received by the ESOP are used to pay debt service. The ESOP shares
          initially were pledged as collateral for its debt. As the debt is
          repaid, shares are released from collateral and allocated to active
          employees, based on the proportion of debt service paid in the year.
          The shares pledged as collateral are deducted from shareholders'
          equity as unearned ESOP shares in the accompanying consolidated
          balance sheets.

          The note payable referred to in the preceding paragraph requires ten
          annual principal payments plus interest at Prime. Future principal
          payments are due as follows:

               During the year ending December 31,
               ----------------------------------
                   2000                                  $  126,000
                   2001                                     126,000
                   2002                                     126,000
                   2003                                     126,000
                   2004                                     126,000
                   Due thereafter                           630,000
                                                         ----------
                                                         $1,260,000
                                                         ==========

          As shares are released from collateral, the Company reports
          compensation expense equal to the amount which represents the
          difference in the current market price of the shares released and the
          actual cost of the shares, and the shares become outstanding for
          earnings per share computations.  Dividends on allocated ESOP shares
          are recorded as a reduction of retained earnings; dividends on
          unallocated ESOP shares are recorded as a reduction of debt.  ESOP
          compensation expense was $134,000 for the year ended December 31,
          1999.

                                       20
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7.   EMPLOYEE STOCK OWNERSHIP PLAN (Continued)

          Shares of the Company held by the ESOP at December 31, 1999 are as
          follows:

                                                        1999
                                                     ----------
             Allocated shares                        $        -
             Shares released for allocation                   -
             Unearned shares                            126,000
                                                     ----------
             Total ESOP shares                       $  126,000
                                                     ==========
             Fair value of unearned shares           $1,433,250
                                                     ==========

NOTE 8.   INCOME TAXES

          Income tax expense consists of the following:

                                     Years Ended December 31,
                                     ------------------------
                                       1999            1998
                                     --------        --------
             Current                 $753,845        $460,697
             Deferred                 (47,518)        (55,884)
                                     --------        --------
             Income tax expense      $706,327        $404,813
                                     ========        ========

          The Company's income tax expense differs from the amounts computed by
          applying the Federal income tax statutory rates to income before
          income taxes.  A reconciliation of the differences is as follows:

<TABLE>
<CAPTION>
                                                   Years Ended December 31,
                                          ---------------------------------------
                                                 1999                 1998
                                          ------------------   ------------------
                                            Amount   Percent    Amount    Percent
                                          --------   -------   ---------  -------
<S>                                       <C>        <C>       <C>        <C>
        Tax provision at statutory rate   $671,723        34%  $ 402,750      34 %
        State income tax                    34,394         2     19,632        2
        Other                                  210         -    (17,569)      (2)
                                          --------   -------   ---------  ------
        Income tax expense                $706,327        36%  $ 404,813      34 %
                                          ========   =======   =========  ======
</TABLE>

                                       21
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8.   INCOME TAXES (Continued)

          The components of deferred income taxes are as follows:

                                                    December 31,
                                                --------------------
                                                  1999        1998
                                                --------    --------
             Deferred tax assets:
               Loan loss reserves               $213,216    $169,408
               Amortization of startup costs       6,381           -
               Securities available-for-sale     133,000           -
                                                --------    --------
                                                 352,597     169,408
                                                --------    --------
             Deferred tax liabilities:
               Depreciation                       42,790      40,119
               FHLB stock                         42,401      42,401
               Securities available-for-sale           -      18,325
                                                --------    --------
                                                  85,191     100,845
                                                --------    --------

             Net deferred tax assets            $267,406    $ 68,563
                                                ========    ========

NOTE 9.   COMMITMENTS AND CONTINGENT LIABILITIES

          The Company enters into firm commitments to sell mortgage loans which
          it has originated at agreed upon prices.  The sales price for these
          loans are based on market rates at the time of the commitment.  The
          Company generally has ten days after the loan closing to provide the
          investor with the loan documentation, at which time the investor will
          fund the loan.  The investor bears the interest rate risk on the loan
          from the time of the commitment until funding.  The Company's risk is
          limited to specific recourse provisions within the agreement with the
          investor and its ability to provide the required loan documentation to
          the investor within the commitment period.

