<PAGE>
 
       As filed with the Securities and Exchange Commission on December 10, 1997
                                                      Registration No. 333-_____
--------------------------------------------------------------------------------
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.   20549

                                    FORM S-1
                             REGISTRATION STATEMENT
                        UNDER THE SECURITIES ACT OF 1933

                              HERITAGE BANCORP, INC.
         ------------------------------------------------------------        
               (Exact name of registrant as specified in charter)

            Delaware                   6035                   applied for
------------------------------    -----------------    -------------------------
(State or other jurisdiction of   (Primary SICC No.)       (I.R.S. Employer
incorporation or organization)                            Identification No.)
                                  
                              201 W. Main Street
                         Laurens, South Carolina 29360
                                (864) 984-4581
        ------------------------------------------------------------        
        (Address and telephone number of principal executive offices)

                            Paul M. Aguggia, Esquire
                            Aaron M. Kaslow, Esquire
                                BREYER & AGUGGIA
                                 Suite 470 East
                              1300 I Street, N.W.
                             Washington, D.C.  20005
                 ---------------------------------------------
                    (Name and address of agent for service)

        APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
  As soon as practicable after this registration statement becomes effective.

     If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.  [x]

     If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.  [_]

     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.  [_]

     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.  [_]

<TABLE>
<CAPTION>

============================================================================================================================
                                            Calculation of Registration Fee
============================================================================================================================
Title of Each Class of Securities      Proposed Maximum      Proposed Offering      Proposed Maximum        Amount of       
Being Registered                       Amount Being          Price(1)               Aggregate Offering      Registration Fee
                                       Registered(1)                                Price(1)                                
----------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                   <C>                    <C>                     <C>             
Common Stock, $0.01 Par Value          4,628,750                    $15.00           $69,431,250            $21,039         
                                                                                                                            
Participation interests (2)               66,003                      - -                - -                   - -          
============================================================================================================================
</TABLE>

(1)  Estimated solely for purposes of calculating the registration fee. As
     described in the Prospectus, the actual number of shares to be issued and
     sold is subject to adjustment based upon the estimated pro forma market
     value of the registrant and market and financial conditions.
(2)  The securities of Heritage Bancorp, Inc. to be purchased by the Heritage
     Federal Savings & Loan Association 401(k) Plan are included in the amount
     shown for Common Stock. Accordingly, pursuant to Rule 457(h) of the
     Securities Act of 1933, as amended, no separate fee is required for the
     participation interests. Pursuant to such rule, the amount being registered
     has been calculated on the basis of the number of shares of Common Stock
     that may be purchased with the current assets of such Plan.

          The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

<PAGE>
 
PROSPECTUS SUPPLEMENT

                             HERITAGE BANCORP, INC.

                  HERITAGE FEDERAL SAVINGS & LOAN ASSOCIATION
                                  401(K) PLAN

     This Prospectus Supplement relates to the offer and sale to participants
("Participants") in the 401(k) Plan ("Plan" or "401(k) Plan") of participation
interests and shares of Heritage Bancorp, Inc. common stock, par value $.01 per
share ("Common Stock"), as set forth herein.

     In connection with the proposed conversion of Heritage Federal Savings &
Loan Association ("Association" or "Employer") from a federally chartered mutual
savings association to a federally chartered stock savings bank, a holding
company, Heritage Bancorp, Inc. ("Holding Company"), has been formed. The
simultaneous conversion of the Association to stock form, the issuance of the
Association's common stock to the Holding Company and the offer and sale of the
Holding Company's Common Stock to the public are herein referred to as the
"Conversion." Applicable provisions of the 401(k) Plan permit the investment of
the Plan assets in Common Stock of the Holding Company at the direction of a
Plan Participant. This Prospectus Supplement relates to the election of a
Participant to direct the purchase of Common Stock in connection with the
Conversion.

     The Prospectus, dated _________, 1998, of the Holding Company
("Prospectus"), which is attached to this Prospectus Supplement, includes
detailed information with respect to the Conversion, the Common Stock and the
financial condition, results of operations and business of the Association and
the Holding Company.  This Prospectus Supplement, which provides detailed
information with respect to the Plan, should be read only in conjunction with
the Prospectus.  Terms not otherwise defined in this Prospectus Supplement are
defined in the Plan or the Prospectus.

     A Participant's eligibility to purchase Common Stock in the Conversion
through the Plan is subject to the Participant's general eligibility to purchase
shares of Common Stock in the Conversion and the maximum and minimum limitations
set forth in the Plan of Conversion.  See "THE CONVERSION" and "--Limitations on
Purchases of Shares" in the Prospectus.

     For a discussion of certain factors that should be considered by each
Participant, see "RISK FACTORS" in the Prospectus.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), THE OFFICE OF THRIFT SUPERVISION ("OTS"), THE
FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC") OR ANY OTHER FEDERAL OR STATE
AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC, THE OTS, THE FDIC OR
ANY OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.  ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

         The date of this Prospectus Supplement is ____________, 1998.
<PAGE>
 
     No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement in connection with the offering made hereby, and, if given or made,
such information and representations must not be relied upon as having been
authorized by the Holding Company, the Association or the Plan.  This Prospectus
Supplement does not constitute an offer to sell or solicitation of an offer to
buy any securities in any jurisdiction to any person to whom it is unlawful to
make such offer or solicitation in such jurisdiction.  Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall
under any circumstances create any implication that there has been no change in
the affairs of the Association or the Plan since the date hereof, or that the
information herein contained or incorporated by reference is correct as of any
time subsequent to the date hereof.  This Prospectus Supplement should be read
only in conjunction with the Prospectus that is attached herein and should be
retained for future reference.
<PAGE>
 
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
 
                                                               PAGE
<S>                                                            <C>
 
The Offering
     Securities Offered......................................   S-1
     Election to Purchase Common Stock in the Conversion.....   S-1
     Value of Participation Interests........................   S-1
     Method of Directing Transfer............................   S-1
     Time for Directing Transfer.............................   S-2
     Irrevocability of Transfer Direction....................   S-2
     Direction Regarding Common Stock After the Conversion...   S-2
     Purchase Price of Common Stock..........................   S-2
     Nature of a Participant's Interest in the Common Stock..   S-2
     Voting and Tender Rights of Common Stock................   S-3
 
Description of the Plan
     Introduction............................................   S-3
     Eligibility and Participation...........................   S-4
     Contributions Under the Plan............................   S-4
     Limitations on Contributions............................   S-5
     Investment of Contributions.............................   S-7
     The Employer Stock Fund.................................   S-7
     Benefits Under the Plan.................................   S-8
     Withdrawals and Distributions from the Plan.............   S-8
     Administration of the Plan..............................   S-9
     Reports to Plan Participants............................  S-10
     Plan Administrator......................................  S-10
     Amendment and Termination...............................  S-10
     Merger, Consolidation or Transfer.......................  S-10
     Federal Income Tax Consequences.........................  S-10
     Restrictions on Resale..................................  S-13
 
Legal Opinions...............................................  S-14
 
Investment Form                                                S-15
</TABLE>

                                       i
<PAGE>
 
                                  THE OFFERING

Securities Offered

     The securities offered hereby are participation interests in the Plan and
up to _______ shares, at the actual purchase price of $15.00 per share, of
Common Stock which may be acquired by the Plan for the accounts of employees
participating in the Plan.  The Holding Company is the issuer of the Common
Stock.  Only employees and former employees of the Association and their
beneficiaries may participate in the Plan.  Information with regard to the Plan
is contained in this Prospectus Supplement and information with regard to the
Conversion and the financial condition, results of operation and business of the
Association and the Holding Company is contained in the attached Prospectus.
The address of the principal executive office of the Association is 201 W. Main
Street, Laurens, South Carolina 29360. The Association's telephone number is
(864) 984-4581.

Election to Purchase Common Stock in the Conversion

     In connection with the Association's Conversion, each Participant in the
401(k) Plan may direct the trustees of the Plan (collectively, the "Trustees")
to transfer up to 100% of a Participant's account balance to a newly created
Employer Stock Fund and to use such funds to purchase Common Stock issued in
connection with the Conversion.  Amounts transferred may include salary
deferral, matching and profit sharing contributions.  The Employer Stock Fund
may consist of investments in the Common Stock made on or after the effective
date of the Conversion.  Funds not transferred to the Employer Stock Fund will
continue to be invested by the trustees of the Plan (the "Trustees").  See
"DESCRIPTION OF THE PLAN -- Investment of Contributions" below.  A Participant's
ability to transfer funds to the Employer Stock Fund in the Conversion is
subject to the Participant's general eligibility to purchase shares of Common
Stock in the Conversion.  For general information as to the ability of the
Participants to purchase shares in the Conversion, see "THE CONVERSION -- The
Subscription, Direct Community and Syndicated Community Offerings" in the
attached Prospectus.

Value of Participation Interests

     The assets of the Plan are valued on an ongoing basis and each Participant
is informed of the value of his or her beneficial interest in the Plan on at
least an annual basis.  This value represents the market value of past
contributions to the Plan by the Association and by the Participants and
earnings thereon, less previous withdrawals, and transfers from other plans.

Method of Directing Transfer

     The last page of this Prospectus Supplement is an investment form to direct
a transfer to the Employer Stock Fund ("Investment Form").  If a Participant
wishes to transfer funds to the Employer Stock Fund to purchase Common Stock
issued in connection with the Conversion, the 

                                      S-1
<PAGE>
 
Participant should indicate that decision in Part 2 of the Investment Form. If a
Participant does not wish to make such an election, he or she does not need to
take any action.

Time for Directing Transfer

     The deadline for submitting a direction to transfer amounts to the Employer
Stock Fund in order to purchase Common Stock issued in connection with the
Conversion is ___________, 1998.  The Investment Form should be returned to
_________ at the Association no later than the close of business on such date.

Irrevocability of Transfer Direction

     A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in order to
purchase shares of Common Stock in connection with the Conversion shall be
irrevocable. Participants, however, will be able to direct the sale of Common
Stock, as explained below.

Direction Regarding Common Stock After the Conversion

     It is currently anticipated that Participants may be permitted to transfer
additional funds from their existing account balances to the Employer Stock Fund
following the Conversion.  In addition, it is anticipated that a Participant
will, on a periodic basis, direct the purchase of Common Stock with new
Participant and employer contributions or direct the sale of Common Stock.  If
Common Stock is sold, the proceeds will be credited to the Participant's account
and may be reinvested in the other investment options available under the Plan.
Special restrictions may apply to purchases or sales directed by those
Participants who are executive officers, directors and principal stockholders of
the Holding Company who are subject to the provisions of Section 16(b) of the
Securities and Exchange Act of 1934, as amended ("Exchange Act"), or applicable
OTS regulations.

Purchase Price of Common Stock

     The funds transferred to the Employer Stock Fund for the purchase of Common
Stock in connection with the Conversion will be used by the Trustees to purchase
shares of Common Stock.  The price paid for such shares of Common Stock will be
the same price as is paid by all other persons who purchase shares of Common
Stock in the Conversion.

Nature of a Participant's Interest in the Common Stock

     The Common Stock purchased for an account of a Participant will be held in
the name of the Trustees of the Plan in the Employer Stock Fund.  Any earnings,
losses or expenses with respect to the Common Stock, including dividends and
appreciation or depreciation in value, will be credited or debited to the
account and will not be credited to or borne by any other accounts.

                                      S-2
<PAGE>
 
Voting and Tender Rights of Common Stock

     The Trustees generally will exercise voting and tender rights attributable
to all Common Stock held by the Trust as directed by Participants with an
interest in the Employer Stock Fund.  With respect to each matter as to which
holders of Common Stock have the right to vote, each Participant will be
allocated a number of voting instruction rights reflecting such Participant's
proportionate interest in the Employer Stock Fund.  The percentage of shares of
Common Stock held in the Employer Stock Fund that are voted in the affirmative
or negative on each matter shall be the same percentage of the total number of
voting instruction rights that are exercised in either the affirmative or
negative, respectively.

                            DESCRIPTION OF THE PLAN

Introduction

     The Association adopted the Plan effective January 1, 1987 as an amendment
and restatement of the Association's prior defined contribution retirement plan.
The Plan is a cash or deferred arrangement established in accordance with the
requirements under Section 401(a) and Section 401(k) of the Internal Revenue
Code of 1986, as amended ("Code").

     The Association intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code.  The
Association will adopt any amendments to the Plan that may be necessary to
ensure the qualified status of the Plan under the Code and applicable Treasury
Regulations.  The Association has received a determination from the Internal
Revenue Service ("IRS") that the Plan is qualified under Section 401(a) of the
Code and that it satisfies the requirements for a qualified cash or deferred
arrangement under Section 401(k) of the Code.

     Employee Retirement Income Security Act.  The Plan is an "individual
account plan" other than a "money purchase pension plan" within the meaning of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").  As
such, the Plan is subject to all of the provisions of Title I (Protection of
Employee Benefit Rights) and Title II (Amendments to the Internal Revenue Code
Relating to Retirement Plans) of ERISA, except the funding requirements
contained in Part 3 of Title I of ERISA, which by their terms do not apply to an
individual account plan (other than a money purchase pension plan).  The Plan is
not subject to Title IV (Plan Termination Insurance) of ERISA.  Neither the
funding requirements contained in Title IV of ERISA nor the plan termination
insurance provisions contained in Title IV will be extended to Participants or
beneficiaries under the Plan.

                                      S-3
<PAGE>
 
     APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH
THE ASSOCIATION.  A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON
WITHDRAWALS MADE PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2, UNLESS A
PARTICIPANT RETIRES AS PERMITTED UNDER THIS PLAN REGARDLESS OF WHETHER SUCH A
WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE ASSOCIATION OR AFTER
TERMINATION OF EMPLOYMENT.

     Reference to Full Text of Plan.  The following statements are summaries of
the material provisions of the Plan.  They are not complete and are qualified in
their entirety by the full text of the Plan, which is filed as an exhibit to the
registration statement filed with the SEC.  Copies of the Plan are available to
all employees by filing a request with the Plan Administrator.  Each employee is
urged to read carefully the full text of the Plan.

Eligibility and Participation

     Any employee of the Association is eligible to participate and will become
a Participant in the Plan following completion of six (6) months of service with
the Association and the attainment of age 21.  The Plan year is the calendar
year ("Plan Year").  Directors who are not employees of the Association are not
eligible to participate in the Plan.

     During 1997, approximately __ employees participated in the Plan.

Contributions Under the Plan

     Participant Contributions.  Each Participant in the Plan is permitted to
elect to reduce such Participant's Compensation (as defined below) pursuant to a
salary reduction agreement in amounts ranging from 1% to 10% of Compensation and
have that amount contributed to the Plan on such Participant's behalf.  Such
amounts are credited to the Participant's deferral contributions account.  For
purposes of the Plan, "Compensation" means a Participant's total amount of
earnings reportable W-2 wages for federal income tax withholding purposes plus a
Participant's elective deferrals pursuant to a salary reduction agreement under
the Plan or any elective deferrals to a Section 125 plan.  Due to recent
statutory changes, the annual Compensation of each Participant taken into
account under the Plan is limited to $160,000 (as adjusted under applicable Code
provisions).  A Participant may elect to modify the amount contributed to the
Plan under the participant's salary reduction agreement during the Plan Year.
Deferral contributions are transferred by the Association to the Trustees of the
Plan on a periodic basis as required by applicable law.

     Employer Contributions.  For employees with one or more years of service,
the Association matches employee deferral contributions on a discretionary
basis.  Additional 

                                      S-4
<PAGE>
 
contributions may also be made on a discretionary basis in proportion to each
Participant's Compensation.

Limitations on Contributions

     Limitations on Annual Additions and Benefits.  Pursuant to the requirements
of the Code, the Plan provides that the amount of contributions allocated to
each Participant's Account during any Plan Year may not exceed the lesser of 25%
of the Participant's "Section 415 Compensation" for the Plan Year or $30,000 (as
adjusted under applicable Code provisions).  A Participant's "Section 415
Compensation" is a Participant's Compensation, excluding any amount contributed
to the Plan under a salary reduction agreement or any employer contribution to
the Plan or to any other plan or deferred compensation or any distributions from
a plan of deferred compensation.  In addition, annual additions are limited to
the extent necessary to prevent the limitations for the combined plans of the
Association from being exceeded.  To the extent that these limitations would be
exceeded by reason of excess annual additions to the Plan with respect to a
Participant, the excess must be reallocated to the remaining Participants who
are eligible for an allocation of Employer contributions for the Plan Year.

     Limitation on 401(k) Plan Contributions.  The annual amount of deferred
compensation of a Participant (when aggregated with any elective deferrals of
the Participant under any other employer plan, a simplified employee pension
plan or a tax-deferred annuity) may not exceed $10,000 (as adjusted under
applicable Code provisions).  Contributions in excess of this limitation
("excess deferrals") will be included in the Participant's gross federal income
tax purposes in the year they are made.  In addition, any such excess deferral
will again be subject to federal income tax when distributed by the Plan to the
Participant, unless the excess deferral (together with any income allocable
thereto) is distributed to the Participant not later than the first April 15th
following the close of the taxable year in which the excess deferral is made.
Any income on the excess deferral that is distributed not later than such date
shall be treated, for federal income tax purposes, as earned and received by the
Participant in the taxable year in which the excess deferral is made.

     Limitation on Plan Contributions for Highly Compensated Employees.
Sections 401(k) and 401(m) of the Code limit the amount of deferred compensation
contributed to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of deferred compensation
contributed by or on behalf of all other employees eligible to participate in
the Plan.  Specifically, the actual deferral percentage for a Plan Year (i.e.,
                                                                         ---- 
the average of the ratios, calculated separately for each eligible employee in
each group, by dividing the amount of salary reduction contributions credited to
the salary reduction contribution account of such eligible employee by such
employee's compensation for the Plan Year) of the Highly Compensated Employees
may not exceed the greater of (a) 125% of the actual deferred percentage of all
other eligible employees, or (b) the lesser of (i) 200% of the actual deferred
percentage of all other eligible employees, or (ii) the actual deferral
percentage of all other eligible employees plus two percentage points.  In
addition, the actual contribution percentage for a Plan Year (i.e., the average
                                                              ----             
of the ratios calculated separately for each eligible employee in each 

                                      S-5
<PAGE>
 
group, by dividing the amount of employer contributions credited to the Matching
contributions account of such eligible employee by each eligible employee's
compensation for the Plan Year) of the Highly Compensated Employees may not
exceed the greater of (a) 125% of the actual contribution percentage of all
other eligible employees, or (b) the lesser of (i) 200% of the actual
contributions percentage of all other eligible employees, or (ii) the actual
contribution percentage of all other eligible employees plus two percentage
points.

     In general, a Highly Compensated Employee includes any employee who, during
the Plan Year or the preceding Plan Year, (1) was at any time a 5% owner (i.e.,
                                                                          ---- 
owns directly or indirectly more than 5% of the stock of the Employer, or stock
possessing more than 5% of the total combined voting power of all stock of the
Employer) or, (2) during the preceding Plan Year, received Section 415
Compensation in excess of $80,000 (as adjusted under applicable Code provisions)
and, if elected by the Association, was in the top paid group of employees for
such Plan Year.

     In order to prevent disqualification of the Plan, any amounts contributed
by Highly Compensated Employees that exceed the average deferral limitation in
any Plan Year ("excess contributions"), together with any income allocable
thereto, must be distributed to such Highly Compensated Employees before the
close of the following Plan Year.  However, the Association will be subject to a
10% excise tax on any excess contributions unless such excess contributions,
together with any income allocable thereto, either are recharacterized or are
distributed before the close of the first 2 1/2 months following the Plan Year
to which such excess contributions relate.  In addition, in order to avoid
disqualification of the Plan, any contributions by Highly Compensated Employees
that exceed the average contribution limitation in any Plan Year ("excess
aggregate contributions") together with any income allocable thereto, must be
distributed to such Highly Compensated Employees before the close of the
following Plan Year.  However, the 10% excise tax will be imposed on the
Association with respect to any excess aggregate contributions, unless such
amounts, plus any income allocable thereto, are distributed within 2 1/2 months
following the close of the Plan Year in which they arose.

     Top-Heavy Plan Requirements.  If, for any Plan Year, the Plan is a Top-
Heavy Plan (as defined below), then (i) the Association may be required to make
certain minimum contributions to the Plan on behalf of non-key employees (as
defined below), and (ii) certain additional restrictions would apply with
respect to the combination of annual additions to the Plan and projected annual
benefits under any defined plan maintained by the Association.

     In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year, if as of the last day of the preceding Plan Year, the aggregate balance of
the accounts of all Participants who are key Employees exceeds 60% of the
aggregate balance of the Accounts of the Participants.  "Key Employees"
generally include any employee, who at any time during the Plan Year or any
other the four preceding Plan Years, if (1) an officer of the Association having
annual compensation in excess of $60,000 who is in an administrative or policy-
making capacity, (2) one of the ten employees having annual compensation in
excess of $30,000 and owing, directly or indirectly, the largest interest in the
employer, (3) a 5% owner of the employer (i.e., 
                                          ----                                  

                                      S-6
<PAGE>
 
owns directly or indirectly more than 5% of the stock of the employer, or stock
possessing more than 5% of the total combined voting power of all stock of the
employer), or (4) a 1% owner of the employer having compensation in excess of
$150,000.

Investment of Contributions

     All amounts credited to Participant's Accounts under the Plan are held in
the Trust which is administered by the Trustees who are appointed by the Savings
Bank's Board of Directors.  The Plan provides that a Participant may direct the
Trustees to invest all or a portion of his or her Accounts in various investment
options, as listed below.  A Participant may periodically elect to change his or
her investment directions with respect to both past contributions and additions
to the Participant's accounts invested in these investment options in accordance
with rules established by the Trustees.

     Under the Plan, the Accounts of a Participant held in the Trust will be
invested by the Trustees at the direction of the Participant in the following
portfolios:


                                [TO BE PROVIDED]


     For additional information regarding these investment options, please
     contact ____________.

     In connection with the Conversion, a Participant may elect to have prior
contributions and additions to the Participant's Account invested either in the
Employer Stock Fund or in any of the other portfolios listed above.  Any amounts
credited to a Participant's Accounts for which investment directions are not
given will be invested in _______________.

     The net gain (or loss) in the Accounts from investments (including interest
payments, dividends, realized and unrealized gains and losses on securities, and
expenses paid from the Trust) are determined on a daily basis.  For purposes of
such allocation, all assets of the Trust are valued at their fair market value.

The Employer Stock Fund

     The Employer Stock Fund will consist of investments in Common Stock made on
and after the effective date of the Conversion.

     Following the Conversion, when Common Stock is sold, the cost or net
proceeds will be charged or credited to the Accounts of Participants affected by
the purchase or sale.  A Participant's Account will also be adjusted to reflect
changes in the value of shares of Common Stock resulting from stock dividends,
stock splits and similar changes.

                                      S-7
<PAGE>
 
     To the extent dividends are not paid on Common Stock held in the Employer
Stock Fund, the return on any investment in the Employer Stock Fund will consist
only of the market value appreciation of the Common Stock subsequent to its
purchase. Declarations and payments of any dividends (regular and special) by
the Board of Directors will depend upon a number of factors, including the
amount of the net proceeds retained by the Holding Company, capital
requirements, regulatory limitations, the Association's and the Holding
Company's financial condition and results of operations, tax considerations and
general economic conditions.

     As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock.  Accordingly, there is no record of the historical performance
of the Employer Stock Fund.

     Investments in the Employer Stock Fund may involve certain risk factors
associated with investments in Common Stock of the Holding Company.  For a
discussion of these risk factors, see "RISK FACTORS" in the Prospectus.

Benefits Under the Plan

     Vesting.  A Participant has, at all times, a fully vested, nonforfeitable
interest in all of his or her Participant and Employer contributions and the
earnings thereon under the Plan.

Withdrawals and Distributions from the Plan

     APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2
UNLESS A PARTICIPANT RETIRES AS PERMITTED UNDER THE PLAN REGARDLESS OF WHETHER
SUCH A WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE ASSOCIATION.

     Distribution Upon Retirement, Death, Disability or Termination of
Employment. The distribution of benefits under the 401(k) Plan to a Participant
may be made in who retires, incurs a form of a lump-sum payment or installment
periods over a specified period. Distributions generally commence as soon as
practicable following the Participant's termination of employment. At the
request of the Participant, the distribution may include an in-kind distribution
of Common Stock of the Holding Company credited to the Participant's Account.
Benefits payments ordinarily must begin not later than 60 days following the end
of the Plan Year in which occurs later of the Participant's: (i) termination of
employment; (ii) attainment of age 65; or (iii) tenth anniversary of
commencement of participation in the Plan; but in no event later than April 1
following the calendar year in which the Participant attains age 70 1/2 (if the
Participant is retired). However, if the vested portion of the Participant's
Account balances exceeds $3,500, no distribution will be made from the Plan
prior to the Participant's attaining age 65 unless the Participant consents to
an earlier distribution. Special rules may apply to the


                                      S-8
<PAGE>
 
distribution of Common Stock of the Holding Company to those Participants who
are executive officers, directors and principal shareholders of the Holding
Company who are subject to the provisions of Section 16(b) of the Exchange Act.

     In-Service Withdrawals and Loans.  The Plan provides for distributions of
Participant deferral contributions prior to termination of employment in the
form of hardship withdrawals.  Such withdrawals are permitted where the funds
are applied to (i) uninsured medical expenses, (ii) the purchase of a principal
residence, (iii) the payment of tuition and other education expenses or (iv)
payments necessary to prevent eviction from a principal residence or foreclosure
on a mortgage.  In order to qualify for a hardship withdrawal, the Participant
must satisfy certain requirements relating to his or her financial resources and
the amount of the withdrawal may not exceed the Participant's immediate and
heavy financial need.

     The Plan does not provide for other in-service withdrawals or loans.

     Nonalienation of Benefits. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.

Administration of the Plan

     Trustees.  The Trustees with respect to Plan assets are currently J. Edward
Wells, Edwin I. Shealy and Debra C. Garrett.

     Pursuant to the terms of the Plan, the Trustees receive and hold
contributions to the Plan in trust and have exclusive authority and discretion
to manage and control the assets of the Plan pursuant to the terms of the Plan
and to manage, invest and reinvest the Trust and income therefrom.  The Trustees
have the authority to invest and reinvest the Trust and may sell or otherwise
dispose of Trust investments at any time and may hold trust funds uninvested.
The Trustees have authority to invest the assets of the Trust in "any type of
property, investment or security" as defined under ERISA.

     The Trustees have full power to vote any corporate securities in the Trust
in person or by proxy; provided, however, that the Participants will direct the
Trustees as to voting and tendering of all Common Stock held in the Employer
Stock Fund.

     The Trustees receive no compensation for their services.  The expenses of
the Trustees are paid out of the Trust except to the extent such expenses and
compensation are paid by the Association.


                                      S-9
<PAGE>
 
     The Trustees must render at least annual reports to the Association and to
the Participants in such form and containing such information that the Trustees
deem necessary.

Reports to Plan Participants

     The Plan Administrator furnishes to each Participant a statement at least
quarterly showing (i) the balance in the Participant's Account as of the end of
that period, (ii) the amount of contributions allocated to any such
Participant's Account for that period, and (iii) the adjustments to such
Participant's Account to reflect earnings or losses (if any).

Plan Administrator

     The Association currently serves as the Plan Administrator.  The Plan
Administrator is responsible for the administration of the Plan, interpretation
of the provisions of the Plan, prescribing procedures for filing applications
for benefits, preparation and distribution of information explaining the Plan,
maintenance of plan records, books of account and all other data necessary for
the proper administration of the Plan, and preparation and filing of all returns
and reports relating to the Plan which are required to be filed with the U.S.
Department of Labor and the IRS, and for all disclosures required to be made to
Participants, beneficiaries and others under Sections 104 and 105 of ERISA.

Amendment and Termination

     The Association may terminate the Plan at any time.  If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee who ceases to be a Participant shall have a fully vested interest
in his or her Account. The Association reserves the right to make, from time to
time, any amendment or amendments to the Plan which do not cause any part of the
Trust to be used for, or diverted to, any purpose other than the exclusive
benefit of the Participants or their beneficiaries.

Merger, Consolidation or Transfer

     In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust to another plan, the Plan requires that each
Participant (if either the Plan or the other plan then terminated) receive a
benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he or she would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).

Federal Income Tax Consequences

     The following is only a brief summary of certain federal income tax aspects
of the Plan which are of general application under the Code and is not intended
to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan. The
summary is necessarily general in nature and


                                     S-10
<PAGE>
 
does not purport to be complete. Moreover, statutory provisions are subject to
change, as are their interpretations, and their application may vary in
individual circumstances. Finally, the consequences under applicable state and
local income tax laws may not be the same as under the federal income tax laws.

PARTICIPANTS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY
DISTRIBUTION FROM THE PLAN AND TRANSACTIONS INVOLVING THE PLAN.

     The Plan has received a determination from the IRS that it is qualified
under Sections 401(a) and 401(k) of the Code, and that the related Trust is
exempt from tax under Section 501(a) of the Code.  A plan that is "qualified"
under these sections of the Code is afforded special tax treatment which include
the following: (1) the sponsoring employer is allowed an immediate tax deduction
for the amount contributed to the Plan of each year; (2) Participants pay no
current income tax on amounts contributed by the employer on their behalf; and
(3) earnings of the Plan are tax-exempt thereby permitting the tax-free
accumulation of income and gains on investments.  The Plan will be administered
to comply in operation with the requirements of the Code as of the applicable
effective date of any change in the law.  The Association expects to timely
adopt any amendments to the Plan that may be necessary to maintain the qualified
status of the Plan under the Code.  Following such an amendment, the Plan will
be submitted to the IRS for a determination that the Plan, as amended, continues
to qualify under Sections 401(a) and 501(a) of the Code and that it continues to
satisfy the requirements for a qualified cash or deferred arrangement under
Section 401(k) of the Code.

     Assuming that the Plan is administered in accordance with the requirements
of the Code, participation in the Plan under existing federal income tax laws
will have the following effects:

     (a) Amounts contributed to a Participant's 401(k) account and the
investment earnings are actually distributed or withdrawn from the Plan.
Special tax treatment may apply to the taxable portion of any distribution that
includes Common Stock or qualified as a "Lump Sum Distribution" (as described
below).

     (b) Income earned on assets held by the Trust will not be taxable to the
Trust.

     Lump Sum Distribution. A distribution from the Plan to a Participant or the
beneficiary of a Participant will qualify as a "Lump Sum Distribution" if it is
made: (i) within a single taxable year of the Participant or beneficiary; (ii)
on account of the Participant's death or separation from service, or after the
Participant attains age 59 1/2; and (iii) consists of the balance to the credits
of the Participant under the Plan and all other profit sharing plans, if any,
maintained by the Association. The portion of any Lump Sum Distribution that is
required to be included in the Participant's or beneficiary's taxable income for
federal income tax purposes ("total taxable amount") consists of the entire
amount of such Lump Sum Distribution less the amount of after-tax contributions,
if any, made by the Participant to any other profit sharing plans maintained by
the Association which is included in such distribution.


                                     S-11
<PAGE>
 
     Averaging Rules.  The portion of the total taxable amount of a Lump Sum
Distribution ("ordinary income portion") will be taxable generally as ordinary
income for federal income tax purposes.  However, for distributions occurring
prior to January 1, 2000, a Participant who has completed at least five years of
participation in the Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
Participant's death (regardless of the period of the Participant's participation
in the Plan or any other profit sharing plan maintained by the Employer), may
elect to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year averaging").  The election of
the special averaging rules may apply only to one Lump Sum Distribution received
by the Participant or beneficiary, provided such amount is received on or after
the Participant turns 59 1/2 and the recipient elects to have any other Lump Sum
Distribution from a qualified plan received in the same taxable year taxed under
the special averaging rule.  The special five-year averaging rule has been
repealed for distributions occurring after December 31, 1999.  Under a special
grandfather rule, individuals who turned 50 by 1986 may elect to have their Lump
Sum Distribution taxed under either the five-year averaging rule (if available)
or the prior law ten-year averaging rule.  Such individuals also may elect to
have that portion of the Lump Sum Distribution attributable to the Participant's
pre-1974 participation in the Plan taxed at a flat 20% rate as gain from the
sale of a capital asset.

     Common Stock Included in Lump Sum Distribution.  If a Lump Sum Distribution
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of the
----                                                                 
distribution over its cost to the Plan.  The tax basis of such Common Stock to
the Participant or beneficiary for purposes of computing gain or loss on its
subsequent sale will be the value of the Common Stock at the time of
distribution less the amount of net unrealized appreciation.  Any gain on a
subsequent sale or other taxable disposition of such Common Stock, to the extent
of the amount of net unrealized appreciation at the time of distribution, will
be considered long-term capital gain regardless of the holding period of such
Common Stock.  Any gain on a subsequent sale or other taxable disposition of the
Common Stock in excess of the amount of net unrealized appreciation at the time
of distribution will be considered either short-term capital gain or long-term
capital gain depending upon the length of the holding period of the Common
Stock.  The recipient of a distribution may elect to include the amount of any
net unrealized appreciation in the total taxable amount of such distribution to
the extent allowed by the regulations by the IRS.

     Distributions:  Rollovers and Direct Transfers to Another Qualified Plan or
to an IRA.  Pursuant to a change in the law, effective January 1, 1993,
virtually all distributions from the Plan may be rolled over to another
qualified Plan or to an individual retirement account ("IRA") without regard to
whether the distribution is a Lump Sum Distribution or Partial Distribution.
Effective January 1, 1993, Participants have the right to elect to have the
Trustees transfer all or any portion of an "eligible rollover distribution"
directly to another plan qualified under Section 401(a) of the Code or to an
IRA.  If the Participant does not elect to have an "eligible rollover
distribution" transferred directly to another qualified plan of to an IRA, the


                                     S-12
<PAGE>
 
distribution will be subject to a mandatory federal withholding tax equal to 20%
of the taxable distribution.  An "eligible rollover distribution" means any
amount distributed from the Plan except:  (1) a distribution that is (a) one of
a series of substantially equal periodic payments made (not less frequently than
annually) over the Participant's life of the joint life of the Participant and
the Participant's designated beneficiary, or (b) for a specified period of ten
years or more; (2) any amount that is required to be distributed under the
minimum distribution rules; and (3) any other distributions excepted under
applicable federal law.  The tax law change described above did not modify the
special tax treatment of Lump Sum Distributions, that are not rolled over or
transferred, i.e., forward averaging, capital gains tax treatment and the
             ----                                                        
nonrecognition of net unrealized appreciation, discussed earlier.

     Additional Tax on Early Distributions. A Participant who receives a
distribution from the Plan prior to attaining age 59 1/2 will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled over into an IRA or another qualified plan or the
distribution is (i) made to a beneficiary (or to the estate of a Participant) on
or after the death of the Participant, (ii) attributable to the Participant's
being disabled within the meaning of Section 72(m)(7) of the Code, (iii) part of
a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of the Participant and his or her
beneficiary, (iv) made to the Participant after separation from service on
account of early retirement under the Plan after attainment of age 55, (v) made
to pay medical expenses to the extent deductible for federal income tax
purposes, (vi) pursuant to a qualified domestic relations order, or (vii) made
to effect the distribution of excess contributions or excess deferrals.

     THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE  DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.

Restrictions on Resale

     Any person receiving shares of the Common Stock under the Plan who is an
"affiliate" of the Association or the Holding Company as the term "affiliate" is
used in Rules 144 and 405 under the Securities Act of 1933, as amended
("Securities Act") (e.g., directors, officers and substantial shareholders of
the Association) may reoffer or resell such shares only pursuant to a
registration statement filed under the Securities Act (the Holding Company and
the Association having no obligation to file such registration statement) or,
assuming the availability thereof, pursuant to Rule 144 or some other exemption
from the registration requirements of the Securities Act.  Any person who may be
an "affiliate" of the Association or the Holding Company may


                                     S-13
<PAGE>
 
wish to consult with counsel before transferring any Common Stock owned by him
or her. In addition, Participants who are officers of the Association or the
Holding Company are advised to consult with counsel as to the applicability of
the reporting and short-swing profit liability rules of Section 16 of the
Exchange Act which may affect the purchase and sale of the Common Stock where
acquired or sold under the Plan or otherwise.

                                 LEGAL OPINIONS

     The validity of the issuance of the Common Stock will be passed upon by
Breyer & Aguggia, Washington, D.C., which firm is acting as special counsel for
the Holding Company in connection with the Conversion.


                                     S-14
<PAGE>
 
                                Investment Form
                             (Employer Stock Fund)

                  HERITAGE FEDERAL SAVINGS & LOAN ASSOCIATION
                                  401(k) PLAN


Name of Participant:
                     -----------------------------------------------------

Social Security Number:
                        --------------------------------------------------
             

     1.   Instructions.  In connection with the proposed conversion of Heritage
Federal Savings & Loan Association ("Association") to a stock savings bank and
the simultaneous formation of a holding company ("Conversion"), participants in
the Heritage Federal Savings & Loan Association 401(k) Plan ("Plan") may elect
to direct the investment of up to 100% of their account balance into the
Employer Stock Fund ("Employer Stock Fund").  Amounts transferred at the
direction of Participants into the Employer Stock Fund will be used to purchase
shares of the common stock of Heritage Bancorp, Inc. ("Common Stock"), the
proposed holding company for the Association.  A Participant's eligibility to
purchase shares of Common Stock is subject to the Participant's general
eligibility to purchase shares of Common Stock in the Conversion and the maximum
and minimum limitations set forth in the Plan Conversion.  See the Prospectus
for additional information.

     You may use this form to direct a transfer of funds credited to your
account to the Employer Stock Fund, to purchase Common Stock in the Conversion.
To direct such a transfer to the Employer Stock Fund, you should complete this
form and return it to _________ at the Association, no later than the close of
business on _______________, 1998.  The Association will keep a copy of this
form and return a copy to you.  (If you need assistance in completing this form,
please contact _________).

     2.   Transfer Direction.  I hereby direct the Plan Administrator to
transfer $__________ (in increments of $15) to the Employer Stock Fund to be
applied to the purchase of Common Stock in the Conversion.  Please transfer this
amount from the following investments in the amounts
indicated:____________________.

     3.   Effectiveness of Direction.  I understand that this Investment Form
shall be subject to all of the terms and conditions of the Plan and the terms
and conditions of the Conversion.  I acknowledge that I have received a copy of
the Prospectus and the Prospectus Supplement.



     
------------------------------------          --------------------------------
              Signature                                      Date


                             *    *    *    *    *


     4.   Acknowledgement of Receipt.  This Investment Form was received by the
Plan Administrator and will become effective on the date noted below.




-------------------------------------          --------------------------------
          Plan Administrator                                 Date



                                     S-15
<PAGE>
 
PROSPECTUS
                             HERITAGE BANCORP, INC.
        (Holding company for Heritage Federal Savings & Loan Association,
                      to be known as Heritage Federal Bank)
             Between 2,975,000 and 4,025,000 Shares of Common Stock

Heritage Federal Savings & Loan Association is converting from the mutual form
to the stock form of organization and changing its name to Heritage Federal
Bank. As part of the conversion, Heritage Federal Savings & Loan Association
will become a wholly-owned subsidiary of Heritage Bancorp, Inc., which was
formed in November 1997. The common stock of Heritage Bancorp, Inc. is being
offered to the public under the terms of a Plan of Conversion which must be
approved by a majority of the votes eligible to be cast by the members of
Heritage Federal Savings & Loan Association. The conversion will not go forward
if Heritage Federal Savings & Loan Association does not receive this approval
and Heritage Bancorp, Inc. does not sell at least the minimum number of shares.

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

                                OFFERING SUMMARY

The amount of common stock being offered in the conversion is based on an
independent appraisal of the market value of Heritage Federal Savings & Loan
Association, after giving effect to the conversion and the formation of Heritage
Bancorp, Inc. The independent appraiser has stated that as of November 28, 1997,
the market value of Heritage Bancorp, Inc. and the converted Heritage Federal
Savings & Loan Association ranged from $44,625,000 to $60,375,000. Subject to
approval of the Office of Thrift Supervision, an additional 15% above the
maximum number of shares may be sold.

<TABLE> 
<CAPTION> 

                                            Price Per Share: $15.00
                                           Minimum          Midpoint         Maximum         Maximum, as adjusted
                                           -------          --------         -------         --------------------
<S>                                        <C>              <C>              <C>             <C> 
Number of shares:                            2,975,000        3,500,000        4,025,000           4,628,750
Gross offering proceeds:                   $44,625,000      $52,500,000      $60,375,000         $69,431,250
Estimated offering expenses:                $1,098,000       $1,207,000       $1,315,000          $1,320,000
Estimated net proceeds:                    $43,527,000      $51,293,000      $59,060,000         $68,111,250
Estimated net proceeds per share:               $14.63           $14.66           $14.67              $14.71
</TABLE> 

Trident Securities, Inc. will use its best efforts to assist Heritage Bancorp,
Inc. in selling at least the minimum number of shares but does not guarantee
that this number will be sold. All funds received from subscribers will be held
in an interest-bearing savings account at Heritage Federal Savings & Loan
Association until the completion or termination of the conversion.

Heritage Bancorp, Inc. has received preliminary approval to have its common
stock quoted on the Nasdaq National Market under the symbol ____.

The subscription offering will terminate at 12:00 Noon, Eastern Time, on
______________, 1998, unless extended for up to ___ days.

--------------------------------------------------------------------------------
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.

For a discussion of certain risks that you should consider, see "RISK FACTORS"
beginning on page ____.

Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, nor any state securities regulator has approved or disapproved
these securities or determined if this prospectus is accurate or complete.
Any representation to the contrary is a criminal offense.

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

For additional information about the conversion, please refer to the more
detailed information in this prospectus. For assistance, please contact the
stock information center at (___)___________.

                            TRIDENT SECURITIES, INC.
                The date of this prospectus is ___________, 1998
<PAGE>
 
                                TABLE OF CONTENTS

<TABLE> 
<CAPTION> 

                                                                                               Page
<S>                                                                                            <C> 
Summary....................................................................................
Risk Factors...............................................................................
Selected Consolidated Financial Information................................................
Use of Proceeds............................................................................
Dividend Policy............................................................................
Market for Common Stock....................................................................
Capitalization.............................................................................
Historical and Pro Forma Regulatory Capital Compliance.....................................
Pro Forma Data.............................................................................
Shares to be Purchased by Management Pursuant to Subscription Rights.......................
Heritage Federal Savings & Loan Association Statements of Income...........................
Management's Discussion and Analysis of Financial Condition and Results of Operations......
Business of the Holding Company............................................................
Business of the Association................................................................
Management of the Holding Company..........................................................
Management of the Association..............................................................
Regulation.................................................................................
Taxation...................................................................................
The Conversion.............................................................................
Restrictions on Acquisition of the Holding Company.........................................
Description of Capital Stock of the Holding Company .......................................
Registration Requirements..................................................................
Legal and Tax Opinions.....................................................................
Experts....................................................................................
Additional Information.....................................................................
Index to Consolidated Financial Statements.................................................
Glossary...................................................................................     G-1
</TABLE> 
<PAGE>
 
                   Heritage Federal Savings & Loan Association
                             Laurens, South Carolina


[map of South Carolina showing county boarders, with enlargement of Greenville,
Anderson, Laurens and Greenwood Counties showing the location of the towns of
Simpsonville, Belton, Laurens and Ware Shoals appears here]
<PAGE>
 
                                     SUMMARY

         The following summary explains the significant aspects of the
conversion. For additional information about the conversion, please refer to the
more detailed information in this prospectus. For assistance, please contact the
stock information center at (___) ____________. Throughout this prospectus,
Heritage Federal Savings & Loan Association is referred to as the "Association"
and Heritage Bancorp, Inc. is referred to as the "Holding Company." See the
glossary at the back of this prospectus for the definitions of certain terms
that are printed in boldface type the first time they appear in this prospectus.

Heritage Bancorp, Inc.

         The Association formed the Holding Company under Delaware law in
November 1997 for the purpose of owning all of the Association's capital stock
following completion of the conversion. The Holding Company has received
conditional approval of the OTS to become a savings and loan holding company by
acquiring the capital stock of the Association in the conversion. Before the
completion of the conversion, the Holding Company will not have any material
assets or liabilities, and it will not engage in any material operations. After
the conversion, the Holding Company's primary assets will be all of the capital
stock of the Association, a portion of the net proceeds of the conversion and a
note receivable from the Association's ESOP. Initially, the primary activity of
the Holding Company will be to direct, plan and coordinate the Association's
business activities. In the future, the Holding Company might become an
operating company or acquire or organize other operating subsidiaries, including
other financial institutions. The Holding Company's main office is located at
201 W. Main Street, Laurens, South Carolina 29360 and its telephone number is
(864) 984-4581.

Heritage Federal Savings & Loan Association

         Chartered in 1948, the Association is a federal mutual savings and loan
association. The Association was originally known as Laurens Federal Savings &
Loan Association. In 1977, the Association changed its name to Heritage Federal
Savings & Loan Association. In connection with the conversion, the Association
will change its name to Heritage Federal Bank. The Association's main office is
located at 201 W. Main Street, Laurens, South Carolina 29360 and its telephone
number is (864) 984-4581.

         The Association is regulated by the OTS and the FDIC. The Association's
deposits have been federally-insured by the FDIC since 1948 and are currently
insured by the FDIC under the SAIF. The Association has been a member of the
FHLB-System since 1948.

         The Association is a community oriented financial institution that
operates out of four offices in the Upstate region of South Carolina. The
Association's principal business is attracting deposits from the general public
and using those funds to originate residential mortgage loans. At September 30,
1997, the Association had total assets of $247.5 million, deposits of $215.4
million and total equity of $29.2 million. At that date, $180.6 million, or
73.0%, of the Association's assets were residential mortgage loans and $200.2
million, or 91.7%, of the Association's liabilities were certificates of
deposit. The Association emphasizes the origination of ARM loans and generally
holds its loans for long-term investment purposes. For a discussion of the
Association's business strategy and recent results of operations, see
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." For a discussion of the Association's business activities, see
"BUSINESS OF THE ASSOCIATION."

The Conversion

         The Association is undertaking the conversion pursuant to its Plan of
Conversion. The conversion is a change in the Association's legal form of
organization. The Association currently operates as a federally chartered mutual
savings and loan association with no stockholders. Through the conversion, the
Association will become a federally chartered stock savings bank and will issue
shares of its common stock to Heritage Bancorp, Inc. As part 

                                       1
<PAGE>
 
of the conversion, Heritage Bancorp, Inc., as the Association's holding company,
will issue shares of its common stock to the public and to the Association's
ESOP. Currently, the Association's depositor and borrower members have voting
rights in the Association and, therefore, are entitled to elect directors of the
Association and to vote on other important matters. Following the conversion,
the Holding Company will exercise all voting rights with respect to the
Association's common stock, and the Holding Company's stockholders will elect
its directors and exercise all other voting rights with respect to the Holding
Company's common stock. The OTS has approved the conversion, subject to approval
by the Association's members at a special meeting to be held on _________, 1998.
For further description of the conversion, see "THE CONVERSION."

Reasons for the Conversion

         As a federal mutual savings and loan association, the Association does
not have stockholders and does not have authority to issue capital stock. By
converting to the stock form of organization, the Association will be structured
in the form used by commercial banks, most business entities and a growing
number of savings institutions. The conversion will be important to the
Association's future growth and performance by providing a larger capital base
from which it can operate, by enhancing its ability to attract and retain
qualified management through stock-based compensation plans, by enhancing its
ability to diversify into other financial services related activities and by
expanding its ability to provide services to the public. At this time, the
Association does not have any specific plans or arrangements for diversification
or expansion. See "THE CONVERSION -- Reasons for the Conversion."

Use of Proceeds

         The Holding Company will use the net conversion proceeds as follows:

         - 50% will be used to buy all of the common stock of the Association.
         The Association will use these funds to make loans and purchase
         investments similar to the kinds it currently holds.

         - 8% will be loaned to the ESOP to fund its purchase of common stock.

         - 42% will be kept for general corporate purposes. These purposes may
         include, for example, paying dividends or buying back shares of common
         stock.

         For further discussion, see "USE OF PROCEEDS."

The Subscription and Direct Community Offerings

         The Holding Company is offering shares of its common stock in a
Subscription Offering to certain current and former depositor and borrower
customers of the Association and to the Association's ESOP. Pursuant to its Plan
of Conversion, the Association has granted subscription rights in the following
order of priority in accordance with applicable regulatory requirements to:

         1.   "Eligible Account Holders" -- the Association's depositors with
              $50 or more on deposit as of June 30, 1996.

         2.   "ESOP" -- the Employee Stock Ownership Plan to be implemented
              by the Association in the conversion.

         3.   "Supplemental Eligible Account Holders" -- the Association's
              depositors with $50 or more on deposit as of December 31, 1997.

                                       2
<PAGE>
 
         4.   "Other Members" -- the Association's depositors as of
              ____________, 1998 and borrowers of the Association as of October
              21, 1997 whose loans continue to be outstanding as of
              _____________, 1998.


--------------------------------------------------------------------------------
         Subscription rights are not transferable, and persons with subscription
rights may not subscribe for shares for the benefit of any other person. If you
violate this prohibition you may lose your right to purchase shares in the
conversion and may be subject to criminal prosecution and/or other sanctions.
--------------------------------------------------------------------------------

         The Subscription Offering will expire at 12:00 Noon, Eastern Time, on
___________, 1998, unless extended by the Association and the Holding Company
for up to ___ days. In the event of an oversubscription, shares will be
allocated in accordance with the Plan of Conversion.

         Shares not sold in the Subscription Offering may be offered to the
general public in a Direct Community Offering with preference given to natural
persons and trusts of natural persons who are residents of the Association's
Local Community. The Direct Community Offering, if one is held, is expected to
begin immediately after the conclusion of the Subscription Offering, but may
begin at any time during the Subscription Offering. The Subscription Offering,
and the Direct Community Offering, if any, are being managed by Trident
Securities. Trident Securities is a registered broker-dealer and a member of the
NASD. Trident Securities is not obligated to purchase any shares of common stock
in this offering. Shares not sold in the Subscription Offering or Direct
Community Offering may be offered for sale in a Syndicated Community Offering,
which would be an offering to the general public on a best efforts basis by a
selling group of broker-dealers managed by Trident Securities. See "THE
CONVERSION -- The Subscription, Direct Community and Syndicated Community
Offerings."