          The Company sells mortgage loans to investors under various blanket
          agreements.  Under the agreements, investors generally have a limited
          right of recourse to the Company for normal representations and
          warranties and, in some cases, for delinquencies within the first
          three to six months which lead to loan default and foreclosure.
          Management believes that the risk of loss to the Company as a result
          of these provisions is insignificant.

          As of December 31, 1999 and 1998, the Company had commitments to sell
          loans of $538,000 and $188,350, respectively.

                                       22
<PAGE>

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 9.   COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

          The Company enters into residential construction and commercial loan
          commitments to fund loans to its customers at prime based interest
          rates in the normal course of business.  These instruments involve
          credit risk in excess of the amount recognized in the financial
          statements.

          In the normal course of business, the Company has entered into off-
          balance sheet financial instruments which are not reflected in the
          financial statements.  These financial instruments consist of
          commitments to extend credit and standby letters of credit.  Such
          financial instruments are included in the financial statements when
          funds are disbursed or the instruments become payable.  These
          instruments involve, to varying degrees, elements of credit risk in
          excess of the amount recognized in the consolidated balance sheet.

          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 amount of those
          instruments.  A summary of the Company's commitments is as follows:
<TABLE>
<CAPTION>
                                                                    December 31,
                                                         -------------------------------
                                                             1999                1998
                                                         -----------          ----------
<S>                                                      <C>                  <C>
 Standby letters of credit                               $   252,750          $        -
 Unfunded mortgage loan commitments                        1,388,046           1,374,567
 Construction loan commitments                             7,252,827           4,172,033
 Other commitments to extend credit                        1,982,000           1,418,996
                                                         -----------          ----------
                                                         $10,875,623          $6,965,596
                                                         ===========          ==========
</TABLE>

          Commitments to extend credit 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 credit risk involved in issuing these
          financial instruments is essentially the same as that involved in
          extending loans to customers.  The Company evaluates each customer's
          creditworthiness on a case-by-case basis.  The amount of collateral
          obtained, if deemed necessary by the Company upon extension of credit,
          is based on management's credit evaluation of the customer.
          Collateral held varies but may include real estate and improvements,
          marketable securities, accounts receivable, inventory, equipment, and
          personal property.

                                       23
<PAGE>

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 9.   COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

          Standby letters of credit are conditional commitments issued by the
          Company to guarantee the performance of a customer to a third party.
          Those guarantees are primarily issued to support public and private
          borrowing arrangements.  The credit risk involved in issuing letters
          of credit is essentially the same as that involved in extending loans
          to customers.  Collateral held varies as specified above and is
          required in instances which the Company deems necessary.

          In the normal course of business, the Company is involved in various
          legal proceedings.  In the opinion of management of the Company, any
          liability resulting from such proceedings would not have a material
          effect on the Company's financial statements.


Note 10.  Concentrations of Credit

          The Company originates primarily commercial, residential, and consumer
          loans to customers in Douglas County and surrounding counties.  The
          ability of the majority of the Company's customers to honor their
          contractual loan obligations is dependent on the economy in their
          primary market area.

          Ninety-seven percent of the Company's loan portfolio is concentrated
          in loans secured by real estate, of which a substantial portion is
          secured by real estate in the Company's primary market area.  In
          addition, a substantial portion of the other real estate owned and
          real estate held for development and sale is located in those same
          markets.  Accordingly, the ultimate collectibility of the loan
          portfolio and the recovery of the carrying amount of real estate owned
          are susceptible to changes in market conditions in the Company's
          primary market area.

          The Company, as a matter of policy, does not generally extend credit
          to any single borrower or group of related borrowers in excess of
          $2,599,000.

NOTE 11.  Regulatory Matters

          The Office of Thrift Supervision imposes limitations on all capital
          distributions by a savings institution, such as cash dividends,
          payments to repurchase its shares, cash payments to shareholders of
          another institution in a merger transaction, and other distributions
          charged against capital.  The Bank could, after prior notice of the
          Office of Thrift Supervision, make capital distributions during a
          calendar year equal to the greater of; 1) 100% of net earnings to date
          during the calendar year plus the amount that would reduce excess
          capital by 50.0% at the beginning of the calendar year; or 2) 75.0% of
          net earnings during the previous four quarters.