         You will not pay a commission to buy any shares in the conversion.

Stock Pricing and Number of Shares to be Issued in the Conversion

         Between 2,975,000 and 4,025,000 shares of the common stock will be
sold, all at a price of $15.00 per share. With the approval of the OTS, the
number of shares may be increased to 4,628,750.

         The amount of common stock being offered in the conversion is based on
an independent appraisal of the estimated pro forma market value of the Holding
Company and the Association. RP Financial, the independent appraiser, has
estimated that, in its opinion, as of November 28, 1997, the aggregate pro forma
market value of the Holding Company and the Association ranged between
$44,625,000 and $60,375,000 (with a midpoint of $52,500,000) ("Estimated
Valuation Range"). The pro forma market value is the market value of the Holding
Company and the Association after taking into account the sale of shares in this
offering. The appraisal was based in part on the Association's financial
condition and operations and the effect of the additional capital raised by the
sale of common stock in this offering. The independent appraisal will be updated
prior to the completion of the conversion. If the pro forma market value of the
Holding Company and the Association changes to either below $44,625,000 or above
$69,431,250 (the adjusted maximum of the offering), you will be notified and
provided with the opportunity to modify or cancel your order. The $15.00 per
share purchase price was determined by the Boards of Directors of the Holding
Company and the Association. See "THE CONVERSION -- Stock Pricing and Number of
Shares to be Issued."

Purchase Limitations

         The minimum number of shares that you may purchase is 25. The
Association has established the following additional purchase limitations:

                                       3
<PAGE>
 
         - Except for the ESOP, which may subscribe for 8% of the shares issued
         in the conversion, no eligible subscriber (including all persons on a
         joint account) may purchase more than $330,000 of common stock (or
         22,000 shares) in the Subscription Offering.

         - No person may purchase more than $330,000 of common stock (or 22,000
         shares) in the Direct Community Offering or Syndicated Community
         Offering.

         - No person, either alone or together with associates or persons acting
         in concert, may purchase more than the overall maximum purchase
         limitation of 1% of the total number of shares of common stock issued
         in the conversion (not taking into account an increase in the number of
         shares as a result of the increase of the appraisal to the adjusted
         maximum).

         For further discussion of the purchase limits and definitions of
"associate" and "acting in concert," see "THE CONVERSION -- Limitations on
Purchases of Shares."

Procedure for Purchasing Common Stock

         To subscribe for shares of common stock in the Subscription Offering,
you should send or deliver an original, signed stock order form together with
full payment (or appropriate instructions for withdrawal from permitted deposit
accounts, as described below) to the Association in the postage-paid envelope
provided so that the stock order form is received before the end of the
Subscription Offering. You must also sign the certification that is part of the
stock order form. Payment for shares may be made in cash (if made in person) or
by check or money order. The Association will pay interest at the rate it pays
on passbook accounts from the date funds are received until completion or
termination of the conversion. Subscribers who have deposit accounts with the
Association may include instructions on the stock order form requesting
withdrawal from such deposit account(s) to purchase shares. Withdrawals from
certificates of deposit may be made without incurring an early withdrawal
penalty. All funds authorized for withdrawal from deposit accounts with the
Association will earn interest at the applicable account rate. After the
Association receives your order, your order cannot be withdrawn or changed,
except with the consent of the Association.

         To ensure that your subscription rights are properly identified, you
must list all qualifying savings accounts and loans, as of the respective
qualifying dates, on the stock order form. Persons who do not list all
qualifying savings accounts and loans may be subject to reduction or rejection
of their subscription.

         The Holding Company and the Association have the discretion to accept
or reject orders received either through the Direct Community Offering or the
Syndicated Community Offering. If your order is rejected in part, you will not
have the right to cancel the remainder of the order.

         Owners of self-directed IRAs may use the assets of their IRAs to
purchase shares of common stock in the conversion, provided that their IRAs are
not maintained on deposit with the Association. If you want to use funds in a
self-directed IRA maintained by the Association to purchase shares of common
stock, you must transfer your account to an unaffiliated institution or broker.
If you are interested in doing so, you should contact the Association's stock
information center no later than _____________, 1998.

         For further information on how to purchase stock, see "THE CONVERSION
-- Procedure for Purchasing Shares in the Subscription and Direct Community
Offerings."

Purchases by Officers and Directors

         The Association expects its directors and executive officers (together
with their associates) to subscribe for 168,336 shares, which equals 4.8% of the
shares issued at the midpoint of the offering range. The purchase price paid by
them will be the same $15.00 per share price as that paid by all other persons
who purchase shares in the 

                                       4
<PAGE>
 
conversion. See "SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION
RIGHTS."

Benefits of the Conversion to Management

         ESOP. The Association will adopt the ESOP in connection with the
conversion. The ESOP intends to purchase 8% of the shares of common stock issued
in the conversion. If the ESOP's subscription is not filled in its entirety, the
ESOP may purchase shares in the open market or may purchase shares directly from
the Holding Company. The Holding Company will recognize additional compensation
expense as a result of the adoption of the ESOP. If the number of shares sold in
the conversion is increased above the maximum of the offering range, the ESOP
will have a first priority to purchase any such shares over the maximum of the
offering range, up to a total of 8% of the common stock. For information about
the ESOP, see "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Employee Stock
Ownership Plan." See also "RISK FACTORS -- New Expenses Associated With ESOP and
MRP" and "PRO FORMA DATA."

         Management Recognition Plan. The Holding Company expects to seek
stockholder approval of the MRP no earlier than six months after completion of
the conversion. The MRP will reserve a number of shares equal to 4% of the
number of shares issued in the conversion. Pursuant to the MRP, the Holding
Company would be able to make awards of shares of common stock to key employees
and directors of the Holding Company and the Association at no cost to the
recipient. All awards would be subject to vesting over a minimum of five years.
The size of individual awards will be determined prior to submitting the MRP for
stockholder approval, and disclosure of anticipated awards will be included in
the proxy materials for such meeting. For additional information about the MRP,
see "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Management Recognition Plan."
See also "RISK FACTORS -- New Expenses Associated With ESOP and MRP" and "PRO
FORMA DATA."

         Stock Option Plan. The Holding Company expects to seek stockholder
approval of a Stock Option Plan no earlier than six months after completion of
the conversion. The Stock Option Plan will reserve a number of shares equal to
10% of the number of shares issued in the conversion. Pursuant to the Stock
Option Plan, the Holding Company would be able to award options to acquire
shares of common stock to key employees and directors of the Holding Company and
the Association. The exercise price of such options would be 100% of the fair
market value of the common stock on the date the option is granted. All awards
would be subject to vesting over a minimum of five years. The size of individual
awards will be determined prior to submitting the Stock Option Plan for
stockholder approval, and disclosure of anticipated awards will be included in
the proxy materials for such meeting. For additional information about the Stock
Option Plan, see "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Stock Option
Plan."

         Employment and Severance Agreements. The Holding Company and the
Association plan to enter into an employment agreement with J. Edward Wells, the
Association's Chief Executive Officer. The employment agreement will provide
certain benefits to Mr. Wells if he is terminated following a change in control
of the Holding Company or the Association. If there is a change in control of
the Holding Company or the Association, Mr. Wells will be entitled to a package
of cash and/or benefits with a maximum value equal to 2.99 times his average
annual compensation during the five-year period preceding the change in control.
If a change of control had occurred as of September 30, 1997, the total value of
the severance benefits payable to Mr. Wells under the proposed employment
agreement would have been approximately $427,000. See "RISK FACTORS --
Provisions of Employment and Severance Agreements and Severance Plan" and
"MANAGEMENT OF THE ASSOCIATION -- Executive Compensation -- Employment
Agreement."

         The Holding Company and the Association plan to enter into severance
agreements with four of the Association's senior officers, none of whom will be
covered by an employment agreement. The severance agreements provide certain
benefits to the officers if they are terminated following a change in control of
the Holding Company or the Association. If there is a change in control of the
Holding Company or the Association, each senior officer would be entitled to a
package of cash and/or benefits with a maximum value equal to two times his

                                       5
<PAGE>
 
compensation during the 12-month period preceding the change in control. If a
change of control had occurred as of September 30, 1997, the total value of the
severance benefits payable to these senior officers under the proposed
agreements would have been approximately $417,000. See "RISK FACTORS --
Provisions of Employment and Severance Agreements and Severance Plan" and
"MANAGEMENT OF THE ASSOCIATION -- Executive Compensation -- Severance
Agreements."

         Employee Severance Compensation Plan. In connection with the
conversion, the Board of Directors of the Association intends to adopt the
Severance Plan to provide benefits to eligible employees in the event of a
change in control of the Holding Company or the Association. Officers who enter
into separate employment or severance agreements with the Holding Company and
the Association will not be eligible to participate in the Severance Plan. The
Severance Plan will provide that, in the event of a change in control of the
Holding Company or the Association, eligible employees who are terminated or who
terminate employment (but only upon the occurrence of events specified in the
Severance Plan) within 12 months of the effective date of a change in control
will be entitled to a payment based on years of service and/or position with the
Association, subject to certain limits. If a change in control had occurred at
September 30, 1997 and all eligible employees had been terminated, the total
payment due under the Severance Plan would be approximately $529,000. See "RISK
FACTORS -- Provisions of Employment and Severance Agreements and Severance Plan"
and "MANAGEMENT OF THE ASSOCIATION -- Executive Compensation -- Employee
Severance Compensation Plan."

Market for Common Stock

         The Holding Company has obtained preliminary approval for the common
stock to be quoted on the Nasdaq National Market under the symbol ______. After
shares of the common stock commence trading, interested investors may contact a
stock broker to buy or sell shares. The Holding Company cannot assure you that
there will be active trading market for the common stock. See "RISK FACTORS --
Absence of Prior Market for the Common Stock" and "MARKET FOR COMMON STOCK."

Dividend Policy

         The Holding Company intends to adopt a policy of paying regular
semi-annual cash dividends at an annual rate of $0.30 per share (2.0% based on
the $15.00 per share purchase price of the common stock in the conversion).
Dividends will be subject to determination and declaration by the Board of
Directors, which will take into account a number of factors, including the
Holding Company's consolidated operating results and financial condition, net
worth and capital requirements, as well as regulatory restrictions on the
payment of dividends from the Association to the Holding Company (which would be
a primary source of funds for the Holding Company). The Holding Company cannot
assure you that dividends will in fact be paid or that if paid such dividends
will not be reduced or eliminated in the future. For further information about
the payment of dividends, see "DIVIDEND POLICY."

                                       6
<PAGE>
 
                                  RISK FACTORS

         Before investing in the common stock please carefully consider the
matters discussed below. The common stock is not a savings account or deposit
and is not insured by the FDIC or any other government agency.

Reliance on Certificates of Deposit

         At September 30, 1997, $200.2 million, or 92.9%, of the Association's
deposits were certificates of deposit, of which $148.9 million mature within one
year. Jumbo certificates of deposit (certificate accounts with balances of
$100,000 or more) totalled $40.3 million, or 20.1% of certificates of deposit,
at September 30, 1997. As a result of the large percentage of certificates of
deposit, the average rate paid on the Association's deposits is higher than the
average rate paid by institutions that have more checking and savings accounts,
which generally pay lower rates of interest. The Association's high cost of
deposits results in a lower interest rate spread and negatively impacts the
Association's profitability. In addition, certificates of deposit can be a more
interest rate sensitive source of funds than checking or savings accounts. If
interest rates rise significantly or if the Association does not offer
competitive interest rates on its certificates of deposit, the Association could
experience a significant decrease in its deposit accounts.

Mortgage Lending and Risks Associated with ARM Loans

         At September 30, 1997, approximately 73.0% of the Association's assets
consisted of residential mortgage loans. Such loans represented 90.0% of the
total loan portfolio at that date. While generally considered to involve less
risk than other types of lending such as commercial mortgage loans, commercial
business loans and consumer loans, residential mortgage loans provided
relatively lower yields. The Association's loan portfolio also includes a
significant amount of loans with adjustable rates of interest. At September 30,
1997, $170.3 million, or 84.8%, of the Association's total loans receivable had
adjustable interest rates. Adjustable rate loans generally pose the risk that as
interest rates rise the underlying payments of the borrowers rise, thereby
increasing the potential for loan delinquencies and loan losses. At the same
time, the marketability of the underlying properties may be adversely affected
by higher interest rates. The Association's adjustable rate loans contain
periodic and lifetime interest rate adjustment limits which, in a rising
interest rate environment, may prevent such loans from repricing to market
interest rates. Furthermore, most of the Association's ARM loans have an annual
adjustment limit of 1% and a lifetime adjustment limit of 4%. Most of the
Association's ARM loans adjust based on the National Median Cost of Funds Index.
This index is a lagging market index, which means that upward adjustments in
this index may occur more slowly than changes in the Association's cost of
interest-bearing liabilities, especially during periods of rapidly increasing
interest-rates. Moreover, the Association's ability to originate ARM loans may
be affected by changes in the level of interest rates and by market acceptance
of the terms of such loans. In a relatively low interest rate environment, as
currently exists, borrowers generally tend to favor fixed-rate loans over ARM
loans. For a discussion of the Association's loan portfolio, see "BUSINESS OF
THE ASSOCIATION -- Lending Activities."

Interest Rate Risk

         Changes in interest rates can have significant effects on the
Association's profitability. The Association's ability to make a profit, like
that of most financial institutions, depends largely on its net interest income,
which is the difference between the interest income received from its
interest-earning assets (such as loans and investment securities) and the
interest expense incurred in connection with its interest-bearing liabilities
(such as deposits and borrowings). The Association's net interest income and the
market value of its assets and liabilities could be significantly affected by
changes in interest rates. In a rising interest rate environment, the
Association anticipates that its net interest income could be adversely affected
as liabilities could reprice to higher market rates more quickly than assets. In
addition, rising interest rates may adversely affect the Association's earnings
because they may cause a decrease in customer demand for loans. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Asset and Liability Management."

                                       7
<PAGE>
 
         Changes in interest rates also can affect the average life of loans and
mortgage-backed securities. During periods of declining interest rates, loans
and mortgage-backed securities prepay faster as loans are prepaid and refinanced
at lower interest rates. During such periods, the Association generally will not
be able to reinvest the proceeds of any such prepayments at comparable yields.
Conversely, during periods of rising interest rates, the rate of prepayments
generally slows. Moreover, volatility in interest rates also can result in
disintermediation, or the flow of funds away from savings institutions into
direct investments, such as U.S. Government and corporate securities and other
investment vehicles which, because of the absence of federal insurance premiums
and reserve requirements, generally pay higher rates of return than savings
institutions.

Below Average Return on Equity After Conversion

         Return on equity (net income divided by average equity) is a ratio used
by many investors to compare the performance of a particular company with other
companies. The Holding Company's post-conversion return on equity will be below
the average return on equity for many publicly held savings and loans and banks.
In addition, the expenses associated with the ESOP and MRP, along with other
post-conversion expenses, are expected to contribute to reduced earnings levels.
Over time, the Holding Company intends to deploy the net proceeds from the
conversion to increase earnings per share and book value per share, without
assuming undue risk, with the goal of achieving a return on equity competitive
with other publicly traded savings and loans. This goal could take a number of
years to achieve, and the Holding Company cannot assure you that this goal can
be attained. Consequently, you should not expect a competitive return on equity
in the near future. See "SELECTED CONSOLIDATED FINANCIAL INFORMATION,"
"CAPITALIZATION" AND "PRO FORMA DATA."

New Expenses Associated With ESOP and MRP

         If the ESOP and MRP are implemented, the Association will recognize
additional material employee compensation and benefit expenses that stem from
the shares purchased or granted to employees and executives under those plans.
The Association cannot predict the actual amount of these new expenses because
applicable accounting practices require that they be based on the fair market
value of the shares of common stock when the expenses are recognized. Expenses
for the ESOP would be recognized when shares are committed to be released to
participants' accounts, and expenses for the MRP would be recognized over the
vesting period of awards made to recipients. These expenses have been reflected
in the pro forma financial information under "PRO FORMA DATA" assuming the
$15.00 per share purchase price as fair market value. Actual expenses, however,
will be based on the fair market value of the common stock at the time of
recognition, which may be higher or lower than $15.00. For further discussion of
these plans, see "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Employee Stock
Ownership Plan" and "-- Benefits -- Management Recognition Plan."

Possible Dilutive Effect of Benefit Programs

         If the conversion is completed and stockholders approve the MRP and
Stock Option Plan, the Holding Company intends to issue shares to its officers
and directors through these plans. If the shares for the MRP are issued from
authorized but unissued stock, your ownership interest could be diluted by up to
approximately 3.85%. If the shares for the Stock Option Plan are issued from
authorized but unissued stock, your ownership interest could be diluted by up to
approximately 9.09%. In either case, the issuance of additional shares would
decrease net income per share and stockholders' equity per share. If the ESOP is
not able to purchase 8% of the shares of common stock issued in the conversion,
the ESOP may purchase newly issued shares from the Holding Company. If this
occurs, your ownership interest would be diluted and net income per share and
stockholders' equity per share may be decreased. See "PRO FORMA DATA."

Possible Voting Control by Management and Employees

         The 168,336 shares of common stock expected to be purchased by the
Association's directors and executive officers and their associates in the
conversion, combined with the shares expected to be awarded or sold to plan

                                       8
<PAGE>
 
participants under the ESOP, the MRP and the Stock Option Plan, could ultimately
result in management and employees and their associates controlling up to
approximately 26.2% of the outstanding shares of the common stock (assuming the
sale of 4,025,000 shares in the conversion and that the shares issued under the
MRP and the Stock Option Plan are repurchased treasury shares) and could permit
management to benefit from certain statutory and regulatory provisions, as well
as certain provisions in the Holding Company's Certificate of Incorporation and
Bylaws, that may tend to promote the continuity of existing management. If these
individuals were to act as a group or in concert with each other, they could
have significant influence over the outcome of any stockholder vote requiring a
majority vote and in the election of directors and could effectively exercise
veto power in matters requiring the approval of stockholders, such as certain
business combinations. Management might thus have the power to authorize actions
that may be viewed as contrary to the best interests of non-affiliated holders
of the common stock and might have veto power over actions that such holders may
deem to be in their best interests. See "SHARES TO BE PURCHASED BY MANAGEMENT
PURSUANT TO SUBSCRIPTION RIGHTS," "MANAGEMENT OF THE ASSOCIATION -- Executive
Compensation" and "RESTRICTIONS ON ACQUISITIONS OF THE HOLDING COMPANY."

Anti-Takeover Provisions and Statutory Provisions That Could Discourage Hostile
Acquisitions of Control

         Provisions in the Holding Company's Certificate of Incorporation and
Bylaws, the corporation law of the state of Delaware, and certain federal
regulations may make it difficult and expensive to pursue a tender offer, change
in control or takeover attempt that management opposes. As a result,
stockholders who might desire to participate in such a transaction may not have
an opportunity to do so. Such provisions will also make the removal of the
current board of directors or management of the Holding Company, or the
appointment of new directors, more difficult. These provisions include:
limitations on voting rights of beneficial owners of more than 10% of the
Holding Company's common stock; supermajority voting requirements for certain
business combinations; the election of directors to staggered terms of three
years; the elimination of cumulative voting for directors; and the removal of
directors without cause only upon the vote of holders of 80% of the outstanding
voting shares. The Certificate of Incorporation of the Holding Company also
contains provisions regarding the timing and content of stockholder proposals
and nominations and limiting the calling of special meetings. See "RESTRICTIONS
ON ACQUISITION OF THE HOLDING COMPANY."

Provisions of Employment and Severance Agreements and Severance Plan

         The employment and severance agreements of senior officers of the
Holding Company and the Association provide for cash severance payments and/or
the continuation of health, life and disability benefits in the event of their
termination of employment following a change in control of the Holding Company
or the Association. If a change in control had occurred at September 30, 1997,
the aggregate value of the severance benefits available to these executive
officers under the agreements would have been approximately $844,000. In
addition, if a change in control had occurred at September 30, 1997 and all
eligible employees had been terminated, the aggregate payment due under the
Severance Plan would have been approximately $529,000. These arrangements may
have the effect of increasing the costs of acquiring the Holding Company,
thereby discouraging future attempts to take over the Holding Company or the
Association. For information about the proposed employment and severance
agreements and Severance Plan, see "MANAGEMENT OF THE ASSOCIATION -- Executive
Compensation."

Competition

         The Association faces intense competition both in making loans and
attracting deposits. Competition for loans principally comes from commercial
banks, savings associations, credit unions, mortgage banking companies and
insurance companies. Historically, commercial banks, savings associations and
credit unions have been the Association's most direct competition for deposits.
The Association also competes with short-term money market funds and with other
financial institutions, such as brokerage firms and insurance companies, for
deposits. In competing for loans, the Association may be forced to offer lower
loan interest rates periodically. Conversely, in 

                                       9
<PAGE>
 
competing for deposits, the Association may be forced to offer higher deposit
interest rates periodically. Either case or both cases could adversely affect
net interest income. See "BUSINESS OF THE ASSOCIATION -- Competition." 

Absence of Prior Market for the Common Stock

         The Holding Company has never issued capital stock and, consequently,
there is no existing market for the common stock. Although the Holding Company
has received preliminary approval to list its common stock on the Nasdaq
National Market under the symbol _____, the Holding Company cannot guarantee
that an active and liquid trading market for its common stock will develop, or
if it does develop, that it will continue. Furthermore, the Holding Company
cannot guarantee that if you purchase shares in the conversion you will be able
to sell your shares at or above the $15.00 purchase price. See "MARKET FOR
COMMON STOCK."

Possible Increase in Estimated Price Range and Number of Shares Issued

         RP Financial may increase the Estimated Valuation Range up to 15% to
reflect material changes in the financial condition or results of operations of
the Association or changes in market conditions or general financial, economic
or regulatory conditions following the commencement of the offering. If the
Estimated Valuation Range is increased, the Holding Company anticipates that it
would issue up to 4,628,750 shares of common stock for an aggregate price of up
to $69,431,250. This increase in the number of shares would decrease pro forma
net earnings per share and stockholders' equity per share, increase the Holding
Company's pro forma consolidated stockholders' equity and net earnings, and
increase the purchase price as a percentage of pro forma stockholders' equity
per share and net earnings per share. See "PRO FORMA DATA."

Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights

         If the IRS were to determine that the subscription rights granted
pursuant to the Plan of Conversion have an ascertainable value, receipt of such
rights may be a taxable event (either as capital gain or ordinary income), to
those persons who receive and/or exercise the subscription rights in an amount
equal to such value. Additionally, the IRS could require the Association to
recognize a gain for tax purposes on the distribution of subscription rights.
Whether subscription rights are considered to have ascertainable value is an
inherently factual determination. RP Financial has advised the Association in
writing that such rights have no value, but RP Financial's conclusion is not
binding on the IRS. See "THE CONVERSION -- Effects of Conversion to Stock Form
on Depositors and Borrowers of the Association -- Tax Effects."

Financial Institution Regulation and the Future of the Thrift Industry

         The Association is subject to extensive regulation, supervision and
examination by the OTS and the FDIC. Legislation has been introduced into
Congress that would consolidate the OTS with the Office of the Comptroller of
the Currency, which regulates national banks. If this or similar legislation is
enacted into law, the Association could be forced to become a state or national
bank and become subject to regulation by a different government agency. If the
Association is required to change charters, its investment authority and the
ability of the Holding Company to engage in diversified activities may be
limited. It is impossible at this time to predict whether such legislation will
be passed or the impact of any such legislation on the operations of the
Association and the Holding Company.

                                       10
<PAGE>
 
                         SELECTED FINANCIAL INFORMATION

         The following tables set forth certain information concerning the
financial position and results of operations of the Association at the dates and
for the periods indicated. This information should be read in conjunction with
the Financial Statements and Notes thereto presented elsewhere in this
prospectus.

<TABLE> 
<CAPTION> 

                                                                                       At September 30,
                                                                --------------------------------------------------------------
                                                                1997        1996             1995         1994            1993
                                                                ----        ----             ----         ----            ----
                                                                                            (In thousands)
SELECTED BALANCE SHEET DATA:
<S>                                                          <C>          <C>              <C>          <C>             <C> 
Total assets ............................................    $ 247,499    $ 244,659        $ 233,780    $ 214,817       $ 211,493
Investment securities ...................................       24,378       37,892           29,823       32,819          24,681
Mortgage-backed securities ..............................        6,665        9,726           11,989       14,097          13,356
Loans receivable, net ...................................      192,663      182,950          178,259      159,682         158,536
Loans held for sale .....................................        1,045           --               --           --           1,674
Deposit accounts ........................................      215,412      209,730          201,473      189,922         190,728
FHLB advances ...........................................           --        5,000            5,000           --              --
Total equity ............................................       29,235       26,740           25,692       23,367          19,599
</TABLE> 

<TABLE> 
<CAPTION> 

                                                                                     Year Ended September 30,
                                                                --------------------------------------------------------------
                                                                1997        1996             1995         1994            1993
                                                                ----        ----             ----         ----            ----
                                                                                            (In thousands)

SELECTED OPERATING DATA:
<S>                                                          <C>          <C>              <C>          <C>             <C> 
Interest income .........................................    $  17,773    $  16,974        $  16,164    $  15,361       $  16,474
Interest expense ........................................       12,230       12,212           10,431        8,550           9,382
                                                             ---------    ---------        ---------    ---------       ---------

Net interest income .....................................        5,543        4,762            5,733        6,811           7,092
Provision for loan losses (recovery of allowance) .......          337           (7)              47           62              35
                                                             ---------    ---------        ---------    ---------       ---------

Net interest income after provision for loan losses .....        5,206        4,769            5,686        6,749           7,057
                                                             ---------    ---------        ---------    ---------       ---------

Other income ............................................          202          227              218          107             251
Other operating expenses ................................        2,362        3,877(1)         2,379        2,255           2,400
                                                             ---------    ---------        ---------    ---------       ---------

Income before income taxes ..............................        3,046        1,119            3,525        4,601           4,908
Provision for income taxes ..............................        1,094          360            1,546        1,691           1,763
Cumulative effect of change in
 accounting principle ...................................           --           --               --          570(2)           --
                                                             ---------    ---------        ---------    ---------       ---------
Net income ..............................................    $   1,952    $     759        $   1,979    $   3,480       $   3,145
                                                             =========    =========        =========    =========       =========
</TABLE> 

-----------------
(1) Includes one-time SAIF assessment of $1.2 million.
(2) Reflects adoption of SFAS No. 109, "Accounting for Income Taxes."

                                       11
<PAGE>
 
<TABLE> 
<CAPTION> 

                                                                               At September 30,
                                                            -----------------------------------------------------
                                                            1997        1996         1995        1994        1993
                                                            ----        ----         ----        ----        ----
SELECTED OTHER DATA:
<S>                                                        <C>         <C>          <C>         <C>         <C> 
Number of:
 Mortgage loans outstanding .........................       3,366       3,340        3,418       3,360       3,493
 Deposit accounts ...................................      11,424      11,576       11,684      11,480      11,957
 Full-service offices ...............................           4           4            4           4           4
</TABLE> 

<TABLE> 
<CAPTION> 

                                                                               At September 30,
                                                            -----------------------------------------------------
                                                            1997        1996         1995        1994        1993
                                                            ----        ----         ----        ----        ----
SELECTED FINANCIAL RATIOS:
<S>                                                         <C>         <C>          <C>         <C>         <C> 
Performance Ratios:
Return on average assets(1) .........................        0.80%       0.32%        0.87%       1.62%       1.52%
Return on average equity(2) .........................        6.93        2.87         8.08       16.11       17.61
Average equity as a percent of average assets .......       11.49       10.99        10.79       10.09        8.62
Interest rate spread(3) .............................        1.76        1.51         2.09        2.84        3.13
Net interest margin(4) ..............................        2.33        2.04         2.59        3.24        3.51
Average interest-earning assets to                       
 average interest-bearing liabilities ...............        1.11        1.10         1.10        1.10        1.08
Other operating expenses as a                            
 percent of average total assets ....................        0.96        1.61         1.05        1.05        1.16
                                                         
Capital Ratios:                                          
Tangible ............................................       11.3        10.6         10.8        10.9         9.3
Core ................................................       11.3        10.6         10.8        10.9         9.3
Risk-based ..........................................       23.3        22.2         23.1        23.6        20.5
                                                         
Asset Quality Ratios:                                    
Nonperforming loans as a percent                         
 of loans receivable, net(5) ........................        0.48        0.56         0.52        0.84        1.25
Nonperforming assets as a                                
 percent of total assets(6) .........................        0.54        0.45         0.44        0.81        1.28
Allowance for loan losses as a percent                   
 of gross loans receivable ..........................        0.44        0.35         0.32        0.37        0.34
Allowance for loan losses as a                           
 percent of nonperforming loans .....................       93.58       65.24        63.10       46.28       28.18
Net charge-offs as a percent of                          
 average outstanding loans ..........................        0.07       (0.05)        0.05        0.00        0.00
</TABLE> 

-------------------
(1)  Net income divided by average total assets.
(2)  Net income divided by average total equity.
(3)  Difference between weighted average yield on interest-earning assets and
     weighted average cost of interest-bearing liabilities.
(4)  Net interest income as a percentage of average interest-earning assets.
(5)  Nonperforming loans consist of loans accounted for on a nonaccrual basis.
(6)  Nonperforming assets consist of nonperforming loans and real estate
     acquired in settlement of loans, but exclude restructured loans. See
     "BUSINESS OF THE ASSOCIATION -- Lending Activities -- Nonperforming Assets
     and Delinquencies."

                                       12
<PAGE>
 
                                 USE OF PROCEEDS

         The net proceeds from the sale of the common stock offered hereby are
estimated to range from $43.5 million to $59.1 million, or up to $68.1 million
if the Estimated Valuation Range is increased by 15%. See "PRO FORMA DATA" for
the assumptions used to arrive at such amounts. The Holding Company has received
conditional OTS approval to purchase all of the capital stock of the Association
to be issued in the conversion in exchange for 50% of the net proceeds of the
conversion. This will result in the Holding Company retaining approximately
$21.8 million to $29.5 million of net proceeds, or up to $34.1 million if the
Estimated Valuation Range is increased by 15%, and the Association receiving an
equal amount.

         Receipt of 50% of the net proceeds of the sale of the common stock will
increase the Association's capital and will support the expansion of the
Association's existing business activities. The Association will use the funds
contributed to it for general corporate purposes, including, initially, lending
and investment in short-term U.S. Government and agency obligations. Depending
on loan demand, the Association may consider using a portion of the conversion
proceeds for investment in mortgage-backed securities.

         In connection with the conversion and the establishment of the ESOP,
the Holding Company intends to loan the ESOP the amount necessary to purchase 8%
of the shares of common stock sold in the conversion. The Holding Company's loan
to fund the ESOP may range from $3,570,000 to $4,830,000 based on the sale of
238,000 shares to the ESOP (at the minimum of the Estimated Valuation Range) and
322,000 shares (at the maximum of the Estimated Valuation Range), respectively,
at $15.00 per share. If 15% above the maximum of the Estimated Valuation Range,
or 4,628,750 shares, are sold in the conversion, the Holding Company's loan to
the ESOP would be approximately $5,554,500 (based on the sale of 370,300 shares
to the ESOP). It is anticipated that the ESOP loan will have a 15-year term with
interest payable at the prime rate as published in The Wall Street Journal on
the closing date of the conversion. The loan will be repaid principally from the
Association's contributions to the ESOP and from any dividends paid on shares of
common stock held by the ESOP.

         The remaining net proceeds retained by the Holding Company initially
will be invested primarily in short-term U.S. Government and agency obligations.
Such proceeds will be available for additional contributions to the Association
in the form of debt or equity, to support future diversification or acquisition
activities, as a source of dividends to the stockholders of the Holding Company
and for future repurchases of common stock to the extent permitted under
Delaware law and federal regulations. The Holding Company will consider
exploring opportunities to use such funds to expand operations through acquiring
or establishing additional branch offices or acquiring other financial
institutions. Currently, there are no specific plans, arrangements, agreements
or understandings, written or oral, regarding any expansion activities.

         Following consummation of the conversion, the Board of Directors will
have the authority to adopt plans for repurchases of common stock, subject to
statutory and regulatory requirements. Since the Holding Company has not yet
issued stock, there currently is insufficient information upon which an
intention to repurchase stock could be based. The facts and circumstances upon
which the Board of Directors may determine to repurchase stock in the future
would include but are not limited to: (i) market and economic factors such as
the price at which the stock is trading in the market, the volume of trading,
the attractiveness of other investment alternatives in terms of the rate of
return and risk involved in the investment, the ability to increase the book
value and/or earnings per share of the remaining outstanding shares, and the
ability to improve the Holding Company's return on equity; (ii) the avoidance of
dilution to stockholders by not having to issue additional shares to cover the
exercise of stock options or to fund employee stock benefit plans; and (iii) any
other circumstances in which repurchases would be in the best interests of the
Holding Company and its stockholders. Any stock repurchases will be subject to a
determination by the Board of Directors that both the Holding Company and the
Association will be capitalized in excess of all applicable regulatory
requirements after any such repurchases and that capital will be adequate,
taking into account, among other things, the Association's level of
nonperforming and classified assets, the Holding Company's and the Association's
current and projected results of operations and asset/liability structure, the
economic environment and tax and other 

                                       13
<PAGE>
 
regulatory considerations. For a discussion of the regulatory limitations 
applicable to stock repurchases, see "THE CONVERSION -- Restriction on 
Repurchase of Stock."

                                DIVIDEND POLICY

General 
 
     The Holding Company's Board of Directors anticipates declaring and paying 
semi-annual cash dividends on the common stock at an annual rate of $0.30 per 
share per year, or 2.0% based on the $15.00 per share purchase price. The first 
cash dividend is expected to be declared and paid during the second full quarter
following the consummation of the conversion. In addition, the Board of 
Directors may determine to pay periodic special cash dividends in addition to, 
or in lieu of, regular cash dividends. Declarations or payments of any dividends
(regular and special) will be subject to determination by the Holding Company's 
Board of Directors, which will take into account the amount of the net proceeds 
retained by the Holding Company, the Holding Company's financial condition, 
results of operations, tax considerations, capital requirements, industry 
standards, economic conditions and other factors, including the regulatory 
restrictions that affect the payment of dividends by the Association to the 
Holding Company discussed below. Under Delaware law, the Holding Company will be
permitted to pay cash dividends after the conversion either out of surplus or, 
if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year. In order to pay such cash
dividends, however, the Holding Company must have available cash either from the
net proceeds raised in the conversion and retained by the Holding Company,
borrowings by the Holding Company, dividends received from the Association or
earnings on Holding Company assets. No assurances can be given that any
dividends, either regular or special, will be declared or, if declared, what the
amount of dividends will be or whether such dividends, if commenced, will
continue.

Current Restrictions

     Dividends from the Holding Company may depend, in part, upon receipt of 
dividends from the Association because the Holding Company initially will have
no source of income other than dividends from the Association and earnings from
the investment of the net proceeds from the offering retained by the Holding
Company. OTS regulations require the Association to give the OTS 30 days'
advance notice of any proposed declaration of dividends to the Holding Company,
and the OTS has the authority under its supervisory powers to prohibit the
payment of dividends to the Holding Company. The OTS imposes certain limitations
on the payment of dividends from the Association to the Holding Company which
utilize a three-tiered approach that permits various levels of distributions
based primarily upon a savings association's capital level. The Association
currently meets the criteria to be designated a Tier 1 association, as
hereinafter defined, and consequently could at its option (after prior notice to
and no objection made by the OTS) distribute up to 100% of is net income during
the calendar year plus 50% of its surplus capital ratio at the beginning of the
calendar year less any distributions previously paid during the year. In
addition, the Association may not declare or pay a cash dividend on its capital
stock if the effect thereof would be to reduce the regulatory capital of the
Association below the amount required for the liquidation account to be
established pursuant to the Association's Plan of Conversion. See "REGULATION --
Federal Regulation of Savings Associations -- Limitations on Capital
Distributions," "THE CONVERSION -- Effects of Conversion to Stock Form on
Depositors and Borrowers of the Association -- Liquidation Account" and Note __
of Notes to the Financial Statements included elsewhere herein.

     Additionally, in connection with the conversion, the Holding Company and 
the Association have committed to the OTS that during the one-year period 
following consummation of the conversion, the Holding Company will not take any 
action to declare an extraordinary dividend to stockholders that would be 
treated by recipients as a tax-free return of capital for federal tax purposes.


                                      14
<PAGE>
 
Tax Considerations

     In addition to the foregoing, retained earnings of the Association 
appropriated to bad debt reserves and deducted for federal income tax purposes 
cannot be used by the Association to pay cash dividends to the Holding Company 
without the payment of federal income taxes by the Association at the then 
current income tax rate on the amount deemed distributed, which would include 
the amount of any federal income taxes attributable to the distribution. See 
"TAXATION -- Federal Taxation" and Note 9 of Notes to the Financial Statements 
included elsewhere herein. The Holding Company does not contemplate any 
distribution by the Association that would result in a recapture of the 
Association's bad debt reserve or create the above-mentioned federal tax 
liabilities.

                            MARKET FOR COMMON STOCK

     The Holding Company has never issued capital stock and, consequently, there
is no existing market for the common stock. Although the Holding Company has 
received preliminary approval to list its common stock on the Nasdaq National 
Market under the symbol _____, there can be no assurance that the Holding
Company will meet Nasdaq National Market listing requirements, which include a
minimum market capitalization, at least three market makers and a minimum number
of record holders. Trident Securities has agreed to make a market for the
Holding Company's common stock following consummation of the conversion and will
assist the Holding Company in seeking to encourage at least two additional
market makers to establish and maintain a market in the common stock. Making a
market involves maintaining bid and ask quotations and being able, as principal,
to effect transactions in reasonable quantities at those quoted prices, subject
to various securities laws and other regulatory requirements. The Holding
Company anticipates that prior to the completion of the conversion it will be
able to obtain the commitment from at least two additional broker-dealers to act
as market makers for the common stock. Additionally, the development of a liquid
public market depends on the existence of willing buyers and sellers, the
presence of which is not within the control of the Holding Company, the
Association or any market maker. There can be no assurance that an active and
liquid trading market for the common stock will develop or that, if developed,
it will continue. The number of active buyers and sellers of the common stock at
any particular time may be limited. Under such circumstances, investors in the
common stock could have difficulty disposing of their shares on short notice and
should not view the common stock as a short-term investment. Furthermore, there
can be no assurance that purchasers will be able to sell their shares at or
above the purchase price or that quotations will be available on the Nasdaq
National Market as contemplated.


                                      15
<PAGE>
 
                                CAPITALIZATION

          The following table presents the historical capitalization of the 
Association at September 30, 1997, and the pro forma consolidated capitalization
of the Holding Company after giving effect to the assumptions set forth under 
"PRO FORMA DATA," based on the sale of the number of shares of common stock at 
the minimum, midpoint, maximum and maximum, as adjusted, of the Estimated 
Valuation Range. The shares that would be issued at the maximum, as adjusted, of
the Estimated Valuation Range would be subject to receipt of OTS approval of 
an updated appraisal confirming such valuation. A change in the number of shares
to be issued in the conversion may materially affect pro forma consolidated 
capitalization.

<TABLE> 
<CAPTION> 
                                                                                   Holding Company
                                                                         Pro Forma Consolidated Capitalization
                                                                                Based Upon the Sale of 
                                                               ------------------------------------------------------------
                                                               2,975,000       3,500,000       4,025,000       4,628,750   
                                           Capitalization      Shares at       Shares at       Shares at       Shares at
                                               as of           $15.00          $15.00          $15.00          $15.00
                                         September 30, 1997    Per Share(1)    Per Share(1)    Per Share(1)    Per Share(2)
                                         ------------------    ------------    ------------    ------------    ------------   
                                                                              (In thousands)

<S>                                      <C>                   <C>             <C>             <C>             <C> 
Deposits(3)............................     $215,412           $215,412        $215,412        $215,412        $215,412 
                                            ========           ========        ========        ========        ========

Stockholders' equity:

   Preferred stock:
     500,000 shares, $.01
     par value per share,
     authorized; none issued
     or outstanding....................     $     --           $     --        $     --        $     --        $     -- 

   Common stock:
     10,000,000 shares, $.01 par
     value per share, authorized;
     specified number of shares
     assumed to be issued and
     outstanding(4)....................           --                 30              35              40              46     

   Additional paid-in capital..........           --             43,497          51,258          59,020          68,065

   Retained income(5)..................       29,235             29,235          29,235          29,235          29,235 
   Less:
     Common Stock acquired
       by ESOP(6)......................           --             (3,570)         (4,200)         (4,830)         (5,555)
     Common Stock to be acquired
       by MRP(7).......................           --             (1,785)         (2,100)         (2,415)         (2,777)
                                            --------           --------        --------        --------        --------

Total stockholders' equity.............     $ 29,235           $ 67,407        $ 74,228        $ 81,050        $ 89,015 
                                            ========           ========        ========        ========        ========
</TABLE> 

                       (footnotes on the following page)


                                      16

<PAGE>
 
------------------------
(1)  Does not reflect the possible increase in Estimated Valuation Range to
     reflect material changes in the financial condition or results of
     operations of the Association or changes in market conditions or general
     financial, economic and regulatory conditions, or the issuance of
     additional shares under the Stock Option Plan.
(2)  This column represents the pro forma capitalization of the Holding Company
     in the event the aggregate number of shares of common stock issued in the
     conversion is 15% above the maximum of the Estimated Valuation Range. See
     "PRO FORMA DATA" and Footnote 1 thereto.
(3)  Withdrawals from deposit account for the purchase of common stock are not
     reflected. Such withdrawals will reduce pro forma deposits by the amount
     thereof.
(4)  The Association's authorized capital will consist solely of 1,000 shares
     of common stock, par value $1.00 per share, 1,000 shares of which will be
     issued to the Holding Company, and 9,000 shares of preferred stock, no par
     value per share, none of which will be issued in connection with
     conversion.
(5)  Retained income is substantially restricted by applicable regulatory
     capital requirements. Additionally, the Association will be prohibited from
     paying any dividend that would reduce its regulatory capital below the
     amount in the liquidation account, which will be established for the
     benefit of the Association's Eligible Account Holders and Supplemental
     Eligible Account Holders at the time of the conversion and adjusted
     downward thereafter as such account holders reduce their balances or cease
     to be depositors. See "THE CONVERSION -- Effects of Conversion to Stock
     Form on Depositors and Borrowers of the Association -- Liquidation
     Account."
(6)  Assumes that 8% of the common stock in the conversion will be acquired by
     the ESOP in the conversion with funds borrowed from the Holding Company.
     Under GAAP, the amount of common stock to be purchased by the ESOP
     represents unearned compensation and is, accordingly, reflected as a
     reduction of capital. As shares are released to ESOP participant's
     accounts, a corresponding reduction in the charge against capital will
     occur. Since the funds are borrowed from the Holding Company, the borrowing
     will be eliminated in consolidation and no liability or interest expense
     will be reflected in the consolidated financial statements of the Holding
     Company, See "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Employee Stock
     Ownership Plan."
(7)  Assumes the purchase in the open market at $15.00 per share, pursuant to
     the proposed MRP, of a number of shares equal to 4% of the shares of common
     stock issued in the conversion at the minimum, midpoint, maximum and 15%
     above the maximum of the Estimated Valuation Range. The issuance of an
     additional 4% of the shares of common stock for the MRP from authorized but
     unissued shares would dilute the ownership interest of stockholders by
     3.85%. The shares are reflected as a reduction of stockholders' equity. See
     "RISK FACTORS -- Possible Dilutive Effect of Benefit Programs," "PRO FORMA
     DATA" and "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Management
     Recognition Plan." The MRP is subject to stockholder approval, which is
     expected to be sought at a meeting to be held no earlier than six months
     following consummation of the conversion.


                                      17

<PAGE>
 
            HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE

     The following table presents the Association's historical and pro forma 
capital position relative to its capital requirements at September 30, 1997. 
The amount of capital infused into the Association for purposes of the following
table is 50% of the net proceeds of the offering. For purpose of the table 
below, the amount expected to be borrowed by the ESOP and the cost of the shares
expected to be acquired by the MRP are deducted from pro forma regulatory 
capital. For a discussion of the assumptions underlying the pro forma capital 
calculations presented below, see "USE OF PROCEEDS," "CAPITALIZATION" AND "PRO
FORMA DATA." The definitions of the terms used in the table are those provided 
in the capital regulations issued by the OTS. For a discussion of the capital 
standards applicable to the Association, see "REGULATION -- Federal Regulation 
of Savings Associations -- Capital Requirements."

<TABLE> 
<CAPTION> 
                                                                                PRO FORMA AT SEPTEMBER 30, 1997
                                                                       ------------------------------------------------
                                                                                      
                                                                       Minimum of Estimated      Midpoint of Estimated      
                                                                          Valuation Range           Valuation Range    
                                                                       --------------------      --------------------- 
                                                                         2,975,000 Shares          3,500,000 Shares    
                                           September 30, 1997          at $15.00 Per Share       at $15.00 Per Share   
                                      ----------------------------     --------------------      --------------------- 
                                                        Percent of               Percent of                Percent of  
                                                          Adjusted                 Adjusted                  Adjusted  
                                                           Total                    Total                     Total    
                                      Amount            Assets (1)     Amount      Assets (1)    Amount      Assets (1)  
                                      ------            ----------     ------      ----------    ------      ----------
                                                                         (Dollars in Thousands)
<S>                                   <C>               <C>            <C>         <C>           <C>         <C> 
GAAP capital(2).....................  $29,235              11.9%       $45,643        17.2%      $48,581        18.0%

Tangible capital(2).................  $27,769              11.3%       $44,177        16.6%      $47,115        17.5%
Tangible capital requirement........    3,690               1.5          3,990         1.5         4,044         1.5
                                      -------              ----        -------        ----       -------        ----
Excess..............................  $24,079               9.8%       $40,187        15.1%      $43,071        16.0%
                                      =======              ====        =======        ====       =======        ====

Core capital(2).....................  $27,769              11.3%       $44,177        16.6%      $47,115        17.5%
Core capital requirement(3).........    7,381               3.0          7,980         3.0         8,087         3.0
                                      -------              ----        -------        ----       -------        ----
Excess..............................  $20,388               8.3%       $36,197        13.6%      $39,028        14.5%
                                      =======              ====        =======        ====       =======        ====

Total capital(4)....................  $28,519              23.3%       $44,927        35.5%      $47,865        37.6%
Risk-based
  capital requirement...............    9,796               8.0         10,116         8.0        10,173         8.0 
                                      -------              ----        -------        ----       -------        ----
Excess..............................  $18,723              15.3%       $34,811        27.5%      $37,692        29.6%
                                      =======              ====        =======        ====       =======        ====

<CAPTION> 
                                             PRO FORMA AT SEPTEMBER 30, 1997                                                 
                                      ----------------------------------------------                                  
                                                                                                                      
                                                                      15% above                                       
                                      Maximum of Estimated      Maximum of Estimated                                  
                                         Valuation Range           Valuation Range                                    
                                      --------------------      --------------------                                  
                                        4,025,000 Shares          4,628,750 Shares                                    
                                      at $15.00 Per Share       at $15.00 Per Share                                   
                                      --------------------      --------------------                                  
                                                Percent of               Percent of                                   
                                                  Adjusted                 Adjusted                                   
                                                   Total                    Total                                     
                                      Amount     Assets(1)      Amount    Assets(1)                                   
                                      ------     ---------      ------    ---------                                   
                                                   (Dollars in Thousands)
<S>                                   <C>       <C>             <C>      <C>                                          
GAAP capital(2).....................  $51,516      18.9%        $54,959     19.8%                                     
                                                                                                                      
Tangible capital(2).................  $50,052      18.3%        $53,493     19.3%                                     
Tangible capital requirement........   4,097        1.5           4,160      1.5                                       
                                      -------      ----         -------     ----                                      
Excess..............................  $45,955      16.8%        $49,333     17.8%                                     
                                      =======      ====         =======     ====                                      
                                                                                                                      
Core capital(2).....................  $50,052      18.3%        $53,493     19.3%                                     
Core capital requirement(3).........    8,194       3.0           8,319      3.0                                      
                                      -------      ----         -------     ----                                      
Excess..............................  $41,858      15.3%        $45,174     16.3%                                     
                                      =======      ====         =======     ====                                                 
                                                                                                                      
Total capital(4)....................  $50,802      39.7%        $54,243     42.1%                                     
Risk-based                                                                                                            
  capital requirement...............   10,230       8.0          10,296      8.0                                      
                                      -------      ----         -------     ----                                      
Excess..............................  $40,572      31.7%        $43,947     34.1%                                     
                                      =======      ====         =======     ====                                                  
</TABLE> 
--------------------
(1) Based upon total adjusted assets of $246.0 million at September 30, 1997 and
    $267.8 million, $271.7 million, $275.6 million and $280.1 million at the
    minimum, midpoint, maximum, and maximum, as adjusted, of the Estimated
    Valuation Range, respectively, for purposes of the tangible and core capital
    requirements, and upon risk-weighted assets of $122.4 million at September
    30, 1997 and $126.8 million, $127.6 million, $128.4 million and $129.3
    million at the minimum, midpoint, maximum, and maximum, as adjusted, of the
    Estimated Valuation Range, respectively, for purposes of the risk-based
    capital requirement.
(2) An unrealized gain on securities available-for-sale, net of taxes, accounts
    for the difference between GAAP capital and each of tangible capital and
    core capital.
(3) The current OTS core capital requirement for savings associations is 3% of
    total adjusted assets. The OTS has proposed core capital requirements which
    would require a core capital ratio of 3 % of total adjusted assets for
    thrifts that receive the highest supervisory rating for safety and soundness
    and a core capital ratio of 4% to 5% for all other thrifts.
(4) Percentage represents total core and supplementary capital divided by total
    risk-weighted assets. Assumes net proceeds are invested in assets that carry
    a 20% risk-weighting.