                                       24
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 11.  Regulatory MatterS (Continued)

          The Company and Bank are 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 financial
          statements.  Under capital adequacy guidelines and the regulatory
          framework for prompt corrective action, the Company and Bank must meet
          specific capital guidelines that involve quantitative measures of the
          assets, liabilities, and certain off-balance sheet items as calculated
          under regulatory accounting practices.  The Company's and Bank's
          capital amounts and classification are also subject to qualitative
          judgments by the regulators about components, risk weightings, and
          other factors.  Prompt corrective action provisions are not applicable
          to bank holding companies.

          Quantitative measures established by regulation to ensure capital
          adequacy require the Company and Bank to maintain minimum amounts and
          ratios of Total and Tier 1 capital to risk-weighted assets, Tier 1
          capital to total adjusted assets, core capital to total adjusted
          assets, and tangible capital to total adjusted assets.  Management
          believes, as of December 31, 1999, the Company and Bank met all
          capital adequacy requirements to which they are subject.

          As of December 31, 1999, the most recent notification from the Federal
          Deposit Insurance Corporation categorized the Bank as well capitalized
          under the regulatory framework for prompt corrective action.  To be
          categorized as well capitalized, the Bank must maintain minimum Total
          risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth
          in the following table.  There are no conditions or events since that
          notification that management believes have changed the Bank's
          category.

                                       25
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 11.  Regulatory MatterS (Continued)

          The Company and Bank's actual capital amounts and ratios are presented
          in the following tables.
<TABLE>
<CAPTION>
                                                                                                            To Be Well
                                                                              For Capital                Capitalized Under
                                                                               Adequacy                  Prompt Corrective
                                                  Actual                       Purposes                  Action Provisions
                                       --------------------------    --------------------------    --------------------------
                                            Amount         Ratio          Amount         Ratio         Amount          Ratio
                                       --------------   ---------    --------------   ---------    -------------   ----------
<S>                                    <C>              <C>          <C>              <C>          <C>             <C>
                                                                        (Dollars in Thousands)
                                       --------------------------------------------------------------------------------------
    As of December 31, 1999:
    Total Capital to Risk Weighted
    Assets:
    Consolidated                         $25,361           39.46%        $5,141          8.00%          $  N/A         N/A
    Bank                                 $17,079           26.60%        $5,136          8.00%          $6,421       10.00%
    Tier I Capital to Risk Weighted
    Assets:
    Consolidated                         $24,554           38.21%        $2,571          4.00%          $  N/A         N/A
    Bank                                 $16,273           25.35%        $2,568          4.00%          $3,852        6.00%
    Tier I Capital to Average Assets:
    Consolidated                         $24,554           20.69%        $4,747          4.00%          $  N/A         N/A
    Bank                                 $16,273           13.96%        $4,664          4.00%          $5,831        5.00%
    Core Capital
    Bank                                 $16,273           13.96%        $3,498          3.00%          $  N/A         N/A
    Tangible Capital
    Bank                                 $16,273           13.96%        $1,749          1.50%          $  N/A         N/A

    As of December 31, 1998:
    Total Capital to Risk Weighted
Assets:

    Bank                                 $ 8,513           15.08%        $4,515          8.00%          $5,644       10.00%
    Tier I Capital to Risk Weighted
    Assets:
    Bank                                 $ 7,804           13.83%        $2,258          4.00%          $3,387        6.00%
    Tier I Capital to Average Assets:
    Bank                                 $ 7,804            7.88%        $3,961          4.00%          $4,952        5.00%
    Core Capital Ratio:
    Bank                                 $ 7,804            7.88%        $2,971          3.00%          $  N/A         N/A
    Tangible Capital Ratio:
    Bank                                 $ 7,804            7.88%        $1,485          1.50%          $  N/A         N/A
</TABLE>

                                       26
<PAGE>

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 11.  Regulatory MatterS (Continued)