                                      18
<PAGE>
 
                                 PRO FORMA DATA

         Under the Plan of Conversion, the common stock must be sold at a price
equal to the estimated pro forma market value of the Holding Company and the
Association as converted, based upon an independent valuation. The Estimated
Valuation Range as of November 28, 1997 is from a minimum of $44,625,000 to a
maximum of $60,375,000 with a midpoint of $52,500,000. At a price per share of
$15.00, this results in a minimum number of shares of 2,975,000, a maximum
number of shares of 4,025,000 and a midpoint number of shares of 3,500,000. The
actual net proceeds from the sale of the common stock cannot be determined until
the conversion is completed. However, net proceeds set forth on the following
table are based upon the following assumptions: (i) Trident Securities will
receive fees of approximately $578,000, $687,000, $795,000 and $800,000 at the
minimum, midpoint, maximum and 15% above the Estimated Valuation Range,
respectively (see "THE CONVERSION -- Plan of Distribution for the Subscription,
Direct Community and Syndicated Community Offerings); (ii) all of the common
stock will be sold in the Subscription and Direct Community Offerings; and (iii)
conversion expenses, excluding the fees paid to Trident Securities, will total
approximately $520,000 at each of the minimum, midpoint, maximum and 15% above
the Estimated Valuation Range. Actual expenses may vary from this estimate, and
the fees paid will depend upon the percentages and total number of shares sold
in the Subscription Offering, Direct Community Offering and Syndicated Community
Offering and other factors.

         The following table summarizes the historical net income and retained
income of the Association and the pro forma consolidated net income and
stockholders' equity of the Holding Company for the periods and at the dates
indicated, based on the minimum, midpoint and maximum of the Estimated Valuation
Range and based on a 15% increase in the maximum of the Estimated Valuation
Range. The pro forma consolidated net income of the Association for the year
ended September 30, 1997 has been calculated as if the conversion had been
consummated at the beginning of the period and the estimated net proceeds
received by the Holding Company and the Association had been invested at 5.68%,
at the beginning of the period, which represents the one-year U.S. Treasury Bill
yield as of September 30, 1997. As discussed under "USE OF PROCEEDS," the
Holding Company expects to retain 50% of the net proceeds of the offering from
which it will fund the ESOP loan. A pro forma after-tax return of 3.61% is used
for both the Holding Company and the Association for the period, after giving
effect to an incremental combined federal and state income tax rate of 36.5%.
Historical and pro forma per share amounts have been calculated by dividing
historical and pro forma amounts by the number of shares of common stock
indicated in the footnotes to the table. Per share amounts have been computed as
if the common stock had been outstanding at the beginning of the respective
periods or at September 30, 1997, but without any adjustment of per share
historical or pro forma stockholders' equity to reflect the earnings on the
estimated net proceeds.

         No effect has been given to: (i) the shares to be reserved for issuance
under the Holding Company's Stock Option Plan, which is expected to be voted
upon by stockholders at a meeting to be held no earlier than six months
following consummation of the conversion; (ii) withdrawals from deposit accounts
for the purpose of purchasing common stock in the conversion; (iii) the issuance
of shares from authorized but unissued shares to the MRP, which is expected to
be voted upon by stockholders at a meeting to be held no earlier than six months
following consummation of the conversion; or (iv) the establishment of a
liquidation account for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders. See "MANAGEMENT OF THE ASSOCIATION -- Benefits --
Stock Option Plan" and "THE CONVERSION -- Stock Pricing and Number of Shares to
be Issued."

         The following pro forma information may not be representative of the
financial effects of the conversion at the date on which the conversion actually
occurs and should not be taken as indicative of future results of operations.
Stockholders' equity represents the difference between the stated amounts of
consolidated assets and liabilities of the Holding Company computed in
accordance with GAAP. Stockholders' equity has not been increased or decreased
to reflect the difference between the carrying value of loans and other assets
and market value. Stockholders' equity is not intended to represent fair market
value nor does it represent amounts that would be available for distribution to
stockholders in the event of liquidation.

                                       19
<PAGE>
 
<TABLE> 
<CAPTION> 


                                                                         At or For the Year Ended September 30, 1997
                                                              -------------------------------------------------------------------
                                                              Minimum of       Midpoint of       Maximum of       15% Above
                                                              Estimated        Estimated         Estimated        Maximum of
                                                              Valuation        Valuation         Valuation        Estimated
                                                              Range            Range             Range            Valuation Range
                                                              ---------        ---------         ---------        ---------  
                                                              2,975,000        3,500,000         4,025,000        4,628,750(1)
                                                              Shares           Shares            Shares           Shares
                                                              at $15.00        at $15.00         at $15.00        at $15.00
                                                              Per Share        Per Share         Per Share        Per Share
                                                              ---------        ---------         ---------        ---------
                                                                               (In thousands, except per share amounts)
<S>                                                           <C>              <C>               <C>              <C> 
Gross proceeds ........................................       $ 44,625          $ 52,500          $ 60,375          $ 69,431
Less: estimated expenses ..............................          1,098             1,207             1,315             1,320
                                                              --------          --------          --------          --------
Estimated net proceeds ................................         43,527            51,293            59,060            68,111
Less: Common stock acquired by ESOP ...................         (3,570)           (4,200)           (4,830)           (5,555)
Less: Common stock to be acquired by MRP ..............         (1,785)           (2,100)           (2,415)           (2,777)
                                                              --------          --------          --------          --------
     Net investable proceeds ..........................       $ 38,172          $ 44,993          $ 51,815          $ 59,779
                                                              ========          ========          ========          ========

Consolidated net income:
 Historical ...........................................       $  1,952          $  1,952          $  1,952          $  1,952
 Pro forma income on net proceeds(2) ..................          1,377             1,623             1,869             2,156
 Pro forma ESOP adjustments(3) ........................           (151)             (178)             (204)             (235)
 Pro forma MRP adjustments(4) .........................           (227)             (267)             (307)             (353)
                                                              --------          --------          --------          --------
   Pro forma net income ...............................       $  2,951          $  3,130          $  3,310          $  3,520
                                                              ========          ========          ========          ========

Consolidated net income per share (5)(6):
 Historical ...........................................       $   0.71          $   0.60          $   0.52          $   0.46
 Pro forma income on net proceeds .....................           0.50              0.50              0.50              0.50
 Pro forma ESOP adjustments(3) ........................          (0.05)            (0.05)            (0.05)            (0.05)
 Pro forma MRP adjustments(4) .........................          (0.08)            (0.08)            (0.08)            (0.08)
                                                              --------          --------          --------          --------
   Pro forma net income per share .....................       $   1.08          $   0.97          $   0.89          $   0.83
                                                              ========          ========          ========          ========

Consolidated stockholders' equity (book value):
 Historical ...........................................       $ 29,235          $ 29,235          $ 29,235          $ 29,235
 Estimated net proceeds ...............................         43,527            51,293            59,060            68,111
 Less: Common stock acquired by ESOP ..................         (3,570)           (4,200)           (4,830)           (5,555)
 Less: Common stock to be acquired by MRP(4) ..........         (1,785)           (2,100)           (2,415)           (2,777)
                                                              --------          --------          --------          --------
   Pro forma stockholders' equity(7) ..................       $ 67,407          $ 74,228          $ 81,050          $ 89,015
                                                              ========          ========          ========          ========

Consolidated stockholders' equity per share(6)(8):
 Historical(6) ........................................       $   9.83          $   8.35          $   7.26          $   6.32
 Estimated net proceeds ...............................          14.63             14.66             14.67             14.71
 Less: Common stock acquired by ESOP ..................          (1.20)            (1.20)            (1.20)            (1.20)
 Less: Common stock to be acquired by MRP(4) ..........          (0.60)            (0.60)            (0.60)            (0.60)
                                                              --------          --------          --------          --------
   Pro forma stockholders' equity per share(9) ........       $  22.66          $  21.21          $  20.13          $  19.23
                                                              ========          ========          ========          ========

Purchase price as a percentage of pro forma
 stockholders' equity per share .......................          66.20%            70.72%            74.52%            78.00%

Purchase price as a multiple of pro forma
 net income per share .................................         13.89x            15.46x            16.85x            18.07x
</TABLE> 


                         (footnotes on following page)

                                       20
<PAGE>
 
-------------

(1)   Gives effect to the sale of an additional 603,750 shares in the
      conversion, which may be issued to cover an increase in the pro forma
      market value of the Holding Company and the Association as converted,
      without the resolicitation of subscribers or any right of cancellation.
      The issuance of such additional shares will be conditioned on a
      determination by RP Financial that such issuance is compatible with its
      determination of the estimated pro forma market value of the Holding
      Company and the Association as converted. See "THE CONVERSION -- Stock
      Pricing and Number of Shares to be Issued."
(2)   No effect has been given to withdrawals from savings accounts for the
      purpose of purchasing common stock in the conversion. Since funds on
      deposit at the Association may be withdrawn to purchase shares of common
      stock (which will reduce deposits by the amount of such purchases), the
      net amount of funds available to the Association for investment following
      receipt of the net proceeds of the conversion will be reduced by the
      amount of such withdrawals.
(3)   It is assumed that 8% of the shares of common stock offered in the
      conversion will be purchased by the ESOP. The funds used to acquire such
      shares will be borrowed by the ESOP (at an interest rate equal to the
      prime rate as published in The Wall Street Journal on the closing date of
      the conversion, which rate is currently 8.50%) from the net proceeds from
      the conversion retained by the Holding Company. The amount of this
      borrowing has been reflected as a reduction from gross proceeds to
      determine estimated net investable proceeds. The Association intends to
      make contributions to the ESOP in amounts at least equal to the principal
      and interest requirement of the debt. As the debt is paid down,
      stockholders' equity will be increased. The Association's payment of the
      ESOP debt is based upon equal installments of principal over a 15-year
      period, assuming a combined federal and state income tax rate of 36.5%.
      Interest income earned by the Holding Company on the ESOP debt offsets the
      interest paid by the Association on the ESOP loan. No reinvestment is
      assumed on proceeds contributed to fund the ESOP. Applicable accounting
      practices require that compensation expense for the ESOP be based upon
      shares committed to be released and that unallocated shares be excluded
      from earnings per share computations. The valuation of shares committed to
      be released would be based upon the average market value of the shares
      during the year, which, for purposes of this calculation, was assumed to
      be equal to the $15.00 per share purchase price. See "MANAGEMENT OF THE
      ASSOCIATION -- Benefits -- Employee Stock Ownership Plan."
(4)   In calculating the pro forma effect of the MRP, it is assumed that the
      required stockholder approval has been received, that the shares were
      acquired by the MRP at the beginning of the period presented in open
      market purchases at the $15.00 per share purchase price, that 20% of the
      amount contributed was an amortized expense during such period, and that
      the combined federal and state income tax rate is 36.5%. The issuance of
      authorized but unissued shares of the common stock instead of open market
      purchases would dilute the voting interests of existing stockholders by
      approximately 3.85% and pro forma net income per share would be $1.05,
      $0.95, $0.87 and $0.81 at the minimum, midpoint, maximum and 15% above the
      maximum of the Estimated Valuation Range for the year ended September 30,
      1997, respectively, and pro forma stockholders' equity per share would be
      $22.36, $20.97, $19.94 and $19.07 at the minimum, midpoint, maximum and
      15% above the maximum of the Estimated Valuation Range at September 30,
      1997, respectively. Shares issued under the MRP vest 20% per year and for
      purposes of this table compensation expense is recognized on a straight-
      line basis over each vesting period. In the event the fair market value
      per share is greater than $15.00 per share on the date shares are awarded
      under the MRP, total MRP expense would increase. The total estimated MRP
      expense was multiplied by 20% (the total percent of shares for which
      expense is recognized in the first year) resulting in pre-tax MRP expense
      of $357,000, $420,000, $483,000 and $555,000 at the minimum, midpoint,
      maximum and 15% above the maximum of the Estimated Valuation Range for the
      year ended September 30, 1997, respectively. No effect has been given to
      the shares reserved for issuance under the proposed Stock Option Plan.
(5)   Per share amounts are based upon shares outstanding of 2,752,867,
      3,238,667, 3,724,467 and 4,283,137 at the minimum, midpoint, maximum and
      15% above the maximum of the Estimated Valuation Range for the year ended
      September 30, 1997, respectively, which includes the shares of common
      stock sold in the conversion less the number of shares assumed to be held
      by the ESOP not committed to be released within the first year following
      the conversion.

                                       21
<PAGE>
 
(6)   Historical per share amounts have been computed as if the shares of common
      stock expected to be issued in the conversion had been outstanding at the
      beginning of the period or on the date shown, but without any adjustment
      of historical net income or historical retained earnings to reflect the
      investment of the estimated net proceeds of the sale of shares in the
      conversion, the additional ESOP expense or the proposed MRP expense, as
      described above.
(7)   "Book value" represents the difference between the stated amounts of the
      Association's assets and liabilities. The amounts shown do not reflect the
      liquidation account which will be established for the benefit of Eligible
      Account Holders and Supplemental Eligible Account Holders in the
      conversion, or the federal income tax consequences of the restoration to
      income of the Association's special bad debt reserves for income tax
      purposes which would be required in the unlikely event of liquidation. See
      "THE CONVERSION-- Effects of Conversion to Stock Form on Depositors and
      Borrowers of the Association" and "TAXATION." The amounts shown for book
      value do not represent fair market values or amounts distributable to
      stockholders in the unlikely event of liquidation.
(8)   Per share amounts are based upon shares outstanding of 2,975,000,
      3,500,000, 4,025,000 and 4,628,750 at the minimum, midpoint, maximum and
      15% above the maximum of the Estimated Valuation Range, respectively.
(9)   Does not represent possible future price appreciation or depreciation of
      the common stock.

                                       22
<PAGE>
 
      SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS

         The following table sets forth certain information as to the
approximate purchases of common stock by each director and executive officer of
the Association, including their associates, as defined by applicable
regulations. No individual has entered into a binding agreement with respect to
such intended purchases, and, therefore, actual purchases could be more or less
than indicated below. Directors and officers of the Association and their
associates may not purchase in excess of 29% of the shares sold in the
conversion. For purposes of the following table, it has been assumed that
sufficient shares will be available to satisfy subscriptions in all categories.
Directors, officers, their associates and employees will pay the same price for
the shares for which they subscribe as the price that will be paid by all other
subscribers.

<TABLE> 
<CAPTION> 

                                                                                   Percent of          Percent of
                                                                                    Shares at           Shares at
                                                                                   Minimum of          Maximum of
     Name and                  Anticipated Number of     Anticipated Dollar         Estimated           Estimated
     Position                   Shares Purchased (1)      Amount Purchased       Valuation Range     Valuation Range
     --------                   --------------------      ----------------       ---------------     ---------------
<S>                             <C>                       <C>                    <C>                 <C> 
J. Edward Wells                       33,334                 $500,010                   1.12%                0.83%
  President, Chief Executive
  Officer and Director

Aaron H. King                         20,000                  300,000                   0.67                 0.50
  Director

J. Riley Bailes                       28,000                  420,000                   0.94                 0.70
  Director

John H. Lake                          13,334                  200,010                   0.45                 0.33
 Director

G. Edwin Owings                        6,667                  100,005                   0.22                 0.17
  Director

Edwin I. Shealy                       20,000                  300,000                   0.67                 0.50
  Chief Financial Officer

James H. Wasson, Jr.                  16,667                  250,005                   0.56                 0.41
  Vice President

John M. Swofford                       8,334                  125,010                   0.28                 0.21
  Vice President

Will B. Ferguson                      22,000                  330,000                   0.74                 0.55
  Vice President                      ------                  -------                   ----                 ----

     Total                           168,336               $2,525,040                   5.66%                4.18%
                                     =======               ==========                   ====                 ====
</TABLE> 


--------------
(1)  Excludes any shares awarded pursuant to the ESOP and MRP and options to
     acquire shares pursuant to the Stock Option Plan.

                                       23
<PAGE>
 
                   HERITAGE FEDERAL SAVINGS & LOAN ASSOCIATION
                              STATEMENTS OF INCOME

         The following Statements of Income of Heritage Federal Savings & Loan
Association for the fiscal years ended September 30, 1997, 1996 and 1995 have
been audited by Deloitte & Touche LLP, Greenville, South Carolina, independent
auditors, whose report thereon appears elsewhere in this prospectus. These
statements should be read in conjunction with the Financial Statements and
related Notes included elsewhere herein.

<TABLE> 
<CAPTION> 

                                                                           Years Ended September 30,
                                                                       ---------------------------------
                                                                       1997           1996          1995
                                                                       ----           ----          ----
                                                                                 (In thousands)
<S>                                                                   <C>            <C>           <C> 
INTEREST INCOME:
 Loans:
  First mortgage loans.............................................    $14,056        $13,166       $12,660
  Other loans......................................................        978            872           889
 Investment securities and other...................................      2,289          2,310         1,866
 Mortgage-backed securities........................................        450            626           749
                                                                      --------       --------      --------
   Total interest income...........................................     17,773         16,974        16,164
                                                                      --------       --------      --------

INTEREST EXPENSE:
 Deposits..........................................................     12,004         11,885         9,941
 Federal Home Loan Bank borrowings.................................        226            327           490
                                                                      --------       --------      --------
   Total interest expense..........................................     12,230         12,212        10,431
                                                                      --------       --------      --------

NET INTEREST INCOME................................................      5,543          4,762         5,733

PROVISION FOR LOAN LOSSES
 (RECOVERY OF ALLOWANCE) (Note 4)..................................        337             (7)           47
                                                                      --------       --------      --------

NET INTEREST INCOME AFTER
 PROVISION FOR LOAN LOSSES.........................................      5,206          4,769         5,686
                                                                      --------       --------      --------

OTHER INCOME (EXPENSE):
 Service charge and fees...........................................        205            206           210
 Gain (loss) of sale of mortgage loans held-for-sale...............          6             16             0
 Gain (loss) on sale of investments available-for-sale.............        (13)             2             0
 Other income, other...............................................          4              3             8
                                                                      --------       --------      --------
   Total other income, net.........................................        202            227           218
                                                                      --------       --------      --------

OTHER OPERATING EXPENSES:
 Employee compensation and benefits (Note 11)......................      1,450          1,344         1,329
 Deposit insurance premiums (Note 1)...............................        234          1,725           416
 Occupancy and equipment expense...................................        397            413           142
 Data processing - service bureau fees.............................        132            129           114
 Office supplies, postage, printing, etc...........................         81             97            82
 Professional fees.................................................         56             54            41
 Advertising and promotions........................................         24             31            22
 Net (income)/cost of real estate operations.......................       (167)          (120)           77
 Other.............................................................        155            204           156
                                                                      --------       --------      --------
  Total other operating expenses...................................      2,362          3,877         2,379
                                                                      --------       --------      --------

INCOME BEFORE INCOME TAXES.........................................      3,046          1,119         3,525

PROVISION FOR INCOME TAXES (Note 9)................................      1,094            360         1,546
                                                                      --------       --------      --------

NET INCOME.........................................................   $  1,952       $    759      $  1,979
                                                                      ========       ========      ========
</TABLE> 

See Notes to Financial Statements.

                                       24
<PAGE>
 
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

General

         Management's discussion and analysis of financial condition and results
of operations is intended to assist in understanding the financial condition and
results of operations of the Association. The information contained in this
section should be read in conjunction with the Financial Statements and
accompanying Notes thereto and the other sections contained in this prospectus.

Operating Strategy

         The Association's business consists principally of attracting retail
deposits (primarily certificates of deposit) from the general public and using
these funds to originate mortgage loans secured by one- to four-family
residences located in South Carolina. To a lesser extent, the Association also
originates commercial real estate loans, home equity loans, builder construction
loans and savings account loans. The Association intends to continue to fund its
assets primarily with retail deposits, although FHLB-Atlanta advances may be
used as a supplemental source of funds.

         The Association's profitability depends primarily on its net interest
income, which is the difference between the income it receives on its loan and
investment portfolio and its cost of funds, which consists of interest paid on
deposits and borrowings. Net interest income is also affected by the relative
amounts of interest-earning assets and interest-bearing liabilities. When
interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The
Association's profitability is also affected by the level of other operating
income and expenses. Other operating income includes service charges and fees,
gain on sale of mortgage loans and gain on sale of investments. Other operating
expenses include compensation and benefits, occupancy and equipment expenses,
deposit insurance premiums, data processing expenses and other operating costs.
The Association's results of operations are also significantly affected by
general economic and competitive conditions, particularly changes in market
interest rates, government legislation and regulation and monetary and fiscal
policies.

         The Association's business strategy is to operate as a
well-capitalized, profitable and independent financial institution dedicated to
financing home ownership and providing quality customer service. In recent years
the Association has emphasized the origination for retention in its portfolio of
adjustable-rate mortgage loans in order to reduce its interest rate risk.
Beginning in the year ended September 30, 1997, to increase the yield on its
loan portfolio, the Association has emphasized the origination for its portfolio
of fixed-rate mortgage loans with terms of 15 years or less and ARM loans with
an interest rate that is fixed for an initial period of ten years. In addition,
the Association has purchased $1.0 million of conforming fixed-rate loans for
its held for sale portfolio and plans to continue this activity depending on
market conditions. The Association relies heavily on certificates of deposit as
its source of funds. As a result, the Association's cost of funds is generally
higher than that of institutions that have more checking and savings accounts.
The Association's high cost of funds has contributed to a lower interest rate
spread and reduced profitability in recent years. The Association intends to
attempt to reduce its reliance on certificates of deposit by increasing its
emphasis on transaction accounts.

Comparison of Financial Condition at September 30, 1997 and 1996

         Total assets increased $2.8 million, or 1.2%, to $247.5 million at
September 30, 1997 from $244.7 million at September 30, 1996. Loans receivable
increased $9.7 million to $192.7 million from $183.0 million. The Association
used funds from maturities and prepayments of investment and mortgage-backed
securities to fund loan growth. Investment securities decreased to $24.4 million
from $37.9 million and mortgage-backed securities decreased to $6.7 million from
$9.7 million. Cash and cash equivalents increased to $14.7 million from $5.9
million.

                                       25
<PAGE>
 
         Total liabilities increased $345,000, or 0.2%, to $218.3 million at
September 30, 1997 from $217.9 million at September 30, 1996. Deposit accounts
increased $5.7 million to $215.4 million from $209.7 million. The increase in
deposit accounts was offset by a decrease in FHLB advances from $5.0 million to
$0.

         Total equity increased $2.5 million, or 9.3%, to $29.2 million at
September 30, 1997 from $26.7 million at September 30, 1996. Retained income
increased $1.9 million to $27.8 million, while unrealized gain on
available-for-sale securities increased $543,000 to $1.5 million.

Comparison of Operating Results for the Years Ended September 30, 1997 and 1996

         Net Income. Net income increased $1.2 million, or 157.2%, to $2.0
million for the year ended September 30, 1997 from $759,000 for the year ended
September 30, 1996. The results for fiscal 1996 reflect the payment of a
one-time, industry wide special assessment to recapitalize the SAIF, which for
the Association was $1.2 million. Without the payment of the SAIF special
assessment, net income for fiscal 1996 would have been $1.5 million.

         Net Interest Income. Net interest income increased $781,000, or 16.4%,
to $5.5 million for fiscal 1997 from $4.8 million for fiscal 1996. The
Association's interest rate spread increased 25 basis points to 1.76% for fiscal
1997 from 1.51% for fiscal 1996 as the Association experienced a 19 basis point
increase in the yield on its interest-earning assets and a 6 basis point
decrease in the cost of its interest-bearing liabilities.

         Total interest income increased $799,000, or 4.7%, from fiscal 1996 to
fiscal 1997. Interest income on loans receivable increased $996,000 largely as a
result of an increase of $11.6 million, or 6.5%, in the average balance of
loans. The Association's average yield on loans increased 5 basis points to
7.93% in fiscal 1997. The growth in interest income on loans was partially
offset by a reduction in interest income on mortgage-backed securities and
federal funds sold and interest-bearing deposits, as the Association reduced the
average balance of these investments. The yield on the Association's
interest-earning assets increased to 7.47% from 7.28% as a result of having a
larger percentage of interest-earning assets invested in loans.

         Total interest expense increased $18,000, or 0.1%, from fiscal 1996 to
fiscal 1997. The average balance of interest-bearing liabilities increased $2.6
million, or 1.2%, while the average rate paid decreased to 5.71% from 5.77%.
Interest paid on passbook, NOW and money market accounts decreased a total of
$25,000 primarily because of a decrease in the average balance of such accounts.
Interest paid on certificates of deposit increased $144,000 because of an
increase in the average balance of such accounts. This was partially offset by a
decrease in the average rate paid on certificates of deposit to 5.91% from
6.00%. Interest paid on FHLB advances decreased $101,000 as the decrease in the
average balance of advances was partially offset by the increase in the average
rate paid. By the end of fiscal 1997, the Association had repaid all of its FHLB
advances.

         Provision for Loan Losses. Provisions for loan losses are charged to
operations to bring the total allowance for loan losses to a level considered by
management to be adequate to provide for estimated losses based on management's
evaluation of such factors as the delinquency status of loans, current economic
conditions, the net realizable value of the underlying collateral and prior loan
loss experience. The provision for loan losses was $337,000 in fiscal 1997
compared with a recovery of $7,000 in fiscal 1996. During fiscal 1997, the
Association added $137,000 to the allowance for loan losses to provide for
estimated losses on specific problem loans. The Association added an additional
$200,000 to the allowance for loan losses based on its re-evaluation of the
risks inherent in the loan portfolio. At September 30, 1997, the Association's
allowance for loan losses totalled $874,000, which equaled .44% of total loans.
Although management uses the best information available, future adjustments to
the allowance may be necessary due to changes in economic, operating, regulatory
and other conditions that may be beyond the Association's control. While the
Association maintains its allowance for loan losses at a level which it
considers to be adequate to provide for estimated losses, there can be no
assurance that further additions will not be made to the allowance for loan
losses and that actual losses will not exceed the estimated amounts.

                                       26
<PAGE>
 
         Other Income. Other income decreased $25,000, or 11.0%, to $202,000 for
fiscal 1997 from $227,000 for fiscal 1996. Substantially all of the
Association's other income is derived from service charges and fees. Service
charges and fees totalled $205,000 in fiscal 1997 compared with $206,000 in
fiscal 1996. Gain on sale of mortgage loans decreased to $6,000 in fiscal 1997
from $16,000 in fiscal 1996 as a result of fewer loan sales in 1997. The
Association realized a loss of $13,000 on the sale of investments in fiscal 1997
compared with a gain of $2,000 in fiscal 1996.

         Other Operating Expenses. Other operating expenses were $2.4 million in
fiscal 1997 compared to $3.9 million in fiscal 1996. Included in other operating
expenses for fiscal 1996 is the SAIF special assessment. Excluding the SAIF
special assessment, other operating expenses were $2.6 million for fiscal 1996.
As a result of the recapitalization of the SAIF, the FDIC substantially reduced
deposit insurance premiums. Since January 1, 1997, the Association has paid
deposit insurance premiums at the rate of $.065 per $100 of deposits. Prior to
the recapitalization of the SAIF, deposit insurance premiums were $.23 per $100
of deposits. Employee compensation and benefits expense increased $106,000, or
7.9%, as a result of an increase in directors' fees, normal wage increases and
an increase in benefits costs. Income from real estate operations was $167,000
in fiscal 1997 as a result of gains on sales of real estate owned, as compared
with $120,000 in fiscal 1996. The Association anticipates that other operating
expenses will increase following the conversion as a result of increased costs
associated with operating as a public company and increased compensation expense
as a result of adoption of the ESOP and, if approved by the Holding Company's
stockholders, the MRP. Because the Association uses an outside data processing
service, the Association believes that its cost of addressing Year 2000 issues
will not be significant. See "RISK FACTORS -- Below Average Return on Equity
After Conversion" and "-- New Expenses Associated with ESOP and MRP."

         Income Taxes. The provision for income taxes increased to $1.1 million
for fiscal 1997 from $360,000 for fiscal 1996. Income taxes in fiscal 1996 were
lower because of the SAIF special assessment.

Comparison of Operating Results for the Years Ended September 30, 1996 and 1995

         Net Income. Net income decreased $1.2 million, or 61.6%, to $759,000
for the year ended September 30, 1996 from $2.0 million for the year ended
September 30, 1995. The results for fiscal 1996 include the payment of the $1.2
million special SAIF assessment. Without the payment of the SAIF assessment, net
income for fiscal 1996 would have been $1.5 million.

         Net Interest Income. Net interest income decreased $971,000, or 16.9%,
to $4.8 million for fiscal 1996 from $5.7 million for fiscal 1995. The
Association's interest rate spread decreased to 1.51% for fiscal 1996 from 2.09%
for fiscal 1995 as a result of an increase in the cost of the Association's
interest-bearing liabilities. The decrease in the interest rate spread was
partially offset by an increase in the average balance of interest-earning
assets.

         Total interest income increased $810,000, or 5.0%, from fiscal 1995 to
fiscal 1996. Interest income on loans receivable increased $489,000, or 3.6%, as
a result of growth of the loan portfolio. The average yield on loans receivable
was essentially unchanged between fiscal 1995 and 1996. The remainder of the
growth in interest income is primarily attributable to increases in the average
balances of investment securities and federal funds sold and overnight deposits.
Interest income on mortgage-backed securities decreased as a result of principal
repayments on mortgage-backed securities.

         Total interest expense increased $1.8 million, or 17.1%, from fiscal
1995 to fiscal 1996. Total interest paid on deposits increased $1.9 million as a
result of an increase in the average balance of certificates of deposit and an
increase in the average rate paid on certificates of deposit from 5.39% to
6.00%. The average rate paid on certificates of deposit increased as depositors
sought higher yields through longer maturities. Interest paid on FHLB advances
decreased $163,000 as a decrease in the average balance was partially offset by
an increase in the rate paid on such advances.

                                       27
<PAGE>
 
         Provision for Loan Losses. The Association had a recovery of $7,000 in
fiscal 1996 compared to a provision of $47,000 in fiscal 1995. The provision was
larger in fiscal 1995 as a result of larger charge-offs that year. The
Association had net charge-offs of $79,000 in fiscal 1995 compared to net
recoveries of $87,000 in fiscal 1996.

         Other Income. Other income increased $9,000 to $227,000 for fiscal 1996
from $218,000 for fiscal 1995. Service charges and fees totalled $206,000 in
fiscal 1996 compared to $210,000 in fiscal 1995. The Association had $16,000 of
gain on the sale of mortgage loans in fiscal 1996 with no such gain in fiscal
1995.

         Other Operating Expenses. Other operating expenses were $3.9 million in
fiscal 1996, compared to $2.4 million in fiscal 1995. Excluding the SAIF
assessment, other operating expenses were $2.6 million for fiscal 1996, an
increase of $251,000, or 10.55%, over fiscal 1995. Occupancy and equipment
expense increased $271,000, or 190.8%, as a result of increased depreciation
expense associated with its new main office opened in October 1995. Other
expenses such as office supplies, advertising and promotion also increased as a
result of the opening of the new main office. Income from real estate operations
was $120,000 in fiscal 1996 as a result of gains on the sale of real estate
owned compared with a cost of $77,000 in fiscal 1995.

         Income Taxes. The provision for income taxes decreased to $360,000 for
fiscal 1996 from $1.5 million for fiscal 1995. The decrease was the result of
the payment of the SAIF assessment.

Average Balances, Interest and Average Yields/Cost

         The following table sets forth certain information for the periods
indicated regarding average balances of assets and liabilities as well as the
total dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and average yields and
costs. Such yields and costs for the periods indicated are derived by dividing
income or expense by the average balances of assets or liabilities,
respectively, for the periods presented. Average balances for the year ended
September 30, 1995 were derived from month-end balances. Management does not
believe that the use of month-end balances instead of daily balances has caused
any material differences in the information presented.

                                       28
<PAGE>
 
<TABLE> 
<CAPTION> 
                                                                      Year Ended September 30,
                                            -----------------------------------------------------------------------------
                                                            1997                                       1996
                                            ----------------------------------           --------------------------------
                                                          Interest                                   Interest
                                            Average       and           Yield/           Average     and           Yield/
                                            Balance       Dividends     Cost             Balance     Dividends     Cost
                                            -------       ---------     ------           -------     ---------     ------
<S>                                        <C>            <C>           <C>              <C>         <C>           <C>   
                                                                        (Dollars in thousands)
Interest-earning assets:
 Loans receivable, net (1)................ $189,689       $ 15,034       7.93%           $178,081    $ 14,038       7.88%
 Mortgage-backed securities...............    8,401            450       5.36              11,192         626       5.59
 Investment securities (3)................   32,397          1,856       5.73              35,684       1,815       5.09
 FHLB stock...............................    2,042            148       7.25               2,042         147       7.20
 Federal funds sold and overnight deposits    5,335            285       5.34               6,317         348       5.51
                                           --------       --------       ----            --------    --------       ---- 
  Total interest-earning assets...........  237,864         17,773       7.47             233,316      16,974       7.28
                                           --------       --------       ----            --------    --------       ---- 

 Non-interest-earning assets..............    7,315                                         7,328
                                           --------                                      --------
  Total average assets.................... $245,179                                      $240,644
                                           ========                                      ========

Interest-bearing liabilities (2):
 Passbook accounts........................ $ 11,561            340       2.94            $ 12,270         362       2.95 
 NOW and money market accounts............    3,751             89       2.37               3,784          92       2.43
 Certificates of deposit..................  195,853         11,575       5.91             190,572      11,431       6.00
                                           --------       --------       ----            --------    --------       ---- 
  Total deposits..........................  211,165         12,004       5.68             206,626      11,885       5.75
 FHLB advances............................    3,082            226       7.33               5,000         327       6.54
                                           --------       --------       ----            --------    --------       ----
  Total interest-bearing liabilities......  214,247         12,230       5.71             211,626      12,212       5.77
                                           --------       --------       ----            --------    --------       ----

 Noninterest-bearing liabilities..........    2,759                                         2,570
                                           --------                                      --------

  Total average liabilities...............  217,006                                       214,196 
                                           --------                                      --------

 Average equity...........................   28,173                                        26,448
                                           --------                                      --------   
  Total average liabilities and equity.... $245,179                                      $240,644
                                           ========                                      ========

 Net interest income......................                $  5,543                                   $  4,762
                                                          ========                                   ========
 Interest rate spread.....................                               1.76%                                      1.51%

 Net interest margin......................                               2.33%                                      2.04% 

 Ratio of average interest-earning assets
  to average interest-bearing liabilities.                               1.11x                                      1.10x



<CAPTION>

                                                      Year Ended September 30, 
                                               -------------------------------------- 
                                                                1995
                                               --------------------------------------
                                                              Interest
                                               Average        and              Yield/ 
                                               Balance        Dividends        Cost    
                                               -------        ---------        ------
<S>                                            <C>            <C>              <C>  
                                                      (Dollars in thousands)
Interest-earning assets:
 Loans receivable, net (1)................     $172,133       $ 13,549          7.87%
 Mortgage-backed securities...............       13,020            749          5.75 
 Investment securities (3)................       31,882          1,580          4.96
 FHLB stock...............................        2,042            153          7.49
 Federal funds sold and overnight deposits        2,202            133          6.04
                                               --------       --------          ----  
  Total interest-earning assets...........      221,279         16,164          7.30  
                                               --------       --------          ----  

 Non-interest-earning assets..............        5,632
                                               -------- 
  Total average assets....................     $226,911
                                               ========
Interest-bearing liabilities (2):
 Passbook accounts........................     $ 13,343            393          2.95
 NOW and money market accounts............        3,751             94          2.51
 Certificates of deposit..................      175,431          9,454          5.39
                                               --------       --------          ----
  Total deposits..........................      192,525          9,941          5.16
 FHLB advances............................        7,812            490          6.27
                                               --------       --------          ----
  Total interest-bearing liabilities......      200,337         10,431          5.21
                                               --------       --------          ----

 Noninterest-bearing liabilities..........        2,091
                                               --------

  Total average liabilities...............      202,428  
                                               -------- 
 Average equity...........................       24,483
                                               -------- 

  Total average liabilities and equity....     $226,911
                                               ========

 Net interest income......................                    $  5,733
                                                              ========

 Interest rate spread.....................                                         2.09%

 Net interest margin......................                                         2.59% 

 Ratio of average interest-earning assets
  to average interest-bearing liabilities.                                         1.10x
</TABLE> 

----------------------
(1) Loans receivable, net includes Loans held-for-sale and nonaccrual loans. 
    Interest on Loan receivable does not include interest on nonaccrual loans.
(2) Does not include escrow balances.
(3) Yield information does not give affect to changes in fair value that are 
    reflected as a component of equity.

                                      29


<PAGE>
 
Yields Earned and Rates Paid

         The following table sets forth at the date and for the periods
indicated the weighted average yields earned on the Association's assets and the
weighted average interest rates paid on the Association's liabilities, together
with the net yield on interest-earning assets.

<TABLE> 
<CAPTION> 

                                                               At                 Years Ended September 30,
                                                           September 30,        ----------------------------
                                                               1997             1997       1996         1995
                                                           -------------        ----       ----         ----
<S>                                                        <C>                  <C>        <C>          <C> 
Weighted average yield earned on:
  Loans receivable, net..............................           7.89%            7.93%      7.88%        7.87%
  Mortgage-backed securities.........................           5.30             5.36       5.59         5.75
  Investment securities..............................           6.03             5.73       5.09         4.96
  FHLB stock.........................................           7.24             7.25       7.20         7.49
  Federal funds sold and overnight deposits..........           6.13             5.34       5.51         6.04
    Total interest-earning assets....................           7.53             7.47       7.28         7.30

Weighted average rate paid on:
  Passbook accounts..................................           3.00             2.94       2.95         2.95
  NOW and money market accounts......................           2.27             2.37       2.43         2.51
  Certificates of deposit............................           5.93             5.91       6.00         5.39
    Total average deposits...........................           5.71             5.68       5.75         5.16
  FHLB advances......................................             --             7.33       6.54         6.27
    Total interest-bearing liabilities...............           5.71             5.71       5.77         5.21

Interest rate spread (spread between weighted average 
  rate earned on all interest-earning assets and 
  paid on all interest-bearing liabilities)..........           1.82             1.76       1.51         2.09

Net interest margin (net interest
 income as a percentage of average
 interest-earning assets)............................                            2.33       2.04         2.59
</TABLE> 

                                       30
<PAGE>
 
Rate/Volume Analysis

         The following table sets forth the effects of changing rates and
volumes on the interest income and interest expense of the Association.
Information is provided with respect: (i) to effects attributable to changes in
volume (changes in volume multiplied by prior rate); and (ii) to effects
attributable to changes in rate (changes in rate multiplied by prior volume).
The net change attributable to the combined impact of volume and rate has been
allocated proportionately to the change due to volume and the change due to
rate.

<TABLE> 
<CAPTION> 

                                      Year Ended September 30, 1997               Year Ended September 30, 1996 
                                      Compared to September 30, 1996              Compared to September 30, 1995
                                           Increase (Decrease)                        Increase (Decrease)
                                                 Due to                                       Due to
                                      -------------------------------            -------------------------------
                                      Rate       Volume         Total            Rate       Volume         Total
                                      ----       ------         -----            ----       ------         -----
                                                                (Dollars in thousands)
<S>                                  <C>         <C>            <C>             <C>         <C>           <C> 
Interest-earning assets:
 Loans receivable, net (1).......... $   88       $  908       $  996           $    17      $   472      $  489
 Mortgage-backed securities.........    (25)        (151)        (176)              (20)        (103)       (123)
 Investment securities..............    153         (112)          41                42          193         235
 FHLB stock.........................      1           --            1                (6)          --          (6)
 Federal funds sold and
  overnight deposits................    (11)         (52)         (63)              (11)         226          215
                                     ------       ------       ------            ------       ------       ------

Total net change in income
 on interest-earning assets.........    206          593          799                22          788          810
                                     ------       ------       ------            ------       ------       ------

Interest-bearing liabilities:
 Passbook accounts..................     (1)         (21)         (22)               --          (31)         (31)
 NOW and money market
  accounts..........................     (2)          (1)          (3)               (3)           1           (2)
 Certificates of deposit............   (171)         315          144             1,122          855        1,977
                                     ------       ------       ------            ------       ------       ------
   Total average deposits...........   (174)         293          119             1,119          825        1,944
 FHLB advances......................     48         (149)        (101)               22         (185)        (163)
                                     ------       ------       ------            ------       ------       ------

Total net change in expense
 on interest-bearing
 liabilities........................  (126)          144           18             1,141          640        1,781
                                     ------       ------       ------            ------       ------       ------

Net change in net interest
 income............................. $  332       $  449       $  781           $(1,119)      $  148       $ (971)
                                     ======       ======       ======            ======       ======       ======
</TABLE> 

-------------
(1) Does not include interest on nonaccrual loans.

Asset and Liability Management

         Quantitative Aspects of Market Risk. The Association does not maintain
a trading account for any class of financial instrument nor does the Association
engage in hedging activities or purchase purchase high-risk derivative
instruments. Furthermore, the Association is not subject to foreign currency
exchange rate risk or commodity price risk. For information regarding the
sensitivity to interest rate risk of the Association's interest-earning assets
and interest-bearing liabilities, see the tables under "BUSINESS OF THE
ASSOCIATION -- Lending Activities -- Maturity of Loan Portfolio," "-- Investment
Activities" and "-- Deposit Activities and Other Sources of Funds -- Time
Deposits by Maturities."

                                       31
<PAGE>
 
         Qualitative Aspects of Market Risk. The Association's principal
financial objective is to achieve long-term profitability while reducing its
exposure to fluctuating market interest rates. The Association has sought to
reduce the exposure of its earnings to changes in market interest rates by
attempting to manage the mismatch between asset and liability maturities and
interest rates. The principal element in achieving this objective is to increase
the interest-rate sensitivity of the Association's interest-earning assets by
retaining for its portfolio loans with interest rates subject to periodic
adjustment to market conditions and selling fixed-rate one- to- four family
mortgage loans with terms over 15 years. In addition, the Association maintains
an investment portfolio of U.S. Government and agency securities with
contractual maturities of between one and five years. The Association relies on
retail deposits as its primary source of funds. Management believes retail
deposits, compared to brokered deposits, reduce the effects of interest rate
fluctuations because they generally represent a more stable source of funds.

         In order to encourage institutions to reduce their interest rate risk,
the OTS adopted a rule incorporating an interest rate risk component into the
risk-based capital rules. Using data compiled by the OTS, the Association
receives a report which measures interest rate risk by modeling the change in
NPV (net portfolio value) over a variety of interest rate scenarios. This
procedure for measuring interest rate risk was developed by the OTS to replace
the "gap" analysis (the difference between interest-earning assets and
interest-bearing liabilities that mature or reprice within a specific time
period). NPV is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The calculation is intended to
illustrate the change in NPV that will occur in the event of an immediate change
in interest rates of at least 200 basis points with no effect given to any steps
that management might take to counter the effect of that interest rate movement.
Under OTS regulations, an institution with a greater than "normal" level of
interest rate risk is subject to a deduction from total capital for purposes of
calculating its risk-based capital. The OTS, however, has delayed the
implementation of this regulation. An institution with a "normal" level of
interest rate risk is defined as one whose "measured interest rate risk" is less
than 2.0%. Institutions with assets of less than $300 million and a risk-based
capital ratio of more than 12.0% are exempt. The Association is exempt because
of its asset size. Based on the Association's regulatory capital levels at
September 30, 1997, the Association believes that, if the proposed regulation
was implemented at that date, the Association's level of interest rate risk
would have caused it to be treated as an institution with greater than "normal"
interest rate risk.

         The following table is provided by the OTS and sets forth the change in
the Association's NPV at June 30, 1997, based on OTS assumptions, that would
occur in the event of an immediate change in interest rates, with no effect
given to any steps that management might take to counteract that change.

         Basis Point ("bp")              Estimated Change in
          Change in Rates                Net Portfolio Value
          ---------------                -------------------
                                        (Dollars in thousands)

                  +400                       ($15,494)
                  +300                        (10,826)
                  +200                         (6,391)
                  +100                         (2,645)
                     0                              0
                  (100)                         1,360
                  (200)                         2,285
                  (300)                         3,283
                  (400)                         4,712
                                        
         The above table illustrates, for example, that an instantaneous 200
basis point increase in market interest rates at June 30, 1997 would reduce the
Association's NPV by approximately $6.4 million, or 20%, at that date.

                                       32
<PAGE>
 
         Certain assumptions utilized by the OTS in assessing the interest rate
risk of savings associations within its region were utilized in preparing the
preceding table. These assumptions relate to interest rates, loan prepayment
rates, deposit decay rates, and the market values of certain assets under
differing interest rate scenarios, among others.

         As with any method of measuring interest rate risk, certain
shortcomings are inherent in the method of analysis presented in the foregoing
table. For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different degrees to
changes in market interest rates. Also, the interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as ARM loans, have features which
restrict changes in interest rates on a short-term basis and over the life of
the asset. Further, in the event of a change in interest rates, expected rates
of prepayments on loans and early withdrawals from certificates could deviate
significantly from those assumed in calculating the table.

Liquidity and Capital Resources

         The Association's primary sources of funds are customer deposits,
proceeds from principal and interest payments on and the sale of loans, maturing
securities and FHLB advances. While maturities and scheduled amortization of
loans are a predictable source of funds, deposit flows and mortgage prepayments
are greatly influenced by general interest rates, economic conditions and
competition.

         The Association must maintain an adequate level of liquidity to ensure
the availability of sufficient funds to fund loan originations and deposit
withdrawals, to satisfy other financial commitments and to take advantage of
investment opportunities. The Association generally maintains sufficient cash
and short-term investments to meet short-term liquidity needs. At September 30,
1997, cash and cash equivalents totalled $14.7 million, or 5.9% of total assets,
and investment securities classified as available-for-sale totalled $8.4
million. At September 30, 1997, the Association also maintained, but did not
draw upon, an uncommitted credit facility with the FHLB-Atlanta, which provided
for immediately available advances up to an aggregate amount of $32.0 million.

         OTS regulations require savings institutions to maintain an average
daily balance of liquid assets (cash and eligible investments) equal to at least
4.0% of the average daily balance of its net withdrawable deposits and
short-term borrowings. The Association's actual liquidity ratio at September 30,
1997 was 19.2%. See "-- Comparison of Financial Condition at September 30, 1997
and 1996" and "BUSINESS OF THE ASSOCIATION -- Investment Activities."

         The Association's primary investing activity is the origination of one-
to- four family mortgage loans. During the years ended September 30, 1997, 1996
and 1995, the Association originated $37.0 million, $36.5 million, and $39.4
million of such loans, respectively. At September 30, 1997, the Association had
loan commitments totalling $1.4 million, unused lines of credit of $6.3 million
and undisbursed loans in process totalling $7.0 million. The Association
anticipates that it will have sufficient funds available to meet current loan
commitments. Certificates of deposit that are scheduled to mature in less than
one year from September 30, 1997 totalled $148.9 million. Historically, the
Association has been able to retain a significant amount of its deposits as they
mature.

         OTS regulations require the Association to maintain specific amounts of
regulatory capital. As of September 30, 1997, the Association complied with all
regulatory capital requirements as of that date with tangible, core and
risk-based capital ratios of 11.3%, 11.3% and 23.3%, respectively. For a
detailed discussion of regulatory capital requirements, see "REGULATION --
Federal Regulation of Savings Associations -- Capital Requirements." See also
"HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE."

Year 2000 Issues

         Computer programs that use only two digits to identify a year could
fail or create erroneous results by or at the year 2000. All of the material
data processing of the Association that could be affected by this problem is

                                       33
<PAGE>
 
provided by a third party service bureau. The Association has contaced its
service bureau and has received assurances that the service bureau will properly
function in the year 2000. Internally, the Association has determined that
certain computer programs must be revised in advance of the year 2000. The
Association does not beleive that the costs associated with its actions and
those of its vendors will be material to the Association. However, in the event
the Association's service bureau is unable to fulfill its contractual
obligations to the Association, it could have a significant adverse impact on
the financial condition and results of operations of the Association.

Impact of Accounting Pronouncements and Regulatory Policies

         Accounting for Stock-Based Compensation. SFAS No. 123, "Accounting for
Stock-Based Compensation," establishes financial accounting and reporting
standards for stock-based employee compensation plans. This statement encourages
all entities to adopt a new method of accounting to measure compensation cost of
all employee stock compensation plans based on the estimated fair value of the
award at the date it is granted. Companies are, however, allowed to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting, which generally does not result in compensation expense
recognition for most plans. Companies that elect to remain with the existing
accounting method are required to disclose in a footnote to the financial
statements pro forma net income and, if presented, earnings per share, as if
this statement had been adopted. The accounting requirements of this statement
are effective for transactions entered into in fiscal years that begin after
December 15, 1995; however, companies are required to disclose information for
awards granted in their first fiscal year beginning after December 15, 1994.
Management of the Association has not completed an analysis of the potential
effects of SFAS No. 123 on its financial condition or results of operations, but
expects to use the intrinsic value method upon consummation of the Conversion.

         Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities. SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities. This statement applies prospectively
to transactions occurring after December 31, 1996, and establishes new standards
that focus on control whereas, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. The adoption of SFAS No. 125 did
not have a material impact on the Association's results of operations or
financial position.

         Deferral of the Effective Date of Certain Provisions of SFAS No. 125.
In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date
of Certain Provisions of FASB Statement No. 125." SFAS No. 127 defers for one
year the effective date of portions of SFAS No. 125 that address secured
borrowings and collateral for all transactions. Additionally, SFAS No. 127
defers for one year the effective date of transfers of financial assets that are
part of repurchase agreements, securities lending and similar transactions.

         Earnings Per Share. SFAS No. 128, "Earnings Per Share," standardizes
the international calculation for earnings per share and requires companies with
complex capital structures that have publicly held common stock or potential
common stock to present both basic and diluted earnings per share on the face of
the income statement. SFAS No. 128 becomes effective for periods ending after
December 15, 1997.

         Comprehensive Income. SFAS No. 130, "Reporting Comprehensive Income,"
issued in July 1997, establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. It requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
presented with the same prominence as other financial statements. SFAS No. 130
requires that companies (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial condition.
SFAS No. 130 is effective for fiscal years 

                                       34
<PAGE>
 
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comprehensive purposes is required.

         Segment Information. SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" establishes standards for the way public
business enterprises report information about operating segments and establishes
standards for related disclosures about products and services, geographic areas
and major customers. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. Information required to be disclosed includes segment
profit or loss, certain specific revenue and expense items, segment assets and
certain other information. This statement is effective for the Holding Company
for financial statements issued for the fiscal year ending September 30, 1999.

Effect of Inflation and Changing Prices

         The financial statements and related financial data presented herein
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time due
to inflation. The primary impact of inflation is reflected in the increased cost
of the Association's operations. Unlike most industrial companies, virtually all
the assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates do
not necessarily move in the same direction or to the same extent as the prices
of goods and services.


                         BUSINESS OF THE HOLDING COMPANY

General

         The Holding Company was organized as a Delaware business corporation at
the direction of the Association in November 1997 for the purpose of becoming
the holding company for the Association upon completion of the conversion. As a
result of the Conversion, the Association will be a wholly-owned subsidiary of
the Holding Company and all of the issued and outstanding capital stock of the
Association will be owned by the Holding Company.

Business

         Prior to the conversion, the Holding Company has not and will not
engage in any significant activities other than of an organizational nature.
Upon completion of the Conversion, the Holding Company's sole business activity
will be the ownership of the outstanding capital stock of the Association. The
Holding Company will also hold a note receivable from the ESOP. In the future,
the Holding Company may acquire or organize other operating subsidiaries,
although there are no current plans, arrangements, agreements or understandings,
written or oral, to do so.

         Initially, the Holding Company will neither own nor lease any property
but will instead use the premises, equipment and furniture of the Association
with the payment of appropriate rental fees, as required by applicable law and
regulations.

         Since the Holding Company will only hold the outstanding capital stock
of the Association upon consummation of the conversion, the competitive
conditions applicable to the Holding Company will be the same as those
confronting the Association. See "BUSINESS OF THE ASSOCIATION -- Competition."

                                       35
<PAGE>
 
                           BUSINESS OF THE ASSOCIATION

General

         The Association operates as a community oriented financial institution.
The Association's business consists primarily of attracting retail deposits from
the general public and using those funds to originate real estate loans. The
Association emphasizes the origination of adjustable-rate mortgages and
generally holds its loans for long-term investment purposes. See "-- Lending
Activities."

Market Area

         The Association conducts operations out of its main office in Laurens,
South Carolina (in Laurens County) and three branch offices in Upstate South
Carolina, Belton (in Anderson County), Ware Shoals (in Greenwood County) and
Simpsonville (in Greenville County). Most of the Association's depositors live
in the areas surrounding the Association's offices and most of the Association's
loans are made to persons in the counties in which its branches are located, as
well as in the Columbia, South Carolina metropolitan area.

         Laurens County, with an estimated population of 62,000, is located to
the east of the Greenville-Spartanburg-Anderson metropolitan area. Although a
rural county, the completion of U.S. Interstate Routes I-26 and I-385 has
provided access to the larger population and employment centers of Columbia and
Greenville-Spartanburg-Anderson. The Association's Belton and Simpsonville
branches are within the Greenville-Spartanburg-Anderson metropolitan area, while
the Ware Shoals branch is in a rural area between Laurens and the city of
Greenwood. South Carolina's economy, historically dependent on the textile
industry, has expanded into a broad variety of employment sectors in recent
years as the textile industry has declined. The development of major
transportation routes, low cost of living and labor, and aggressive marketing by
local and state government have resulted in an increase in industrial
development. As a result, the Association's market areas have reported increases
in population, households and income in recent years.

         The Association faces intense competition for deposits and loan
originations from the many financial institutions conducting business within its
market area. See "-- Competition" and "RISK FACTORS -- Competition."

Lending Activities

         General. At September 30, 1997, the Association's total loans
receivable portfolio amounted to $192.7 million, or 77.8% of total assets at
that date. The Association has traditionally concentrated its lending activities
on mortgage loans, with such loans amounting to $191.3 million, or 95.3% of the
total loans receivable at September 30, 1997. At that date, $170.3 million, or
84.8% of the Association's total loans receivable had adjustable interest rates.
In addition to one- to four-family mortgage loans, the Association originates
construction loans, commercial real estate loans, home equity loans and savings
account loans. All of the Association's mortgage loan portfolio is secured by
real estate, either as primary or secondary collateral, located in South
Carolina.

                                       36
<PAGE>
 
         Loan Portfolio Analysis. The following table sets forth the composition
of the Association's loan portfolio (excluding loans held-for-sale) at the dates
indicated. The Association had no concentration of loans exceeding 10% of total
loans receivable other than as disclosed below.

<TABLE> 
<CAPTION> 
                                                                                                                       
                                                               At September 30,
                                     ---------------------------------------------------------------------
                                            1997                    1996                     1995
                                     -------------------     --------------------     --------------------     
                                     Amount      Percent     Amount       Percent     Amount       Percent     
                                     ------      -------     ------       -------     ------       -------     
                                                        (Dollars in thousands)
<S>                                 <C>          <C>        <C>           <C>        <C>           <C> 
Mortgage loans:
 One- to four-family...........     $180,609       90.0%    $173,925       90.4%     $167,092        90.2%     
 Builder construction..........        2,601        1.3        3,836        2.0         2,735         1.5      
 Commercial....................        8,136        4.0        6,450        3.3         7,573         4.1      
                                    --------      -----     --------      -----      --------       -----      
   Total mortgage loans........      191,346       95.3      184,211       95.7       177,400        95.8      
Savings account loans..........        1,419        0.7        1,146        0.6         1,439         0.8      
Home equity loans..............        8,124        4.0        7,050        3.7         6,429         3.4      
                                    --------      -----     --------      -----      --------       -----      
  Total loans receivable.......      200,889      100.0%     192,407      100.0%      185,268       100.0%     
                                                  =====                   =====                     =====      
                                                                                 
Less:                                                                            
 Undisbursed loan funds........        6,989                   8,375                    5,995                  
 Deferred loan origination fees          363                     412                      424                  
 Allowance for loan losses.....          874                     670                      590                  
                                     -------                 -------                  -------      
                                                                                 
  Loans receivable, net........     $192,663                $182,950                 $178,259                  
                                    ========                ========                 ========      
</TABLE> 

<TABLE> 
<CAPTION> 
                                                
                                                    At September 30,
                                      -------------------------------------------
                                             1994                    1993
                                      ------------------      -------------------
                                      Amount     Percent      Amount      Percent
                                      ------     -------      ------      -------
                                               (Dollars in thousands)
<S>                                  <C>         <C>         <C>          <C> 
Mortgage loans:                 
 One- to four-family...........      $151,238      89.9%     $147,968       90.0%      
 Builder construction..........         2,763       1.6         1,871        1.1       
 Commercial....................         7,536       4.5         7,731        4.7       
                                      -------     -----       -------      -----       
   Total mortgage loans........       161,537      96.0       157,570       95.8       
Savings account loans..........         1,133       0.7         1,444        0.9       
Home equity loans..............         5,607       3.3         5,476        3.3       
                                      -------     -----       -------      -----       
  Total loans receivable.......       168,277     100.0%      164,490      100.0%      
                                                  =====                    =====       
                                                                                       
Less:                                                                                  
 Undisbursed loan funds........         7,584                   4,980                  
 Deferred loan origination fees           389                     414                  
 Allowance for loan losses.....           622                     560                  
                                      -------                 -------       
  Loans receivable, net........      $159,682                $158,536                  
                                     ========                ========                  
</TABLE> 
                                        

                                       37
<PAGE>
 
        One- to Four-Family Real Estate Loans. The Association has concentrated
its lending activities on the origination of loans secured by first mortgage
loans on one- to four-family residences located in South Carolina. At September
30, 1997, $180.6 million, or 90.0%, of the Association's total loan portfolio
consisted of such loans. Included in this amount are $8.1 million of
construction loans that will convert to permanent mortgage loans after the
completion of the construction phase.

        The Association offers ARM loans at rates and terms competitive with
market conditions. At September 30, 1997, $154.1 million, or 85.3%, of the
Association's one- to four-family real estate loans were subject to periodic
interest rate adjustments. Substantially all of the Association's ARM loans are
underwritten and documented in accordance with guidelines established by Freddie
Mac, even though the Association originates ARM loans primarily for its own
portfolio. The Association originates for its portfolio ARM loans which provide
for an interest rate that adjusts every year or that is fixed for three or ten
years and then adjusts every year after the initial period. The Association's
ARM loans generally provide for annual and lifetime interest rate adjustment
limits of 1% and 4%, respectively. The Association's ARM loans adjust based on
the National Median Cost of Funds Index. This index is a lagging market index,
which means that upward adjustments in this index may occur more slowly than
changes in the Association's cost of interest-bearing liabilities, especially
during periods of rapidly increasing interest-rates. The Association's ARM loans
are typically based on a 30-year amortization schedule. The initial rate on most
of the Association's ARM loans is .75% to 1% below the fully indexed rate for
the loan.

        The Association offers fixed-rate, one- to four-family mortgage loans
with maturities ranging from ten to 30 years. These loans are fully amortizing
with monthly payments sufficient to repay the total amount of the loan with
interest by the end of the loan term. Generally, they are underwritten and
documented in accordance with guidelines established by Freddie Mac. The
Association's fixed-rate loans customarily include "due on sale" clauses, which
give the Association the right to declare a loan immediately due and payable in
the event the borrower sells or otherwise disposes of the real property subject
to the mortgage and the loan is not paid. In recent years, as part of its
asset/liability management, the Association has retained for its portfolio 
fixed-rate loans with terms of ten to 15 years. The Association determines
whether to sell or retain fixed-rate loans with terms of more than 15 years on a
case-by-case basis.

        The Association also offers loans to individuals for the construction
and acquisition of their personal residence. Such loans are made on the same
terms as the Association's one- to four-family mortgage loans, but provide for
the payment of interest only during the construction phase, which is usually six
months. At the end of the construction phase, the loan converts to a permanent
mortgage loan.

        The Association offers second mortgage loans, although these have become
less popular since the introduction of home equity lines of credit. The
Association's second mortgage loans have fixed interest rates and terms of up to
ten years. At September 30, 1997, the Association had $1.1 million of second
mortgage loans included in its one- to four-family mortgage loans.

        Borrower demand for ARM loans versus fixed-rate mortgage loans is a
function of the level of interest rates, the expectations of changes in the
level of interest rates and the difference between the initial interest rates
and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment.

        The retention of ARM loans in the Association's loan portfolio helps
reduce the Association's exposure to changes in interest rates. There are,
however, unquantifiable credit risks resulting from the potential of increased
costs due to changed rates to be paid by the borrower. It is possible that
during periods of rising interest rates the risk of default on ARM loans may
increase as a result of repricing and the increased payments required by the
borrower. See "RISK FACTORS -- Risks Associated with ARM Loans." In addition,
although ARM loans allow the Association to increase the sensitivity of its
asset base to changes in the interest rates, the extent of this interest
sensitivity is limited by the annual and lifetime interest rate adjustment
limits. Because of these considerations and its use of a lagging market index,
the Association has no assurance that yields on ARM loans will be sufficient to


                                       38
<PAGE>
 
offset increases in the Association's cost of funds. The Association believes
these risks, which have not had a material adverse effect on the Association to
date, generally are less than the risks associated with holding fixed-rate loans
in portfolio during a rising interest rate environment.

        The Association generally requires title insurance insuring the status
of its lien or an acceptable attorney's opinion on all loans where real estate
is the primary source of security. The Association also requires that fire and
casualty insurance (and, if appropriate, flood insurance) be maintained in an
amount at least equal to the outstanding loan balance.

        The Association's one- to four-family residential mortgage loans
typically do not exceed 80% of the appraised value of the security property.
Pursuant to underwriting guidelines adopted by the Association's Board of
Directors, the Association can lend up to 95% of the appraised value of the
property securing a one- to- four family residential loan; however, the
Association generally obtains private mortgage insurance on the portion of the
principal amount that exceeds 80% of the appraised value of the security
property.

        Builder Construction Loans. The Association originates residential
construction loans to local home builders, generally with whom it has an
established relationship. At September 30, 1997, builder construction loans
amounted to $2.6 million, or 1.3% of the Association's total loans receivable.

        The Association's construction loans to builders generally have fixed
interest rates and are for a term of one year. Such loans to builders are
typically made with a maximum loan to value ratio of 80%. These loans are made
either on a pre-sold or speculative (unsold) basis. However, the Association
generally limits the number of outstanding loans on unsold homes under
construction to individual builders, with the amount dependent on the financial
strength of the builder, the present exposure of the builder, the degree of loan
concentration and prior sales of homes in the development. At September 30,
1997, the largest amount of construction loans outstanding to one builder was
$455,000, all of which was for speculative construction.

        Prior to making a commitment to fund a construction loan, the
Association requires an appraisal of the property by a state-licensed and
qualified appraiser. The Association's staff or a paid inspector also reviews
and inspects each project prior to disbursement of funds during the term of the
construction loan. Loan proceeds are disbursed after inspection of the project
based on percentage of completion.

        Construction lending affords the Association the opportunity to earn
higher interest rates with shorter terms to maturity relative to single-family
permanent mortgage lending. Construction lending, however, is generally
considered to involve a higher degree of risk than single-family permanent
mortgage lending because of the inherent difficulty in estimating both a
property's value at completion of the project and the estimated cost of the
project. The nature of these loans is such that they are generally more
difficult to evaluate and monitor. If the estimate of construction cost proves
to be inaccurate, the Association may be required to advance funds beyond the
amount originally committed to permit completion of the project. If the estimate
of value upon completion proves to be inaccurate, the Association may be
confronted with a project whose value is insufficient to assure full repayment.
Projects may also be jeopardized by disagreements between borrowers and builders
and by the failure of builders to pay subcontractors. Loans to builders to
construct homes for which no purchaser has been identified carry more risk
because the payoff for the loan is dependent on the builder's ability to sell
the property prior to the time that the construction loan is due.

        The Association has attempted to minimize the foregoing risks by, among
other things, limiting its construction lending primarily to residential
properties. It is also the Association's general policy to obtain personal
guarantees from financially capable parties where the loan is made to a
corporation or other legal entity.

        Commercial Real Estate Loans. The Association originates mortgage loans
for the acquisition and refinancing of commercial real estate properties. The
Association does not actively solicit commercial real estate loans. At September
30, 1997, $8.1 million, or 4.0% of the Association's total loans receivable,
consisted of loans
                                       39
<PAGE>
 
secured by existing commercial real estate properties. The majority of the
Association's commercial real estate loans are secured by office buildings,
churches, retail shops and warehouses, all of which are located in South
Carolina. Occasionally, the Association makes land acquisition and development
loans. At September 30, 1997, the Association's largest commercial real estate
loan was $1.8 million and is secured by improved and unimproved lots in a
subdivision near Greenwood, South Carolina.

        Most of the Association's commercial real estate loans have adjustable
interest rates and 15-year terms. The Association requires appraisals of all
properties securing commercial real estate loans. Appraisals are performed by an
independent appraiser designated by the Association, all of which are reviewed
by management.

        Commercial real estate lending affords the Association an opportunity to
receive interest at rates higher than those generally available from one- to
four-family residential lending. However, loans secured by such properties
usually are greater in amount and are more difficult to evaluate and monitor,
and, therefore, involve a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by commercial
properties are often dependent on the successful operation and management of the
properties, repayment of such loans may be affected by adverse conditions in the
real estate market or the economy. The Association seeks to minimize these risks
by limiting the maximum loan-to-value ratio to 80% and strictly scrutinizing the
financial condition of the borrower, the cash flow of the project, the quality
of the collateral and the management of the property securing the loan. The
Association also obtains loan guarantees from financially capable parties based
on a review of personal financial statements.

        Savings Account Loans. The Association offers loans secured by savings
deposits. At September 30, 1997, savings account loans totalled $1.4 million, or
0.7% of total loans receivable. Generally, such loans are made up to 90% of the
amount on deposit at the Association.

        Home Equity Loans. The Association originates home equity loans in the
form of lines of credit. At September 30, 1997, the Association had $8.1 million
of home equity loans and unused commitments to extend credit under home equity
loans of $6.3 million. Most of these loans are made to existing customers. The
Association's home equity loans have variable interest rates tied to the prime
lending rate. The Association imposes a maximum loan-to-value ratio of 90% after
considering both the first and second mortgage loans.

        The Association's home equity loans may have greater credit risk than
one- to four-family residential mortgage loans because they are secured by
mortgages subordinated to an existing first mortgage on the property, which, in
most cases, is held by the Association.

                                       40
<PAGE>
 
        Maturity of Loan Portfolio. The following table sets forth certain
information at September 30, 1997 regarding the dollar amount of loans maturing
in the Association's portfolio based on their contractual terms to maturity, but
does not include scheduled payments or potential prepayments. Demand loans,
loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as becoming due within one year. Loan balances do not
include undisbursed loan proceeds, unearned discounts, unearned income and
allowance for loans losses.

<TABLE> 
<CAPTION> 

                                                After           After             After
                                              One Year         3 Years           5 Years
                              Within           Through         Through           Through            Beyond
                             One Year          3 Years         5 Years          10 Years           10 Years            Total
                             --------          -------         -------          --------           --------            -----
                                                                   (In thousands)
<S>                          <C>               <C>             <C>              <C>                <C>                <C> 
Mortgage loans:
  One- to four-family......  $   146            $1,085          $4,888           $18,032            $156,458          $180,609
  Builder construction.....    2,601                --              --                --                  --             2,601
  Commercial...............       --               589           2,088               857               4,602             8,136
Savings account loans......    1,419                --              --                --                  --             1,419
Home equity loans .........    8,124                --              --                --                  --             8,124
                             -------            ------          ------           -------            --------          -------- 
   Total...................  $12,290            $1,674          $6,976           $18,889            $161,060          $200,889
                             =======            ======          ======           =======            ========          ======== 
</TABLE> 


         The following table sets forth the dollar amount of all loans due after
September 30, 1998, which have fixed interest rates and have floating or
adjustable interest rates.



<TABLE> 
<CAPTION> 
                                  Fixed-          Floating- or
                                  Rates         Adjustable-Rates
                                  -----         ----------------
                                                 (In thousands)
<S>                            <C>              <C> 
Mortgage loans:
  One- to- four family.....      $26,348             $154,115
  Builder construction.....           --                   --
  Commercial...............        1,494                6,642
Savings account loans......           --                   --
Home equity loans .........           --                   --
                                --------            ---------
    Total..................      $27,842             $160,757
                                ========            =========
</TABLE> 

                                       41
<PAGE>
 
         Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of a loan is substantially less
than its contractual terms because of prepayments. In addition, due-on-sale
clauses on loans generally give the Association the right to declare loans
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of a mortgage loan tends to increase, however, when current
mortgage loan market rates are substantially higher than rates on existing
mortgage loans and, conversely, decrease when rates on existing mortgage loans
are substantially higher than current mortgage loan market rates.

         Loan Solicitation and Processing. The Association's lending activities
are subject to the written, non-discriminatory, underwriting standards and loan
origination procedures established by the Association's Board of Directors and
management. Loan originations come from a number of sources. The customary
sources of loan originations are realtors, walk-in customers, referrals and
existing customers. The Association also uses one mortgage broker in Columbia
and one mortgage broker in Greenwood to originate loans. For the year ended
September 30, 1997, the Association originated $11.8 million loans, or 26.1% of
total originations, through these brokers. All loans originated through these
mortgage brokers are underwritten by the Association pursuant to the
Association's underwriting guidelines.

         All single-family residential mortgage loans up to $300,000 and all
other loans up to $200,000 must be approved by two members of the Association's
Loan Committee. All loans in excess of such amounts but below $500,000 must be
approved by a committee consisting of the President, two Vice Presidents in
charge of lending operations and two outside Directors. All loans of $500,000 or
more must be approved by the Association's Board of Directors.

         Loan Originations, Purchases and Sales. While the Association
originates both adjustable-rate and fixed-rate loans, its ability to generate
each type of loan depends upon relative customer demand for loans in its primary
market area. During the years ended September 30, 1997, 1996 and 1995, the
Association originated $45.1 million, $46.3 million and $47.1 million of loans,
respectively. Of the $45.1 million of loans originated in the year ended
September 30, 1997, $35.8 million, or 79.3%, had adjustable rates of interest.

         In fiscal 1997, the Association began purchasing loans from a mortgage
banking company in Greenville, South Carolina. All of the loans purchased in
fiscal 1997 were purchased through this company and all of the property securing
such loans is located in Upstate South Carolina. These loans are written to
Freddie Mac guidelines with all exceptions reviewed and approved by the
Association. The Association anticipates that it will continue to purchase loans
from time to time to supplement its own originations.

         The Association sells loans in order to manage the interest rate risk
associated with holding long-term, fixed-rate mortgages, to enable the
Association to offer a wide variety of mortgage products, and to earn
origination fees and premiums. In 1995, the Association established a
relationship with another financial institution pursuant to which the
Association sells fixed-rate, one- to four-family mortgage loans with terms in
excess of 15 years. The Association does not retain servicing rights on the
loans that it sells.

                                       42
<PAGE>
 
         The following table sets forth total loans originated, purchased, sold
and repaid during the periods indicated.

<TABLE> 
<CAPTION> 


                                                       Years Ended September 30,
                                            -----------------------------------------------
                                            1997                 1996                  1995
                                            ----                 ----                  ----
                                                            (In thousands)
<S>                                         <C>                <C>                   <C> 
Loans originated:
 Mortgage loans:
  One- to four-family ...................   $37,020            $36,450               $39,444
  Builder construction...................     2,901              5,255                 4,175
  Commercial.............................     1,958              1,739                   543
 Savings account loans...................     1,128                572                 1,079
 Home equity loans.......................     2,139              2,243                 1,871
                                            -------            -------               -------
   Total loans originated................    45,146             46,259                47,112
                                            -------            -------               -------

Loans purchased:
 Mortgage loans:
  One- to four-family....................     2,975                 --                    --
  Builder construction...................        --                 --                    --
  Commercial.............................       541                 --                    --
                                            -------            -------               -------
   Total loans purchased.................     3,516                 --                    --
                                            -------            -------               -------

Loans sold...............................      (479)              (954)                   --

Principal repayments.....................   (35,198)           (42,970)              (26,764)
Transfer to real estate owned............      (996)               (92)                 (185)
Increase (decrease) in other items, net..    (1,231)             2,448                (1,586)
                                            -------            -------               -------

Net increase (decrease) in loans
 receivable, net.........................   $10,758            $ 4,691               $18,577
                                            =======            =======               =======
</TABLE> 

         Loan Commitments. The Association issues commitments for mortgage loans
conditioned upon the occurrence of certain events. Such commitments are made in
writing on specified terms and conditions and are honored for up to 30 days from
approval, depending on the type of transaction. At September 30, 1997, the
Association had loan commitments (excluding undisbursed portions of interim
construction loans of $7.0 million) of $1.4 million and unused lines of credit
of $6.3 million. See Note 10 of Notes to the Financial Statements.

         Loan Fees. In addition to interest earned on loans, the Association
receives income from fees in connection with loan originations, loan
modifications, late payments and for miscellaneous services related to its
loans. Income from these activities varies from period to period depending upon
the volume and type of loans made and competitive conditions.

         The Association charges loan origination fees which are calculated as a
percentage of the amount borrowed. In accordance with applicable accounting
procedures, loan origination fees and discount points in excess of loan
origination costs are deferred and recognized over the contractual remaining
lives of the related loans on a level yield basis. Discounts and premiums on
loans purchased are accreted and amortized in the same manner. At September 30,
1997, the Association had $363,000 of deferred loan fees. The Association
recognized $151,000, $162,000 and $100,000 of deferred loan fees during the
years ended September 30, 1997, 1996 and 1995, respectively, in connection with
loan refinancings, payoffs, sales and ongoing amortization of outstanding loans.

                                       43
<PAGE>
 
         Nonperforming Assets and Delinquencies. When a borrowers fails to make
a required payment on a loan, the Association attempts to cure the deficiency by
contacting the borrower and seeking the payment. A late notice is mailed 15 days
after a payment is due. In most cases, deficiencies are cured promptly. If a
delinquency continues, additional contact is made either through additional
notices or other means and the Association will attempt to work out a payment
schedule. While the Association generally prefers to work with borrowers to
resolve such problems, the Association will institute foreclosure or other
proceedings, as necessary, to minimize any potential loss.

         Loans are placed on nonaccrual status generally if, in the opinion of
management, principal or interest payments are not likely in accordance with the
terms of the loan agreement, or when principal or interest is past due more than
90 days. Interest accrued but not collected at the date the loan is placed on
nonaccrual status is reversed against income in the current period. Loans may be
reinstated to accrual status when payments are 90 days or less past due and, in
the opinion of management, collection of the remaining past due balances can be
reasonably expected.

         The Association's Board of Directors is informed monthly of the amounts
of loans delinquent more than 30, 60 and 90 days, all loans in foreclosure and
all foreclosed and repossessed property owned by the Association.

                                       44
<PAGE>
 
         The following table sets forth information with respect to the
Association's nonperforming assets and restructured loans within the meaning of
SFAS No. 15 at the dates indicated.


<TABLE> 
<CAPTION> 

                                                                              At September 30,
                                                  ------------------------------------------------------------------------
                                                    1997            1996            1995            1994            1993
                                                    ----            ----            ----            ----            ----
                                                                                   (Dollars in thousands)
<S>                                               <C>             <C>             <C>             <C>            <C>   
Loans accounted for on
 a nonaccrual basis:
 Mortgage loans:
  One- to four-family .......................      $  444          $  679          $  867          $1,010          $1,329
  Builder construction ......................         411             348              40             121             103
  Commercial ................................          33              --              28             187             539
 Savings account loans ......................          --              --              --              --              --
 Home equity loans ..........................          46              --              --              26              16
                                                   ------          ------          ------          ------          ------

       Total of nonaccrual loans ............         934           1,027             935           1,344           1,987

Real estate owned ...........................         410              86             104             388             724
                                                   ------          ------          ------          ------          ------

     Total nonperforming assets .............      $1,344          $1,113          $1,039          $1,732          $2,711
                                                   ======          ======          ======          ======          ======

Restructured loans ..........................        $732            $769            $588            $479            $481
                                                   ======          ======          ======          ======          ======

Nonaccrual loans as a percentage
 of loans receivable, net ...................        0.48%           0.56%           0.52%           0.84%           1.25%

Nonaccrual loans as a percentage
 of total assets ............................        0.38%           0.42%           0.40%           0.63%           0.94%

Nonperforming assets as a
 percentage of total assets .................        0.54%           0.45%           0.44%           0.81%           1.28%
</TABLE> 

         Interest income that would have been recorded for the year ended
September 30, 1997 had nonaccruing loans been current in accordance with their
original terms amounted to $85,000. The amount of interest included in interest
income on such loans for the year ended September 30, 1997 amounted to $42,000.
Interest income that would have been recorded for the year ended September 30,
1997 had restructured loans been current in accordance with their original terms
amounted to $60,000, and the amount of interest included in interest income on
such loans for that period amounted to $74,000.

         Real Estate Owned. Real estate acquired by the Association as a result
of foreclosure or by deed-in-lieu of foreclosure is classified as real estate
owned until sold. When property is acquired it is recorded at fair market value
at the date of foreclosure. Subsequent to foreclosure, real estate owned is
carried at the lower of the foreclosed amount or fair value, less estimated
selling costs. At September 30, 1997, the Association had $410,000 of real
estate owned, which consisted of three single family residences.

         Restructured Loans. Under GAAP, the Association is required to account
for certain loan modifications or restructuring as a "troubled debt
restructuring." In general, the modification or restructuring of a debt
constitutes a troubled debt restructuring if the Association for economic or
legal reasons related to the borrower's financial difficulties grants a
concession to the borrowers that the Association would not otherwise consider. A
debt restructuring or loan modification for a borrower does not necessarily
always constitute a troubled debt restructuring, however, and a troubled debt
restructuring does not necessarily result in a nonaccrual loan. The Association
had 

                                       45
<PAGE>
 
$732,000 of restructured loans as of September 30, 1997, which consisted of
one commercial mortgage loan and six one- to four-family mortgage loans.

         Asset Classification. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover possible losses related to assets
classified substandard or doubtful can be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention" and monitored by the Association.

         The aggregate amounts of the Association's classified and special
mention assets at the dates indicated were as follows:

<TABLE> 
<CAPTION> 
                            At September 30,
                          -------------------
                          1997           1996
                          ----           ----
                             (In thousands)
<S>                     <C>            <C> 
Classified assets:
 Loss................   $  123           $120
 Doubtful............      592            264
 Substandard.........    1,190            881
 Special mention.....    1,072          1,549
</TABLE> 
              
         At September 30, 1997, assets classified as loss consisted of one
builder construction loan totalling $8,000 and one commercial mortgage loan
totalling $115,000; assets classified as doubtful consisted of 14 one- to four-
family mortgage loans totalling $592,000; and assets classified as substandard
consisted of 21 one- to four-family mortgage loans totalling $668,000 and nine
builder construction loans totalling $522,000. At September 30, 1997, assets
classified as special mention consisted primarily of one- to four-family
mortgage loans that were delinquent more than 60 days.

         Allowance for Loan Losses. In originating loans, the Association
recognizes that losses will be experienced and that the risk of loss will vary
with, among other things, the type of loan being made, the creditworthiness of
the borrower over the term of the loan, general economic conditions and, in the
case of a secured loan, the quality of the security for the loan. The allowance
method is used in providing for loan losses. Accordingly, all loan losses are
charged to the allowance and all recoveries are credited to it. The allowance
for loan losses is established through a provision for loan losses charged to
operations. The provision for loan losses is based on management's periodic
evaluation of such factors as the delinquency status of loans, current economic
conditions, the net realizable value of the underlying collateral and prior loan
loss experience.

         At September 30, 1997, the Association had an allowance for loan losses
of $874,000. Although management believes that it uses the best information
available to establish the allowance for loan losses, future

                                       46
<PAGE>
 
adjustments to the allowance for loan losses may be necessary and results of
operations could be significantly and adversely affected if circumstances differ
substantially from the assumptions used in making the determinations.
Furthermore, while the Association believes it has established its existing
allowance for loan losses in accordance with GAAP, there can be no assurance
that regulators, in reviewing the Association's loan portfolio, will not request
the Association to increase significantly its allowance for loan losses. In
addition, because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurance that the existing allowance
for loan losses is adequate or that substantial increases will not be necessary
should the quality of any loans deteriorate as a result of the factors discussed
above. Any material increase in the allowance for loan losses may adversely
affect the Association's financial condition and results of operations.

         The following table sets forth an analysis of the Association's
allowance for loan losses.

<TABLE> 
<CAPTION> 
                                                                                    Years Ended September 30,
                                                                   --------------------------------------------------------
                                                                   1997        1996         1995         1994          1993
                                                                   ----        ----         ----         ----          ----
                                                                                   (Dollars in thousands)
<S>                                                                <C>         <C>          <C>          <C>           <C> 
Allowance at beginning of period .............................     $670        $590         $622         $560          $525  
Provision for loan losses ....................................      337          (7)          47           62            35  
Recoveries:                                                                                                                  
 Mortgage loans:                                                                                                             
  One- to four-family ........................................       --          --           --           --            --  
  Builder construction .......................................       --          --           --           --            --  
  Commercial .................................................       --         115           --           --            --  
 Savings account loans .......................................       --          --           --           --            --  
 Home equity loans ...........................................       --          --           --           --            --  
                                                                  -----       -----        -----         ----          ----  
    Total recoveries .........................................       --         115           --           --            --  
                                                                  -----       -----        -----         ----          ----  
                                                                                                                             
Charge-offs:                                                                                                                 
 Mortgage loans:                                                                                                             
  One- to four-family ........................................       --          28           --           --            --  
  Builder construction .......................................       --          --           --           --            --  
  Commercial .................................................      133          --           79           --            --  
 Savings account loans .......................................       --          --           --           --            --  
 Home equity loans ...........................................       --          --           --           --            --  
                                                                  -----       -----        -----         ----          ----  
    Total charge-offs ........................................      133          28           79           --            --  
                                                                  -----       -----        -----         ----          ----  
    Net charge-offs ..........................................      133         (87)          79           --            --  
                                                                  -----       -----        -----         ----          ----  
    Balance at end of period .................................     $874        $670         $590         $622          $560  
                                                                  =====       =====        =====         ====          ====  
                                                                                                                     

Allowance for loan losses as a percentage
 of total loans outstanding at the end of
 the period ..................................................     0.44%       0.35%        0.32%        0.37%         0.34%  
                                                                                                                              
Net charge-offs (recoveries) as a percentage of average                                                                       
 loans outstanding during the period .........................     0.07%      (0.05%)       0.05%        0.00%         0.00%  
                                                                                                                              
Allowance for loan losses as a percentage of                                                                                  
 nonperforming loans at end of period ........................    93.58%      65.24%       63.10%       46.28%        28.18%   
</TABLE> 

         For additional discussion regarding the provisions for loan losses in
recent periods, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Comparison of Operating Results for the Years Ended
September 30, 1997 and 1996 -- Provision for Loan Losses," and "-- Comparison of
Operating Results for the Years Ended September 30, 1996 and 1995 -- Provision
for Loan Losses."

                                       47
<PAGE>
 
         The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any other category.

<TABLE> 
<CAPTION> 
                                                                                  At September 30,
                                          ------------------------------------------------------------------------------------------
                                                   1997                      1996                     1995                      1994
                                          -----------------------   -----------------------   ----------------------   -------------
                                                      Percent                   Percent                  Percent                
                                                      of Loans                  of Loans                 of Loans               
                                                      in Category               in Category              in Category            
                                                      to Total                  to Total                 to Total               
                                          Amount      Loans         Amount      Loans         Amount      Loans         Amount      
                                          ------      -----         ------      -----         ------      -----         ------   
                                                                         (Dollars in thousands)
<S>                                       <C>         <C>           <C>         <C>           <C>         <C>           <C> 
Mortgage loans:
 One- to four-family................      $668          90.0%        $452        90.4%         $540        90.2%         $486
 Builder construction...............        42           1.3           26         2.0             8         1.5            12   
 Commercial.........................       138           4.0          175         3.3            19         4.1           111   
Savings account loans...............        --           0.7           --         0.6            --         0.8            --   
Home equity loans...................        26           4.0           17         3.7            23         3.4            13   
Unallocated.........................        --           N/A           --         N/A            --         N/A            --   
                                          ----         -----         ----       -----          ----       -----          ----   
   Total allowance for loan losses..      $874         100.0%        $670       100.0%         $590       100.0%         $622   
                                          ====         =====         ====       =====          ====       =====          ====   

<CAPTION> 

                                                  At September 30,
                                     ------------------------------------------
                                         1994                 1993
                                     -------------   --------------------------
                                       Percent                     Percent         
                                       of Loans                    of Loans        
                                       in Category                 in Category     
                                       to Total                    to Total        
                                       Loans          Amount       Loans           
                                       -----          ------       -----           
<S>                                    <C>            <C>          <C> 
                                                                                
Mortgage loans:                                                                 
 One- to four-family................    89.9%          $450           90.0%          
 Builder construction...............     1.6              9            1.1           
 Commercial.........................     4.5             89            4.7           
Savings account loans...............     0.7             --            0.9           
Home equity loans...................     3.3             12            3.3           
Unallocated.........................     N/A             --            N/A             
                                       -----           ----          -----  
   Total allowance for loan losses..   100.0%          $560          100.0%
                                       =====           ====          =====  
</TABLE> 

                                       48
<PAGE>
 
Investment Activities

         The Association is permitted under federal law to invest in various
types of liquid assets, including U.S. Government obligations, securities of
various federal agencies and of state and municipal governments, deposits at the
FHLB-Atlanta, certificates of deposit of federally insured institutions, certain
bankers' acceptances and federal funds. Subject to various restrictions, the
Association may also invest a portion of its assets in commercial paper and
corporate debt securities. Savings institutions like the Association are also
required to maintain an investment in FHLB stock. The Association is required
under federal regulations to maintain a minimum amount of liquid assets. See
"REGULATION" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."

         SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that investments be categorized as "held to maturity,"
"trading securities" or "available for sale," based on management's intent as to
the ultimate disposition of each security. SFAS No. 115 allows debt securities
to be classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." Such securities are reported at fair value, and
unrealized gains and losses on such securities would be included in earnings.
The Association does not currently use or maintain a trading account. Debt and
equity securities not classified as either "held to maturity" or "trading
securities" are classified as "available for sale." Such securities are reported
at fair value, and unrealized gains and losses on such securities are excluded
from earnings and reported as a net amount in a separate component of equity.

         The Association's investment policies limit investments to U.S.
Government and agency securities, Federal Funds and overnight deposits and
mortgage-backed securities. The Association's investment policy does not permit
engaging directly in hedging activities or purchasing high risk mortgage
derivative products. Investments are made based on certain considerations, which
include the interest rate, yield, settlement date and maturity of the
investment, the Association's liquidity position, and anticipated cash needs and
sources (which in turn include outstanding commitments, upcoming maturities,
estimated deposits and anticipated loan amortization and repayments). The effect
that the proposed investment would have on the Association's credit and interest
rate risk and risk-based capital is also considered.

         The Association purchases investment securities to provide for
necessary liquidity for day-to-day operations. The Association also purchases
investment securities when investable funds exceed loan demand. In recent years,
the Association's investment securities purchases have been limited to U.S.
Government and agency securities with contractual maturities of up to five
years. Depending on loan demand, the Association may consider increasing its
investment in mortgage-backed securities after the conversion.

                                       49
<PAGE>
 
         The following table sets forth the amortized cost and fair value of the
Association's securities, by accounting classification and by type of security,
at the dates indicated.

<TABLE> 
<CAPTION> 

                                                                                  At September 30,
                                                 -----------------------------------------------------------------------------------
                                                           1997                         1996                          1995
                                                 -----------------------       -----------------------       -----------------------
                                                 Amortized        Fair         Amortized        Fair         Amortized         Fair
                                                   Cost           Value          Cost           Value          Cost           Value
                                                 ---------       -------       ---------       -------       ---------       -------
                                                                                   (In thousands)
<S>                                              <C>             <C>            <C>            <C>            <C>            <C> 
Available for sale:
Investment securities:
  U.S. Treasury obligations ..............        $ 2,010        $ 2,008        $ 7,536        $ 7,472        $10,061        $ 9,944
  U.S. Government Agency
    obligations ..........................          3,996          3,976          7,841          7,761             --             --
Freddie Mac common stock .................             57          2,406             57          1,666             57          1,180
                                                  -------        -------        -------        -------        -------        -------
      Total available for sale ...........          6,063          8,390         15,434         16,899         10,118         11,124
                                                  -------        -------        -------        -------        -------        -------

Held to maturity:
Investment securities:
  U.S. Government Agency
    obligations ..........................         15,988         15,954         20,993         20,778         18,699         18,349
Mortgage-backed securities:
  Fannie Mae .............................            788            781          1,142          1,117          1,455          1,423
  Freddie Mac ............................          5,877          5,854          8,584          8,467         10,534         10,363
                                                  -------        -------        -------        -------        -------        -------
      Total held to maturity .............         22,653         22,589         30,719         30,362         30,688         30,135
                                                  -------        -------        -------        -------        -------        -------

      Total ..............................        $28,716        $30,979        $46,153        $47,261        $40,806        $41,259
                                                  =======        =======        =======        =======        =======        =======

</TABLE> 

         The following table sets forth certain information regarding the
carrying value, weighted average yields and maturities or periods to repricing
of the Association's debt securities and mortgage-backed securities at September
30, 1997. U.S. Treasury obligations and certain U.S. Government agency
obligations are exempt from state taxation. Their yields, however, have not been
computed on a tax equivalent basis for purposes of the table.

<TABLE> 
<CAPTION> 

                                           Less Than                 One to
                                           One Year                Five Years                  Totals
                                      -----------------        ------------------       ---------------------
                                                 Weighted                  Weighted                  Weighted
                                    Amortized    Average     Amortized     Average    Amortized       Average
                                      Cost        Yield        Cost         Yield       Cost           Yield
                                    ---------    --------    ---------     --------   ---------      --------
                                                              (Dollars in thousands)
<S>                                 <C>          <C>         <C>           <C>        <C>            <C> 
Available for sale:                                         
Investment securities:                                      
  U.S. Treasury obligations....     $  501        6.03%      $ 1,509         5.44%    $ 2,010           5.52%
  U.S. Government Agency                                    
    obligations................      2,496        5.30         1,500         5.46       3,996           5.36
                                    ------                    ------                   ------
      Total available for sale.      2,997        6.49         3,009         5.45       6,006           5.41
                                    ------                    ------                   ------
                                                            
Held to maturity:                                           
Investment securities:                                      
  U.S. Government Agency                                    
    obligations................      2,002        5.09        13,986         6.16      15,988           6.07
Mortgage-backed securities:                                 
  Fannie Mae...................         --          --           788         5.75         788           5.75
  Freddie Mac..................      3,574        5.39         2,303         5.06       5,877           5.21
                                    ------                    ------                   ------
      Total held to maturity...      5,576        5.26        17,077         5.99      22,653           5.88
                                    ------                    ------                   ------
                                                            
      Total....................     $8,573        5.82       $20,086         5.91     $28,659           5.89
                                    ======                   =======                  =======
</TABLE> 

                                       50
<PAGE>
 
Deposit Activities and Other Sources of Funds

         General. Deposits are the major external source of funds for the
Association's lending and other investment activities. In addition, the
Association also generates funds internally from loan principal repayments and
prepayments and maturing investment and mortgage-backed securities. Scheduled
loan repayments are a relatively stable source of funds, while deposit inflows
and outflows and loan prepayments are influenced significantly by general
interest rates and money market conditions. Borrowings from the FHLB-Atlanta may
be used to compensate for reductions in the availability of funds from other
sources. Presently, the Association has no other borrowing arrangements.

         Deposit Accounts. A substantial number of the Association's depositors
reside in South Carolina. The Association's deposit products include NOW
accounts, money market accounts, regular passbook savings, and term certificate
accounts. Deposit account terms vary with the principal difference being the
minimum balance deposit, early withdrawal penalties and the interest rate. The
Association reviews its deposit mix and pricing weekly. The Association does not
utilize brokered deposits, nor has it aggressively sought jumbo certificates of
deposit. To attract larger deposits, from time to time the Association has paid
bonus rates on large deposits.

         The Association believes it is competitive in the interest rates it
offers on its deposit products. The Association does not seek to pay the highest
deposit rates but a competitive rate. The Association determines the rates paid
based on a number of conditions, including rates paid by competitors, the
Association's interest rate spread, loan demand and deposit balances.

         In the unlikely event the Association is liquidated after the
conversion, depositors will be entitled to full payment of their deposit
accounts before any payment is made to the Holding Company as the sole
stockholder of the Association.

         The following table sets forth information concerning the Association's
time deposits and other interest-bearing deposits at September 30, 1997.

<TABLE> 
<CAPTION> 

Weighted                                                                                                Percentage
Average                                                                Minimum                          of Total
Interest Rate  Term                 Checking and Savings Deposits      Amount       Balance             Deposits
-------------  ----                 -----------------------------      ------       -------             --------
                                                                                 (In thousands)

<S>            <C>                  <C>                             <C>           <C> 
3.00%          None                 Passbook accounts               $   200       $ 11,423                5.3%
2.03           None                 NOW accounts                        250          2,833                1.3
3.00           None                 Money market deposit accounts     2,500            939                0.4

                                    Certificate Accounts
                                    --------------------

5.44           Within 6 months      Fixed term, fixed rate            2,500         91,350               42.5
5.83           7 - 12 months        Fixed term, fixed rate            2,500         57,509               26.7
6.11           13 - 36 months       Fixed term, fixed rate              500         48,943               22.7
5.96           37 - 60 months       Fixed term, fixed rate              500          2,415                1.1
                                                                                  --------              -----
                                    TOTAL                                         $215,412              100.0%
                                                                                  ========              =====
</TABLE> 

                                       51
<PAGE>
 
         The following table indicates the amount of the Association's jumbo
certificate accounts by time remaining until maturity as of September 30, 1997.
Jumbo certificate accounts have principal balances of $100,000 or more.

<TABLE> 
<CAPTION> 
                                               Certificate
               Maturity Period                  Accounts
               ---------------                 -----------
                                             (In thousands)
<S>                                          <C> 
Three months or less...............             $ 7,069
Over three through six months......                  --
Over six through 12 months.........               4,715
Over 12 months.....................              28,473
                                               --------
     Total.........................             $40,257
                                               ========
</TABLE> 

         Deposit Flow. The following table sets forth the balances (inclusive of
interest credited) and changes in dollar amounts of deposits in the various
types of accounts offered by the Association between the dates indicated.


<TABLE> 
<CAPTION> 
                                                                         At September 30,
                                           ------------------------------------------------------------------------------
                                                       1997                          1996                     1995
                                           ----------------------------   ----------------------------   ----------------
                                                      Percent                       Percent                      Percent
                                                        of   Increase                 of    Increase                of
                                            Amount    Total  (Decrease)   Amount    Total   (Decrease)   Amount   Total
                                            ------    -----  ----------   ------    -----   ----------   ------   -----
                                                                                      (Dollars in Thousands)
<S>                                        <C>        <C>    <C>         <C>        <C>     <C>         <C>      <C>  
Passbook accounts.....................     $ 11,423     5.3%   $(444)    $ 11,867    5.6%    $(608)     $12,475    6.2%
NOW and money market accounts.........        3,772     1.7     (149)       3,921    1.9       255        3,666    1.8
Fixed-rate certificate accounts which
 mature in the year ending:
  Within 1 year.......................      148,859    69.1   39,787      109,072   52.0   (18,637)     127,709   63.4
  After 1 year, but within 2 years....       41,284    19.2  (18,054)      59,338   28.3    34,110       25,228   12.5
  After 2 years, but within 5 years...       10,074     4.7  (15,458)      25,532   12.2    (6,863)      32,395   16.1
                                           --------   -----  --------    --------  -----   --------    --------  -----

     Total............................     $215,412   100.0%  $5,682     $209,730  100.0%   $8,257     $201,473  100.0%
                                           ========   =====   ======     ========  =====    ======     ========  =====
</TABLE> 

         Time Deposits by Rates. The following table sets forth the amount of
time deposits in the Association categorized by rates at the dates indicated.

<TABLE> 
<CAPTION> 
                                               At September 30,   
                               ----------------------------------------------
                               1997                  1996                1995
                               ----                  ----                ----
                                               (In thousands)
<S>                          <C>                  <C>                <C>  
3.01 - 4.00%........         $  5,575             $  6,826           $  3,262
4.01 - 5.00%........            1,218                2,216             17,716
5.01 - 6.00%........           95,528               97,960             59,427
6.01 - 7.00%........           92,245               81,430             98,864
7.01 - 8.00%........            5,651                5,510              5,958
8.01 - 9.00%........               --                   --                105
                             --------             --------           ---------
  Total.............         $200,217             $193,942           $185,332
                             ========             ========           =========
</TABLE> 

                                       52
<PAGE>
 
         Time Deposits by Maturities. The following table sets forth the amount
of time deposits in the Association categorized by maturities at September 30,
1997.

<TABLE> 
<CAPTION> 
                                                             Amount Due
                           --------------------------------------------------------------------------------
                           Less Than        1-2           2-3             3-4         After
                           One Year        Years         Years           Years       4 Years        Total
                           --------        -----         -----           -----       -------        -----
                                                            (In thousands)

<S>                        <C>            <C>            <C>             <C>             <C>       <C>   
3.01 - 4.00%.......        $  5,575       $    --        $   --          $   --          $ --      $  5,575
4.01 - 5.00%.......           1,218            --            --              --            --         1,218
5.01 - 6.00%.......          73,227        18,886         2,257             872           286        95,528
6.01 - 7.00%.......          64,327        22,298         4,363             974           283        92,245
7.01 - 8.00%.......           4,512           100         1,039              --            --         5,651
                           --------       -------        ------          ------          ----      --------
  Total............        $148,859       $41,284        $7,659          $1,846          $569      $200,217
                           ========       =======        ======          ======          ====      ========
</TABLE> 

         Deposit Activity. The following table sets forth the deposit activity
of the Association for the periods indicated.

<TABLE> 
<CAPTION> 
                                                     Years Ended September 30,
                                            ----------------------------------------
                                            1997              1996             1995
                                            ----              ----             ----
                                                         (In thousands)

<S>                                        <C>               <C>               <C> 
Beginning balance..................        $209,730          $201,473          $189,922
                                           --------          --------          --------

Net deposits (withdrawals)
  before interest credited.........          (3,430)             (821)            3,963
Interest credited..................           9,112             9,078             7,588
                                           --------          --------          --------

Net increase in deposits...........           5,682             8,257            11,551
                                           --------          --------          --------

Ending balance.....................        $215,412          $209,730          $201,473
                                           ========          ========          ========
</TABLE> 

         Borrowings. The Association has the ability to use advances from the
FHLB-Atlanta to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. The FHLB-Atlanta functions as a central reserve bank
providing credit for savings associations and certain other member financial
institutions. As a member of the FHLB-Atlanta, the Association is required to
own capital stock in the FHLB-Atlanta and is authorized to apply for advances on
the security of such stock and certain of its mortgage loans and other assets
(principally securities that are obligations of, or guaranteed by, the U.S.
Government or agencies thereof) provided certain creditworthiness standards have
been met. Advances are made pursuant to several different credit programs. Each
credit program has its own interest rate and range of maturities. Depending on
the program, limitations on the amount of advances are based on the financial
condition of the member institution and the adequacy of collateral pledged to
secure the credit.

                                       53
<PAGE>
 
         The following table sets forth certain information regarding the
Association's use of FHLB advances during the periods indicated.

<TABLE> 
<CAPTION> 

                                                     Years Ended September 30,
                                            -----------------------------------------
                                            1997              1996             1995
                                            ----              ----             ----
                                                      (Dollars in thousands)

<S>                                         <C>               <C>              <C> 
Maximum balance at any month end.......     $5,000            $5,000           $13,250
Average balance........................      3,082             5,000             7,812
Year end balance.......................         --             5,000             5,000
Weighted average interest rate:
  At end of year.......................         --              6.54%             6.54%
  During the year......................       7.33%             6.54%             6.27%
</TABLE> 

Competition

         The Association faces intense competition in its primary market area
for the attraction of deposits (its primary source of lendable funds) and in the
origination of loans. Its most direct competition for deposits has historically
come from commercial banks, credit unions, other thrifts operating in its market
area, and other financial institutions, such as brokerage firms and insurance
companies. Particularly in times of high interest rates, the Association has
faced additional significant competition for investors' funds from short-term
money market securities and other corporate and government securities. The
Association's competition for loans comes from commercial banks, thrift
institutions, credit unions and mortgage bankers. Such competition for deposits
and the origination of loans may limit the Association's growth in the future.
See "RISK FACTORS -- Competition."

Subsidiary Activities

         Under OTS regulations, the Association generally may invest up to 3% of
its assets in service corporations, provided that at least one-half of
investment in excess of 1% is used primarily for community, inner-city and
community development projects. The Association does not have any subsidiaries.