          A reconciliation of consolidated GAAP capital at December 31, 1999 is
          as follows:
<TABLE>
<CAPTION>
                                                                      Total            Tier I
                                                                  --------------   --------------
                                                                       (Dollars in Thousands)
                                                                  -------------------------------
        <S>                                                       <C>                <C>
        GAAP capital                                                $24,337           $24,337
        Accumulated other comprehensive loss                            217               217
        Allowable allowance for loan losses                             807                 -
                                                                   --------          --------
                                                                    $25,361           $24,554
                                                                   ========          ========
</TABLE>


NOTE 12.  FAIR VALUE OF FINANCIAL INSTRUMENTS

          The following methods and assumptions were used by the Company in
          estimating its fair value disclosures for financial instruments.  In
          cases where quoted market prices are not available, fair values are
          based on estimates using discounted cash flow models.  Those models
          are significantly affected by the assumptions used, including the
          discount rates and estimates of future cash flows.  In that regard,
          the derived fair value estimates cannot be substantiated by comparison
          to independent markets and, in many cases, could not be realized in
          immediate settlement of the instrument.  The use of different
          methodologies may have a material effect on the estimated fair value
          amounts.  Also, the fair value estimates presented herein are based on
          pertinent information available to management as of December 31, 1999
          and 1998.  Such amounts have not been revalued for purposes of these
          financial statements since those dates and, therefore, current
          estimates of fair value may differ significantly from the amounts
          presented herein.

          Cash, Due From Banks, and Federal Funds Sold:

            The carrying amounts of cash, due from banks, and Federal funds sold
            approximate their fair value.

          Securities Available-For-Sale and Held-To-Maturity:

            Fair values for securities are based on available quoted market
            prices.  The carrying values of equity securities with no readily
            determinable fair value approximate fair values.

                                       27
<PAGE>

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 12.  FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

          Loans Held for Sale:

           The carrying amounts of loans held for sale approximate their fair
           values.

          Loans:

           For variable-rate loans that reprice frequently and have no
           significant change in credit risk, fair values are based on carrying
           values. For other loans, the fair values are estimated using
           discounted cash flow models, using current market interest rates
           offered for loans with similar terms to borrowers of similar credit
           quality. Fair values for impaired loans are estimated using
           discounted cash flow models or based on the fair value of the
           underlying collateral.


          Deposits:

           The carrying amounts of demand deposits, savings deposits, and
           variable-rate certificates of deposit approximate their fair values.
           Fair values for fixed-rate certificates of deposit are estimated
           using discounted cash flow models, using current market interest
           rates offered on certificates with similar remaining maturities.

          Federal Home Loan Bank Advances:

           The fair value of Federal Home Loan Bank advances are estimated using
           discounted cash flow models, using current market interest rates
           offered on similar borrowings.

          Accrued Interest:

           The carrying amounts of accrued interest approximate their fair
           values.

          Off-Balance Sheet Instruments:

           Fair values of the Company's off-balance sheet financial instruments
           are based on fees charged to enter into similar agreements.  However,
           commitments to extend credit and standby letters of credit do not
           represent a significant value to the Company until such commitments
           are funded.  The Company has determined that these instruments do not
           have a distinguishable fair value and no fair value has been
           assigned.

                                       28
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


NOTE 12.  FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

           The carrying amounts and estimated fair values of the Company's
           financial instruments are as follows:
<TABLE>
<CAPTION>
                                                      December 31, 1999                       December  31, 1998
                                           -------------------------------------    ------------------------------------
                                                Carrying              Fair               Carrying              Fair
                                                 Amount               Value               Amount              Value
                                           -----------------   -----------------    -----------------   ----------------
                 <S>                        <C>                <C>                  <C>                 <C>
                 Financial assets:
                    Cash, due from
                    banks, and
                 Federal funds sold          $ 6,048,908         $ 6,048,908          $ 8,271,511        $ 8,271,511
                 Securities                   16,466,986          16,466,986            3,706,925          3,706,925
                 available-for-sale
                 Securities                    2,274,839           2,275,988            1,042,000          1,071,369
                 held-to-maturity
                 Loans held for sale             538,000             538,000              188,350            188,350
                 Loans                        88,275,926          86,990,264           83,188,926         83,017,000
                 Accrued interest                681,756             681,756              475,315            475,315
                 receivable

                 Financial liabilities:
                 Deposits                    $83,842,498         $83,787,086          $85,685,926        $86,515,376
                 Federal Home Loan
                 Bank advances                 9,000,000           8,900,000            5,000,000          5,000,000
                 Accrued interest payable        141,308             141,308              134,156            134,156
</TABLE>


NOTE 13.  SUPPLEMENTAL FINANCIAL DATA

          Components of other operating expenses in excess of 1% of total
          revenue are as follows:
<TABLE>
<CAPTION>
                                                                                Years Ended December 31,
                                                                        --------------------------------------
                                                                               1999                 1998
                                                                        -----------------    -----------------
                  <S>                                                   <C>                   <C>
                  Computer service                                           $148,956             $113,399
                  NOW account expenses                                        157,750              124,676
                  Conversion losses                                                 -               90,000
</TABLE>

                                       29
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 14.  SEGMENT INFORMATION

          The Company's operations have been classified into two reportable
          segments, banking and real estate development.  The banking segment
          involves traditional banking services offered through its wholly-owned
          bank subsidiary.  Pinehurst's operations involve the acquisition,
          development, and sale of real estate.  Typically, its projects involve
          the development of subdivisions within its primary market area of
          Douglas County.

          The Company's reportable segments are organizations that offer
          different products and services.  They are managed separately because
          of products, services, operations, marketing strategies, and the
          regulatory environments in which the Bank operates.

          Total revenue by industry segment includes revenues from unaffiliated
          customers and affiliates. Revenues from affiliates are eliminated in
          consolidation.  Management fees and other various revenues and
          expenses between affiliates are recorded on the accrual basis of
          accounting consistent with similar transactions with customers outside
          the consolidated group.

          Selected segment information by industry segment is as follows:

<TABLE>
<CAPTION>
                                                                           Reportable Segments
                                                     ------------------------------------------------------------------------
                                                                          Real Estate
              For the Year Ended December 31, 1999        Banking         Development          Other              Total
            --------------------------------------   -----------------   ---------------   --------------    ----------------
              <S>                                    <C>                 <C>               <C>               <C>
              Interest income                         $  7,917,384          $        -       $   50,382        $  7,967,766
              Interest expense                           4,116,799                   -                -           4,116,799
              Intersegment net interest                          -                   -          (50,382)            (50,382)
              (expense)
              Net interest income                        3,800,585                   -                -           3,800,585
              Other revenue from external                  488,121             334,199                -             822,320
              customers
              Intersegment other revenues                   26,800                   -                -              26,800
              Depreciation                                 182,787                   -                -             182,787
              Provision for loan losses                     60,000                   -                -              60,000
              Segment profit                             1,077,273             172,388           19,667           1,269,328
              Segment assets                           116,251,296           2,144,169        6,291,658         124,687,123
              Expenditures for premises and                285,899                   -                -             285,899
              equipment
</TABLE>

                                       30
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


NOTE 14.  SEGMENT INFORMATION (Continued)
<TABLE>
<CAPTION>
                                                                           Reportable Segments
                                                            ----------------------------------------------------------------------
                                                                                  Real Estate
                  For the Year Ended December 31, 1998           Banking          Development        Other             Total
              -------------------------------------------   -----------------   ---------------   ------------   -----------------
              <S>                                           <C>                 <C>               <C>            <C>
                Interest income                                 $  7,162,303        $        -       $      -        $  7,162,303
                Interest expense                                   4,226,450                 -              -           4,226,450
                Net interest income                                2,935,853                 -              -           2,935,853
                Other revenue from external                          630,722           113,682              -             744,404
                customers
                Intersegment other revenues                           20,000                 -              -              20,000
                Depreciation and amortization                        177,844                 -              -             177,844
                Provision for loan losses                            107,805                 -              -             107,805
                Segment profit                                       731,874            47,872              -             779,746
                Segment assets                                   100,974,303         1,867,515              -         102,841,818
                Expenditures for premises and                        128,619                 -              -             128,619
                equipment
</TABLE>
<TABLE>
<CAPTION>
                                                                                1999                  1998
                                                                       -------------------    ------------------