                                       54
<PAGE>
 
Properties

         At September 30, 1997, the net book value of the Association's
properties (including land and buildings), fixtures, furniture and equipment was
$4.3 million. The following table sets forth certain information regarding the
Association's offices at September 30, 1997, all of which are owned.

<TABLE> 
<CAPTION> 
                                                          Approximate    
Location                             Year Opened         Square Footage          Deposits
--------                             -----------         --------------          --------
                                                                              (In thousands)

<S>                                  <C>                 <C>                  <C>         
Main Office                             1995(1)             24,500               $104,187
201 West Main Street
Laurens, SC  29360

Belton Office                           1962                 1,800                 63,380
208 Anderson Street
Belton, SC  29627

Ware Shoals Office                      1968                 1,444                 23,570
81 North Greenwood Avenue
Ware Shoals, SC  29692

Simpsonville Office                     1977                 3,668                 24,275
514 North Main Street
Simpsonville, SC  29681
</TABLE> 

-------------------
(1) The Association occupied a smaller facility at the same location from 1955
to 1995.

Personnel

         As of September 30, 1997, the Association had 35 full-time and four
part-time employees, none of whom is represented by a collective bargaining
unit. The Association believes its relationship with its employees is good.

Legal Proceedings

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

                                       55
<PAGE>
 
                       MANAGEMENT OF THE HOLDING COMPANY

         Directors shall be elected by the stockholders of the Holding Company
for staggered three-year terms, or until their successors are elected and
qualified. The Holding Company's Board of Directors consists of five persons
divided into three classes, each of which contains approximately one third of
the Board. One class, consisting of Messrs. John H. Lake and G. Edwin Owings,
has a term of office expiring at the first annual meeting of stockholders; a
second class, consisting of Messrs. Aaron H. King and J. Riley Bailes, has a
term of office expiring at the second annual meeting of stockholders; and a
third class, consisting of Mr. J. Edward Wells, has a term of office expiring at
the third annual meeting of stockholders.

         The executive officers of the Holding Company are elected annually and
hold office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The executive
officers of the Holding Company are:

Name                            Position
----                            -------- 

J. Edward Wells                 Chairman of the Board, President,
                                  Chief Executive Officer, and Secretary
Edwin I. Shealy                 Chief Financial Officer and Treasurer


         Since the formation of the Holding Company, none of the executive
officers, directors or other personnel has received remuneration from the
Holding Company. Initially, no separate compensation will be paid for service as
an executive officer of the Holding Company. For information concerning the
principal occupations, employment and compensation of the directors and
executive officers of the Holding Company during the past five years, see
"MANAGEMENT OF THE ASSOCIATION -- Biographical Information."


                         MANAGEMENT OF THE ASSOCIATION

Directors and Executive Officers

         The Board of Directors of the Association is presently composed of five
members who are elected for terms of three years, approximately one third of
whom are elected annually in accordance with the Bylaws of the Association. The
executive officers of the Association are elected annually by the Board of
Directors and serve at the Board's discretion. The following table sets forth
information with respect to the Directors and executive officers of the
Association.

<TABLE> 
<CAPTION> 
                                   Directors
                                                                              Current
                                                                  Director    Term
Name                   Age (1)     Position with Association      Since       Expires
----                   -------     -------------------------      -------     -------

<S>                    <C>         <C>                            <C>         <C> 
John H. Lake             69        Director                       1977        1999
G. Edwin Owings          84        Director                       1949        1999
Aaron H. King            73        Director                       1972        2000
J. Riley Bailes          58        Director                       1986        2000
J. Edward Wells          58        President, Chief Executive     1971        2001
                                     Officer and Director
</TABLE> 

                                       56
<PAGE>
 
<TABLE> 
<CAPTION> 
                    Executive Officers Who Are Not Directors

Name                   Age (1)     Position with Association
----                   -------     -------------------------

<S>                    <C>         <C> 
Edwin I. Shealy          50        Chief Financial Officer and Treasurer
James H. Wasson          53        Vice President and Secretary
John M. Swofford         52        Vice President
Will B. Ferguson         40        Vice President
</TABLE> 

-----------------
(1)  As of September 30, 1997.

Biographical Information

         Set forth below is certain information regarding the Directors and
executive officers of the Association. Unless otherwise stated, each Director
and executive officer has held his current occupation for the last five years.
There are no family relationships among or between the Directors or executive
officers, except that Mr. Wasson is the first cousin of Mr. Wells' wife.

         J. Edward Wells is the President and Chief Executive Officer of the
Association, positions he has held since 1972. Mr. Wells joined the Association
in 1967.

         Aaron H. King retired as Senior Vice President and Branch Manager of
the Association in 1996 after 34 years with the Association.

         J. Riley Bailes is the retired owner of a retail clothing store in
Laurens, South Carolina.

         John H. Lake is a retired dentist.

         G. Edwin Owings is the retired owner of Laurens Lumber Co. in Laurens,
South Carolina.

         Edwin I. Shealy is the Chief Financial Officer and Treasurer of the
Association, positions he has held since 1990.

         John M. Swofford is a Vice President of the Association and manager of
the Association's Laurens branch, positions he has held since 1988. From 1976 to
1988, Mr. Swofford served as the manager of the Association's Simpsonville
branch.

         James H. Wasson, Jr. is Secretary and Vice President of the Association
responsible for mortgage lending, positions he has held since 1977. Mr. Wasson
has been employed by the Association since 1968.

         Will B. Ferguson is a Vice President of the Association, a position he
has held since 1995. Mr. Ferguson has been employed by the Association since
1984.

Meetings and Committees of the Board of Directors

         The business of the Association is conducted through meetings and
activities of the Board of Directors and its committees. During the fiscal year
ended September 30, 1997, the Board of Directors held 13 regular meetings. No
director attended fewer than 75% of the total meetings of the Board of Directors
and of committees on which such director served.

                                       57
<PAGE>
 
         The Audit Committee, consisting of the non-employee members of the
Board of Directors, receives and reviews all reports prepared by the
Association's external auditor. The Audit Committee met one time during the year
ended September 30, 1997.

         The full Board of Directors acts as a Nominating Committee for the
annual selection of management's nominees for election as directors. The full
Board of Directors met once in its capacity as Nominating Committee during the
year ended September 30, 1997.

Directors' Compensation

         Fees. Directors of the Association receive a monthly retainer and a
monthly attendance fee. First term members receive a retainer of $425 and
attendance fee of $425. Second term members receive a retainer of $475 and
attendance fee of $475. For subsequent terms, directors receive a retainer of
$625 and attendance fee of $625. No additional fees are paid for service on
committees. If the Board of Directors declares a bonus for employees, then each
Director who is not also an employee receives a bonus based on their annual
remuneration and computed at the same rate as the employee bonus. For the year
ended September 30, 1997, the Association paid an aggregate of $1,800 in bonuses
to non-employee Directors. Following consummation of the conversion, directors'
fees will continue to be paid by the Association and, initially, no separate
fees are expected to be paid for service on the Holdings Company's Board of
Directors.

Executive Compensation

         Summary Compensation Table. The following information is furnished for
Mr. Wells for the year ended September 30, 1997. No other executive officer of
the Association received salary and bonus of $100,000 or more during the year
ended September 30, 1997.

<TABLE> 
<CAPTION> 
                                          Annual Compensation(1)
                         -----------------------------------------------------
Name and                                                       Other Annual        All Other
Position                 Year      Salary        Bonus         Compensation(2)     Compensation
--------                 ----      ------        -----         ---------------     ------------

<S>                      <C>       <C>           <C>           <C>                 <C>  
J. Edward Wells          1997      $145,052       $4,372         $1,698            $21,754(3)
President and Chief
Executive Officer
</TABLE> 

-----------------
(1) Compensation information for the years ended September 30, 1996 and 1995 has
    been omitted as the Association was not a public company nor a subsidiary
    thereof at such time. 
(2) The aggregate amount of perquisites and other personal
    benefits was less than 10% of the total annual salary and bonus reported. 
(3) Consists of $5,824 contribution to 401(k) plan, $14,560 contribution to 
    money purchase pension plan and $1,370 of life insurance premiums.

         Employment Agreement. In connection with the conversion, the Holding
Company and the Association (collectively, the "Employers") plan to enter into a
three-year employment agreement ("Employment Agreement") with Mr. Wells. Under
the Employment Agreement, the initial salary level for Mr. Wells will be
$________ which amount will be paid by the Association and may be increased at
the discretion of the Board of Directors or an authorized committee of the
Board. On each anniversary of the commencement date of the Employment Agreement,
the term of each agreement may be extended for an additional year at the
discretion of the Board. The agreement is terminable by the Employers at any
time, by Mr. Wells if he is assigned duties inconsistent with his initial
position, duties, responsibilities and status, or upon the occurrence of certain
events specified by federal regulations. In the event that Mr. Wells' employment
is terminated without cause or upon Mr. Wells' voluntary termination 

                                       58
<PAGE>
 
following the occurrence of an event described in the preceding sentence, the
Association would be required to honor the terms of the agreement through the
expiration of the current term, including payment of current cash compensation
and continuation of employee benefits.

         The Employment Agreement also provides for a severance payment and
other benefits in the event of involuntary termination of employment in
connection with any change in control of the Employers. A severance payment also
will be provided on a similar basis in connection with a voluntary termination
of employment where, subsequent to a change in control, Mr. Wells is assigned
duties inconsistent with his position, duties, responsibilities and status
immediately prior to such change in control. The term "change in control" is
defined in the agreement as having occurred when, among other things, (a) a
person other than the Holding Company purchases shares of the Holding Company's
common stock pursuant to a tender or exchange offer for such shares, (b) any
person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act)
is or becomes the beneficial owner, directly or indirectly, of securities of the
Holding Company representing 25% or more of the combined voting power of the
Holding Company's then outstanding securities, (c) the membership of the Board
of Directors changes as the result of a contested election, or (d) shareholders
of the Holding Company approve a merger, consolidation, sale or disposition of
all or substantially all of the Holding Company's assets, or a plan of partial
or complete liquidation.

         The maximum value of the severance benefits under the Employment
Agreements is 2.99 times Mr. Wells' average annual compensation during the
five-year period preceding the effective date of the change in control (the
"base amount"). The Employment Agreement provides that the value of the maximum
benefit may be distributed, at Mr. Wells' election, (i) in the form of a lump
sum cash payment equal to 2.99 times Mr. Wells' base amount or (ii) a
combination of a cash payment and continued coverage under the Employers'
health, life and disability programs for a 36-month period following the change
in control, the total value of which does not exceed 2.99 times the Executive's
base amount. Assuming that a change in control had occurred at September 30,
1997 and that Mr. Wells elected to receive a lump sum cash payment, he would
have been entitled to a payment of approximately $427,000. Section 280G of the
Internal Revenue Code of 1986, as amended ("Code"), provides that severance
payments that equal or exceed three times the individual's base amount are
deemed to be "excess parachute payments" if they are contingent upon a change in
control. Individuals receiving excess parachute payments are subject to a 20%
excise tax on the amount of such excess payments, and the Employers would not be
entitled to deduct the amount of such excess payments.

         The Employment Agreement restrict Mr. Wells' right to compete against
the Employers for a period of one year from the date of termination of the
agreement if he voluntarily terminates employment, except in the event of a
change in control.

         Severance Agreements. In connection with the conversion, the Holding
Company and the Association plan to enter into severance agreements with Mr.
Shealy, the Holding Company's Chief Financial Officer and the Association's
Treasurer and Chief Financial Officer, and Messrs. Swofford, Wasson and
Ferguson, each a Vice President of the Association. On each anniversary of the
commencement date of the severance agreements, the term of each agreement may be
extended for an additional year at the discretion of the Board. It is
anticipated that the four severance agreements will have an initial term of two
years.

         The severance agreements will provide for severance payments and
continuation of insured employee welfare benefits in the event of involuntary
termination of employment in connection with any change in control of the
Employers in the same manner as provided for in the employment agreements.
Severance payments and benefits also will be provided on a similar basis in
connection with a voluntary termination of employment where, subsequent to a
change in control, an officer is assigned duties inconsistent with his position,
duties, responsibilities and status immediately prior to such change in control.
The term "change in control" is defined in the agreement as having occurred
when, among other things, (a) a person other than the Holding Company purchases
shares of the Holding Company's common stock pursuant to a tender or exchange
offer for such shares, (b) any person (as such term is used in Sections 13(d)
and 14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly
or indirectly, of securities of the Holding Company representing 25% or more of
the combined voting power of the Holding 

                                       59
<PAGE>
 
Company's then outstanding securities, (c) the membership of the Board of
Directors changes as the result of a contested election, or (d) shareholders of
the Holding Company approve a merger, consolidation, sale or disposition of all
or substantially all of the Holding Company's assets, or a plan of partial or
complete liquidation.

         Assuming that a change in control had occurred at September 30, 1997,
and excluding any other benefits due under the severance agreements, the
aggregate value of the severance benefits payable to the four officers would
have been approximately $417,000.

         Employee Severance Compensation Plan. In connection with the
conversion, the Board of Directors of the Association intends to adopt the
Severance Plan to provide benefits to eligible employees in the event of a
change in control of the Holding Company or the Association. In general, all
employees (except for officers who enter into separate employment or severance
agreements with the Holding Company and the Association) will be eligible to
participate in the Severance Plan. Under the Severance Plan, in the event of a
change in control of the Holding Company or the Association, eligible employees,
other than officers of the Association, who are terminated or who terminate
employment (but only upon the occurrence of events specified in the Severance
Plan) within 12 months of the effective date of a change in control will be
entitled to a payment based on years of service with the Association. However,
the maximum payment for any eligible employee would be equal to 52 weeks of
their current compensation. The Severance Plan also provides that employees who
have not met the three year service requirement for participation would receive
a payment equal to two weeks' compensation. Assuming that a change in control
had occurred at September 30, 1997 and the termination of all eligible
employees, the maximum aggregate payment due under the Severance Plan would be
approximately $529,000.

Benefits

         General. The Association currently pays 100% of the premiums for
medical, dental, life and disability insurance benefits for full-time employees,
subject to certain deductibles.

         401(k) Plan. The Association maintains the Heritage Federal Savings &
Loan Association 401(k) Plan ("401(k) Plan") for the benefit of eligible
employees of the Association. The 401(k) Plan is intended to be a tax-qualified
plan under Sections 401(a) and 401(k) of the Code. Employees of the Association
who have completed six months of service and who have attained age 21 are
eligible to participate in the 401(k) Plan on the January 1 next following the
date such requirements are satisfied. Participants may contribute up to 10% of
their annual compensation to the 401(k) Plan through a salary reduction
election. The Association matches participant contributions on a discretionary
basis.

         In addition to employer matching contributions, the Association may
contribute a discretionary amount to the 401(k) Plan in any plan year which is
allocated to individual participants in the proportion that their annual
compensation bears to the total compensation of all participants during the plan
year. Participants are at all times 100% vested in all salary reduction
contributions and employer matching and profit-sharing contributions. For the
year ended September 30, 1997, the Association incurred total
contribution-related expenses of $43,000 in connection with the 401(k) Plan.

         The Association formerly maintained a money purchase pension plan for
the benefit of eligible officers and employees. The money purchase pension plan
was merged with the 401(k) Plan effective December 31, 1997.

         Generally, the investment of 401(k) Plan assets is directed by plan
participants. In connection with the conversion, the investment options
available to participants will be expanded to include the opportunity to direct
the investment of up to 100% of their 401(k) Plan account balance to purchase
shares of the Holding Company's common stock. A participant in the 401(k) Plan
who elects to purchase common stock in the conversion through the 401(k) Plan
will receive the same subscription priority and be subject to the same
individual purchase limitations as if the participant had elected to make such
purchase using other funds. See "THE CONVERSION -- Limitations on Purchases of
Shares."

                                       60
<PAGE>
 
         Employee Stock Ownership Plan. The Board of Directors has authorized
the adoption by the Association of an ESOP for employees of the Association to
become effective upon the completion of the conversion. The ESOP is intended to
satisfy the requirements for an employee stock ownership plan under the Code and
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Full-time employees of the Holding Company and the Association who have been
credited with at least 1,000 hours of service during a 12-month period and who
have attained age 21 will be eligible to participate in the ESOP.

         In order to fund the purchase of up to 8% of the common stock to be
issued in the conversion, it is anticipated that the ESOP will borrow funds from
the Holding Company. Such loan will equal 100% of the aggregate purchase price
of the common stock. The loan to the ESOP will be repaid principally from the
Association's contributions to the ESOP and dividends payable on common stock
held by the ESOP over the anticipated 15-year term of the loan. The interest
rate for the ESOP loan is expected to be the prime rate as published in The Wall
Street Journal on the closing date of the conversion. See "PRO FORMA DATA." To
the extent that the ESOP is unable to acquire 8% of the common stock issued in
the conversion, such additional shares will be acquired following the conversion
through open market purchases.

         In any plan year, the Association may make additional discretionary
contributions to the ESOP for the benefit of plan participants in either cash or
shares of common stock, which may be acquired through the purchase of
outstanding shares in the market or from individual stockholders or which
constitute authorized but unissued shares or shares held in treasury by Holding
Company. The timing, amount, and manner of such discretionary contributions will
be affected by several factors, including applicable regulatory policies, the
requirements of applicable laws and regulations, and market conditions.

         Shares purchased by the ESOP with the proceeds of the loan will be held
in a suspense account and released on a pro rata basis as the loan is repaid.
Discretionary contributions to the ESOP and shares released from the suspense
account will be allocated among participants on the basis of each participant's
proportional share of total compensation. Forfeitures will be reallocated among
the remaining plan participants.

         Participants will vest in their accrued benefits under the ESOP at the
rate of ___% per year, beginning upon the completion of ____ years of
participation. A participant is fully vested at retirement, in the event of
disability or upon termination of the ESOP. Benefits are distributable upon a
participant's retirement, early retirement, death, disability, or termination of
employment. The Association's contributions to the ESOP are not fixed, so
benefits payable under the ESOP cannot be estimated.

         It is anticipated that Messrs. _____, _____ and _____ will be appointed
by the Board of Directors of the Association to serve as trustees of the ESOP.
Under the ESOP, the trustees must vote all allocated shares held in the ESOP in
accordance with the instructions of plan participants and unallocated shares and
allocated shares for which no instructions are received must be voted in the
same ratio on any matter as those shares for which instructions are given.

         Pursuant to Statement of Position 93-6, compensation expense for a
leveraged ESOP is recorded at the fair market value of the ESOP shares when
committed to be released to participants' accounts. See "PRO FORMA DATA" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Comparison of Operating Results for the Years Ended September 30,
1997 and 1996.

         If the ESOP purchases newly issued shares from the Holding Company,
total stockholders' equity would neither increase nor decrease. However, on a
per share basis, stockholders' equity and per share net earnings would decrease
because of the increase in the number of outstanding shares.

         The ESOP will be subject to the requirements of ERISA and the
regulations of the IRS and the Department of Labor issued thereunder. The
Association intends to request a determination letter from the IRS regarding the

                                       61
<PAGE>
 
tax-qualified status of the ESOP. Although no assurance can be given that a
favorable determination letter will be issued, the Association expects that a
favorable determination letter will be received by the ESOP.

         Stock Option Plan. The Board of Directors of the Holding Company
intends to adopt the Stock Option Plan and to submit the Stock Option Plan to
the stockholders for approval at a meeting held no earlier than six months
following consummation of the conversion. Under current OTS regulations, the
approval of a majority vote of the Holding Company's outstanding shares is
required prior to the implementation of the Stock Option Plan within one year of
the consummation of the conversion. The Stock Option Plan will comply with all
applicable regulatory requirements. However, the Stock Option Plan will not be
approved or endorsed by the OTS.

         The Stock Option Plan will be designed to attract and retain qualified
management personnel and nonemployee directors, to provide such officers, key
employees and nonemployee directors with a proprietary interest in the Holding
Company as an incentive to contribute to the success of the Holding Company and
the Association, and to reward officers and key employees for outstanding
performance. The Stock Option Plan will provide for the grant of incentive stock
options ("ISOs") intended to comply with the requirements of Section 422 of the
Code and for nonqualified stock options ("NQOs"). Upon receipt of stockholder
approval of the Stock Option Plan, stock options may be granted to key employees
of the Holding Company and its subsidiaries, including the Association. Unless
sooner terminated, the Stock Option Plan will continue in effect for a period of
ten years from the date the Stock Option Plan is approved by stockholders.

         A number of authorized shares of common stock equal to 10% of the
number of shares of common stock issued in connection with the conversion will
be reserved for future issuance under the Stock Option Plan (402,500 shares
based on the issuance of 4,025,000 shares at the maximum of the Estimated
Valuation Range). Shares acquired upon exercise of options will be authorized
but unissued shares or treasury shares. In the event of a stock split, reverse
stock split, stock dividend, or similar event, the number of shares of common
stock under the Stock Option Plan, the number of shares to which any award
relates and the exercise price per share under any option may be adjusted by the
Committee (as defined below) to reflect the increase or decrease in the total
number of shares of common stock outstanding.

         The Stock Option Plan will be administered and interpreted by a
committee of the Board of Directors ("Committee"). Subject to applicable OTS
regulations, the Committee will determine which nonemployee directors, officers
and key employees will be granted options, whether, in the case of officers and
employees, such options will be ISOs or NQOs, the number of shares subject to
each option, and the exercisability of such options. All options granted to
nonemployee directors will be NQOs. The per share exercise price of all options
will equal at least 100% of the fair market value of a share of common stock on
the date the option is granted.

         Under current OTS regulations, if the Stock Option Plan is implemented
within one year of the consummation of the conversion, (i) no officer or
employees could receive an award of options covering in excess of 25%, (ii) no
nonemployee director could receive in excess of 5% and (iii) nonemployee
directors, as a group, could not receive in excess of 30% of the number of
shares reserved for issuance under the Stock Option Plan.

         It is anticipated that all options granted under the Stock Option Plan
will be granted subject to a vesting schedule whereby the options become
exercisable over a specified period following the date of grant. Under OTS
regulations, if the Stock Option plan is implemented within the first year
following consummation of the conversion the minimum vesting period will be five
years. All unvested options will be immediately exercisable in the event of the
recipient's death or disability. Unvested options also will be exercisable
following a change in control (as defined in the Stock Option Plan) of the
Holding Company or the Association to the extent authorized or not prohibited by
applicable law or regulations. OTS regulations currently provide that if the
Stock Option Plan is implemented prior to the first anniversary of the
conversion, vesting may not be accelerated upon a change in control of the
Holding Company or the Association.

                                       62
<PAGE>
 
         Each stock option that is awarded to an officer or key employee will
remain exercisable at any time on or after the date it vests through the earlier
to occur of the tenth anniversary of the date of grant or three months after the
date on which the optionee terminates employment (one year in the event of the
optionee's termination by reason of death or disability), unless such period is
extended by the Committee. Each stock option that is awarded to a nonemployee
director will remain exercisable through the earlier to occur of the tenth
anniversary of the date of grant or one year (two years in the event of a
nonemployee director's death or disability) following the termination of a
nonemployee director's service on the Board. All stock options are
nontransferable except by will or the laws of descent or distribution.

         Under current provisions of the Code, the federal tax treatment of ISOs
and NQOs is different. With respect to ISOs, an optionee who satisfies certain
holding period requirements will not recognize income at the time the option is
granted or at the time the option is exercised. If the holding period
requirements are satisfied, the optionee will generally recognize capital gain
or loss upon a subsequent disposition of the shares of common stock received
upon the exercise of a stock option. If the holding period requirements are not
satisfied, the difference between the fair market value of the common stock on
the date of grant and the option exercise price, if any, will be taxable to the
optionee at ordinary income tax rates. A federal income tax deduction generally
will not be available to the Holding Company as a result of the grant or
exercise of an ISO, unless the optionee fails to satisfy the holding period
requirements. With respect to NQOs, the grant of an NQO generally is not a
taxable event for the optionee and no tax deduction will be available to the
Holding Company. However, upon the exercise of an NQO, the difference between
the fair market value of the common stock on the date of exercise and the option
exercise price generally will be treated as compensation to the optionee upon
exercise, and the Holding Company will be entitled to a compensation expense
deduction in the amount of income realized by the optionee.

         Although no specific award determinations have been made at this time,
the Holding Company and the Association anticipate that if stockholder approval
is obtained it would provide awards to its directors, officers and employees to
the extent and under terms and conditions permitted by applicable regulations.
The size of individual awards will be determined prior to submitting the Stock
Option Plan for stockholder approval, and disclosure of anticipated awards will
be included in the proxy materials for such meeting.

         Management Recognition Plan. Following the conversion, the Board of
Directors of the Holding Company intends to adopt an MRP for officers,
employees, and nonemployee directors of the Holding Company and the Association,
subject to shareholder approval. The MRP will enable the Holding Company and the
Association to provide participants with a proprietary interest in the Holding
Company as an incentive to contribute to the success of the Holding Company and
the Association. The MRP will comply with all applicable regulatory
requirements. However, the MRP will not be approved or endorsed by the OTS.
Under current OTS regulations, the approval of a majority vote of the Holding
Company's outstanding shares is required prior to the implementation of the MRP
within one year of the consummation of the conversion.

         The MRP expects to acquire a number of shares of the Holding Company's
common stock equal to 4% of the common stock issued in connection with the
conversion (161,000 shares based on the issuance of 4,025,000 shares in the
conversion at the maximum of the Estimated Valuation Range). Such shares will be
acquired on the open market, if available, with funds contributed by the Holding
Company or the Association to a trust which the Holding Company may establish in
conjunction with the MRP ("MRP Trust") or from authorized but unissued shares or
treasury shares of the Holding Company.

         A committee of the Board of Directors of the Holding Company will
administer the MRP, the members of which will also serve as trustees of the MRP
Trust, if formed. The trustees will be responsible for the investment of all
funds contributed by the Holding Company or the Association to the MRP Trust.
The Board of Directors of the Holding Company may terminate the MRP at any time
and, upon termination, all unallocated shares of common stock will revert to the
Holding Company.

                                       63
<PAGE>
 
         Shares of common stock granted pursuant to the MRP will be in the form
of restricted stock payable ratably over a specified vesting period following
the date of grant. During the period of restriction, all shares will be held in
escrow by the Holding Company or by the MRP Trust. Under OTS regulations, if the
MRP is implemented within the first year following consummation of the
conversion, the minimum vesting period will be five years. All unvested MRP
awards will vest in the event of the recipient's death or disability. Unvested
MRP awards will also vest following a change in control (as defined in the MRP)
of the Holding Company or the Association to the extent authorized or not
prohibited by applicable law or regulations. OTS regulations currently provide
that, if the MRP is implemented prior to the first anniversary of the
conversion, vesting may not be accelerated upon a change in control of the
Holding Company or the Association.

         A recipient of an MRP award in the form of restricted stock generally
will not recognize income upon an award of shares of common stock, and the
Holding Company will not be entitled to a federal income tax deduction, until
the termination of the restrictions. Upon such termination, the recipient will
recognize ordinary income in an amount equal to the fair market value of the
common stock at the time and the Holding Company will be entitled to a deduction
in the same amount after satisfying federal income tax withholding requirements.
However, the recipient may elect to recognize ordinary income in the year the
restricted stock is granted in an amount equal to the fair market value of the
shares at that time, determined without regard to the restrictions. In that
event, the Holding Company will be entitled to a deduction in such year and in
the same amount. Any gain or loss recognized by the recipient upon subsequent
disposition of the stock will be either a capital gain or capital loss.

         Although no specific award determinations have been made at this time,
the Holding Company and the Association anticipate that if stockholder approval
is obtained it would provide awards to its directors, officers and employees to
the extent and under terms and conditions permitted by applicable regulations.
Under current OTS regulations, if the MRP is implemented within one year of the
consummation of the conversion, (i) no officer or employees could receive an
award covering in excess of 25%, (ii) no nonemployee director could receive in
excess of 5% and (iii) nonemployee directors, as a group, could not receive in
excess of 30% of the number of shares reserved for issuance under the MRP. The
size of individual awards will be determined prior to submitting the MRP for
stockholder approval, and disclosure of anticipated awards will be included in
the proxy materials for such meeting.

Transactions with the Association

         Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons (unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee) and must not involve more than the normal risk of repayment or present
other unfavorable features. The Association's policy is not to make any new
loans or extensions of credit to the Association's executive officers and
directors at different rates or terms than those offered to the general public.
In addition, loans made to a director or executive officer in an amount that,
when aggregated with the amount of all other loans to such person and his
related interests, are in excess of the greater of $25,000 or 5% of the
Association's capital and surplus (up to a maximum of $500,000) must be approved
in advance by a majority of the disinterested members of the Board of Directors.
See "REGULATION -- Federal Regulation of Savings Associations -- Transactions
with Affiliates." The aggregate amount of loans by the Association to its
executive officers and directors was $383,000 at September 30, 1997, or
approximately 0.5% of pro forma stockholders' equity (based on the issuance of
the maximum of the Estimated Valuation Range).

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<PAGE>
 
                                  REGULATION

General

     The Association is subject to extensive regulation, examination and
supervision by the OTS as its chartering agency, and the FDIC, as the insurer of
its deposits.  The activities of federal savings institutions are governed by
the Home Owners' Loan Act, as amended (the "HOLA") and, in certain respects, the
Federal Deposit Insurance Act ("FDIA") and the regulations issued by the OTS and
the FDIC to implement these statutes.  These laws and regulations delineate the
nature and extent of the activities in which federal savings associations may
engage.  Lending activities and other investments must comply with various
statutory and regulatory capital requirements.  In addition, the Association's
relationship with its depositors and borrowers is also regulated to a great
extent, especially in such matters as the ownership of deposit accounts and the
form and content of the Association's mortgage documents.  The Association must
file reports with the OTS and the FDIC concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other financial
institutions.  There are periodic examinations by the OTS and the FDIC to review
the Association's compliance with various regulatory requirements.  The
regulatory structure also gives the regulatory authorities extensive 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 Congress, could have a
material adverse impact on the Association and its operations.

Federal Regulation of Savings Associations

     Office of Thrift Supervision.  The OTS is an office in the Department of
the Treasury subject to the general oversight of the Secretary of the Treasury.
The OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board.  Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.

     Federal Home Loan Bank System.  The FHLB System, consisting of 12 FHLBs, is
under the jurisdiction of the Federal Housing Finance Board ("FHFB").  The
designated duties of the FHFB are to supervise the FHLBs, to ensure that the
FHLBs carry out their housing finance mission, to ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets, and to
ensure that the FHLBs operate in a safe and sound manner.  The Association, as a
member of the FHLB-Atlanta, is required to acquire and hold shares of capital
stock in the FHLB-Atlanta in an amount equal to the greater of (i) 1.0% of the
aggregate outstanding principal amount of residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or
(ii) 1/20 of its advances (i.e., borrowings) from the FHLB-Atlanta.  The
Association is in compliance with this requirement with an investment in FHLB-
Atlanta stock of $2.0 million at September 30, 1997.  Among other benefits, the
FHLB-Atlanta provides a central credit facility primarily for member
institutions.  It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System.  It makes advances to members in
accordance with policies and procedures established by the FHFB and the Board of
Directors of the FHLB-Atlanta.

     Federal Deposit Insurance Corporation.  The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
depository institutions.  The FDIC currently maintains two separate insurance
funds: the Bank Insurance Fund ("BIF") and the SAIF.  As insurer of the
Association's deposits, the FDIC has examination, supervisory and enforcement
authority over the Association.

     The Association's accounts are insured by the SAIF to the maximum extent
permitted by law.  The Association pays deposit insurance premiums based on a
risk-based assessment system established by the FDIC.  Under applicable
regulations, institutions are assigned to one of three capital groups that are
based solely on the level of an institution's capital -- "well capitalized,"
"adequately capitalized," and "undercapitalized" -- which are defined in the
same manner as the regulations establishing the prompt corrective action system,
as discussed below.  These 

                                       65
<PAGE>
 
three groups are then divided into three subgroups which reflect varying levels
of supervisory concern, from those which are considered to be healthy to those
which are considered to be of substantial supervisory concern. The matrix so
created results in nine assessment risk classifications, with rates that until
September 30, 1996 ranged from 0.23% for well capitalized, financially sound
institutions with only a few minor weaknesses to 0.31% for undercapitalized
institutions that pose a substantial risk of loss to the SAIF unless effective
corrective action is taken.

     Pursuant to the Deposit Insurance Funds Act ("DIF Act"), which was enacted
on September 30, 1996, the FDIC imposed a special assessment on each depository
institution with SAIF-assessable deposits which resulted in the SAIF achieving
its designated reserve ratio.  In connection therewith, the FDIC reduced the
assessment schedule for SAIF members, effective January 1, 1997, to a range of
0% to 0.27%, with most institutions, including the Association, paying 0%.  This
assessment schedule is the same as that for the BIF, which reached its
designated reserve ratio in 1995.  In addition, since January 1, 1997, SAIF
members are charged an assessment of .065% of SAIF-assessable deposits for the
purpose of paying interest on the obligations issued by the Financing
Corporation ("FICO") in the 1980s to help fund the thrift industry cleanup.
BIF-assessable deposits will be charged an assessment to help pay interest on
the FICO bonds at a rate of approximately .013% until the earlier of December
31, 1999 or the date upon which the last savings association ceases to exist,
after which time the assessment will be the same for all insured deposits.

     The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date.  The DIF Act contemplates the
development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations.  It is not known what form the common charter may
take and what effect, if any, the adoption of a new charter would have on the
operation of the Association.

     The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC.  It also may suspend
deposit insurance temporarily during the hearing process for the permanent
termination of insurance, if the institution has no tangible capital.  If
insurance of accounts is terminated, the accounts at the institution at the time
of termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC.  Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of the Association.

     Liquidity Requirements.  Under OTS regulations, each savings institution is
required to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and specified U.S.
Government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage (currently
4.0%) of its net withdrawable accounts plus short-term borrowings.  Monetary
penalties may be imposed for failure to meet liquidity requirements.  See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."

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

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<PAGE>
 
has a Tier I risk-based capital ratio that is less than 3.0% or has a leverage
ratio that is less than 3.0%; and (v) "critically undercapitalized" if it has a
ratio of tangible equity to total assets that is equal to or less than 2.0%.

     A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity.  (The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.)

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

     At September 30, 1997, the Association was categorized as "well
capitalized" under the prompt corrective action regulations of the OTS.

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

     Qualified Thrift Lender Test.  All savings associations are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations.  A savings institution that fails to become or remain a QTL
shall either convert to a national bank charter or be subject to the following
restrictions on its operations:  (i) the association may not make any new
investment or engage in activities that would not be permissible for national
banks; (ii) the association may not establish any new branch office where a
national bank located in the savings institution's home state would not be able
to establish a branch office; (iii) the association shall be ineligible to
obtain new advances from any FHLB; and (iv) the payment of dividends by the
association shall be subject to the rules regarding the statutory and regulatory
dividend restrictions applicable to national banks.  Also, beginning three years
after the date on which the savings institution ceases to be a QTL, the savings
institution would be prohibited from retaining any investment or engaging in any
activity not permissible for a national bank and would be required to repay any
outstanding advances to any FHLB.  In addition, within one year of the date on
which a savings association controlled by a company ceases to be a QTL, the
company must register as a bank holding company and become subject to the rules
applicable to such companies.  A savings institution may requalify as a QTL if
it thereafter complies with the QTL test.

     Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Internal Revenue Code or that
65% of an institution's "portfolio assets" (as defined) consist of certain
housing and consumer-related assets on a monthly average basis in nine out of
every 12 months.  Assets that qualify without limit for inclusion as part of the
65% requirement are loans made to purchase, refinance, construct, improve or
repair domestic residential housing and manufactured housing; home equity loans;
mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; direct or indirect
obligations of the FDIC; and loans for educational purposes, loans to small
businesses and loans made through credit cards.  In addition, the following
assets, among others, may be included in meeting the test subject 

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<PAGE>
 
to an overall limit of 20% of the savings institution's portfolio assets: 50% of
residential mortgage loans originated and sold within 90 days of origination;
100% of consumer loans; and stock issued by Freddie Mac or Fannie Mae. Portfolio
assets consist of total assets minus the sum of (i) goodwill and other
intangible assets, (ii) property used by the savings institution to conduct its
business, and (iii) liquid assets up to 20% of the institution's total assets.
At September 30, 1997, the Association was in compliance with the QTL test.

     Capital Requirements.  Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital.  Savings associations must meet all of the standards in
order to comply with the capital requirements.
 
     OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets).  Core capital
is defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities.  In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion of
certain assets from capital and to account appropriately for the investments in
and assets of both includable and non-includable subsidiaries.  Institutions
that fail to meet the core capital requirement would be required to file with
the OTS a capital plan that details the steps they will take to reach
compliance.  In addition, the OTS's prompt corrective action regulation provides
that a savings institution that has a leverage ratio of less than 4% (3% for
institutions receiving the highest CAMEL examination rating) will be deemed to
be "undercapitalized" and may be subject to certain restrictions.  See "--
Federal Regulation of Savings Associations -- Prompt Corrective Action."

     Savings associations also must maintain "tangible capital" not less than
1.5% of the Association's adjusted total assets. "Tangible capital" is defined,
generally, as core capital minus any "intangible assets" other than purchased
mortgage servicing rights.

     Each savings institution must maintain total risk-based capital equal to at
least 8% of risk-weighted assets.  Total risk-based capital consists of the sum
of core and supplementary capital, provided that supplementary capital cannot
exceed core capital, as previously defined.  Supplementary capital includes (i)
permanent capital instruments such as cumulative perpetual preferred stock,
perpetual subordinated debt and mandatory convertible subordinated debt, (ii)
maturing capital instruments such as subordinated debt, intermediate-term
preferred stock and mandatory convertible subordinated debt, subject to an
amortization schedule, and (iii) general valuation loan and lease loss
allowances up to 1.25% of risk-weighted assets.

     The risk-based capital regulation assigns each balance sheet asset held by
a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets.  Assets not
included for purposes of calculating capital are not included in calculating
risk-weighted assets.  The categories range from 0% for cash and securities that
are backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due.  Qualifying residential
mortgage loans (including multi-family mortgage loans) are assigned a 50% risk
weight.  Consumer, commercial, home equity and residential construction loans
are assigned a 100% risk weight, as are nonqualifying residential mortgage loans
and that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio.  The book value of assets in each category is
multiplied by the weighing factor (from 0% to 100%) assigned to that category.
These products are then totalled to arrive at total risk-weighted assets.  Off-
balance sheet items are included in risk-weighted assets by converting them to
an approximate balance sheet "credit equivalent amount" based on a conversion
schedule.  These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included risk-weighted assets.

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<PAGE>
 
     The OTS has incorporated an interest rate risk component into its
regulatory capital rule.  Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements.  A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
                               ----                                     
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of the
association's assets, as calculated in accordance with guidelines set forth by
the OTS. A savings association whose measured interest rate risk exposure
exceeds 2% must deduct an interest rate risk component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
association's assets. That dollar amount is deducted from an association's total
capital in calculating compliance with its risk-based capital requirement. Under
the rule, there is a two quarter lag between the reporting date of an
institution's financial data and the effective date for the new capital
requirement based on that data. A savings association with assets of less than
$300 million and risk-based capital ratios 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 association's
interest rate risk component on a case-by-case basis. Under certain
circumstances, a savings association may request an adjustment to its interest
rate risk component if it believes that the OTS-calculated interest rate risk
component overstates its interest rate risk exposure. In addition, certain 
"well-capitalized" institutions may obtain authorization to use their own
interest rate risk model to calculate their interest rate risk component in lieu
of the OTS-calculated amount. The OTS has postponed the date that the component
will first be deducted from an institution's total capital.

     See "HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE" for a table
that sets forth in terms of dollars and percentages the OTS tangible, core and
risk-based capital requirements, the Association's historical amounts and
percentages at September 30, 1997 and pro forma amounts and percentages based
upon the assumptions stated therein.
 
     Limitations on Capital Distributions.  OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers.  In addition, OTS regulations require the Association to give the OTS
30 days' advance notice of any proposed declaration of dividends, and the OTS
has the authority under its supervisory powers to prohibit the payment of
dividends.  The regulation utilizes a three-tiered approach which permits
various levels of distributions based primarily upon a savings association's
capital level.

     A Tier 1 savings association has capital in excess of its fully phased-in
capital requirement (both before and after the proposed capital distribution).
Tier 1 savings association may make (without application but upon prior notice
to, and no objection made by, the OTS) capital distributions during a calendar
year up to 100% of its net income to date during the calendar year plus one-half
its surplus capital ratio (i.e., the amount of capital in excess of its fully
                           ----                                              
phased-in requirement) at the beginning of the calendar year or the amount
authorized for a Tier 2 association.  Capital distributions in excess of such
amount require advance notice to the OTS.  A Tier 2 savings association has
capital equal to or in excess of its minimum capital requirement but below its
fully phased-in capital requirement (both before and after the proposed capital
distribution).  Such an association may make (without application) capital
distributions up to an amount equal to 75% of its net income during the previous
four quarters depending on how close the association is to meeting its fully
phased-in capital requirement.  Capital distributions exceeding this amount
require prior OTS approval.  Tier 3 associations are savings associations with
capital below the minimum capital requirement (either before or after the
proposed capital distribution).  Tier 3 associations may not make any capital
distributions without prior approval from the OTS.

     The Association currently meets the criteria to be designated a Tier 1
association and, consequently, could at its option (after prior notice to, and
no objection made by, the OTS) distribute up to 100% of its net income during
the calendar year plus 50% of its surplus capital ratio at the beginning of the
calendar year less any distributions previously paid during the year.

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<PAGE>
 
     Loans to One Borrower. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans to one borrower. Generally, this
limit is 15% of the Association's unimpaired capital and surplus, plus an
additional 10% of unimpaired capital and surplus, if such loan is secured by
readily-marketable collateral, which is defined to include certain financial
instruments and bullion. The OTS by regulation has amended the loans to one
borrower rule to permit savings associations meeting certain requirements,
including capital requirements, to extend loans to one borrower in additional
amounts under circumstances limited essentially to loans to develop or complete
residential housing units. At September 30, 1997, the Association's regulatory
limit on loans to one borrower was $4.2 million. At September 30, 1997, the
Association's largest aggregate amount of loans to one borrower was $1.8
million.
 
     Activities of Associations and Their Subsidiaries.  A savings association
may establish operating subsidiaries to engage in any activity that the savings
association may conduct directly and service corporation subsidiaries to engage
in certain preapproved activities or, with approval of the OTS, other activities
reasonably related to the activities of financial institutions.  When a savings
association establishes or acquires a subsidiary or elects to conduct any new
activity through a subsidiary that the association controls, the savings
association must notify the FDIC and the OTS 30 days in advance and provide the
information each agency may, by regulation, require.  Savings associations also
must conduct the activities of subsidiaries in accordance with existing
regulations and orders.

     The OTS may determine that the continuation by a savings association of its
ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary.  The FDIC
also may determine by regulation or order that any specific activity poses a
serious threat to the SAIF.  If so, it may require that no SAIF member engage in
that activity directly.

     Transactions with Affiliates.  Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act relative to transactions with
affiliates in the same manner and to the same extent as if the savings
association were a Federal Reserve member bank.   A savings and loan holding
company, its subsidiaries and any other company under common control are
considered affiliates of the subsidiary savings association under the HOLA.
Generally, Sections 23A and 23B:  (i) limit the extent to which the insured
association or its subsidiaries may engage in certain covered transactions with
an affiliate to an amount equal to 10% of such institution's capital and surplus
and place an aggregate limit on all such transactions with affiliates to an
amount equal to 20% of such capital and surplus, and (ii) require that all such
transactions be on terms substantially the same, or at least as favorable to the
institution or subsidiary, as those provided to a non-affiliate.  The term
"covered transaction" includes the making of loans, the purchase of assets, the
issuance of a guarantee and similar types of transactions.  Any loan or
extension of credit by the Association to an affiliate must be secured by
collateral in accordance with Section 23A.

     Three additional rules apply to savings associations:  (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies;  (ii) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (iii) the
OTS may, for reasons of safety and soundness, impose more stringent restrictions
on savings associations but may not exempt transactions from or otherwise
abridge Section 23A or 23B.  Exemptions from Section 23A or 23B may be granted
only by the Federal Reserve, as is currently the case with respect to all FDIC-
insured banks.

     The Association's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by such persons,
is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and Regulation O thereunder.  Among other things, these regulations require that
such loans be made on terms and conditions substantially the same as those
offered to unaffiliated individuals and not involve more than the normal risk of
repayment.  Regulation O also places individual and aggregate limits on the
amount of loans the Association may make to such persons based, in part, on the
Association's capital position, and requires certain board approval 

                                       70
<PAGE>
 
procedures to be followed. The OTS regulations, with certain minor variances,
apply Regulation O to savings institutions.

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

Savings and Loan Holding Company Regulations

     Holding Company Acquisitions.  The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without prior
OTS approval, from acquiring more than 5% of the voting stock of any other
savings association or savings and loan holding company or controlling the
assets thereof.  They also prohibit, among other things, any director or officer
of a savings and loan holding company, or any individual who owns or controls
more than 25% of the voting shares of such holding company, from acquiring
control of any savings association not a subsidiary of such savings and loan
holding company, unless the acquisition is approved by the OTS.

     Holding Company Activities.  As a unitary savings and loan holding company,
the Holding Company generally is not subject to activity restrictions under the
HOLA.  If the Holding Company acquires control of another savings association as
a separate subsidiary other than in a supervisory acquisition, it would become a
multiple savings and loan holding company.  There generally are more
restrictions on the activities of a multiple savings and loan holding company
than on those of a unitary savings and loan holding company.  The HOLA provides
that, among other things, no multiple savings and loan holding company or
subsidiary thereof which is not an insured association shall commence or
continue for more than two years after becoming a multiple savings and loan
association holding company or subsidiary thereof, any business activity other
than:  (i) furnishing or performing management services for a subsidiary insured
institution, (ii) conducting an insurance agency or escrow business, (iii)
holding, managing, or liquidating assets owned by or acquired from a subsidiary
insured institution, (iv) holding or managing properties used or occupied by a
subsidiary insured institution, (v) acting as trustee under deeds of trust, (vi)
those activities previously directly authorized by regulation as of March 5,
1987 to be engaged in by multiple holding companies or (vii) those activities
authorized by the Federal Reserve Board as permissible for bank holding
companies, unless the OTS by regulation, prohibits or limits such activities for
savings and loan holding companies.  Those activities described in (vii) above
also must be approved by the OTS prior to being engaged in by a multiple savings
and loan holding company.

     Qualified Thrift Lender Test.  The HOLA provides that any savings and loan
holding company that controls a savings association that fails the QTL test, as
explained under "-- Federal Regulation of Savings Associations -- Qualified
Thrift Lender Test," must, within one year after the date on which the
association ceases to be a QTL, register as and be deemed a bank holding company
subject to all applicable laws and regulations.


                                    TAXATION

Federal Taxation

     General.  The Holding Company and the Association will report their income
on a fiscal year basis using the accrual method of accounting and will be
subject to federal income taxation in the same manner as other corporations with
some exceptions, including particularly the Association's reserve for bad debts
discussed below.  

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<PAGE>
 
The following discussion of tax matters is intended only as a summary and does
not purport to be a comprehensive description of the tax rules applicable to the
Association or the Holding Company.

     Bad Debt Reserve. Historically, savings institutions such as the
Association which met certain definitional tests primarily related to their
assets and the nature of their business ("qualifying thrift") were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
may have been deducted in arriving at their taxable income. The Association's
deductions with respect to "qualifying real property loans," which are generally
loans secured by certain interest in real property, were computed using an
amount based on the Association's actual loss experience, or a percentage equal
to 8% of the Association's taxable income, computed with certain modifications
and reduced by the amount of any permitted additions to the non-qualifying
reserve. Due to the Association's loss experience, the Association generally
recognized a bad debt deduction equal to 8% of taxable income.

     In August 1996, the provisions repealing the current thrift bad debt rules
were passed by Congress as part of "The Small Business Job Protection Act of
1996."  The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995.  These rules also require that all institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988).  The Association has
previously recorded a deferred tax liability equal to the bad debt recapture and
as such the new rules will have no effect on the net income or federal income
tax expense.  For taxable years beginning after December 31, 1995, the
Association's bad debt deduction will be determined under the experience method
using a formula based on actual bad debt experience over a period of years or,
if the Association is a "large" association (assets in excess of $500 million)
on the basis of net charge-offs during the taxable year.  The new rules allow an
institution to suspend bad debt reserve recapture for the 1996 and 1997 tax
years if the institution's lending activity for those years is equal to or
greater than the institution's average mortgage lending activity for the six
taxable years preceding 1996 adjusted for inflation.  For this purpose, only
home purchase or home improvement loans are included and the institution can
elect to have the tax years with the highest and lowest lending activity removed
from the average calculation.  If an institution is permitted to postpone the
reserve recapture, it must begin its six year recapture no later than the 1998
tax year.  The unrecaptured base year reserves will not be subject to recapture
as long as the institution continues to carry on the business of banking.  In
addition, the balance of the pre-1988 bad debt reserves continue to be subject
to provisions of present law referred to below that require recapture in the
case of certain excess distributions to shareholders.

     Distributions.  To the extent that the Association makes "nondividend
distributions" to the Holding Company, such distributions will be considered to
result in distributions from the balance of its bad debt reserve as of December
31, 1987 (or a lesser amount if the Association's loan portfolio decreased since
December 31, 1987) and then from the supplemental reserve for losses on loans
("Excess Distributions"), and an amount based on the Excess Distributions will
be included in the Association's taxable income.  Nondividend distributions
include distributions in excess of the Association's current and accumulated
earnings and profits, distributions in redemption of stock and distributions in
partial or complete liquidation.  However, dividends paid out of the
Association's current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered to result in a distribution
from the Association's bad debt reserve.  The amount of additional taxable
income created from an Excess Distribution is an amount that, when reduced by
the tax attributable to the income, is equal to the amount of the distribution.
Thus, if, after the conversion, the Association makes a "nondividend
distribution," then approximately one and one-half times the Excess Distribution
would be includable in gross income for federal income tax purposes, assuming a
34% corporate income tax rate (exclusive of state and local taxes).  See
"REGULATION" and "DIVIDEND POLICY" for limits on the payment of dividends by the
Association.  The Association does not intend to pay dividends that would result
in a recapture of any portion of its tax bad debt reserve.