               Net Interest Income
               -------------------
               <S>                                                       <C>                    <C>
               Total net interest income for reportable segments             $3,800,585            $2,935,853
               Non-reportable segment net interest income                        50,382                     -
               Elimination of intersegment net interest income                  (50,382)                    -
                                                                             ----------            ----------
                   Total consolidated net interest income                    $3,800,585            $2,935,853
                                                                             ==========            ==========
               Other Income
               ------------
               Total other income for reportable segments                    $  849,120            $  764,404
               Elimination of intersegment other income                         (26,800)              (20,000)
                                                                             ----------            ----------
                   Total consolidated other income                           $  822,320            $  744,404
                                                                             ==========            ==========

               Total Assets
               ------------
               Total assets for reportable segments                        $118,395,465            $102,841,818
               Non-reportable segment assets                                  6,291,658                       -
               Elimination of intersegment assets                            (6,776,813)             (1,949,826)
                                                                           ------------            ------------
                   Total consolidated assets                               $117,910,310            $100,891,992
                                                                           ============            ============
</TABLE>

                                       31
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


NOTE 15.  PARENT COMPANY FINANCIAL INFORMATION

           The following information presents the condensed balance sheet,
           statement of income and cash flows of First Deposit Bancshares, Inc.
           as of December 31, 1999 and for the period from July 1, 1999 through
           December 31, 1999.  The net income of the Bank for the period from
           January 1, 1999 to June 30, 1999 was $416,268.

<TABLE>
<CAPTION>
                                                      CONDENSED BALANCE SHEET

                    Assets
                     <S>                                                                     <C>
                     Cash                                                                    $ 6,113,701
                     Due from subsidiary                                                         118,125
                     Investment in subsidiary                                                 18,057,202
                     Other assets                                                                 59,832
                                                                                             -----------
                       Total assets                                                          $24,348,860
                                                                                             ===========

                     Other liabilities                                                       $    11,922
                    Shareholders' equity                                                      24,336,938
                                                                                             -----------
                    Total liabilities and shareholders' equity                               $24,348,860
                                                                                             ===========
</TABLE>

                                       32
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 15.  PARENT COMPANY FINANCIAL INFORMATION (Continued)


<TABLE>
<CAPTION>
                                                CONDENSED STATEMENT OF INCOME

              Income
                <S>                                                                    <C>
                Interest income                                                        $ 50,382
                Dividends from subsidiary                                               118,125
                                                                                       --------
                                                                                        168,507
                                                                                       --------


                Expenses, other                                                          18,793
                                                                                       --------

                Income before income taxes and equity
                   in undistributed income of subsidiary                                149,714

                Income taxes                                                             11,923
                                                                                       --------

                Income before equity in undistributed income
                   of subsidiary                                                        137,791

                Equity in undistributed income of subsidiary                            715,269
                                                                                       --------

                Net income                                                             $853,060
                                                                                       ========
</TABLE>

                                       33
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

------------------------------------------------------------------------------


NOTE 15.  PARENT COMPANY FINANCIAL INFORMATION (Continued)

<TABLE>
<CAPTION>
                                                CONDENSED STATEMENT OF CASH FLOWS

                OPERATING ACTIVITIES
                  <S>                                                                        <C>
                  Net income                                                                   $   853,060
                  Adjustments to reconcile net income to net
                    cash used in operating activities:
                    Undistributed income of subsidiary                                            (715,269)
                    Other operating activities                                                    (166,034)
                                                                                               -----------

                    Net cash used in operating activities                                          (28,243)
                                                                                               -----------

                  INVESTING ACTIVITIES
                    Investment in subsidiary                                                    (7,510,618)
                    Loan to ESOP                                                                (1,260,000)
                                                                                               -----------

                    Net cash used in investing activities                                       (8,770,618)
                                                                                               -----------

                  FINANCING ACTIVITIES
                    Dividends paid                                                                (108,675)
                    Proceeds from issuance of common stock                                      15,750,000
                    Stock issue costs                                                             (728,763)
                                                                                               -----------

                    Net cash provided by financing activities                                   14,912,562
                                                                                               -----------

                  Net increase in cash                                                           6,113,701

                  Cash at beginning of period                                                            -
                                                                                               -----------

                  Cash at end of year                                                          $ 6,113,701
                                                                                               ===========
</TABLE>


                                       34