     Corporate Alternative Minimum Tax.  The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%.  The excess of the tax bad
debt reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is treated
as a preference item for purposes of computing the AMTI.  In addition, only 90%
of AMTI can be offset by net operating loss 

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<PAGE>
 
carryovers. AMTI is increased by an amount equal to 75% of the amount by which
the Association's adjusted current earnings exceeds its AMTI (determined without
regard to this preference and prior to reduction for net operating losses). For
taxable years beginning after December 31, 1986, and before January 1, 1996, an
environmental tax of 0.12% of the excess of AMTI (with certain modification)
over $2.0 million is imposed on corporations, including the Association, whether
or not an Alternative Minimum Tax is paid.

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

     Audits.  The Association's federal income tax returns have not been audited
within the past five years.

State Taxation

     South Carolina.  The provisions of South Carolina tax law mirror the Code,
with certain modifications, as it relates to savings and loan associations.  The
Association is subject to South Carolina income tax at the rate of 6%.  This
rate of tax is imposed on savings and loan associations in lieu of the general
state business corporation income tax.  The Association's state income tax
returns have not been audited within the last five years.

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

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                                 THE CONVERSION

     The OTS has approved the Plan of Conversion subject to its approval by the
members of the Association entitled to vote thereon and to the satisfaction of
certain other conditions imposed by the OTS in its approval.  OTS approval does
not constitute a recommendation or endorsement of the Plan of Conversion.

General

     On September 10, 1997, the Board of Directors of the Association
unanimously adopted the Plan of Conversion, which was subsequently amended on
November 19, 1997, pursuant to which the Association will be converted from a
federally chartered mutual savings and loan association to a federally chartered
stock savings bank to be held as a wholly-owned subsidiary of the Holding
Company, a newly formed Delaware corporation.  The following discussion of the
Plan of Conversion is qualified in its entirety by reference to the Plan of
Conversion, which is attached as Exhibit A to the Association's Proxy Statement
and is available to members of the Association upon request.  The Plan of
Conversion is also filed as an exhibit to the Registration Statement.  See
"ADDITIONAL INFORMATION."  The OTS has approved the Plan of Conversion subject
to its approval by the members of the Association entitled to vote on the matter
at a Special Meeting called for that purpose to be held on ___________, 1998,
and subject to the satisfaction of certain other conditions imposed by the OTS
in its approval.

     The conversion will be accomplished through adoption of a Federal Stock
Charter and Bylaws to authorize the issuance of capital stock by the
Association.  As part of the conversion, the Association will issue all of its
newly issued common stock (1,000 shares) to the Holding Company in exchange for
50% of the net proceeds from the sale of common stock by the Holding Company.

     The Plan of Conversion provides generally that:  (i) the Association will
convert from a federally chartered mutual savings and loan association to a
federally chartered stock savings bank; (ii) the common stock will be offered by
the Holding Company in the Subscription Offering to persons having subscription
rights; (iii) if necessary, shares of common stock not subscribed for in the
Subscription Offering will be offered in a Direct Community Offering to certain
members of the general public, with preference given to natural persons and
trusts of natural persons residing in the Local Community, and then to certain
members of the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers pursuant to selected dealers agreements;
and (iv) the Holding Company will purchase all of the capital stock of the
Association to be issued in connection with the conversion.  The conversion will
be effected only upon completion of the sale of at least $44,625,000 of common
stock to be issued pursuant to the Plan of Conversion.

     As part of the conversion, the Holding Company is making a Subscription
Offering of its common stock to holders of subscription rights in the following
order of priority: (i) Eligible Account Holders (depositors with $50.00 or more
on deposit as of June 30, 1996); (ii) the Association's ESOP; (iii) Supplemental
Eligible Account Holders (depositors with $50.00 or more on deposit as of
December 31, 1997); and (iv) Other Members (depositors of the Association as of
____ __, 1998 and borrowers of the Association with loans outstanding as of
October 21, 1997 which continue to be outstanding as of ____ __, 1998).

     Shares of common stock not subscribed for in the Subscription Offering may
be offered for sale in the Direct Community Offering.  The Direct Community
Offering, if one is held, is expected to begin immediately after the expiration
of the Subscription Offering, but may begin at any time during the Subscription
Offering.  Shares of common stock not sold in the Subscription and Direct
Community Offerings may be offered in the Syndicated Community Offering.
Regulations require that the Direct Community and Syndicated Community Offerings
be completed within 45 days after completion of the fully extended Subscription
Offering unless extended by the Association or the Holding Company with the
approval of the regulatory authorities.  If the Syndicated Community Offering is
determined not to be feasible, the Board of Directors of the Association will
consult with the regulatory authorities to determine an appropriate alternative
method for selling the unsubscribed shares of common stock.  The 

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<PAGE>
 
Plan of Conversion provides that the conversion must be completed within 24
months after the date of the approval of the Plan of Conversion by the members
of the Association.

     No sales of common stock may be completed, either in the Subscription
Offering, Direct Community Offering or Syndicated Community Offering unless the
Plan of Conversion is approved by the members of the Association.

     The completion of the offering, however, is subject to market conditions
and other factors beyond the Association's control.  No assurance can be given
as to the length of time after approval of the Plan of Conversion at the Special
Meeting that will be required to complete the Direct Community or Syndicated
Community Offerings or other sale of the common stock.  If delays are
experienced, significant changes may occur in the estimated pro forma market
value of the Holding Company and the Association as converted, together with
corresponding changes in the net proceeds realized by the Holding Company from
the sale of the common stock.  In the event the conversion is terminated, the
Association would be required to charge all Conversion expenses against current
income.

     Orders for shares of common stock will not be filled until at least
2,975,000 shares of common stock have been subscribed for or sold and the OTS
approves the final valuation and the conversion closes.  If the conversion is
not completed within 45 days after the last day of the fully extended
Subscription Offering and the OTS consents to an extension of time to complete
the conversion, subscribers will be given the right to increase, decrease or
rescind their subscriptions.  Unless an affirmative indication is received from
subscribers that they wish to continue to subscribe for shares, the funds will
be returned promptly, together with accrued interest at the Association's
passbook rate from the date payment is received until the funds are returned to
the subscriber.  If such period is not extended, or, in any event, if the
conversion is not completed, all withdrawal authorizations will be terminated
and all funds held will be promptly returned together with accrued interest at
the Association's passbook rate from the date payment is received until the
conversion is terminated.

Reasons for the Conversion

     The Board of Directors and management believe that the conversion is in the
best interests of the Association, its members and the communities it serves.
The Association's Board of Directors has formed the Holding Company to serve as
a holding company, with the Association as its subsidiary, upon the consummation
of the conversion.  By converting to the stock form of organization, the Holding
Company and the Association will be structured in the form used by holding
companies of commercial banks, most business entities and by a growing number of
savings institutions.  Management of the Association believes that the
conversion offers a number of advantages which will be important to the future
growth and performance of the Association.  The capital raised in the conversion
is intended to support the Association's current lending and investment
activities and may also support possible future expansion and diversification of
operations, although there are no current specific plans, arrangements or
understandings, written or oral, regarding any such expansion or
diversification.  The conversion is also expected to afford the Association's
management, members and others the opportunity to become stockholders of the
Holding Company and participate more directly in, and contribute to, any future
growth of the Holding Company and the Association.  The conversion will also
enable the Holding Company and the Association to raise additional capital in
the public equity or debt markets should the need arise, although there are no
current specific plans, arrangements or understandings, written or oral,
regarding any such financing activities.  The Association, as a mutual savings
and loan association, does not have the authority to issue capital stock or debt
instruments, other than by accepting deposits.

Effects of Conversion to Stock Form on Depositors and Borrowers of the
Association

     Voting Rights.  Savings members and borrowers will have no voting rights in
the converted Association or the Holding Company and therefore will not be able
to elect directors of the Association or the Holding Company or to control their
affairs. Currently, these rights are accorded to savings members of the
Association.  Subsequent 

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<PAGE>
 
to the conversion, voting rights will be vested exclusively in the Holding
Company with respect to the Association and the holders of the common stock as
to matters pertaining to the Holding Company. Each holder of common stock shall
be entitled to vote on any matter to be considered by the stockholders of the
Holding Company. A stockholder will be entitled to one vote for each share of
common stock owned.

     Savings Accounts and Loans.  The Association's savings accounts, account
balances and existing FDIC insurance coverage of savings accounts will not be
affected by the conversion.  Furthermore, the conversion will not affect the
loan accounts, loan balances or obligations of borrowers under their individual
contractual arrangements with the Association.

     Tax Effects.  The Association has received an opinion from Breyer &
Aguggia, Washington, D.C., that the conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Code.  Among other things, the
opinion states that:

     (i) no gain or loss will be recognized to the Association in its mutual or
     stock form by reason of the conversion;

     (ii) no gain or loss will be recognized to its account holders upon the
     issuance to them of accounts in the Association immediately after the
     conversion, in the same dollar amounts and on the same terms and conditions
     as their accounts at the Association in its mutual form plus interest in
     the liquidation account;

     (iii) the tax basis of account holders' accounts in the Association
     immediately after the conversion will be the same as the tax basis of their
     accounts immediately prior to conversion;

     (iv) the tax basis of each account holder's interest in the liquidation
     account will be equal to the value, if any, of that interest;

     (v) the tax basis of the common stock purchased in the conversion will be
     the amount paid and the holding period for such stock will commence at the
     date of purchase; and

     (vi) no gain or loss will be recognized to account holders upon the receipt
     or exercise of subscription rights in the conversion, except to the extent
     subscription rights are deemed to have value as discussed below.

     Unlike a private letter ruling issued by the IRS, an opinion of counsel is
not binding on the IRS and the IRS could disagree with the conclusions reached
therein.  In the event of such disagreement, no assurance can be given that the
conclusions reached in an opinion of counsel would be sustained by a court if
contested by the IRS.

     Based upon past rulings issued by the IRS, the opinion provides that the
receipt of subscription rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan of Conversion will be
taxable to the extent, if any, that the subscription rights are deemed to have a
fair market value.  RP Financial, a financial consulting firm retained by the
Association, whose findings are not binding on the IRS, has issued a letter
indicating that the subscription rights do not have any value, based on the fact
that such rights are acquired by the recipients without cost, are
nontransferable and of short duration and afford the recipients the right only
to purchase shares of the common stock at a price equal to its estimated fair
market value, which will be the same price paid by purchasers in the Direct
Community Offering for unsubscribed shares of common stock.  If the subscription
rights are deemed to have a fair market value, the receipt of such rights may
only be taxable to those Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members who exercise their subscription rights.  The
Association could also recognize a gain on the distribution of such subscription
rights.  Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members are encouraged to consult with their own tax advisors as to the
tax consequences in the event the subscription rights are deemed to have a fair
market value.

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<PAGE>
 
     The Association has also received an opinion from Deloitte & Touche LLP,
Greenville, South Carolina, that, assuming the conversion does not result in any
federal income tax liability to the Association, its account holders, or the
Holding Company, implementation of the Plan of Conversion will not result in any
South Carolina income tax liability to such entities or persons.

     The opinions of Breyer & Aguggia and Deloitte & Touche LLP and the letter
from RP Financial are filed as exhibits to the Registration Statement.  See
"ADDITIONAL INFORMATION."

     PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.

     Liquidation Account.  In the unlikely event of a complete liquidation of
the Association in its present mutual form, each depositor in the Association
would receive a pro rata share of any assets of the Association remaining after
payment of claims of all creditors (including the claims of all depositors up to
the withdrawal value of their accounts).  Each depositor's pro rata share of
such remaining assets would be in the same proportion as the value of his or her
deposit account to the total value of all deposit accounts in the Association at
the time of liquidation.

     After the conversion, holders of withdrawable deposit(s) in the
Association, including certificates of deposit ("Savings Account(s)"), shall not
be entitled to share in any residual assets in the event of liquidation of the
Association.  However, pursuant to OTS regulations, the Association shall, at
the time of the conversion, establish a liquidation account in an amount equal
to its total equity as of the date of the latest statement of financial
condition contained herein.

     The liquidation account shall be maintained by the Association subsequent
to the conversion for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who retain their Savings Accounts in the Association.
Each Eligible Account Holder and Supplemental Eligible Account Holder shall,
with respect to each Savings Account held, have a related inchoate interest in a
portion of the liquidation account balance ("subaccount").

     The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or a Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's "qualifying deposit" in the
Savings Account and the denominator is the total amount of the "qualifying
deposits" of all such holders.  Such initial subaccount balance shall not be
increased, and it shall be subject to downward adjustment as provided below.

     If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing day of the Association subsequent to June 30, 1996, or December 31, 1997
is less than the lesser of (i) the deposit balance in such Savings Account at
the close of business on any other annual closing date subsequent to June 30,
1996 or December 31, 1997 or (ii) the amount of the "qualifying deposit" in such
Savings Account on June 30, 1996 or December 31, 1997, then the subaccount
balance for such Savings Account shall be adjusted by reducing such subaccount
balance in an amount proportionate to the reduction in such deposit balance.  In
the event of a downward adjustment, such subaccount balance shall not be
subsequently increased, notwithstanding any increase in the deposit balance of
the related Savings Account.  If any such Savings Account is closed, the related
subaccount balance shall be reduced to zero.

     In the event of a complete liquidation of the Association (and only in such
event) each Eligible Account Holder and Supplemental Eligible Account Holder
shall be entitled to receive a liquidation distribution from the liquidation
account in the amount of the then current adjusted subaccount balance(s) for
Savings Account(s) then held by such holder before any liquidation distribution
may be made to stockholders.  No merger, consolidation, bulk purchase of assets
with assumptions of Savings Accounts and other liabilities or similar
transactions with another federally insured institution in which the Association
is not the surviving institution shall be considered to be a complete
liquidation.  In any such transaction the liquidation account shall be assumed
by the surviving institution.

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<PAGE>
 
     In the unlikely event the Association is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to the Holding Company as the sole stockholder of the
Association.

The Subscription, Direct Community and Syndicated Community Offerings

     Subscription Offering.  In accordance with the Plan of Conversion,
nontransferable subscription rights to purchase the common stock have been
issued to persons and entities entitled to purchase the common stock in the
Subscription Offering.  The amount of the common stock which these parties may
purchase will be subject to the availability of the common stock for purchase
under the categories set forth in the Plan of Conversion.  Subscription
priorities have been established for the allocation of stock to the extent that
the common stock is available.  These priorities are as follows:

     Category 1:  Eligible Account Holders.  Each depositor with $50.00 or more
on deposit at the Association as of June 30, 1996 will receive nontransferable
subscription rights to subscribe for up to the greater of $330,000 of common
stock, one-tenth of one percent of the total offering of common stock or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of qualifying deposit of the
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders.  If the exercise of subscription
rights in this category results in an oversubscription, shares of common stock
will be allocated among subscribing Eligible Account Holders so as to permit
each Eligible Account Holder, to the extent possible, to purchase a number of
shares sufficient to make such person's total allocation equal 100 shares or the
number of shares actually subscribed for, whichever is less.  Thereafter,
unallocated shares will be allocated among subscribing Eligible Account Holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all Eligible Account Holders.
Subscription rights received by officers and directors in this category based on
their increased deposits in the Association in the one year period preceding
December 31, 1995 are subordinated to the subscription rights of other Eligible
Account Holders.

     Category 2:  ESOP.  The Plan of Conversion provides that the ESOP shall
receive nontransferable subscription rights to purchase up to 8% of the shares
of common stock issued in the conversion.  The ESOP intends to purchase 8% of
the shares of common stock issued in the conversion.  In the event the number of
shares offered in the conversion is increased above the maximum of the Estimated
Valuation Range, the ESOP shall have a priority right to purchase any such
shares exceeding the maximum of the Estimated Valuation Range up to an aggregate
of 8% of the common stock.  If the ESOP's subscription is not filled in its
entirety, the ESOP may purchase shares in the open market or may purchase shares
directly from the Holding Company.

     Category 3:  Supplemental Eligible Account Holders.  Each depositor with
$50.00 or more on deposit as of December 31, 1997 will receive nontransferable
subscription rights to subscribe for up to the greater of $330,000 of common
stock, one-tenth of one percent of the total offering of common stock or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of qualifying deposits of the
Supplemental Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Supplemental Eligible Account Holders.  If the
exercise of subscription rights in this category results in an oversubscription,
shares of common stock will be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each Supplemental Eligible Account Holder, to
the extent possible, to purchase a number of shares sufficient to make his or
her total allocation equal 100 shares or the number of shares actually
subscribed for, whichever is less.  Thereafter, unallocated shares will be
allocated among subscribing Supplemental Eligible Account Holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all Supplemental Eligible Account
Holders.

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<PAGE>
 
     Category 4:  Other Members.  Each depositor of the Association as of the
Voting Record Date (_________ __, 1998) and each borrower with a loan
outstanding on October 21, 1997 which continues to be outstanding as of the
Voting Record Date will receive nontransferable subscription rights to purchase
up to $330,000 of common stock in the conversion to the extent shares are
available following subscriptions by Eligible Account Holders, the Association's
ESOP and Supplemental Eligible Account Holders.  In the event of an
oversubscription in this category, the available shares will be allocated
proportionately based on the amount of the respective subscriptions.

     Subscription rights are nontransferable. Persons selling or otherwise
transferring their rights to subscribe for common stock in the Subscription
Offering or subscribing for common stock on behalf of another person will be
subject to forfeiture of such rights and possible further sanctions and
penalties imposed by the OTS or another agency of the U.S. Government. Each
person exercising subscription rights will be required to certify that he or she
is purchasing such shares solely for his or her own account and that he or she
has no agreement or understanding with any other person for the sale or transfer
of such shares. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED WITHOUT THE
CONSENT OF THE ASSOCIATION AND THE HOLDING COMPANY.

     The Holding Company and the Association will make reasonable attempts to
provide a prospectus and related offering materials to holders of subscription
rights.  However, the Subscription Offering and all subscription rights under
the Plan of Conversion will expire at 12:00 Noon, Eastern Time, on the
Expiration Date, whether or not the Association has been able to locate each
person entitled to such subscription rights.  Orders for common stock in the
Subscription Offering received in hand by the Association after the Expiration
Date will not be accepted.  The Subscription Offering may be extended by the
Holding Company and the Association up to _____ __, 1998 without the OTS's
approval.  OTS regulations require that the Holding Company complete the sale of
common stock within 45 days after the close of the Subscription Offering.  If
the Direct Community Offering and the Syndicated Community Offerings are not
completed within such period all funds received will be promptly returned with
interest at the Association's passbook rate and all withdrawal authorizations
will be canceled.  If regulatory approval of an extension of the time period has
been granted, all subscribers will be notified of such extension and of the
duration of any extension that has been granted, and will be given the right to
increase, decrease or rescind their orders. If an affirmative response to any
resolicitation is not received by the Holding Company from a subscriber, the
subscriber's order will be rescinded and all funds received will be promptly
returned with interest (or withdrawal authorizations will be canceled).  No
single extension can exceed 90 days.

     Direct Community Offering.  Any shares of common stock which remain
unsubscribed for in the Subscription Offering will be offered by the Holding
Company to certain members of the general public in a Direct Community Offering,
with preference given to natural persons and trusts of natural persons residing
in the Local Community.  Purchasers in the Direct Community Offering are
eligible to purchase up to $330,000 of common stock.  In the event an
insufficient number of shares are available to fill orders in the Direct
Community Offering, the available shares will be allocated on a pro rata basis
determined by the amount of the respective orders.  The Direct Community
Offering, if held, is expected to commence immediately subsequent to the
Expiration Date, but may begin at anytime during the Subscription Offering.  The
Direct Community Offering may terminate on or at any time subsequent to the
Expiration Date, but no later than 45 days after the close of the Subscription
Offering, unless extended by the Holding Company and the Association, with
approval of the OTS.  Any extensions beyond 45 days after the close of the fully
extended Subscription Offering would require a resolicitation of orders, wherein
subscribers for the maximum numbers of shares of common stock would be, and
certain other large subscribers in the discretion of the Holding Company and the
Association may be, given the opportunity to continue their orders, in which
case they will need to reconfirm affirmatively their subscriptions prior to the
expiration of the resolicitation offering or their subscription funds will be
promptly refunded with interest at the Association's passbook rate, or be
permitted to modify or cancel their orders.  The right of any person to purchase
shares in the Direct Community Offering is subject to the absolute right of the
Holding Company and the Association to accept or reject such purchases in whole
or in part.  If an order is rejected in part, the purchaser does not have the

                                       79
<PAGE>
 
right to cancel the remainder of the order.  The Holding Company presently
intends to terminate the Direct Community Offering as soon as it has received
orders for all shares available for purchase in the conversion.

     If all of the common stock offered in the Subscription Offering is
subscribed for, no common stock will be available for purchase in the Direct
Community Offering.

     Syndicated Community Offering. The Plan of Conversion provides that, if
necessary, all shares of common stock not purchased in the Subscription Offering
and Direct Community Offering, if any, may be offered for sale to certain
members of the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers to be formed and managed by Trident
Securities acting as agent of the Holding Company. The Holding Company and the
Association have the right to reject orders, in whole or part, in their sole
discretion in the Syndicated Community Offering. Neither Trident Securities nor
any registered broker-dealer shall have any obligation to take or purchase any
shares of the common stock in the Syndicated Community Offering; however,
Trident Securities has agreed to use its best efforts in the sale of shares in
the Syndicated Community Offering.

     Stock sold in the Syndicated Community Offering also will be sold at the
$15.00 purchase price.  See "--Stock Pricing and Number of Shares to be Issued."
No person will be permitted to subscribe in the Syndicated Community Offering
for shares of common stock with an aggregate purchase price of more than
$330,000.  See "--Plan of Distribution for the Subscription, Direct Community
and Syndicated Community Offerings" for a description of the commission to be
paid to the selected dealers and to Trident Securities.

     Trident Securities may enter into agreements with selected dealers to
assist in the sale of shares in the Syndicated Community Offering.  During the
Syndicated Community Offering, selected dealers may only solicit indications of
interest from their customers to place orders with the Holding Company as of a
certain date ("Order Date") for the purchase of shares of Conversion Stock.
When and if Trident Securities and the Holding Company believe that enough
indications of interest and orders have been received in the Subscription
Offering, the Direct Community Offering and the Syndicated Community Offering to
consummate the conversion, Trident Securities will request, as of the Order
Date, selected dealers to submit orders to purchase shares for which they have
received indications of interest from their customers.  Selected dealers will
send confirmations to such customers on the next business day after the Order
Date.  Selected dealers may debit the accounts of their customers on a date
which will be three business days from the Order Date ("Settlement Date").
Customers who authorize selected dealers to debit their brokerage accounts are
required to have the funds for payment in their account on but not before the
Settlement Date.  On the Settlement Date, selected dealers will remit funds to
the account that the Holding Company established for each selected dealer.  Each
customer's funds so forwarded to the Holding Company, along with all other
accounts held in the same title, will be insured by the FDIC up to the
applicable $100,000 legal limit.  After payment has been received by the Holding
Company from selected dealers, funds will earn interest at the Association's
passbook rate until the completion of the offering.  At the completion of the
conversion, the funds received will be used to purchase the shares of common
stock ordered.  The shares issued in the conversion cannot and will not be
insured by the FDIC or any other government agency.  In the event the conversion
is not consummated as described above, funds with interest will be returned
promptly to the selected dealers, who, in turn, will promptly credit their
customers' brokerage accounts.

     The Syndicated Community Offering may terminate no more than 45 days after
the expiration of the Subscription Offering, unless extended by the Holding
Company and the Association, with approval of the OTS.

     In the event the Association is unable to find purchasers from the general
public for all unsubscribed shares, other purchase arrangements will be made by
the Board of Directors of the Association, if feasible.  Such other arrangements
will be subject to the approval of the OTS.  The OTS may grant one or more
extensions of the offering period, provided that (i) no single extension exceeds
90 days, (ii) subscribers are given the right to increase, decrease or rescind
their subscriptions during the extension period, and (iii) the extensions do not
go more than two years beyond the date on which the members approved the Plan of
Conversion.  If the conversion is not completed within 

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<PAGE>
 
45 days after the close of the Subscription Offering, either all funds received
will be returned with interest (and withdrawal authorizations canceled) or, if
the OTS has granted an extension of time, all subscribers will be given the
right to increase, decrease or rescind their subscriptions at any time prior to
20 days before the end of the extension period. If an extension of time is
obtained, all subscribers will be notified of such extension and of their rights
to modify their orders. If an affirmative response to any resolicitation is not
received by the Holding Company from a subscriber, the subscriber's order will
be rescinded and all funds received will be promptly returned with interest (or
withdrawal authorizations will be canceled).

     Persons in Non-Qualified States. The Holding Company and the Association
will make reasonable efforts to comply with the securities laws of all states in
the United States in which persons entitled to subscribe for stock pursuant to
the Plan of Conversion reside. However, the Holding Company and the Association
are not required to offer stock in the Subscription Offering to any person who
resides in a foreign country or resides in a state of the United States with
respect to which (i) a small number of persons otherwise eligible to subscribe
for shares of common stock reside in such state or (ii) the Holding Company or
the Association determines that compliance with the securities laws of such
state would be impracticable for reasons of cost or otherwise, including but not
limited to a request or requirement that the Holding Company and the Association
or their officers, directors or trustees register as a broker, dealer, salesman
or selling agent, under the securities laws of such state, or a request or
requirement to register or otherwise qualify the subscription rights or common
stock for sale or submit any filing with respect thereto in such state. Where
the number of persons eligible to subscribe for shares in one state is small,
the Holding Company and the Association will base their decision as to whether
or not to offer the common stock in such state on a number of factors, including
the size of accounts held by account holders in the state, the cost of reviewing
the registration and qualification requirements of the state (and of actually
registering or qualifying the shares) or the need to register the Holding
Company, its officers, directors or employees as brokers, dealers or salesmen.

Plan of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings

     The Association and the Holding Company have retained Trident Securities to
consult with and advise the Association and to assist the Association and the
Holding Company, on a best efforts basis, in the distribution of shares in the
offering.  Trident Securities is a broker-dealer registered with the SEC and a
member of the NASD.  Trident Securities will assist the Association in the
conversion as follows:  (i) it will act as marketing advisor with respect to the
Subscription Offering and will represent the Association as placement agent on a
best efforts basis in the sale of the common stock in the Direct Community
Offering if one is held; (ii) it will conduct training sessions with directors,
officers and employees of the Association regarding the conversion process; and
(iii) it will assist in the establishment and supervision of the Association's
stock information center and, with management's input, will train the
Association's staff to record properly and tabulate orders for the purchase of
common stock and to respond appropriately to customer inquiries.

     Based upon negotiations between Trident Securities on the one hand and the
Holding Company and the Association on the other hand concerning fee structure,
Trident Securities will receive a commission equal to 1.5% of the aggregate
amount of common stock sold in the Subscription and Direct Community Offerings,
excluding shares sold to the ESOP and to directors, officers and employees of
the Association and associates of such persons.  Fees payable to Trident
Securities will not exceed $800,000.  Trident Securities and selected dealers
participating in the Syndicated Community Offering may receive a commission in
the Syndicated Community Offering in an amount to be agreed upon by the Holding
Company and the Association.  Fees and commissions paid to Trident Securities
and to any selected dealers may be deemed to be underwriting fees, and Trident
Securities and such selected dealers may be deemed to be underwriters.  Trident
Securities will also be reimbursed for its reasonable out-of-pocket expenses not
to exceed $7,500 and its legal fees not to exceed $27,500.  Trident Securities
has received an advance of $7,500 towards its reimbursable expenses.  For
additional information, see "-- Stock Pricing and Number of Shares to be Issued"
and "USE OF PROCEEDS."

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<PAGE>
 
     Subject to certain limitations, the Holding Company and the Association
have also agreed to indemnify Trident Securities against liabilities and
expenses (including legal fees) incurred in connection with certain claims or
litigation arising out of or based upon untrue statements or omissions contained
in the offering material for the common stock or with regard to allocations of
shares (in the event of oversubscription) or determinations of eligibility to
purchase shares.

Description of Sales Activities

     The common stock will be offered in the Subscription Offering and Direct
Community Offering principally by the distribution of this prospectus and
through activities conducted at the Association's stock information center at
its main office facility.  The stock information center is expected to operate
during normal business hours throughout the Subscription Offering and Direct
Community Offering.  It is expected that at any particular time one or more
Trident Securities employees will be working at the stock information center.
Such employees of Trident Securities will be responsible for mailing materials
relating to the offering, responding to questions regarding the conversion and
the offering and processing stock orders.

     Sales of common stock will be made by registered representatives affiliated
with Trident Securities or by the selected dealers managed by Trident
Securities. The management and employees of the Association may participate in
the offering in clerical capacities, providing administrative support in
effecting sales transactions or, when permitted by state securities laws,
answering questions of a mechanical nature relating to the proper execution of
the order form. Management of the Association may answer questions regarding the
business of the Association when permitted by state securities laws. Other
questions of prospective purchasers, including questions as to the advisability
or nature of the investment, will be directed to registered representatives. The
management and employees of the Holding Company and the Association have been
instructed not to solicit offers to purchase common stock or provide advice
regarding the purchase of common stock.

     No officer, director or employee of the Association or the Holding Company
will be compensated, directly or indirectly, for any activities in connection
with the offer or sale of securities issued in the conversion.

     None of the Association's personnel participating in the offering is
registered or licensed as a broker or dealer or an agent of a broker or dealer.
The Association's personnel will assist in the above-described sales activities
pursuant to an exemption from registration as a broker or dealer provided by
Rule 3a4-1 promulgated under the Exchange Act.  Rule 3a4-1 generally provides
that an "associated person of an issuer" of securities shall not be deemed a
broker solely by reason of participation in the sale of securities of such
issuer if the associated person meets certain conditions.  Such conditions
include, but are not limited to, that the associated person participating in the
sale of an issuer's securities not be compensated in connection therewith at the
time of participation, that such person not be associated with a broker or
dealer and that such person observe certain limitations on his or her
participation in the sale of securities.  For purposes of this exemption,
"associated person of an issuer" is defined to include any person who is a
director, officer or employee of the issuer or a company that controls, is
controlled by or is under common control with the issuer.

Procedure for Purchasing Shares in the Subscription and Direct Community
Offerings

     To ensure that each purchaser receives a prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 under the Exchange Act, no
prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date.  Execution of the order
form will confirm receipt or delivery in accordance with Rule 15c2-8.  Order
forms will only be distributed with a prospectus.  The Association will accept
for processing only orders submitted on original order forms.  The Association
is not obligated to accept orders submitted on photocopied or telecopied order
forms.  Orders cannot and will not be accepted without the execution of the
certification appearing on the reverse side of the order form.

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<PAGE>
 
     To purchase shares in the Subscription Offering, an executed order form
with the required full payment for each share subscribed for, or with
appropriate authorization for withdrawal of full payment from the subscriber's
deposit account with the Association (which may be given by completing the
appropriate blanks in the order form), must be received by the Association by
12:00 Noon, Eastern Time, on the Expiration Date.  Order forms that are not
received by such time or are executed defectively or are received without full
payment (or without appropriate withdrawal instructions) are not required to be
accepted.  The Holding Company and the Association have the right to waive or
permit the correction of incomplete or improperly executed order forms, but do
not represent that they will do so.  Pursuant to the Plan of Conversion, the
interpretation by the Holding Company and the Association of the terms and
conditions of the Plan of Conversion and of the order form will be final.  In
order to purchase shares in the Direct Community Offering, the order form,
accompanied by the required payment for each share subscribed for, must be
received by the Association prior to the time the Direct Community Offering
terminates, which may be on or at any time subsequent to the Expiration Date.
Once received, an executed order form may not be modified, amended or rescinded
without the consent of the Association unless the conversion has not been
completed within 45 days after the end of the Subscription Offering, unless such
period has been extended.

     In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (June 30,
1996) and/or the Supplemental Eligibility Record Date (December 31, 1997) and/or
the Voting Record Date (___________ __, 1998) must list all accounts on the
order form giving all names in each account, the account number and the
approximate account balance as of such date.  Failure to list an account could
result in fewer shares being allocated in the event of an oversubscription than
if all accounts had been disclosed.

     Full payment for subscriptions may be made (i) in cash if delivered in
person at the Association's stock information center, (ii) by check, bank draft,
or money order, or (iii) by authorization of withdrawal from deposit accounts
maintained with the Association.  Appropriate means by which such withdrawals
may be authorized are provided on the order form.  No wire transfers will be
accepted.  Interest will be paid on payments made by cash, check, bank draft or
money order at the Association's passbook rate from the date payment is received
until the completion or termination of the conversion.  If payment is made by
authorization of withdrawal from deposit accounts, the funds authorized to be
withdrawn from a deposit account will continue to accrue interest at the
contractual rates until completion or termination of the conversion (unless the
certificate matures after the date of receipt of the order form but prior to
closing, in which case funds will earn interest at the passbook rate from the
date of maturity until consummation of the conversion), but a hold will be
placed on such funds, thereby making them unavailable to the depositor until
completion or termination of the conversion.  At the completion of the
conversion, the funds received in the offering will be used to purchase the
shares of common stock ordered.  The shares of common stock issued in the
conversion cannot and will not be insured by the FDIC or any other government
agency.  In the event that the conversion is not consummated for any reason, all
funds submitted will be promptly refunded with interest as described above.

     If a subscriber authorizes the Association to withdraw the amount of the
aggregate purchase price from his or her deposit account, the Association will
do so as of the effective date of conversion, though the account must contain
the full amount necessary for payment at the time the subscription order is
received.  The Association will waive any applicable penalties for early
withdrawal from certificate accounts.  If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the time
that the funds actually are transferred under the authorization the certificate
will be canceled at the time of the withdrawal, without penalty, and the
remaining balance will earn interest at the Association's passbook rate.

     The ESOP will not be required to pay for the shares subscribed for at the
time it subscribes, but rather may pay for such shares of common stock
subscribed for at the $15.00 purchase price upon consummation of the conversion,
provided that there is in force from the time of its subscription until such
time, a loan commitment from an unrelated financial institution or the Holding
Company to lend to the ESOP, at such time, the aggregate purchase price of the
shares for which it subscribed.

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<PAGE>
 
     IRAs maintained in the Association do not permit investment in the common
stock.  A depositor interested in using his or her IRA funds to purchase common
stock must do so through a self-directed IRA.  Since the Association does not
offer such accounts, it will allow such a depositor to make a trustee-to-trustee
transfer of the IRA funds to a trustee offering a self-directed IRA program with
the agreement that such funds will be used to purchase the Holding Company's
common stock in the offering.  There will be no early withdrawal or IRS interest
penalties for such transfers.  The new trustee would hold the common stock in a
self-directed account in the same manner as the Association now holds the
depositor's IRA funds.  An annual administrative fee may be payable to the new
trustee.  Depositors interested in using funds in an Association IRA to purchase
common stock should contact the stock information center as soon as possible so
that the necessary forms may be forwarded for execution and returned prior to
the Expiration Date.  In addition, the provisions of ERISA and IRS regulations
require that officers, directors and 10% shareholders who use self-directed IRA
funds to purchase shares of common stock in the Subscription Offering, make such
purchases for the exclusive benefit of IRAs.

     Certificates representing shares of common stock purchased, and any refund
due, will be mailed to purchasers at such address as may be specified in
properly completed order forms or to the last address of such persons appearing
on the records of the Association as soon as practicable following consummation
of the sale of all shares of common stock.  Any certificates returned as
undeliverable will be disposed of in accordance with applicable law.  Purchasers
may not be able to sell the shares of common stock which they purchased until
certificates for the common stock are available and delivered to them, even
though trading of the common stock may have commenced.

Stock Pricing and Number of Shares to be Issued

     Federal regulations require that the aggregate purchase price of the
securities sold in connection with the conversion be based upon an estimated pro
forma value of the Holding Company and the Association as converted (i.e.,
                                                                     ----
taking into account the expected receipt of proceeds from the sale of securities
in the conversion), as determined by an independent appraisal. The Association
and the Holding Company have retained RP Financial to prepare an appraisal of
the pro forma market value of the Holding Company and the Association as
converted, as well as a business plan. RP Financial will receive a fee expected
to total approximately $42,500 for its appraisal services and assistance in the
preparation of a business plan, plus reasonable out-of-pocket expenses incurred
in connection with the appraisal. The Association has agreed to indemnify RP
Financial under certain circumstances against liabilities and expenses
(including legal fees) arising out of, related to, or based upon the conversion.

     RP Financial has prepared an appraisal of the estimated pro forma market
value of the Holding Company and the Association as converted taking into
account the formation of the Holding Company as the holding company for the
Association.  For its analysis, RP Financial undertook substantial
investigations to learn about the Association's business and operations.
Management supplied financial information, including annual financial
statements, information on the composition of assets and liabilities, and other
financial schedules.  In addition to this information, RP Financial reviewed the
Association's Form AC Application for Approval of Conversion and the Holding
Company's Form S-1 Registration Statement.  Furthermore, RP Financial visited
the Association's facilities and had discussions with the Association's
management and its special conversion legal counsel, Breyer & Aguggia.  No
detailed individual analysis of the separate components of the Holding Company's
or the Association's assets and liabilities was performed in connection with the
evaluation.

     In estimating the pro forma market value of the Holding Company and the
Association as converted, as required by applicable regulatory guidelines, RP
Financial's analysis utilized three selected valuation procedures, the
Price/Book ("P/B") method, the Price/Earnings ("P/E") method, and Price/Assets
("P/A") method, all of which are described in its report.  RP Financial placed
the greatest emphasis on the P/E and P/B methods in estimating pro forma market
value.  In applying these procedures, RP Financial reviewed, among other
factors, the economic make-up of the Association's primary market area, the
Association's financial performance and condition in relation to publicly-traded
institutions that RP Financial deemed comparable to the Association, the
specific terms of the offering of the Holding Company's common stock, the pro
forma impact of the additional capital raised in the conversion, 

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<PAGE>
 
conditions of securities markets in general, and the market for thrift
institution common stock in particular. RP Financial's analysis provides an
approximation of the pro forma market value of the Holding Company and the
Association as converted based on the valuation methods applied and the
assumptions outlined in its report. Included in its report were certain
assumptions as to the pro forma earnings of the Holding Company after the
conversion that were utilized in determining the appraised value. These
assumptions included expenses as described under "PRO FORMA DATA," an assumed
after-tax rate of return on the net conversion proceeds of ____%, purchases by
the ESOP of 8% of the common stock sold in the conversion and purchases in the
open market by the MRP of a number of shares equal to 4% of the common stock
sold in the conversion at the $15.00 purchase price. See "PRO FORMA DATA" for
additional information concerning these assumptions. The use of different
assumptions may yield different results.

     On the basis of the foregoing, RP Financial has advised the Holding Company
and the Association that, in its opinion, as of November 28, 1997, the aggregate
estimated pro forma market value of the Holding Company and the Association as
converted and, therefore, the common stock was within the valuation range of
$44,625,000 to $60,375,000 with a midpoint of $52,500,000.  After reviewing the
methodology and the assumptions used by RP Financial in the preparation of the
appraisal, the Board of Directors established the Estimated Valuation Range
which is equal to the valuation range of $44,625,000 to $60,375,000 with a
midpoint of $52,500,000.  Assuming that the shares are sold at $15.00 per share
in the conversion, the estimated number of shares would be between 2,975,000 and
4,025,000 with a midpoint of 3,500,000.  The purchase price of $15.00 was
determined by discussion among the Boards of Directors of the Association and
the Holding Company and Trident Securities, taking into account, among other
factors (i) the requirement under OTS regulations that the common stock be
offered in a manner that will achieve the widest distribution of the stock, (ii)
desired liquidity in the common stock subsequent to the conversion, and (iii)
the expense of issuing shares for purposes of Delaware franchise taxes.  Since
the outcome of the offering relates in large measure to market conditions at the
time of sale, it is not possible to determine the exact number of shares that
will be issued by the Holding Company at this time. The Estimated Valuation
Range may be amended, with the approval of the OTS, if necessitated by
developments following the date of such appraisal in, among other things, market
conditions, the financial condition or operating results of the Association,
regulatory guidelines or national or local economic conditions.

     RP Financial's appraisal report is filed as an exhibit to the Registration
Statement.  See "ADDITIONAL INFORMATION."

     If, upon completion of the Subscription Offering, at least the minimum
number of shares are subscribed for, RP Financial, after taking into account
factors similar to those involved in its prior appraisal, will determine its
estimate of the pro forma market value of the Holding Company and the
Association as converted, as of the close of the Subscription Offering.

     No sale of the shares will take place unless prior thereto RP Financial
confirms to the OTS that, to the best of RP Financial's knowledge and judgment,
nothing of a material nature has occurred that would cause it to conclude that
the actual total purchase price on an aggregate basis was incompatible with its
estimate of the total pro forma market value of the Holding Company and the
Association as converted at the time of the sale.  If, however, the facts do not
justify such a statement, the offering or other sale may be canceled, a new
Estimated Valuation Range and price per share set and new Subscription, Direct
Community and Syndicated Community Offerings held.  Under such circumstances,
subscribers would have the right to modify or rescind their subscriptions and to
have their subscription funds returned promptly with interest and holds on funds
authorized for withdrawal from deposit accounts would be released or reduced.

     Depending upon market and financial conditions, the number of shares issued
may be more or less than the range in number of shares discussed herein.  In the
event the total amount of shares issued is less than 2,975,000 or more than
4,628,750 (15% above the maximum of the Estimated Valuation Range), for
aggregate gross proceeds of less than $44,625,000 or more than $69,431,250,
subscription funds will be returned promptly with interest to each 

                                       85
<PAGE>
 
subscriber unless he indicates otherwise. In the event a new valuation range is
established by RP Financial, such new range will be subject to approval by the
OTS.

     If purchasers cannot be found for an insignificant residue of unsubscribed
shares from the general public, other purchase arrangements will be made by the
Boards of Directors of the Association and the Holding Company, if possible.
Such other purchase arrangements will be subject to the approval of the OTS and
may provide for purchases for investment purposes by directors, officers, their
associates and other persons in excess of the limitations provided in the Plan
of Conversion and in excess of the proposed director purchases set forth herein,
although no such purchases are currently intended.  If such other purchase
arrangements cannot be made, the Plan of Conversion will terminate.

     In formulating its appraisal, RP Financial relied upon the truthfulness,
accuracy and completeness of all documents the Association furnished to it.  RP
Financial also considered financial and other information from regulatory
agencies, other financial institutions, and other public sources, as
appropriate.  While RP Financial believes this information to be reliable, RP
Financial does not guarantee the accuracy or completeness of such information
and did not independently verify the financial statements and other data
provided by the Association and the Holding Company or independently value the
assets or liabilities of the Holding Company and the Association.  The appraisal
by RP Financial is not intended to be, and must not be interpreted as, a
recommendation of any kind as to the advisability of voting to approve the Plan
of Conversion or of purchasing shares of common stock.  Moreover, because the
appraisal is necessarily based on many factors which change from time to time,
there is no assurance that persons who purchase such shares in the conversion
will later be able to sell shares thereafter at prices at or above the purchase
price.

Limitations on Purchases of Shares

     The Plan of Conversion provides for certain limitations to be placed upon
the purchase of common stock by eligible subscribers and others in the
conversion.  Each subscriber must subscribe for a minimum of 25 shares.  With
the exception of the ESOP, which is expected to subscribe for 8% of the shares
of common stock issued in the conversion, the Plan of Conversion provides for
the following purchase limitations: (i) No Eligible Account Holder, Supplemental
Eligible Account Holder or Other Member, including, in each case, all persons on
a joint account, may purchase shares of common stock with an aggregate purchase
price of more than $330,000, (ii) no person may purchase in the Direct Community
Offering, if any, or in the Syndicated Community Offering, if any, shares of
common stock with an aggregate purchase price of more than $330,000, and (iii)
no person, either alone or together with associates of or persons acting in
concert with such person, may purchase in the aggregate more than the overall
maximum purchase limitation of 1% of the total number of shares of common stock
issued in the conversion (exclusive of any shares issued pursuant to an increase
in the Estimated Valuation Range of up to 15%). For purposes of the Plan of
Conversion, the directors are not deemed to be acting in concert solely by
reason of their Board membership. Pro rata reductions within each subscription
rights category will be made in allocating shares to the extent that the maximum
purchase limitations are exceeded.

     The Association's and the Holding Company's Boards of Directors may, in
their sole discretion, increase the maximum purchase limitation set forth above
up to 9.99% of the shares of common stock sold in the conversion, provided that
orders for shares which exceed 5% of the shares of common stock sold in the
conversion may not exceed, in the aggregate, 10% of the shares sold in the
conversion.  The Association and the Holding Company do not intend to increase
the maximum purchase limitation unless market conditions are such that an
increase in the maximum purchase limitation is necessary to sell a number of
shares in excess of the minimum of the Estimated Valuation Range.  If the Boards
of Directors decide to increase the purchase limitation above, persons who
subscribed for the maximum number of shares of common stock will be, and other
large subscribers in the discretion of the Holding Company and the Association
may be, given the opportunity to increase their subscriptions accordingly,
subject to the rights and preferences of any person who has priority
subscription rights.

                                       86
<PAGE>
 
     The term "acting in concert" is defined in the Plan of Conversion to mean
(i) knowing participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not pursuant to an express
agreement; or (ii) a combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise.  In general, a person who acts in concert with another party shall
also be deemed to be acting in concert with any person who is also acting in
concert with that other party.

     The term "associate" of a person is defined in the Plan of Conversion to
mean (i) any corporation or organization (other than the Association or a
majority-owned subsidiary of the Association) of which such person is an officer
or partner or is, directly or indirectly, the beneficial owner of 10% or more of
any class of equity securities; (ii) any trust or other estate in which such
person has a substantial beneficial interest or as to which such person serves
as trustee or in a similar fiduciary capacity (excluding tax-qualified employee
plans); and (iii) any relative or spouse of such person, or any relative of such
spouse, who either has the same home as such person or who is a director or
officer of the Association or any of its parents or subsidiaries.  For example,
a corporation of which a person serves as an officer would be an associate of
such person and, therefore, all shares purchased by such corporation would be
included with the number of shares which such person could purchase individually
under the above limitations.

     The term "officer" is defined in the Plan of Conversion to mean an
executive officer of the Association, including its Chairman of the Board,
President, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents in
charge of principal business functions, Secretary and Treasurer.

     Common stock purchased pursuant to the conversion will be freely
transferable, except for shares purchased by directors and officers of the
Association and the Holding Company and by NASD members.  See "--Restrictions on
Transferability by Directors and Officers and NASD Members."

Restrictions on Repurchase of Stock

     Pursuant to OTS regulations, OTS-regulated savings associations (and their
holding companies) may not for a period of three years from the date of an
institution's mutual-to-stock conversion repurchase any of its common stock from
any person, except in the event of (i) an offer made to all of its stockholders
to repurchase the common stock on a pro rata basis, approved by the OTS; or (ii)
the repurchase of qualifying shares of a director. Furthermore, repurchases of
any common stock are prohibited if the effect thereof would cause the
association's regulatory capital to be reduced below (a) the amount required for
the liquidation account or (b) the regulatory capital requirements imposed by
the OTS. Repurchases are generally prohibited during the first year following
conversion. Upon ten days' written notice to the OTS, and if the OTS does not
object, an institution may make open market repurchases of its outstanding
common stock during years two and three following the conversion, provided that
certain regulatory conditions are met and that the repurchase would not
adversely affect the financial condition of the institution. Any repurchases of
common stock by the Holding Company would be subject to these regulatory
restrictions unless the OTS would provide otherwise.

Restrictions on Transferability by Directors and Officers and NASD Members

     Shares of common stock purchased in the offering by directors and officers
of the Holding Company may not be sold for a period of one year following
consummation of the conversion, except in the event of the death of the
stockholder or in any exchange of the common stock in connection with a merger
or acquisition of the Holding Company.  Shares of common stock received by
directors or officers through the ESOP or the MRP or upon exercise of options
issued pursuant to the Stock Option Plan or purchased subsequent to the
conversion are not subject to this restriction.  Accordingly, shares of common
stock issued by the Holding Company to directors and officers shall bear a
legend giving appropriate notice of the restriction and, in addition, the
Holding Company will give appropriate instructions to the transfer agent for the
Holding Company's common stock with respect to the restriction on 

                                       87
<PAGE>
 
transfers. Any shares issued to directors and officers as a stock dividend,
stock split or otherwise with respect to restricted common stock shall be
subject to the same restrictions.

     Purchases of outstanding shares of common stock of the Holding Company by
directors, executive officers (or any person who was an executive officer or
director of the Association after adoption of the Plan of Conversion) and their
associates during the three-year period following the conversion may be made
only through a broker or dealer registered with the SEC, except with the prior
written approval of the OTS.  This restriction does not apply, however, to
negotiated transactions involving more than 1% of the Holding Company's
outstanding common stock or to the purchase of stock pursuant to the Stock
Option Plan.

     The Holding Company has filed with the SEC a registration statement under
the Securities Act for the registration of the common stock to be issued
pursuant to the conversion.  The registration under the Securities Act of shares
of the common stock to be issued in the conversion does not cover the resale of
such shares.  Shares of common stock purchased by persons who are not affiliates
of the Holding Company may be resold without registration.  Shares purchased by
an affiliate of the Holding Company will be subject to the resale restrictions
of Rule 144 under the Securities Act.  If the Holding Company meets the current
public information requirements of Rule 144 under the Securities Act, each
affiliate of the Holding Company who complies with the other conditions of Rule
144 (including those that require the affiliate's sale to be aggregated with
those of certain other persons) would be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of (i) 1% of the outstanding shares of the Holding Company
or (ii) the average weekly volume of trading in such shares during the preceding
four calendar weeks.  Provision may be made in the future by the Holding Company
to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.

     Under guidelines of the NASD, members of the NASD and their associates are
subject to certain restrictions on the transfer of securities purchased in
accordance with subscription rights and to certain reporting requirements upon
purchase of such securities.


               RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY

     The following discussion is a summary of certain provisions of federal law
and regulations and Delaware corporate law, as well as the Certificate of
Incorporation and Bylaws of the Holding Company, relating to stock ownership and
transfers, the Board of Directors and business combinations, all of which may be
deemed to have "anti-takeover" effects. The description of these provisions is
necessarily general and reference should be made to the actual law and
regulations and to the Certificate of Incorporation and Bylaws of the Holding
Company contained in the Registration Statement filed with the SEC. See
"ADDITIONAL INFORMATION" as to how to obtain a copy of these documents.

Conversion Regulations

     OTS regulations prohibit any person from making an offer, announcing an
intent to make an offer or participating in any other arrangement to purchase
stock or acquiring stock or subscription rights in a converting institution (or
its holding company) from another person prior to completion of its conversion.
Further, without the prior written approval of the OTS, no person may make such
an offer or announcement of an offer to purchase shares or actually acquire
shares in the converting institution (or its holding company) for a period of
three years from the date of the completion of the conversion if, upon the
completion of such offer, announcement or acquisition, that person would become
the beneficial owner of more than 10% of the outstanding stock of the
institution (or its holding company).  The OTS has defined "person" to include
any individual, group acting in concert, corporation, partnership, association,
joint stock company, trust, unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution.  However, offers made
exclusively to an association (or its holding company) or an underwriter or
member of a 

                                       88
<PAGE>
 
selling group acting on the converting institution's (or its holding company's)
behalf for resale to the general public are excepted. The regulation also
provides civil penalties for willful violation or assistance in any such
violation of the regulation by any person connected with the management of the
converting institution (or its holding company) or who controls more than 10% of
the outstanding shares or voting rights of a converting or converted institution
(or its holding company).

Change of Control Regulations

     Under the Change in Bank Control Act, no person may acquire control of an
insured federal savings and loan association or its parent holding company
unless the OTS has been given 60 days' prior written notice and has not issued a
notice disapproving the proposed acquisition.  In addition, OTS regulations
provide that no company may acquire control of a savings association without the
prior approval of the OTS.  Any company that acquires such control becomes a
"savings and loan holding company" subject to registration, examination and
regulation by the OTS.

     Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings
association's directors, or a determination by the OTS that the acquiror has the
power to direct, or directly or indirectly to exercise a controlling influence
over, the management or policies of the institution.  Acquisition of more than
10% of any class of a savings association's voting stock, if the acquiror also
is subject to any one of eight "control factors," constitutes a rebuttable
determination of control under the regulations.  Such control factors include
the acquiror being one of the two largest stockholders.  The determination of
control may be rebutted by submission to the OTS, prior to the acquisition of
stock or the occurrence of any other circumstances giving rise to such
determination, of a statement setting forth facts and circumstances which would
support a finding that no control relationship will exist and containing certain
undertakings.  The regulations provide that persons or companies which acquire
beneficial ownership exceeding 10% or more of any class of a savings
association's stock must file with the OTS a certification form that the holder
is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable.  There are also rebuttable presumptions in
the regulations concerning whether a group "acting in concert" exists, including
presumed action in concert among members of an "immediate family."

     The OTS may prohibit an acquisition of control if it finds, among other
things, that (i) the acquisition would result in a monopoly or substantially
lessen competition, (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the institution, or (iii) the competence,
experience or integrity of the acquiring person indicates that it would not be
in the interest of the depositors or the public to permit the acquisition of
control by such person.

Anti-takeover Provisions in the Holding Company's Certificate of Incorporation
and Bylaws and in Delaware Law

     A number of provisions of the Holding Company's Certificate of
Incorporation and Bylaws deal with matters of corporate governance and certain
rights of stockholders.  The following discussion is a general summary of
certain provisions of the Holding Company's Certificate of Incorporation and
Bylaws and regulatory provisions relating to stock ownership and transfers, the
Board of Directors and business combinations, which might be deemed to have a
potential "anti-takeover" effect.  These provisions may have the effect of
discouraging a future takeover attempt which is not approved by the Board of
Directors but which individual Holding Company stockholders may deem to be in
their best interests or in which stockholders may receive a substantial premium
for their shares over then current market prices.  As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so.  Such provisions will also render the removal of the incumbent Board of
Directors or management of the Holding Company more difficult.  The following
description of certain of the provisions of the Certificate of Incorporation and
Bylaws of the Holding Company is necessarily general and reference should be
made 

                                       89
<PAGE>
 
in each case to such Certificate of Incorporation and Bylaws, which are
incorporated herein by reference. See "ADDITIONAL INFORMATION" as to where to
obtain a copy of these documents.

     Limitation on Voting Rights.  The Certificate of Incorporation of the
Holding Company provides that in no event shall any record owner of any
outstanding common stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of common stock (the "Limit") be entitled or permitted to any vote in respect of
the shares held in excess of the Limit, unless permitted by a resolution adopted
by a majority of the board of directors.  Beneficial ownership is determined
pursuant to Rule 13d-3 of the General Rules and Regulations of the Exchange Act
and includes shares beneficially owned by such person or any of his or her
affiliates (as defined in the Certificate of Incorporation), shares which such
person or his or her affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person and his or her
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by the ESOP or directors, officers and employees of
the Association or Holding Company or shares that are subject to a revocable
proxy and that are not otherwise beneficially, or deemed by the Holding Company
to be beneficially, owned by such person and his or her affiliates.

     Board of Directors.  The Board of Directors of the Holding Company is
divided into three classes, each of which shall contain approximately one-third
of the whole number of the members of the Board.  The members of each class
shall be elected for a term of three years, with the terms of office of all
members of one class expiring each year so that approximately one-third of the
total number of directors are elected each year.  The Holding Company's
Certificate of Incorporation provides that the size of the Board shall be as set
forth in the Bylaws.  The Bylaws currently set the number of directors at five.
The Certificate of Incorporation provides that any vacancy occurring in the
Board, including a vacancy created by an increase in the number of directors,
shall be filled by a vote of two-thirds of the directors then in office and any
director so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of the class to which the director has been
chosen expires.  The classified Board is intended to provide for continuity of
the Board of Directors and to make it more difficult and time consuming for a
stockholder group to fully use its voting power to gain control of the Board of
Directors without the consent of the incumbent Board of Directors of the Holding
Company.  The Certificate of Incorporation of the Holding Company provides that
a director may be removed from the Board of Directors prior to the expiration of
his or her term only for cause and only upon the vote of 80% of the outstanding
shares of voting stock.  In the absence of this provision, the vote of the
holders of a majority of the shares could remove the entire Board, but only with
cause, and replace it with persons of such holders' choice.

     Cumulative Voting, Special Meetings and Action by Written Consent.  The
Certificate of Incorporation does not provide for cumulative voting for any
purpose.  Moreover, the Certificate of Incorporation provides that special
meetings of stockholders of the Holding Company may be called only by the Board
of Directors of the Holding Company and that stockholders may take action only
at a meeting and not by written consent.

     Authorized Shares. The Certificate of Incorporation authorizes the issuance
of 10,000,000 shares of common stock and 500,000 shares of preferred stock. The
shares of common stock and preferred stock were authorized in an amount greater
than that to be issued in the conversion to provide the Holding Company's Board
of Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits,
restricted stock grants and the exercise of stock options. However, these
additional authorized shares may also be used by the Board of Directors,
consistent with fiduciary duties, to deter future attempts to gain control of
the Holding Company. The Board of Directors also has sole authority to determine
the terms of any one or more series of preferred stock, including voting rights,
conversion rates, and liquidation preferences. As a result of the ability to fix
voting rights for a series of preferred stock, the Board has the power, to the
extent consistent with its fiduciary duty, to issue a series of preferred stock
to persons friendly to management in order to attempt to block a tender offer,
merger or other transaction by which a third party seeks control of the Holding
Company, and thereby assist members of management to retain their positions. The
Holding Company's Board currently has no plans for the issuance of additional
shares, other than the issuance of shares of common stock upon exercise of stock
options and in connection with the MRP.

                                       90
<PAGE>
 
     Stockholder Vote Required to Approve Business Combinations with Principal
Stockholders.  The Certificate of Incorporation requires the approval of the
holders of at least 80% of the Holding Company's outstanding shares of voting
stock to approve certain "Business Combinations" (as defined therein) involving
a "Related Person" (as defined therein) except in cases where the proposed
transaction has been approved in advance by a majority of those members of the
Holding Company's Board of Directors who are unaffiliated with the Related
Person and were directors prior to the time when the Related Person became a
Related Person.  The term "Related Person" is defined to include any individual,
corporation, partnership or other entity (other than the Holding Company or its
subsidiary) which owns beneficially or controls, directly or indirectly, 10% or
more of the outstanding shares of voting stock of the Holding Company or an
affiliate of such person or entity.  This provision of the Certificate of
Incorporation applies to any "Business Combination," which is defined to
include:  (i) any merger or consolidation of the Holding Company with or into
any Related Person; (ii) any sale, lease, exchange, mortgage, transfer, or other
disposition of 25% or more of the assets of the Holding Company or combined
assets of the Holding Company and its subsidiaries to a Related Person; (iii)
any merger or consolidation of a Related Person with or into the Holding Company
or a subsidiary of the Holding Company; (iv) any sale, lease, exchange,
transfer, or other disposition of 25% or more of the assets of a Related Person
to the Holding Company or a subsidiary of the Holding Company; (v) the issuance
of any securities of the Holding Company or a subsidiary of the Holding Company
to a Related Person; (vi) the acquisition by the Holding Company or a subsidiary
of the Holding Company of any securities of a Related Person; (vii) any
reclassification of common stock of the Holding Company or any recapitalization
involving the common stock of the Holding Company; or (viii) any agreement or
other arrangement providing for any of the foregoing.

     Under Delaware law, absent this provision, business combinations, including
mergers, consolidations and sales of substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of a majority of the outstanding shares of common stock of the Holding
Company and any other affected class of stock.  One exception under Delaware law
to the majority approval requirement applies to stockholders owning 15% or more
of the common stock of a corporation for a period of less than three years.
Such 15% stockholder, in order to obtain approval of a business combination,
must obtain the approval of two-thirds of the outstanding stock, excluding the
stock owned by such 15% stockholder, or satisfy other requirements under
Delaware law relating to board of director approval of his or her acquisition of
the shares of the Holding Company.  The increased stockholder vote required to
approve a business combination may have the effect of foreclosing mergers and
other business combinations which a majority of stockholders deem desirable and
placing the power to prevent such a merger or combination in the hands of a
minority of stockholders.

     Amendment of Certificate of Incorporation and Bylaws.  Amendments to the
Holding Company's Certificate of Incorporation must be approved by a majority
vote of its Board of Directors and also by a majority of the outstanding shares
of its voting stock, provided, however, that an affirmative vote of at least 80%
of the outstanding voting stock entitled to vote (after giving effect to the
provision limiting voting rights) is required to amend or repeal certain
provisions of the Certificate of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
directors, director and officer indemnification by the Holding Company and
amendment of the Holding Company's Bylaws and Certificate of Incorporation. The
Holding Company's Bylaws may be amended by its Board of Directors, or by a vote
of 80% of the total votes eligible to be voted at a duly constituted meeting of
stockholders.

     Stockholder Nominations and Proposals.  The Certificate of Incorporation of
the Holding Company requires a stockholder who intends to nominate a candidate
for election to the Board of Directors, or to raise new business at a
stockholder meeting to give not less than 30 nor more than 60 days' advance
notice to the Secretary of the Holding Company.  The notice provision requires a
stockholder who desires to raise new business to provide certain information to
the Holding Company concerning the nature of the new business, the stockholder
and the stockholder's interest in the business matter.  Similarly, a stockholder
wishing to nominate any person for election as a director must provide the
Holding Company with certain information concerning the nominee and the
proposing stockholder.

                                       91
<PAGE>
 
     Purpose and Takeover Defensive Effects of the Holding Company's Certificate
of Incorporation and Bylaws.  The Board of Directors of the Association believes
that the provisions described above are prudent and will reduce the Holding
Company's vulnerability to takeover attempts and certain other transactions that
have not been negotiated with and approved by its Board of Directors.  These
provisions will also assist the Association in the orderly deployment of the
conversion proceeds into productive assets during the initial period after the
conversion.  The Board of Directors believes these provisions are in the best
interest of the Association and Holding Company and its stockholders.  In the
judgment of the Board of Directors, the Holding Company's Board will be in the
best position to determine the true value of the Holding Company and to
negotiate more effectively for what may be in the best interests of its
stockholders.  Accordingly, the Board of Directors believes that it is in the
best interest of the Holding Company and its stockholders to encourage potential
acquirors to negotiate directly with the Board of Directors of the Holding
Company and that these provisions will encourage such negotiations and
discourage hostile takeover attempts.  It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at a price reflective of the true value of the
Holding Company and that is in the best interest of all stockholders.

     Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common.  Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms that may be less favorable than
might otherwise be available.  A transaction that is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value of the Holding
Company for its stockholders, with due consideration given to matters such as
the management and business of the acquiring corporation and maximum strategic
development of the Holding Company's assets.

     An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense.  Although a tender offer
or other takeover attempt may be made at a price substantially above the current
market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company.  As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
that is under different management and whose objectives may not be similar to
those of the remaining stockholders.  The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive the
Holding Company's remaining stockholders of benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners became less
than 300, thereby allowing for deregistration under the Exchange Act.

     Despite the belief of the Association and the Holding Company as to the
benefits to stockholders of these provisions of the Holding Company's
Certificate of Incorporation and Bylaws, these provisions may also have the
effect of discouraging a future takeover attempt that would not be approved by
the Holding Company's Board, but pursuant to which stockholders may receive a
substantial premium for their shares over then current market prices.  As a
result, stockholders who might desire to participate in such a transaction may
not have any opportunity to do so.  Such provisions will also render the removal
of the Holding Company's Board of Directors and of management more difficult.
The Board of Directors of the Association and the Holding Company, however, have
concluded that the potential benefits outweigh the possible disadvantages.

     Following the conversion, pursuant to applicable law and, if required,
following the approval by stockholders, the Holding Company may adopt additional
anti-takeover charter provisions or other devices regarding the acquisition of
its equity securities that would be permitted for a Delaware business
corporation.

     The cumulative effect of the restriction on acquisition of the Holding
Company contained in the Certificate of Incorporation and Bylaws of the Holding
Company and in Federal and Delaware law may be to discourage potential takeover
attempts and perpetuate incumbent management, even though certain stockholders
of the Holding Company may deem a potential acquisition to be in their best
interests, or deem existing management not to be acting in their best interests.

                                       92
<PAGE>
 
              DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY

General

     The Holding Company is authorized to issue 10,000,000 shares of common
stock having a par value of $.01 per share and 500,000 shares of preferred stock
having a par value of $.01 per share.  The Holding Company currently expects to
issue up to 4,025,000 shares of common stock and no shares of preferred stock in
the conversion.  Each share of the Holding Company's common stock will have the
same relative rights as, and will be identical in all respects with, each other
share of common stock.  Upon payment of the purchase price for the common stock,
in accordance with the Plan of Conversion, all such stock will be duly
authorized, fully paid and nonassessable.

     The common stock of the Holding Company will represent nonwithdrawable
capital, will not be an account of any type, and will not be insured by the FDIC
or any other government agency.

Common Stock

     Dividends.  The Holding Company can pay dividends out of statutory surplus
or from certain net profits if, as and when declared by its Board of Directors.
The payment of dividends by the Holding Company is subject to limitations which
are imposed by law and applicable regulation.  See "DIVIDEND POLICY" and
"REGULATION."  The holders of common stock of the Holding Company will be
entitled to receive and share equally in such dividends as may be declared by
the Board of Directors of the Holding Company out of funds legally available
therefor.  If the Holding Company issues preferred stock, the holders thereof
may have a priority over the holders of the common stock with respect to
dividends.

     Voting Rights.  Upon conversion, the holders of common stock of the Holding
Company will possess exclusive voting rights in the Holding Company.  They will
elect the Holding Company's Board of Directors and act on such other matters as
are required to be presented to them under Delaware law or as are otherwise
presented to them by the Board of Directors.  Except as discussed in
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY," each holder of common
stock will be entitled to one vote per share and will not have any right to
cumulate votes in the election of directors.  If the Holding Company issues
preferred stock, holders of the Holding Company preferred stock may also possess
voting rights.  Certain matters require a vote of 80% of the outstanding shares
entitled to vote thereon.  See "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY."

     As a federal mutual savings and loan association, corporate powers and
control of the Association are vested in its Board of Directors, who elect the
officers of the Association and who fill any vacancies on the Board of Directors
as it exists upon conversion.  Subsequent to Conversion, voting rights will be
vested exclusively in the owners of the shares of capital stock of the
Association, all of which will be owned by the Holding Company, and voted at the
direction of the Holding Company's Board of Directors.  Consequently, the
holders of the common stock will not have direct control of the Association.

     Liquidation.  In the event of any liquidation, dissolution or winding up of
the Association, the Holding Company, as holder of the Association's capital
stock would be entitled to receive, after payment or provision for payment of
all debts and liabilities of the Association (including all deposit accounts and
accrued interest thereon) and after distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders (see "THE CONVERSION"), all assets of the Association available
for distribution. In the event of liquidation, dissolution or winding up of the
Holding Company, the holders of its common stock would be entitled to receive,
after payment or provision for payment of all its debts and liabilities, all of
the assets of the Holding Company available for distribution. If Holding Company
preferred stock is issued, the holders thereof may have a priority over the
holders of the common stock in the event of liquidation or dissolution.

                                       93
<PAGE>
 
     Preemptive Rights.  Holders of the common stock of the Holding Company will
not be entitled to preemptive rights with respect to any shares that may be
issued.  The common stock is not subject to redemption.

Preferred Stock

     None of the shares of the authorized Holding Company preferred stock will
be issued in the conversion and there are no plans to issue the preferred stock.
Such stock may be issued with such designations, powers, preferences and rights
as the Board of Directors may from time to time determine.  The Board of
Directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.

Restrictions on Acquisition

     Acquisitions of the Holding Company are restricted by provisions in its
Certificate of Incorporation and Bylaws and by the rules and regulations of
various regulatory agencies.  See "REGULATION" and "RESTRICTIONS ON ACQUISITION
OF THE HOLDING COMPANY."


                           REGISTRATION REQUIREMENTS

     The Holding Company will register the common stock with the SEC pursuant to
Section 12(g) of the Exchange Act upon the completion of the conversion and will
not deregister its common stock for a period of at least three years following
the completion of the conversion.  Upon such registration, the proxy and tender
offer rules, insider trading reporting and restrictions, annual and periodic
reporting and other requirements of the Exchange Act will be applicable.


                             LEGAL AND TAX OPINIONS

     The legality of the common stock has been passed upon for the Holding
Company by Breyer & Aguggia, Washington, D.C.  The federal tax consequences of
the offering have been opined upon by Breyer & Aguggia and the South Carolina
tax consequences of the offering have been opined upon by Deloitte & Touche LLP.
Breyer & Aguggia and Deloitte & Touche LLP have consented to the references
herein to their opinions.  Certain legal matters will be passed upon for Trident
Securities by Luse Lehman Gorman Pomerenk & Schick, Washington, D.C.


                                    EXPERTS

     The financial statements of the Association as of September 30, 1997 and
1996 and for the years ended September 30, 1997, 1996 and 1995 included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and have been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.

     RP Financial has consented to the publication herein of the summary of its
report to the Association setting forth its opinion as to the estimated pro
forma market value of the Holding Company and the Association as converted and
its letter with respect to subscription rights and to the use of its name and
statements with respect to it appearing herein.

                                       94
<PAGE>
 
                             ADDITIONAL INFORMATION

     The Holding Company has filed with the SEC a Registration Statement on Form
S-1 (File No. 333-______) under the Securities Act with respect to the common
stock offered in the conversion.  This prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC.  Such
information may be inspected at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at its
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and 7 World Trade Center, Suite 1300, New York, New York  10048.  Copies
may be obtained at prescribed rates from the Public Reference Section of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549.  The Registration Statement
also is available through the SEC's World Wide Web site on the Internet
(http://www.sec.gov).

     The Association has filed with the OTS an Application for Approval of
Conversion, which includes proxy materials for the Association's Special Meeting
and certain other information.  This prospectus omits certain information
contained in such Application.  The Application, including the proxy materials,
exhibits and certain other information that are a part thereof, may be
inspected, without charge, at the offices of the OTS, 1700 G Street, N.W.,
Washington, D.C. 20552 and at the office of the Regional Director of the OTS at
the Southeast Regional Office of the OTS, 1475 Peachtree Street, N.E., Atlanta,
Georgia 30309.

                                       95
<PAGE>
 
                         Index To Financial Statements
                  Heritage Federal Savings & Loan Association

<TABLE> 
<CAPTION> 
                                                                                      Page
                                                                                      ----
<S>                                                                                   <C>  
Independent Auditors' Report......................................................      F-1

Balance Sheets as of September 30, 1997 and 1996..................................      F-2

Statements of Income for the
 Years Ended September 30, 1997, 1996 and 1995....................................       24

Statements of Equity for the
 Years Ended September 30, 1997, 1996, and 1995...................................      F-3

Statements of Cash Flows for the
 Years Ended September 30, 1997, 1996 and 1995....................................      F-4

Notes to Financial Statements.....................................................      F-6
</TABLE>


                                   *   *   *


     All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or related
Notes.

     Separate financial statements for the Holding Company have not been
included herein because the Holding Company, which has engaged in only
organizational activities to date, has no significant assets, liabilities
(contingent or otherwise), revenues or expenses.

                                       96
<PAGE>
 
INDEPENDENT AUDITORS' REPORT

Board of Directors
Heritage Federal Savings and Loan Association:

We have audited the accompanying balance sheets of Heritage Federal Savings and
Loan Association (the "Association") as of September 30, 1997 and 1996, and the
related statements of income, equity and cash flows for each of the three years
in the period ended September 30, 1997, 1996, and 1995.  These financial
statements are the responsibility of the Association'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 auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Association at September 30, 1997 and
1996, and the results of its operations and its cash flows for each of the three
years in the period ended September 30, 1997 in conformity with generally
accepted accounting principles.



/s/ DELOITTE & TOUCHE LLP
Greenville, South Carolina

November 7, 1997
                                      F-1
<PAGE>

HERITAGE FEDERAL SAVINGS AND LOAN ASSOCIATION

BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
(In Thousands of Dollars)
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 

ASSETS                                                                                          1997              1996
<S>                                                                                         <C>               <C> 
Cash                                                                                        $    2,012        $    1,557   
Federal funds sold and overnight interest-bearing deposits                                      12,647             4,318   
                                                                                            ----------        ----------
          Total cash and cash equivalents                                                       14,659             5,875
Investment securities (Note 2):
  Held-to-maturity - at amortized cost (fair value:  1997 - $15,954; 1996 -
    $20,778)                                                                                    15,988            20,993
  Available-for-sale - at fair value (amortized cost:  1997 - $6,063; 1996 -
    $15,434)                                                                                     8,390            16,899
Mortgage-backed securities - held to maturity - at amortized cost
  (fair value:  1997 - $6,635; 1996 - $9,584) (Note 3)                                           6,665             9,726    
Loans receivable - net (Notes 4 and 8)                                                         192,663           182,950    
Loans held-for-sale - at lower of cost or market (market value:
  1997 - $1,065)                                                                                 1,045              -
Office properties and equipment - net (Note 5)                                                   4,278             4,530    
Federal Home Loan Bank Stock - at cost (Note 8)                                                  2,042             2,042    
Accrued interest receivable                                                                      1,242             1,334    
Real estate acquired in settlement of loans - net (Note 6)                                         410                86    
Other assets                                                                                       117               224    
                                                                                            ----------        ----------

TOTAL                                                                                       $  247,499        $  244,659
                                                                                            ==========        ==========

LIABILITIES AND EQUITY

LIABILITIES:
  Deposit accounts (Note 7)                                                                 $  215,412        $  209,730
  Advance from Federal Home Loan Bank of Atlanta (Note 8)                                         -                5,000
  Accrued interest on deposit accounts                                                             338               358
  Other liabilities (Note 9)                                                                     2,514             2,831
                                                                                            ----------        ----------

          Total liabilities                                                                    218,264           217,919
                                                                                            ----------        ----------

COMMITMENTS AND CONTINGENCIES (Note 10)

EQUITY:
  Retained income - substantially restricted (Notes 9 and 12)                                   27,769            25,817
  Unrealized gain on available-for-sale securities (net of deferred income
    taxes of $861 in 1997 and $542 in 1996)                                                      1,466               923
                                                                                            ----------        ----------

          Total equity                                                                          29,235            26,740
                                                                                            ----------        ----------

TOTAL                                                                                       $  247,499        $  244,659
                                                                                            ==========        ==========

</TABLE> 

See notes to financial statements.

                                      F-2
<PAGE>
HERITAGE FEDERAL SAVINGS AND LOAN ASSOCIATION

STATEMENTS OF EQUITY
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(In Thousands of Dollars)
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                                        Net Unrealized
                                                                            Gain on
                                                                        Available-for-Sale      Retained
                                                                          Securities (1)         Income          Total
<S>                                                                     <C>                     <C>             <C> 
BALANCE, SEPTEMBER 30, 1994                                                  $   288             $23,079        $23,367
                                                                                     
  Net income for the year ended September 30, 1995                               -                 1,979          1,979
  Change in net unrealized gain on available-for-sale                                   
    securities for the year ended September 30, 1995                             346                 -              346
                                                                             -------             -------        -------
                                                                                     
BALANCE, SEPTEMBER 30, 1995                                                      634              25,058         25,692
                                                                                     
  Net income for the year ended September 30, 1996                               -                   759            759
  Change in net unrealized gain on available-for-sale                                
    securities for the year ended September 30, 1996                             289                 -              289
                                                                             -------             -------        -------
                                                                                     
BALANCE, SEPTEMBER 30, 1996                                                      923              25,817         26,740   
                                                                                     
  Net income for the year ended September 30, 1997                               -                 1,952          1,952
  Change in net unrealized gain on available-for-sale                                
    securities for the year ended September 30, 1997                             543                 -              543
                                                                             -------             -------        -------
                                                                                     
BALANCE, SEPTEMBER 30, 1997                                                  $ 1,466             $27,769        $29,235
                                                                             =======             =======        =======
</TABLE> 

(1)  Net of deferred income taxes.


See notes to financial statements.

                                      F-3
<PAGE>

HERITAGE FEDERAL SAVINGS AND LOAN ASSOCIATION

STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(In Thousands of Dollars
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION>
                                                                                        Year Ended September 30,
                                                                               ----------------------------------------
                                                                                    1997         1996          1995
<S>                                                                            <C>             <C>           <C> 
OPERATING ACTIVITIES:
  Net income                                                                      $ 1,952      $   759       $ 1,979
  Adjustments to reconcile net income to net cash provided by                                                       
    operating activities:                                                                                           
    Provision for deferred income taxes (benefit)                                     528         (110)          204
    Loss (gain) on sale of available-for-sale securities                               13           (2)          -
    Amortization of premium on investment and mortgage-backed                                                       
      securities                                                                       30           59            66
    Gain on sale of loans held-for-sale                                                (6)         (16)          -
    Amortization of net deferred income                                              (151)        (162)         (100)
    Provision for loan losses (recovery of allowance)                                 337           (7)           47
    Proceeds from the sale of loans held-for-sale                                     485          970           -
    Purchase of loans held-for-sale                                                (1,051)         -             -
    Depreciation on office properties and equipment                                   280          242            52
    Loss on sale of property                                                          -             37           -
    Provision for losses (recovery of allowance) on real estate acquired                                            
      in settlement of loans                                                            9           (1)           61
    Loss (gain) on sales of real estate acquired in settlement of loans              (185)        (122)            3
    (Increase) decrease in accrued interest receivable and other assets               199         (194)         (421)
    Increase (decrease) in accrued interest payable and other liabilities          (1,184)       1,515           865
                                                                                  -------      -------       -------    
          Net cash provided by operating activities                                 1,256        2,968         2,756
                                                                                  -------      -------       -------    
                                                                                                                    
INVESTING ACTIVITIES:                                                                                               
  Proceeds from maturities and calls of available-for-sale investment                                               
    securities                                                                      8,100        6,500         3,500
  Proceeds from maturities and calls of held-to-maturity investment                                                 
    securities                                                                      8,500        7,100           -
  Proceeds from the sale of available-for-sale investment securities                1,737        1,002           -
  Purchases of available-for-sale investment securities                              (500)      (2,504)          -
  Purchases of held-to-maturity investment securities                              (3,492)     (19,750)          -
  Purchases of mortgage-backed securities                                             -           (499)          -
  Principal repayments on mortgage-backed securities                                3,049        2,747         2,087
  Purchase of loans receivable                                                     (2,465)         -             -
  Net loan originations and principal payments on loans                            (8,903)      (5,568)      (18,711)
  Proceeds from sales of real estate acquired in settlement of loans                  986          232           405
  Capitalized costs of real estate acquired in settlement of loans                   (138)         -             -
  Acquisition of office properties and equipment                                      (28)        (663)       (3,227)
                                                                                  -------      -------       -------    
          Net cash provided by (used in) investing activities                       6,846      (11,403)      (15,946)
                                                                                  -------      -------       -------    
</TABLE> 

                                      F-4
<PAGE>

HERITAGE FEDERAL SAVINGS AND LOAN ASSOCIATION

STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(In Thousands of Dollars)
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 

                                                                                     Year Ended September 30,
                                                                               -------------------------------------
                                                                                  1997         1996         1995

<S>                                                                            <C>          <C>          <C> 
FINANCING ACTIVITIES:
  Net increase in deposits                                                     $  5,682     $  8,257     $  11,551
  Proceeds from Federal Home Loan Bank borrowings                                     -            -        18,250
  Principal repayments on Federal Home Loan Bank borrowings                      (5,000)           -       (13,250)
                                                                               --------     --------     --------- 
          Net cash provided by financing activities                                 682        8,257        16,551
                                                                               --------     --------     --------- 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                              8,784         (178)        3,361

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                    5,875        6,053         2,692
                                                                               --------     --------     --------- 

CASH AND CASH EQUIVALENTS AT END OF YEAR                                       $ 14,659     $  5,875     $   6,053
                                                                               ========     ========     ========= 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the year for:
    Interest                                                                   $ 12,250     $ 12,211     $  10,310
                                                                               ========     ========     ========= 
    Income taxes                                                               $    553     $    650     $   1,246
                                                                               ========     ========     ========= 

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
  Transfers from loans to real estate acquired in settlement of loans          $    996     $     92     $     185
                                                                               ========     ========     ========= 
  Increase in net unrealized gain on available-for-sale investment
    securities                                                                 $    543     $    289     $     346
                                                                               ========     ========     ========= 
</TABLE> 

See notes to financial statements.


                                      F-5
<PAGE>
 
HERITAGE FEDERAL SAVINGS AND LOAN ASSOCIATION


NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
--------------------------------------------------------------------------------


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Nature of Operations and Customer Concentration - Heritage Federal Savings
   and Loan Association (the "Association") is a federally chartered mutual
   savings and loan association engaged in the business of accepting savings and
   demand deposits and providing mortgage and commercial loans to its members
   and others.  The Association's business is primarily conducted in Laurens
   County and adjacent counties of South Carolina.

   Conversion to Capital Stock Form of Ownership - On September 10, 1997, the
   Board of Directors of the Association adopted a Plan of Conversion to convert
   from a federally chartered mutual savings and loan association to a federally
   chartered capital stock savings and loan association with the concurrent
   formation of a holding company, subject to approval by regulatory authorities
   and depositors of the Association.  The conversion is expected to be
   accomplished through the adoption of a federal stock charter for the
   Association, the sale of all of the Association's stock to the holding
   company and the sale of the holding company's common stock to the public.  A
   subscription offering of the shares of common stock will be offered initially
   to eligible account holders, employee benefit plans of the Association,
   supplemental eligible account holders, other members and directors, officers
   and employees of the Association.  Any shares of common stock not sold in the
   subscription offering are expected to be offered for sale to the general
   public.

   At the time of the conversion, the Association will establish a liquidation
   account in an amount equal to its retained income as of the date of the
   latest balance sheet appearing in the final prospectus.  The liquidation
   account will be maintained for the benefit of eligible account holders and
   supplemental eligible account holders who continue to maintain their accounts
   at the Association after the conversion.  The liquidation account will be
   reduced annually to the extent that eligible account holders and supplemental
   eligible account holders have reduced their qualifying deposits as of each
   anniversary date.  Subsequent increases will not restore an eligible or
   supplemental eligible account holder's interest in the liquidation account.
   In the event of a complete liquidation of the Association, each eligible
   account holder and supplemental eligible account holder will be entitled to
   receive a distribution from the liquidation account in an amount
   proportionate to the current adjusted qualifying balances for accounts then
   held.

   Subsequent to the conversion, the Association may not declare or pay cash
   dividends on or repurchase any of its share of common stock, if the effect
   thereof would cause equity to be reduced below applicable regulatory capital
   maintenance requirements or if such declaration and payment would otherwise
   violate regulatory requirements.

   Conversion costs will be deferred and reduce the proceeds from the shares
   sold in the conversion.  If the conversion is not completed, all costs will
   be charged as an expense.  As of September 30, 1997, no significant
   conversion costs have been incurred.


                                      F-6
<PAGE>
 
   The following is a description of the more significant accounting policies
   which the Association follows in preparing and presenting its financial
   statements.

   Basis of Accounting - The accounting and reporting policies of the
   Association conform to generally accepted accounting principles and to
   general practices within the savings and loan industry.

   Use of Estimates - The preparation of financial statements in conformity with
   generally accepted accounting principles requires management to make
   estimates and assumptions that affect the reported amounts of assets and
   liabilities and disclosure of contingent assets and liabilities at the date
   of the financial statements and the reported amounts of revenues and expenses
   during the reporting period.  Actual results could differ from those
   estimates.  Material estimates that are particularly susceptible to change
   relate to the determination of the allowance for loan losses and the
   valuation of real estate owned.

   Cash and Cash Equivalents - For purposes of reporting cash flows, cash and
   cash equivalents includes cash on hand, federal funds sold, overnight
   interest-bearing deposits and amounts due from depository institutions.

   Investment and Mortgage-Backed Securities - Debt securities that the
   Association has the positive intent and ability to hold to maturity are
   classified as "held-to-maturity" securities and reported at amortized cost.
   Debt and equity securities that are bought and held principally for the
   purpose of selling in the near term are classified as "trading" securities
   and reported at fair value with unrealized gains and losses included in
   earnings.  Debt and equity securities not classified as either held-to-
   maturity or trading securities are classified as "available-for-sale"
   securities and reported at fair value with unrealized gains and losses
   excluded from earnings and reported, net of taxes, as a separate component of
   equity.  Transfers of securities between classifications are accounted for at
   fair value.  No securities have been classified as trading securities.

   In November 1995, the Financial Accounting Standards Board ("FASB") issued a
   Special Report, A Guide to Implementation of Statement 115 on Accounting for
   Certain Debt and Equity Securities, which included a transition provision
   allowing all entities to reassess the appropriateness of the classifications
   of all securities held and account for any resulting reclassifications at
   fair value.  Reclassifications from the held-to-maturity category resulting
   from this one-time reassessment did not call into question, or "taint," the
   intent of the Association to hold other debt securities to maturity in the
   future.  In accordance with this Special Report, in December 1995, the
   Association transferred securities with a fair value of approximately $10.3
   million and amortized cost of approximately $10.4 million from held-to-
   maturity to available-for-sale.

   Realized gains and losses on investment securities are recognized at the time
   of sale based upon the specific identification method.

   Loans - Loans held for investment are recorded at cost.

   Nonaccrual loans are those loans on which the accrual of interest has ceased.
   Loans are placed on nonaccrual status if, generally, in the opinion of
   management, principal or interest is not likely to be paid in accordance with
   the terms of the loan agreement, or when principal or interest is past due
   more than 90 days.  Interest accrued but not collected at the date a loan is
   placed on nonaccrual status is reversed against interest income in the
   current period.  Interest income on nonaccrual loans is recognized only to
   the extent received in cash.


                                      F-7
<PAGE>
 
   Restructured loans are those for which concessions, such as the reduction of
   interest rates or deferral of interest or principal payments, have been
   granted due to a deterioration in the borrowers' financial condition.  The
   difference between interest that would have been recognized under the
   original terms of nonaccrual and renegotiated loans and interest actually
   recognized on such loans was not a material amount for the years ended
   September 30, 1997, 1996 and 1995.

   Effective October 1, 1995, the Association adopted Statement of Financial
   Accounting Standards ("SFAS") No. 114, Accounting by Creditors for Impairment
   of a Loan, and SFAS No. 118, Accounting by Creditors for Impairment of a Loan
   - Income Recognition and Disclosures.  SFAS No. 114 requires that the
   carrying value of an impaired loan be based on the present value of expected
   future cash flows discounted at the loan's effective interest rate or, as a
   practical expedient, at the loan's observable market price or the fair value
   of the collateral, if the loan is collateral-dependent.  Under SFAS No. 114,
   a loan is considered impaired when, based on current information, it is
   probable that the borrower will be unable to pay contractual interest or
   principal payments as scheduled in the loan agreement.  SFAS No. 114 applies
   to all loans except smaller-balance homogenous mortgage and consumer loans,
   loans carried at fair value or the lower of cost or fair value, debt
   securities, and leases.  Generally, the Association applies SFAS No. 114 to
   nonaccrual commercial loans and renegotiated loans.  The adoption of the
   statements did not affect operating results, the level of the overall
   allowance or the comparability of credit related data.  Income recognition or
   charge-off policies were not changed as a result of SFAS No. 114 and SFAS No.
   118.  The total principal balances of impaired loans at September 30, 1997
   was not material.

   Effective January 1, 1997,  the Association adopted SFAS No. 125, Accounting
   for Transfers and Servicing of Financial Assets and Extinguishments of
   Liabilities, which requires that liabilities and derivatives incurred or
   obtained by transferors as part of a transfer of financial assets be
   initially measured at fair value, if practicable.  It also requires that
   servicing assets and other retained interests in the transferred assets be
   measured by allocating the previous carrying amount between the assets sold,
   if any, and retained interests, if any, based on their relative fair values
   at the date of the transfer.  Servicing assets and liabilities must be
   subsequently measured by amortization in proportion to and over the period of
   estimated net servicing income or loss and assessment for asset impairment or
   increased obligation based on their fair values.  This statement was
   effective for transfers and servicing of financial assets and extinguishments
   of liabilities occurring after December 31, 1996.  The total amount of
   servicing assets was considered immaterial as of September 30, 1997.

   In December 1996, the FASB issued SFAS No. 127, Deferral of the Effective
   Date of Certain Provisions of FASB Statement No. 125.  SFAS No. 127 defers
   for one year the effective date of portions of SFAS No. 125 that address
   secured borrowings and collateral for all transactions.  Additionally, SFAS
   No. 127 defers for one year the effective date of transfers of financial
   assets that are part of repurchase agreements, securities lending and similar
   transactions.

   Allowances for Losses - The Association maintains allowances for loan losses.
   Provisions for losses are charged to income when, in the opinion of
   management, losses are probable.

   The allowance for loan losses is based upon management's evaluation of the
   loan portfolio.  The evaluation considers such factors as the delinquency
   status of loans, current economic conditions, the fair value of the
   underlying collateral and prior loan loss experience.

   Recovery of the carrying value of loans is dependent to some extent on future
   economic, operating and other conditions that may be beyond the Association's
   control.  Unanticipated future adverse changes in such conditions could
   result in material adjustments to allowances (and future results of
   operations).


                                      F-8
<PAGE>
 
   Loans Held-for-Sale - Loans intended for sale in the secondary market are
   stated at the lower of cost or estimated market value as determined by
   outstanding commitments from investors or current investor market yield
   requirements calculated on an aggregate basis.  Net unrealized losses are
   recognized in a valuation allowance by charges to income.

   Office Properties and Equipment - Office properties and equipment are carried
   at cost less accumulated depreciation.  Depreciation is computed over the
   estimated useful lives of the related assets using straight-line and
   accelerated methods.

   Long-Lived Assets - Effective October 1, 1996, the Association adopted SFAS
   No. 121, Accounting for the Impairment of Long-lived Assets and for Long-
   lived Assets to be Disposed of.  SFAS No. 121 establishes accounting
   standards for the impairment of long-lived assets, certain identifiable
   intangible assets and goodwill related to those assets to be held and used
   and for long-lived assets to be held and certain intangible assets to be
   disposed of.  The adoption of SFAS No. 121 did not have a material impact on
   financial conditions or results of operations.

   Real Estate Acquired in Settlement of Loans - Real estate acquired in
   settlement of loans is initially carried at fair value at the date of
   foreclosure, establishing a new cost basis.  Valuations are periodically
   performed by management and allowances for possible losses are established
   when the cost of real estate acquired in settlement of loans exceeds fair
   value less estimated costs to sell.  Revenues, expenses and additions to the
   valuation allowance related to real estate acquired in settlement of loans
   are charged to operations.

   Fair values are based primarily on independent appraisals of market value.
   Recovery of estimated fair value is dependent to a great extent on economic,
   operating and other conditions that may be beyond the Association's control.
   Accordingly, these estimates are particularly susceptible to changes that
   could result in material adjustment in the near term.

   Deferred Loan Origination Fees - Nonrefundable loan fees and certain direct
   loan origination costs are deferred and recognized over the lives of the
   loans using the level yield method.  Amortization of these deferrals is
   recognized as an adjustment to interest income.

   SAIF Fund Assessment - On September 30, 1996, legislation was enacted to
   recapitalize the Savings Association Insurance Fund.  The effect of this
   legislation was to require a one-time assessment on all federally insured
   savings associations' deposits, payable by November 1996.  The $1.2 million
   assessment was accrued as a charge to earnings in the quarter ended September
   30, 1996 and is included in deposit insurance premiums in the statement of
   income.  The assessment was paid by the Association in November 1996.

   Advertising Costs - The Association expenses advertising costs as incurred.

   Income Taxes - Provisions for income taxes are based on amounts reported in
   the statements of income (after exclusion of nontaxable income such as
   interest on municipal securities) and include changes in deferred income
   taxes.  Deferred tax assets and liabilities are reflected at currently
   enacted income tax rates applicable to the period in which the deferred tax
   assets or liabilities are expected to be realized or settled.  As changes in
   tax laws or rates are enacted, deferred tax assets and liabilities are
   adjusted through the provision for income taxes.


                                      F-9
<PAGE>
 
      Recently Issued Accounting Standards - The FASB has recently issued two
      new accounting standards that will affect the reporting and disclosure of
      financial information by the Company. Management has not determined the
      effects of adopting these statements, but their adoptions will not impact
      financial condition or results of operations since they deal with
      reporting and disclosure. The following is a summary of the standards and
      their required implementation dates:

      .  SFAS No. 130, Reporting Comprehensive Income - This statement
         establishes standards for reporting and disclosure of comprehensive
         income and its components (revenues, expenses, gains and losses). This
         statement requires that all items that are required to be recognized
         under accounting standards as components of comprehensive income
         (including, for example, unrealized holding gains and losses on
         available-for-sale securities) be reported in a financial statement
         similar to the statement of income and retained income. The accumulated
         balance of other comprehensive income will be disclosed separately from
         retained income in the equity section of the balance sheet. This
         statement is effective for the Association for the fiscal year
         beginning October 1, 1998.

      .  SFAS No. 131, Disclosures About Segments of an Enterprise and Related
         Information - This statement establishes standards for the way public
         business enterprises report information about operating segments and
         establishes standards for related disclosures about products and
         services, geographic areas and major customers. Operating segments are
         components of an enterprise about which separate financial information
         is available that is evaluated regularly by the chief operating
         decision maker in deciding how to allocate resources and in assessing
         performance. Information required to be disclosed includes segment
         profit or loss, certain specific revenue and expense items, segment
         assets and certain other information. This statement will be effective
         for the Association for financial statements issued for the fiscal year
         beginning October 1, 1998 if the conversion to a capital stock form of
         ownership discussed above is completed.

      Reclassifications - Certain 1996 and 1995 amounts have been reclassified
      to conform with the 1997 presentation.


2.    INVESTMENT SECURITIES

      Investment securities at September 30, 1997 and 1996 are summarized as 
      follows (in thousands of dollars):

<TABLE> 
<CAPTION> 

                                                                   Gross           Gross
                                                Amortized        Unrealized      Unrealized       Fair
September 30, 1997                                Cost             Gains          Losses         Value
<S>                                             <C>              <C>             <C>              <C> 
Held-to-maturity - U.S. Government
  Agency obligations                            $  15,988         $      19       $     (53)     $  15,954
                                                ---------         ---------       ---------      ---------
Available-for-sale:
  U.S. Treasury obligations                     $   2,010         $       6       $      (8)     $   2,008
  U.S. Government Agency obligations                3,996                 -             (20)         3,976
  FHLMC common stock                                   57             2,349               -          2,406
                                                ---------         ---------       ---------      ---------
Total                                           $   6,063         $   2,355       $     (28)     $   8,390
                                                =========         =========       =========      =========
</TABLE> 


                                     F-10
<PAGE>
 
<TABLE>
<CAPTION>


                                                                   Gross          Gross
                                                  Amortized      Unrealized     Unrealized        Fair
       September 30, 1996                           Cost           Gains          Losses          Value
       <S>                                        <C>            <C>            <C>             <C>   
       Held-to-maturity - U.S. Government
         Agency obligations                        $20,993        $     6        $  (221)        $20,778
                                                   =======        =======        =======         =======

       Available-for-sale:
         U.S. Treasury obligations                 $ 7,536        $     6        $   (70)        $ 7,472
         U.S. Government Agency obligations          7,841              2            (82)          7,761
         FHLMC common stock                             57          1,609           -              1,666
                                                   -------        -------        -------         -------

       Total                                       $15,434        $ 1,617        $  (152)        $16,899
                                                   =======        =======        =======         =======
</TABLE>

   The amortized cost and fair value of debt securities at September 30, 1997,
   by contractual maturity, follow (in thousands of dollars):



<TABLE>
<CAPTION>

                                                      Available for Sale             Held to Maturity
                                                 ---------------------------   ---------------------------
                                                   Amortized        Fair         Amortized        Fair
                                                      Cost          Value          Cost           Value
       <S>                                         <C>             <C>           <C>             <C>    
       Due in one year or less                      $ 2,997        $ 2,984        $ 2,002        $ 1,995
       Due after one year through five years          3,009          3,000         13,986         13,959
                                                    -------        -------        -------        -------
       Total                                        $ 6,006        $ 5,984        $15,988        $15,954
                                                    =======        =======        =======        =======
</TABLE>

   Gross realized gains on sales of available-for-sale securities were
   approximately $0, $2,000 and $0 in the years ended September 30, 1997, 1996
   and 1995, respectively.  Gross realized losses on sales of available-for-sale
   investment securities were $13,000, $0 and $0 in the years ended September
   30, 1997, 1996 and 1995, respectively.

   Investment securities totaling $825,000 and $1.7 million at September 30,
   1997 and 1996, respectively, were pledged as collateral for public deposits.

3. MORTGAGE-BACKED SECURITIES

   Fixed rate mortgage-backed securities are all classified as held to maturity
   and consisted of the following (in thousands of dollars):

<TABLE>
<CAPTION>

                                Amortized   Unrealized   Unrealized      Fair
       September 30, 1997         Cost        Gains        Losses        Value
       <S>                      <C>         <C>          <C>           <C>
       FNMA                      $   788      $ -          $  (7)      $   781
       FHLMC                       5,877        2            (25)        5,854
                                 -------      ---          -----       -------
                                       
       Total                     $ 6,665      $ 2          $ (32)      $ 6,635
                                 =======      ===          =====       =======
</TABLE>

                                      F-11
<PAGE>
 
<TABLE>
<CAPTION>

                                Amortized  Unrealized    Unrealized       Fair
       September 30, 1996         Cost        Gains        Losses         Value
       <S>                      <C>        <C>           <C>              <C>   
       FNMA                      $1,142        $  1        $  (26)        $1,117
       FHLMC                      8,584           5          (122)         8,467
                                 ------        ----        ------         ------

       Total                     $9,726        $  6        $ (148)        $9,584
                                 ======        ====        ======         ======
</TABLE>


   The amortized cost and fair value of mortgage-backed securities at September
   30, 1997, by contractual maturity, follow (in thousands of dollars):

<TABLE>
<CAPTION>

                                                   Amortized       Fair
                                                     Cost          Value

       <S>                                         <C>            <C>   
       Due in one year or less                      $3,574        $3,566
       Due after one year through five years         3,091         3,069
                                                    ------        ------

       Total                                        $6,665        $6,635
                                                    ======        ======
</TABLE>


4. LOANS RECEIVABLE

   Loans receivable consisted of the following (in thousands of dollars):

<TABLE>
<CAPTION>

                                                                September 30,
                                                      ---------------------------------
                                                           1997               1996
       <S>                                              <C>                <C>      
       Mortgage loans:
         Residential (1-4 family)                       $ 180,609          $ 173,925
         Builder construction loans                         2,601              3,836
         Commercial loans                                   8,136              6,450
       Savings account loans                                1,419              1,146
       Home equity loans                                    8,124              7,050
                                                        ---------          ---------
                 Total loans                              200,889            192,407
       Less:
         Undisbursed portion of loans in process           (6,989)            (8,375)
         Deferred loan origination fees                      (363)              (412)
         Allowance for loan losses                           (874)              (670)
                                                        ---------          ---------

       Total                                            $ 192,663          $ 182,950
                                                        =========          =========

       Weighted average interest yield of loans              7.93%              7.88%
                                                             ----               ----
</TABLE>

   Under regulations of the Office of Thrift Supervision ("OTS"), the
   Association may not make loans to one borrower in excess of 15% of unimpaired
   capital.  This limitation does not apply to loans made before August 9, 1989.
   At September 30, 1997, the Association had loans outstanding to individual
   borrowers ranging up to $1.8 million and is in compliance with this
   regulation.

                                      F-12
<PAGE>
 
   The Association sells mortgage loans in the secondary market.  Generally such
   loans are sold without recourse and servicing is retained.  Servicing loans
   for others consists of collecting mortgage payments, maintaining escrow
   accounts, disbursing payments to investors and foreclosure processing.  Loan
   servicing income is recorded on the accrual basis and includes servicing fees
   received from investors as well as certain charges collected from borrowers,
   such as late payment fees.  At September 30, 1997 and 1996, the Association
   serviced loans for others with a total balance outstanding of $5.4 million
   and $6.0 million, respectively, and held borrowers' escrow balances in the
   amounts of $41,000 and $53,000, respectively.

   The following is a reconciliation of the allowance for loan losses for the
   years ended September 30, 1997, 1996 and 1995 (in thousands of dollars):

<TABLE>
<CAPTION>

                                                                     Year Ended
                                                                    September 30,
                                                         ----------------------------------
                                                            1997        1996        1995
       <S>                                                 <C>         <C>         <C>  
       Balance at beginning of year                        $ 670       $ 590       $ 622
       Provision for losses (recovery of allowance)          337          (7)         47
       Write-offs                                           (133)        (28)        (79)
       Recoveries                                           -            115        -    
                                                           -----       -----       -----

       Balance at end of year                              $ 874       $ 670       $ 590
                                                           =====       =====       =====
</TABLE>

   Directors and officers of the Association are customers of the institution in
   the ordinary course of business.  Deposits and loans of directors and
   officers have terms consistent with those offered to other customers.  At
   September 30, 1997 and 1996, loans to officers or directors of the
   Association totaled approximately $638,000 and $700,000, respectively.

5. OFFICE PROPERTIES AND EQUIPMENT

   Office properties and equipment are summarized as follows (in thousands of
   dollars):

<TABLE>
<CAPTION>

                                                          September 30,
                                                  ----------------------------
                                                      1997            1996

       <S>                                          <C>             <C>    
       Land                                         $   237         $   237
       Land improvements                                271             271
       Office buildings                               3,453           3,442
       Furniture, fixtures and equipment              1,157           1,142
                                                    -------         -------
       Total                                          5,118           5,092
       Less accumulated depreciation                   (840)           (562)
                                                    -------         -------

       Office properties and equipment - net        $ 4,278         $ 4,530
                                                    =======         =======
</TABLE>

                                      F-13
<PAGE>
 
6. REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS

   Real estate acquired in settlement of loans is summarized as follows (in
   thousands of dollars):

<TABLE>
<CAPTION>

                                                         September 30,
                                                     -----------------------
                                                        1997         1996
       <S>                                            <C>          <C>    
       Real estate acquired in settlement of loans    $   424      $ 1,009
       Less allowance for losses                          (14)        (923)
                                                      -------      -------
       Total                                          $   410      $    86
                                                      =======      =======
</TABLE>


   The changes in the allowance for losses on real estate acquired in settlement
   of loans consisted of the following (in thousands of dollars):

<TABLE>
<CAPTION>

                                                                      Year Ended
                                                                     September 30,
                                                         -------------------------------------
                                                             1997         1996         1995
       <S>                                                 <C>          <C>          <C>    
       Balance at beginning of year                        $   923      $ 1,074      $ 1,023
       Provision for losses (recovery of allowance)             15           (1)          61
       Write-offs, net of recoveries                          (924)        (150)         (10)
                                                           -------      -------      -------
       Balance at end of year                              $    14      $   923      $ 1,074
                                                           =======      =======      =======
</TABLE>

7. DEPOSIT ACCOUNTS

   Deposit accounts are as follows (in thousands of dollars):

<TABLE>
<CAPTION>
                                                                             September 30,
                                                                       -----------------------
       Account Type                                                        1997        1996
    <S>                                                              <C>          <C>   
       Passbook Accounts (1997 - 3.0%; 1996 - 2.5%)                     $ 11,423     $ 11,867
                                                                        --------     --------
       NOW Accounts (1997 - 2.0%; 1996 - 2.1%)                             2,833        2,706
                                                                        --------     --------
       Money Market Deposit Accounts (1997 - 3.0%; 1996 - 2.75%)             939        1,215
                                                                        --------     --------
       Certificates of Deposit:
         3.01-4.00%                                                        5,575        6,826
         4.01-5.00%                                                        1,218        2,216
         5.01-6.00%                                                       95,528       97,960
         6.01-7.00%                                                       92,245       81,430
         7.01-8.00%                                                        5,651        5,510
                                                                        --------     --------
       Total certificates of deposit                                     200,217      193,942
                                                                        --------     --------
       Total                                                            $215,412     $209,730
                                                                        ========     ========
       Weighted average rate:
         Savings certificates                                               5.93%        5.87%
         All deposit accounts                                               5.71%        5.64%
</TABLE>

                                      F-14
<PAGE>
 
   At September 30, 1997, deposit accounts with balances of $100,000 and greater
   totaled approximately $40.3 million. Deposits in excess of $100,000 are not
   federally insured. The Association does not accept brokered deposits.

   Maturities of certificates of deposits (in thousands of dollars):

       Year Ending September 30, 1997
<TABLE> 
       <S>                                                      <C> 
       Maturing:
         Within 1 year                                           $148,859
         After 1 but within 2 years                                41,284
         After 2 but within 3 years                                 7,659
         After 3 but within 4 years                                 1,846
         After 4 but within 5 years                                   569
                                                                 --------

       Total                                                     $200,217
                                                                 ========
</TABLE> 


   Interest expense by type of deposit is summarized as follows (in thousands of
   dollars):

<TABLE> 
<CAPTION> 
                                               Year Ended September 30,
                                        ---------------------------------------
                                            1997           1996           1995
       <S>                                <C>            <C>            <C> 
       Demand accounts:                
         Passbook                         $   340        $   362        $   393
         NOW and Money Market Accounts         89             92             94
       Certificate accounts                11,575         11,431          9,454
                                          -------        -------        -------

       Total                              $12,004        $11,885        $ 9,941
                                          =======        =======        =======
</TABLE> 


8. BORROWING ARRANGEMENTS WITH FEDERAL HOME LOAN BANK OF ATLANTA

   The Association had outstanding advances of $0 and $5,000,000 from the
   Federal Home Loan Bank of Atlanta ("FHLB") at September 30, 1997 and 1996.
   The $5,000,000 advance outstanding at September 30, 1996 had a fixed interest
   rate of 6.54% and matured May 11, 1997. The maximum amount of outstanding
   advances at any month-end during fiscal years 1997, 1996 and 1995 was
   $5,000,000, $5,000,000 and $13,250,000, respectively. The average balance
   outstanding for such years was approximately $3,082,000, $5,000,000 and
   $7,812,000, respectively. The weighted average interest rate during fiscal
   years 1997, 1996 and 1995 was 7.33%, 6.54% and 6.27%, respectively.

   The Association pledged as collateral for these borrowings its FHLB stock and
   has entered into blanket collateral agreements with the FHLB whereby the
   Association maintains, free of other encumbrances, qualifying mortgages (as
   defined) with unpaid principal balances, when discounted at 75% of the unpaid
   principal balances, of at least 100% of total advances.

   Additionally, the Association may borrow under various line of credit
   programs with the FHLB. Any amounts advanced to the Association under these
   programs are secured by the Association's investment securities and bear
   interest at an adjustable rate with interest payable monthly. At September
   30, 1997 and 1996, the Association had no amounts outstanding.

                                      F-15
<PAGE>
 
9. INCOME TAXES

   The tax effects of significant items comprising the Association's net
   deferred tax liability as of September 30, 1997 and 1996 are as follows (in
   thousands of dollars):

<TABLE> 
<CAPTION> 
                                                                                          September 30,
                                                                                   ---------------------------
                                                                                       1997         1996
       <S>                                                                            <C>           <C> 
       Deferred tax assets:
         Allowance for loan losses                                                    $  355
         Accrued SAIF assessment                                                        -           $  498
         Deferred loan fees                                                                4            70
         Real estate acquired in settlement of loans                                    -               20
         Difference between book and tax basis of fixed assets                             7            73
         Other                                                                             9          --
                                                                                      ------        ------
               Total                                                                     375           661
                                                                                      ------        ------

       Deferred tax liabilities:
         Difference between book and tax basis of Federal Home Loan
           Bank stock                                                                    336           336
         Unrealized gain on investments available for sale                               861           542
         Tax basis bad debt reserves in excess of book basis bad debt reserves
           arising after December 31, 1987                                              -               54
         Tax basis bad debt reserve arising after December 31, 1987 subject
           to recapture                                                                  326          - 
         Other                                                                          -               30
                                                                                      ------        ------
               Total                                                                   1,523           962
                                                                                      ------        ------

       Net deferred tax liability                                                     $1,148        $  301
                                                                                      ======        ======
</TABLE> 



   The net deferred tax liability at September 30, 1997 and 1996 is included in
   "other liabilities" in the balance sheet.

   The provision for income taxes is summarized as follows (in thousands of
   dollars):

<TABLE> 
<CAPTION> 
                                                                            Year Ended September 30,
                                                                    -----------------------------------------
                                                                        1997         1996           1995 
       <S>                                                            <C>           <C>            <C> 
       Current provision:                                       
         Federal                                                      $  553        $  470         $1,221
         State                                                            13          --              121
                                                                      ------        ------         ------
       Total current                                                     566           470          1,342
                                                                      ------        ------         ------
                                                                
       Deferred provision:                                      
         Federal                                                         443           (93)           172
         State                                                            85           (17)            32
                                                                      ------        ------         ------
       Total deferred                                                    528          (110)           204
                                                                      ------        ------         ------
       Total provision for income taxes                               $1,094        $  360         $1,546
                                                                      ======        ======         ======
</TABLE> 
                                                                

                                      F-16
<PAGE>
 
   No valuation allowance on deferred tax assets has been established as
   management believes that the existing deductible temporary differences will
   reverse during periods in which the Association generates net taxable income.

   In years ended September 30, 1996 and prior, the Association was allowed
   under the Internal Revenue Code to deduct, subject to certain conditions, an
   annual addition to a reserve for bad debts ("reserve method") in determining
   taxable income. Legislation enacted in August 1996 repealed the reserve
   method effective for the Association beginning with the fiscal year ended
   September 30, 1997. Under the legislation, the Association will be allowed to
   deduct actual bad debt charge-offs ("charge-off method") in determining
   taxable income. The income tax deduction under the reserve method has been
   historically greater than the provision for loan losses recorded for
   financial accounting purposes. The income tax deduction under the charge-off
   method for the year ended September 30, 1997 was less than the provision for
   loan losses recorded for financial accounting purposes.

   Deferred income taxes have been provided on differences between the bad debt
   reserve for tax purposes determined under the formerly used reserve method
   and the loan loss allowance for financial accounting purposes only to the
   extent of differences arising subsequent to December 31, 1987. Under the
   legislation previously mentioned, the Association will be required to
   recapture the post-1987 tax bad debt reserve of approximately $326,000 into
   expense over a six-year period beginning with the fiscal year ended no later
   than September 30, 1999 (September 30, 1998 if certain conditions are not
   met). Since a deferred tax liability has been provided on this difference,
   the recapture will have no impact on equity or results of operations.

   Retained earnings as of September 30, 1997 includes approximately $4.9
   million representing reserve method bad debt reserves originating prior to
   December 31, 1987 for which no deferred income taxes are required to be
   provided. These reserves may be included in taxable income if the Association
   pays dividends in excess of its accumulated earnings and profits (as defined
   by the Internal Revenue Code) or in the event of a distribution in partial or
   complete liquidation of the Association.

   Income taxes differed from amounts computed by applying the statutory federal
   rate of 34% to income before income taxes as follows (in thousands of
   dollars):

<TABLE> 
<CAPTION> 
                                                             Years Ended September 30,
                                                        -------------------------------------
                                                           1997          1996          1995
       <S>                                               <C>           <C>           <C> 
       Tax at statutory Federal income tax rate (34%)    $ 1,036       $   380       $ 1,199
       Increase (decrease) resulting from:
         State income taxes                                   66           (11)          100
         Other - net                                          (8)           (9)          247
                                                         -------       -------       -------
       Total                                             $ 1,094       $   360       $ 1,546
                                                         =======       =======       =======

       Effective rate                                       35.9%         32.1%         43.8%

</TABLE> 

                                      F-17
<PAGE>
 
10. COMMITMENTS AND CONTINGENCIES

    Loan Commitments - Loan commitments are agreements to lend to a customer as
    long as there is no violation of any condition established in the contract.
    Commitments extend over various periods of time with the majority of such
    commitments disbursed within a ninety day period. Commitments generally have
    fixed expiration dates or other termination clauses and may require payment
    of a fee. Commitments to extend credit at fixed rates exposes the
    Association to some degree of interest rate risk. The Association evaluates
    each customer's creditworthiness on a case-by-case basis. The type or amount
    of collateral obtained varies and is based on management's credit evaluation
    of the potential borrower.

    At September 30, 1997, the Association had loan commitments, excluding
    undisbursed portions of interim construction loans, of approximately $1.4
    million.

    At September 30, 1997, the Association had approved home equity lines of
    credit approximating $14.4 million, of which approximately $8.1 million was
    in use and approximately $6.3 million was available for use.

    The Association leases various property and equipment. The effect of these
    leases on the financial position or results of operations is insignificant.

    The Association has no additional financial instruments with off-balance
    sheet risk.

    Potential Impact of Changes in Interest Rates - The Association's
    profitability depends to a large extent on its net interest income, which is
    the difference between interest income from loans and investments and
    interest expense on deposits. Like most financial institutions, the
    Association's short-term interest income and interest expense are
    significantly affected by changes in market interest rates and other
    economic factors beyond its control. The Association's interest earning
    assets consist primarily of long-term, fixed rate and adjustable rate
    mortgage loans and investments which adjust more slowly to changes in
    interest rates than its interest bearing liabilities which are deposits.
    Accordingly, the Association's earnings could be adversely affected during
    periods of rising interest rates.

    Litigation - The Association is involved in legal actions in the normal
    course of business. Management, based on advice of counsel, does not expect
    any material losses from current litigation.

    Concentrations of Credit Risk - The Association's business activity is
    principally with customers located in South Carolina. Except for residential
    loans in the Association's market area, the Association has no other
    significant concentrations of credit risk.

11. RETIREMENT PLANS

    The Association has a noncontributory money purchase pension plan covering
    substantially all full-time employees over the age of twenty-one who have
    completed six months of continuous employment with the Association at the
    anniversary date of the plan. Pension costs are computed by multiplying
    eligible participants' annual salaries by ten percent. Amounts credited to
    participants' accounts vest (become nonforfeitable) as follows:

    .  Twenty percent of the account balance after three years of service

    .  Twenty percent each year thereafter, until fully vested at the completion
       of seven years of service.

                                      F-18
<PAGE>
 
    The Association provides additional retirement benefits by means of a 401(k)
    plan for substantially all employees over the age of twenty-one who have
    completed six months of employment. Under the plan, employees may defer from
    1% to 10% of their compensation to be contributed to the plan. The
    Association contributes an equal amount of the salary deferral (subject to a
    maximum contribution of 4% of a participant's compensation) to the plan.
    Participants are 100% vested upon participation in the plan.
 
    Total expense under both retirement plans for the years ended September 30,
    1997, 1996 and 1995 was approximately $151,000, $156,000 and $156,000,
    respectively.

    The Association provides no other post-employment benefits.

12. REGULATORY CAPITAL REQUIREMENTS

    The Association is subject to various regulatory capital requirements
    administered by the federal financial institution regulatory 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 Association's
    financial statements. Under capital adequacy guidelines and the regulatory
    framework for prompt corrective action, the Association must meet specific
    capital guidelines that involve quantitative measures of the Association's
    assets, liabilities and certain off-balance-sheet items as calculated under
    regulatory accounting practices. The Association's capital amounts and
    classification are also subject to qualitative judgments by the regulators
    about components, risk weightings and other factors.
 
    Quantitative measures established by regulation to ensure capital adequacy
    require the Association to maintain minimum amounts and ratios. Under
    regulations of the Office of Thrift Supervision ("OTS"), the Association
    must have: (i) core capital equal to 3.0% of adjusted total assets, (ii)
    tangible capital equal to 1.5% of adjusted total assets and (iii) total
    capital equal to 8.0% of risk-weighted assets. In measuring compliance with
    all three capital standards, institutions must deduct from their capital
    (with several exceptions primarily for mortgage banking subsidiaries and
    insured depository institution subsidiaries) their investments in, and
    advances to, subsidiaries engaged (as principal) in activities not
    permissible for national banks, and certain other adjustments. Management
    believes, as of September 30, 1997, that the Association meets all capital
    adequacy requirements to which it is subject.

    The following is a reconciliation of the Association's equity reported in
    the financial statements under generally accepted accounting principles to
    OTS regulatory capital requirements (in thousands of dollars):

<TABLE> 
<CAPTION> 
                                                                 Tangible       Core       Risk-Based
                                                                 Capital       Capital       Capital
       <S>                                                       <C>           <C>         <C> 
       September 30, 1997                                                               
       Total equity as reported in the financial statements      $ 29,235      $ 29,235      $ 29,235
       General allowance for loan losses                             -             -              750
       Net unrealized loss on available-for-sale securities        (1,466)       (1,466)       (1,466)
                                                                 --------      --------      --------
                                                                                        
       Regulatory Capital                                        $ 27,769      $ 27,769      $ 28,519
                                                                 ========      ========      ========
                                                                                        
       September 30, 1996                                                               
       Total equity as reported in the financial statements      $ 26,740      $ 26,740      $ 26,740
       General allowance for loan losses                             -             -              550
       Net unrealized gain on available-for-sale securities          (923)         (923)         (923)
                                                                 --------      --------      --------
                                                                                        
       Regulatory Capital                                        $ 25,817      $ 25,817      $ 26,367
                                                                 ========      ========      ========
</TABLE> 

                                      F-19
<PAGE>
 
   The Association's actual and required capital amounts and ratios are
   summarized as follows (in thousands of dollars):

<TABLE> 
<CAPTION> 
                                                                                     Minimum
                                                               Actual              Requirement
                                                         ------------------    ------------------
                                                          Amount     Ratio      Amount     Ratio
       <S>                                                <C>        <C>        <C>        <C> 
       September 30, 1997
         Tangible capital (to total assets)               $27,769    11.3%      $ 3,690     1.5%
         Core capital (to adjusted total assets)          $27,769    11.3%      $ 7,381     3.0%
         Risk-based capital (to risk-based assets)        $28,519    23.3%      $ 9,796     8.0%

       September 30, 1996
         Tangible capital (to total assets)               $25,817    10.6%      $ 3,648     1.5%
         Core capital (to adjusted total assets)          $25,817    10.6%      $ 7,297     3.0%
         Risk-based capital (to risk-based assets)        $26,367    22.2%      $ 9,492     8.0%
</TABLE> 



   As of September 30, 1997 and 1996, the most recent respective notifications
   from the OTS classified the Association as well capitalized under the
   regulatory framework for prompt corrective action. There are no conditions or
   events since the most recent notification that management believes have
   changed the Association's category. To be categorized as well capitalized,
   the Association must maintain minimum ratios of total capital to risk-based
   assets, core capital to risk-based assets and core capital to adjusted total
   assets. The Association's actual and minimum capital requirements to be well
   capitalized under prompt corrective action provisions are as follows:

<TABLE> 
<CAPTION> 
                                                                                     Minimum
                                                               Actual              Requirement
                                                         ------------------    ------------------
                                                          Amount     Ratio      Amount     Ratio
       <S>                                                <C>        <C>        <C>        <C> 
       September 30, 1997
         Tier I Capital (to adjusted-total assets)        $27,769    11.3%      $12,302      5.0%
         Tier I Capital (to risk-weighted assets)         $27,769    22.7%      $ 7,346      6.0%
         Total Capital (to risk-weighted assets)          $28,519    23.3%      $12,245     10.0%

       September 30, 1996
         Tier I Capital (to adjusted-total assets)        $25,817    10.6%      $12,156      5.0%
         Tier I Capital (to risk-weighted assets)         $25,817    21.8%      $ 7,118      6.0%
         Total Capital (to risk-weighted assets)          $26,367    22.2%      $11,865     10.0%
</TABLE> 

                                      F-20
<PAGE>
 
13. FAIR VALUE OF FINANCIAL INSTRUMENTS

    SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
    requires disclosure of fair value information regarding financial
    instruments, whether or not recognized in the balance sheet, for which it is
    practicable to estimate a value. The stated and estimated fair value amounts
    of the Association's financial instruments, as of September 30, 1997 and
    1996, are summarized below (in thousands of dollars):

<TABLE> 
<CAPTION> 
                                                          1997                          1996
                                              ---------------------------     ---------------------------- 
                                                Stated        Estimated         Stated        Estimated
Assets                                          Amount        Fair Value        Amount        Fair Value
<S>                                            <C>            <C>              <C>            <C> 
       Cash and cash equivalents               $ 14,659        $ 14,659        $  5,875        $  5,875
       Mortgage-backed securities                 6,665           6,635           9,726           9,584
       Investment securities                     24,378          24,344          37,892          37,677
       Loans receivable, net                    192,663         196,037         182,950         184,828
       Loans held-for-sale                        1,045           1,065            --              --
       Federal Home Loan Bank stock               2,042           2,042           2,042           2,042
       Accrued interest receivable                1,242           1,242           1,334           1,334
                                               --------        --------        --------        --------

                                               $242,694        $246,024        $239,819        $241,340
                                               ========        ========        ========        ========

       Liabilities

       Interest bearing demand deposits        $ 11,423        $ 11,423        $ 11,867        $ 11,867
       Money market accounts                        939             939           1,215           1,215
       NOW accounts                               2,833           2,833           2,706           2,706
       Certificates of deposit                  200,217         200,832         193,942         194,143
       Accrued interest payable                     338             338             358             358
                                               --------        --------        --------        --------

                                               $215,750        $216,365        $210,088        $210,289
                                               ========        ========        ========        ========
</TABLE> 

    The Association had off-balance sheet financial commitments, which include
    commitments to originate loans, undisbursed portions of interim construction
    loans and unused lines of credit (see Note 10). Since these commitments are
    based on current rates, the commitment amount is considered to be a
    reasonable estimate of fair value.

    Estimated fair values were determined using the following methods and
    assumptions:

    Cash and Cash Equivalents - Cash and cash equivalents have maturities of
    three months or less and, accordingly, the carrying amounts of such
    instruments are deemed to be reasonable estimates of fair value.
 
    Mortgage-Backed Securities and Investment Securities - Fair values are based
    on quoted market prices where available. If quoted market prices are not
    available, fair values are based on quoted market prices of comparable
    instruments.
 
    Loans Receivable, Net - Fair values for loans are estimated by segregating
    the portfolio by type of loan and discounting scheduled cash flows using
    current market interest rates for loans with similar terms, reduced by an
    estimate of credit losses inherent in the portfolio.

                                      F-21
<PAGE>
 
    Loans Held-for-Sale - Loans held-for-sale are valued at the lower of cost or
    market as determined by outstanding commitments from investors or current
    investor yield requirements calculated on an aggregate loan basis.
 
    Federal Home Loan Bank Stock - Investment in stock of the FHLB is required
    by law for every federally insured savings institution. No ready market
    exists for this stock and it has no quoted market value. However, redemption
    of this stock has historically been at par value. Accordingly, the carrying
    amount is deemed to be a reasonable estimate of fair value.

    Deposits - As required by SFAS No. 107, fair values for demand deposits,
    money market accounts and savings accounts are the amounts payable on demand
    as of the reporting date (i.e., their stated amounts). The fair value of
    certificates of deposit is estimated by discounting the contractual cash
    flows using current market interest rates for accounts with similar
    maturities.

    Accrued Interest Receivable and Payable - The stated amounts of accrued
    interest receivable and payable approximate the fair value.

    Limitations - Fair value estimates are made at a specific point in time,
    based on relevant market information and information about the financial
    instrument. These estimates do not reflect any premium or discount that
    could result from offering for sale at one time the Association's entire
    holdings of a particular financial instrument. Because no market exists for
    a significant portion of the Association's financial instruments, fair value
    estimates are based on judgments regarding future expected loss experience,
    current economic conditions, risk characteristics of various financial
    instruments and other factors. These estimates are subjective in nature and
    involve uncertainties and matters of significant judgment and therefore
    cannot be determined with precision. Changes in assumptions could
    significantly affect the estimates.

    Fair value estimates are based on existing on-and-off balance sheet
    financial instruments without attempting to estimate the value of
    anticipated future business and the value of assets and liabilities that are
    not considered financial instruments. For example, a significant asset not
    considered a financial asset is premises and equipment. In addition, tax
    ramifications related to the realization of the unrealized gains and losses
    can have a significant effect on fair value estimates and have not been
    considered in any of the estimates.


                                   **********

                                      F-22
<PAGE>
 
                                    GLOSSARY

<TABLE> 
<CAPTION> 
<S>                                                    <C> 
ARM loans                                              Adjustable-rate mortgage loans.

Direct Community Offering                              The offering of shares of the Common Stock to the
                                                       general public with preference given to natural 
                                                       persons and trusts of natural persons who are 
                                                       residents of the Association's Local Community.

Eligible Account Holders                               Holders of savings accounts at the Association with
                                                       balances of at least $50 as of June 30, 1996.

Exchange Act                                           The Securities Exchange Act of 1934, as amended.

Expiration Date                                        _____________, 1998.

ESOP                                                   Employee Stock Ownership Plan to be implemented 
                                                       by the Association in the conversion.

FASB                                                   Financial Accounting Standards Board.

FDIC                                                   Federal Deposit Insurance Corporation.

FHLB                                                   Federal Home Loan Bank.

Freddie Mac                                            Federal Home Loan Mortgage Corporation.

Fannie Mae                                             Federal National Mortgage Association.

GAAP                                                   Generally accepted accounting principles.

IRA                                                    Individual Retirement Account.

IRS                                                    Internal Revenue Service.

Local Community                                        The counties where the Association's offices are 
                                                       located: Laurens Anderson, Greenwood and 
                                                       Greenville Counties, South Carolina.

MRP                                                    The Management Recognition Plan, a restricted stock 
                                                       plan, that the Holding Company intends to adopt 
                                                       following the conversion.

NASD                                                   National Association of Securities Dealers, Inc.

Other Members                                          Depositors of the Association as of ___________, 
                                                       1998 and borrowers of the Association as of October 
                                                       21, 1997 whose loans continue to be outstanding as 
                                                       of ___________, 1998.

OTS                                                    Office of Thrift Supervision of the United States 
                                                       Department of the Treasury.
</TABLE> 


                                      G-1
<PAGE>
 
<TABLE> 
<S>                                                    <C> 
Plan of Conversion                                     The plan of conversion adopted by the Association,
                                                       pursuant to which the conversion is being 
                                                       undertaken.

RP Financial                                           RP Financial, LC., the firm the Association engaged 
                                                       to prepare the appraisal of its estimated pro forma 
                                                       market value in the conversion and to advise the 
                                                       Association about its business plan.

SAIF                                                   Savings Association Insurance Fund.

SEC                                                    Securities and Exchange Commission.

Securities Act                                         The Securities Act of 1933, as amended.

Severance Plan                                         The Employee Severance Compensation Plan that the 
                                                       Association intends to adopt in connection with the 
                                                       conversion.

SFAS                                                   Statement of Financial Accounting Standards.

Stock Option Plan                                      The stock option plan that the Holding Company 
                                                       intends to adopt following the conversion.

Subscription Offering                                  The offering of shares of the Common Stock, in 
                                                       order to priority, to Eligible Account Holders, the 
                                                       ESOP, Supplement Eligible Account Holders and 
                                                       Other Members.

Supplemental Eligible Account Holders                  Holders of accounts at the Association with balances 
                                                       of at least $50 as of December 31, 1997.

Syndicated Community Offering                          The offering of shares of the Common Stock to the
                                                       general public by a group of selected dealers.

Trident Securities                                     Trident Securities, Inc., the firm the Association 
                                                       engaged to advise and assist it in marketing the 
                                                       Common Stock and conducting the Subscription 
                                                       Offering and, if any, the Community Offering and/or 
                                                       Syndicated Offering.
</TABLE> 

                                      G-2
<PAGE>
 
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by Heritage Bancorp, Inc.  or Heritage Federal Savings & Loan
Association.  This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby to any
person or in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation in such jurisdiction.  Neither the delivery of this prospectus
nor any sale hereunder shall under any circumstances create any implication that
there has been no change in the affairs of Heritage Bancorp, Inc. or Heritage
Federal Savings & Loan Association since any of the dates as of which
information is furnished herein or since the date hereof.



                       [Logo for Heritage Bancorp, Inc.]



                         (Proposed Holding Company for
                            Heritage Federal Savings
                        & Loan Association, to be known
                           as Heritage Federal Bank)



                        2,975,000 to 4,025,000 Shares of
                                  Common Stock


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

                                   Prospectus

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



                            TRIDENT SECURITIES, INC.



                                ______ __, 1997



Until the later of _______, 1998, or 25 days after commencement of the
Syndicated Community Offering of Common Stock, if any, all dealers that buy,
sell or trade these securities, whether or not participating in this offering,
may be required to deliver a prospectus.  This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
<PAGE>
 
                PART II: INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.  Other Expenses of Issuance and Distribution

<TABLE>
<CAPTION>
 
<S>                                          <C>
  Legal fees and expenses..................  $185,000
  Securities marketing legal fees..........    27,500
  Printing, postage and mailing............   105,000
  Appraisal and business plan preparation..    42,500
  Accounting fees..........................   100,000
  Data processing fees....................     15,000
  SEC registration fee.....................    20,000
  Blue Sky filing fees and expenses........     3,000
  OTS filing fees..........................     8,400
  Other expenses...........................    13,600
                                             --------
      Total................................  $520,000
                                             ========
</TABLE>

     Trident Securities, Inc. will receive a fee of 1.5% of the aggregate dollar
amount of stock sold in the Subscription Offering and Community Offering
(excluding shares purchased by the Association's ESOP and by directors, officers
and employees of the Association and associates of such persons) not to exceed
$800,000.

Item 14.  Indemnification of Officers and Directors

          Article XVII of the Certificate of Incorporation of Heritage Bancorp,
          Inc. requires indemnification of directors, officers and employees to
          the fullest extent permitted by Delaware law.

          Section 145 of the Delaware General Corporation Law sets forth
          circumstances under which directors, officers, employees and agents
          may be insured or indemnified against liability which they may incur
          in their capacities:

     145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.--(a) A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.  The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.

     (b)  A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been


                                     II-1
<PAGE>
 
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.

     (c)  To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.

     (d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section.  Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.

     (e)  Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section.  Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.

     (f)  The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.

     (g)  A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
incurred by him any such capacity, or arising out of his status as such, whether
or not the corporation would have the power to indemnify him against such
liability under this section.

     (h)  For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agents, so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.

     (i)  For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith


                                     II-2
<PAGE>
 
and in a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this section.

     (j)  The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.

Item 15.  Recent Sales of Unregistered Securities.

          Not Applicable

Item 16.  Exhibits and Financial Statement Schedules:

          The financial statements and exhibits filed as part of this
          Registration Statement are as follows:

(a)       List of Exhibits

 1.1  --  Form of proposed Agency Agreement among Heritage Bancorp, Inc.,
          Heritage Federal Savings & Loan Association and Trident Securities,
          Inc. (*)
          
 1.2  --  Engagement Letter between Heritage Federal Savings & Loan Association
          and Trident Securities, Inc.
 
 2    --  Plan of Conversion of Heritage Federal Savings & Loan Association
          (attached as an exhibit to the Proxy Statement included herein as
          Exhibit 99.5)

 3.1  --  Certificate of Incorporation of Heritage Bancorp, Inc.
          
 3.2  --  Bylaws of Heritage Bancorp, Inc.
 
 4    --  Form of Certificate for Common Stock
 
 5    --  Opinion of Breyer & Aguggia regarding legality of securities
          registered
          
 8.1  --  Form of Federal Tax Opinion of Breyer & Aguggia
 
 8.2  --  Form of State Tax Opinion of Deloitte & Touche LLP
                                 
 8.3  --  Opinion of RP Financial, LC. as to the value of subscription rights
          
10.1  --  Proposed Form of Employment Agreement with J. Edward Wells
          
10.2  --  Proposed Form of Severance Agreement For Certain Senior Officers
          
10.3  --  Proposed Form of Employee Stock Ownership Plan
 
10.4  --  Heritage Federal Savings & Loan Association 401(k) Plan (*)
          
10.5  --  Form of Heritage Federal Savings & Loan Association Employee
          Severance Compensation Plan
            

                                     II-3
<PAGE>
 
21    --  Subsidiaries of Heritage Bancorp, Inc.
 
23.1  --  Consent of Deloitte & Touche LLP
 
23.2  --  Consent of Breyer & Aguggia (contained in opinion included as 
          Exhibit 5)

23.3  --  Consent of Breyer & Aguggia as to its Federal Tax Opinion
          
23.4  --  Consent of RP Financial, LC.
 
24    --  Power of Attorney (contained in signature page to the Registration
          Statement)

27    --  Financial Data Schedule
 
99.1  --  Order and Acknowledgement Form
 
99.2  --  Solicitation and Marketing Materials
 
99.3  --  Agreement with RP Financial, LC.
 
99.4  --  Appraisal Report of RP Financial, LC. (*)
 
99.5  --  Proxy Statement for Special Meeting of Members of Heritage Federal
          Savings & Loan Association

---------------------
(*) To be filed by amendment.

(b)   Financial Statements and Schedules

 
      Heritage Federal Savings & Loan Association
 
                                                                           Pages
 
Independent Auditors' Report............................................    F-1
 
Balance Sheets as of September 30, 1997 and 1996........................    F-2
 
Statements of Income for the Years Ended
 September 30, 1997, 1996 and 1995......................................     24
 
Statements of Equity for the Years Ended
 September 30, 1997, 1996 and 1995......................................    F-3
 
Statements of Cash Flows for the Years Ended
 September 30, 1997, 1996 and 1995......................................    F-4
 
Notes to Financial Statements...........................................    F-6

     All schedules are omitted because the required information is either not
applicable or is included in the financial statements or related notes.



                                     II-4
<PAGE>
 
Item 17. Undertakings

         The undersigned Registrant hereby undertakes:

         (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

                 (i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933, as amended ("Securities Act");

                 (ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;

                 (iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.

         (2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be the initial bona fide offering
thereof.

         (3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.

         (4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act") (and, where
applicable, each filing of any employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

         Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.



                                     II-5
<PAGE>
 
                                  SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Laurens, South Carolina
on the 10th day of December 1997.

                                    HERITAGE BANCORP, INC.



                                    By: /s/ J. Edward Wells
                                        --------------------------------
                                        J. Edward Wells
                                        President and Chief Executive Officer

                               POWER OF ATTORNEY

     We, the undersigned directors and officers of Heritage Bancorp, Inc., do
hereby severally constitute and appoint J. Edward Wells, our true and lawful
attorney and agent, to do any and all things and acts in our names in the
capacities indicated below and to execute all instruments for us and in our
names in the capacities indicated below which said J. Edward Wells may deem
necessary or advisable to enable Heritage Bancorp, Inc. to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with the Registration
Statement on Form S-1 relating to the offering of Heritage Bancorp, Inc.'s
Common Stock, including specifically but not limited to, power and authority to
sign for us or any of us in our names in the capacities indicated below the
Registration Statement and any and all amendments (including post-effective
amendments) thereto; and we hereby ratify and confirm all that J. Edward Wells
shall do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.

<TABLE> 
<CAPTION> 

Signatures                       Title                                        Date
----------                       -----                                        ----
<S>                           <C>                                            <C> 


/s/ J. Edward Wells           President, Chief Executive Officer             December 10, 1997
------------------------      and Director (Principal Executive Officer)
J. Edward Wells            



/s/ Edwin I. Shealy           Chief Financial Officer                        December 10, 1997
------------------------      (Principal Financial and
Edwin I. Shealy               Accounting Officer)      
              
                              

/s/ Aaron H. King             Director                                       December 10, 1997
------------------------
Aaron H. King
</TABLE> 
<PAGE>
 
<TABLE> 
<CAPTION> 

<S>                           <C>                                            <C> 
/s/ J. Riley Bailes           Director                                       December 10, 1997
------------------------
J. Riley Bailes



/s/ John H. Lake              Director                                       December 10, 1997
------------------------
John H. Lake



/s/ G. Edwin Owings            Director                                      December 10, 1997
------------------------
G. Edwin Owings
</TABLE> 
<PAGE>
 
                               INDEX TO EXHIBITS

 1.1   --   Form of proposed Agency Agreement among Heritage Bancorp, Inc.,
            Heritage Federal Savings & Loan Association and Trident 
            Securities, Inc. (a)    
              
 1.2   --   Engagement Letter between Heritage Federal Savings & Loan
            Association and Trident Securities, Inc.
            
 2     --   Plan of Conversion of Heritage Federal Savings & Loan Association
            (attached as an exhibit to the Proxy Statement included 
            herein as Exhibit 99.5)  
             
 3.1   --   Certificate of Incorporation of Heritage Bancorp, Inc.
            
 3.2   --   Bylaws of Heritage Bancorp, Inc.
      
 4     --   Form of Certificate for Common Stock
      
 5     --   Opinion of Breyer & Aguggia regarding legality of securities
            registered
            
 8.1   --   Form of Federal Tax Opinion of Breyer & Aguggia
      
 8.2   --   Form of State Tax Opinion of Deloitte & Touche LLP 
      
 8.3   --   Opinion of RP Financial, LC. as to the value of subscription rights
      
10.1   --   Proposed Form of Employment Agreement with J. Edward Wells
      
10.2   --   Proposed Form of Severance Agreement For Certain Senior Officers
      
10.3   --   Proposed Form of Employee Stock Ownership Plan
      
10.4   --   Heritage Federal Savings & Loan Association 401(k) Plan (a)
      
10.5   --   Form of Heritage Savings & Loan Association Employee Severance
            Compensation Plan

21     --   Subsidiaries of Heritage Bancorp, Inc.
      
23.1   --   Consent of Deloitte & Touche LLP
      
23.2   --   Consent of Breyer & Aguggia (contained in opinion included as
            Exhibit 5)
            
23.3   --   Consent of Breyer & Aguggia as to its Federal Tax Opinion
            
23.4   --   Consent of RP Financial, LC.
      
24     --   Power of Attorney (contained in signature page to the Registration
            Statement)

27     --   Financial Data Schedule
      
99.1   --   Order and Acknowledgement Form
<PAGE>
 
99.2   --   Solicitation and Marketing Materials
      
99.3   --   Agreement with RP Financial, LC.
      
99.4   --   Appraisal Report of RP Financial, LC. (a)
      
99.5   --   Proxy Statement for Special Meeting of Members of Heritage Federal
            Savings & Loan Association


--------------------------
(a) To be filed by amendment.
[{"type": "S-1", "sequence": "1", "description": "FORM S-1", "secsgml_size_bytes": 606934}]
{"company-data": {"conformed-name": "HERITAGE BANCORP INC /SC/", "cik": "0001050884", "assigned-sic": "", "state-of-incorporation": "DE"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-41857", "film-number": "97735328"}, "business-address": {"street1": "201 W. MAIN STREET", "city": "LAURENS", "state": "SC", "zip": "29360", "phone": "8649844581"}}
As filed with the Securities and Exchange Commission on December 10, 1997
                                                      Registration No. 333-_____
--------------------------------------------------------------------------------
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.   20549

                                    FORM S-1
                             REGISTRATION STATEMENT
                        UNDER THE SECURITIES ACT OF 1933

                              HERITAGE BANCORP, INC.
         ------------------------------------------------------------        
               (Exact name of registrant as specified in charter)

            Delaware                   6035                   applied for
------------------------------    -----------------    -------------------------
(State or other jurisdiction of   (Primary SICC No.)       (I.R.S. Employer
incorporation or organization)                            Identification No.)
                                  
                              201 W. Main Street
                         Laurens, South Carolina 29360
                                (864) 984-4581
        ------------------------------------------------------------        
        (Address and telephone number of principal executive offices)

                            Paul M. Aguggia, Esquire
                            Aaron M. Kaslow, Esquire
                                BREYER & AGUGGIA
                                 Suite 470 East
                              1300 I Street, N.W.
                             Washington, D.C.  20005
                 ---------------------------------------------
                    (Name and address of agent for service)

        APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
  As soon as practicable after this registration statement becomes effective.

     If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.  [x]

     If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.  [_]

     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.  [_]

     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.  [_]
============================================================================================================================
                                            Calculation of Registration Fee
============================================================================================================================
Title of Each Class of Securities      Proposed Maximum      Proposed Offering      Proposed Maximum        Amount of       
Being Registered                       Amount Being          Price(1)               Aggregate Offering      Registration Fee
                                       Registered(1)                                Price(1)                                
----------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 Par Value          4,628,750                    $15.00           $69,431,250            $21,039         
                                                                                                                            
Participation interests (2)               66,003                      - -                - -                   - -          
============================================================================================================================
(1)  Estimated solely for purposes of calculating the registration fee. As
     described in the Prospectus, the actual number of shares to be issued and
     sold is subject to adjustment based upon the estimated pro forma market
     value of the registrant and market and financial conditions.
(2)  The securities of Heritage Bancorp, Inc. to be purchased by the Heritage
     Federal Savings & Loan Association 401(k) Plan are included in the amount
     shown for Common Stock. Accordingly, pursuant to Rule 457(h) of the
     Securities Act of 1933, as amended, no separate fee is required for the
     participation interests. Pursuant to such rule, the amount being registered
     has been calculated on the basis of the number of shares of Common Stock
     that may be purchased with the current assets of such Plan.

          The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PROSPECTUS SUPPLEMENT

                             HERITAGE BANCORP, INC.

                  HERITAGE FEDERAL SAVINGS & LOAN ASSOCIATION
                                  401(K) PLAN

     This Prospectus Supplement relates to the offer and sale to participants
("Participants") in the 401(k) Plan ("Plan" or "401(k) Plan") of participation
interests and shares of Heritage Bancorp, Inc. common stock, par value $.01 per
share ("Common Stock"), as set forth herein.

     In connection with the proposed conversion of Heritage Federal Savings &
Loan Association ("Association" or "Employer") from a federally chartered mutual
savings association to a federally chartered stock savings bank, a holding
company, Heritage Bancorp, Inc. ("Holding Company"), has been formed. The
simultaneous conversion of the Association to stock form, the issuance of the
Association's common stock to the Holding Company and the offer and sale of the
Holding Company's Common Stock to the public are herein referred to as the
"Conversion." Applicable provisions of the 401(k) Plan permit the investment of
the Plan assets in Common Stock of the Holding Company at the direction of a
Plan Participant. This Prospectus Supplement relates to the election of a
Participant to direct the purchase of Common Stock in connection with the
Conversion.

     The Prospectus, dated _________, 1998, of the Holding Company
("Prospectus"), which is attached to this Prospectus Supplement, includes
detailed information with respect to the Conversion, the Common Stock and the
financial condition, results of operations and business of the Association and
the Holding Company.  This Prospectus Supplement, which provides detailed
information with respect to the Plan, should be read only in conjunction with
the Prospectus.  Terms not otherwise defined in this Prospectus Supplement are
defined in the Plan or the Prospectus.

     A Participant's eligibility to purchase Common Stock in the Conversion
through the Plan is subject to the Participant's general eligibility to purchase
shares of Common Stock in the Conversion and the maximum and minimum limitations
set forth in the Plan of Conversion.  See "THE CONVERSION" and "--Limitations on
Purchases of Shares" in the Prospectus.

     For a discussion of certain factors that should be considered by each
Participant, see "RISK FACTORS" in the Prospectus.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), THE OFFICE OF THRIFT SUPERVISION ("OTS"), THE
FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC") OR ANY OTHER FEDERAL OR STATE
AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC, THE OTS, THE FDIC OR
ANY OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.  ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

         The date of this Prospectus Supplement is ____________, 1998.
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement in connection with the offering made hereby, and, if given or made,
such information and representations must not be relied upon as having been
authorized by the Holding Company, the Association or the Plan.  This Prospectus
Supplement does not constitute an offer to sell or solicitation of an offer to
buy any securities in any jurisdiction to any person to whom it is unlawful to
make such offer or solicitation in such jurisdiction.  Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall
under any circumstances create any implication that there has been no change in
the affairs of the Association or the Plan since the date hereof, or that the
information herein contained or incorporated by reference is correct as of any
time subsequent to the date hereof.  This Prospectus Supplement should be read
only in conjunction with the Prospectus that is attached herein and should be
retained for future reference.
TABLE OF CONTENTS
PAGE
The Offering
     Securities Offered......................................   S-1
     Election to Purchase Common Stock in the Conversion.....   S-1
     Value of Participation Interests........................   S-1
     Method of Directing Transfer............................   S-1
     Time for Directing Transfer.............................   S-2
     Irrevocability of Transfer Direction....................   S-2
     Direction Regarding Common Stock After the Conversion...   S-2
     Purchase Price of Common Stock..........................   S-2
     Nature of a Participant's Interest in the Common Stock..   S-2
     Voting and Tender Rights of Common Stock................   S-3
 
Description of the Plan
     Introduction............................................   S-3
     Eligibility and Participation...........................   S-4
     Contributions Under the Plan............................   S-4
     Limitations on Contributions............................   S-5
     Investment of Contributions.............................   S-7
     The Employer Stock Fund.................................   S-7
     Benefits Under the Plan.................................   S-8
     Withdrawals and Distributions from the Plan.............   S-8
     Administration of the Plan..............................   S-9
     Reports to Plan Participants............................  S-10
     Plan Administrator......................................  S-10
     Amendment and Termination...............................  S-10
     Merger, Consolidation or Transfer.......................  S-10
     Federal Income Tax Consequences.........................  S-10
     Restrictions on Resale..................................  S-13
 
Legal Opinions...............................................  S-14
 
Investment Form                                                S-15
i
THE OFFERING

Securities Offered

     The securities offered hereby are participation interests in the Plan and
up to _______ shares, at the actual purchase price of $15.00 per share, of
Common Stock which may be acquired by the Plan for the accounts of employees
participating in the Plan.  The Holding Company is the issuer of the Common
Stock.  Only employees and former employees of the Association and their
beneficiaries may participate in the Plan.  Information with regard to the Plan
is contained in this Prospectus Supplement and information with regard to the
Conversion and the financial condition, results of operation and business of the
Association and the Holding Company is contained in the attached Prospectus.
The address of the principal executive office of the Association is 201 W. Main
Street, Laurens, South Carolina 29360. The Association's telephone number is
(864) 984-4581.

Election to Purchase Common Stock in the Conversion

     In connection with the Association's Conversion, each Participant in the
401(k) Plan may direct the trustees of the Plan (collectively, the "Trustees")
to transfer up to 100% of a Participant's account balance to a newly created
Employer Stock Fund and to use such funds to purchase Common Stock issued in
connection with the Conversion.  Amounts transferred may include salary
deferral, matching and profit sharing contributions.  The Employer Stock Fund
may consist of investments in the Common Stock made on or after the effective
date of the Conversion.  Funds not transferred to the Employer Stock Fund will
continue to be invested by the trustees of the Plan (the "Trustees").  See
"DESCRIPTION OF THE PLAN -- Investment of Contributions" below.  A Participant's
ability to transfer funds to the Employer Stock Fund in the Conversion is
subject to the Participant's general eligibility to purchase shares of Common
Stock in the Conversion.  For general information as to the ability of the
Participants to purchase shares in the Conversion, see "THE CONVERSION -- The
Subscription, Direct Community and Syndicated Community Offerings" in the
attached Prospectus.

Value of Participation Interests

     The assets of the Plan are valued on an ongoing basis and each Participant
is informed of the value of his or her beneficial interest in the Plan on at
least an annual basis.  This value represents the market value of past
contributions to the Plan by the Association and by the Participants and
earnings thereon, less previous withdrawals, and transfers from other plans.

Method of Directing Transfer

     The last page of this Prospectus Supplement is an investment form to direct
a transfer to the Employer Stock Fund ("Investment Form").  If a Participant
wishes to transfer funds to the Employer Stock Fund to purchase Common Stock
issued in connection with the Conversion, the 

                                      S-1
Participant should indicate that decision in Part 2 of the Investment Form. If a
Participant does not wish to make such an election, he or she does not need to
take any action.

Time for Directing Transfer

     The deadline for submitting a direction to transfer amounts to the Employer
Stock Fund in order to purchase Common Stock issued in connection with the
Conversion is ___________, 1998.  The Investment Form should be returned to
_________ at the Association no later than the close of business on such date.

Irrevocability of Transfer Direction

     A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in order to
purchase shares of Common Stock in connection with the Conversion shall be
irrevocable. Participants, however, will be able to direct the sale of Common
Stock, as explained below.

Direction Regarding Common Stock After the Conversion

     It is currently anticipated that Participants may be permitted to transfer
additional funds from their existing account balances to the Employer Stock Fund
following the Conversion.  In addition, it is anticipated that a Participant
will, on a periodic basis, direct the purchase of Common Stock with new
Participant and employer contributions or direct the sale of Common Stock.  If
Common Stock is sold, the proceeds will be credited to the Participant's account
and may be reinvested in the other investment options available under the Plan.
Special restrictions may apply to purchases or sales directed by those
Participants who are executive officers, directors and principal stockholders of
the Holding Company who are subject to the provisions of Section 16(b) of the
Securities and Exchange Act of 1934, as amended ("Exchange Act"), or applicable
OTS regulations.

Purchase Price of Common Stock

     The funds transferred to the Employer Stock Fund for the purchase of Common
Stock in connection with the Conversion will be used by the Trustees to purchase
shares of Common Stock.  The price paid for such shares of Common Stock will be
the same price as is paid by all other persons who purchase shares of Common
Stock in the Conversion.

Nature of a Participant's Interest in the Common Stock

     The Common Stock purchased for an account of a Participant will be held in
the name of the Trustees of the Plan in the Employer Stock Fund.  Any earnings,
losses or expenses with respect to the Common Stock, including dividends and
appreciation or depreciation in value, will be credited or debited to the
account and will not be credited to or borne by any other accounts.

                                      S-2
Voting and Tender Rights of Common Stock

     The Trustees generally will exercise voting and tender rights attributable
to all Common Stock held by the Trust as directed by Participants with an
interest in the Employer Stock Fund.  With respect to each matter as to which
holders of Common Stock have the right to vote, each Participant will be
allocated a number of voting instruction rights reflecting such Participant's
proportionate interest in the Employer Stock Fund.  The percentage of shares of
Common Stock held in the Employer Stock Fund that are voted in the affirmative
or negative on each matter shall be the same percentage of the total number of
voting instruction rights that are exercised in either the affirmative or
negative, respectively.

                            DESCRIPTION OF THE PLAN

Introduction

     The Association adopted the Plan effective January 1, 1987 as an amendment
and restatement of the Association's prior defined contribution retirement plan.
The Plan is a cash or deferred arrangement established in accordance with the
requirements under Section 401(a) and Section 401(k) of the Internal Revenue
Code of 1986, as amended ("Code").

     The Association intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code.  The
Association will adopt any amendments to the Plan that may be necessary to
ensure the qualified status of the Plan under the Code and applicable Treasury
Regulations.  The Association has received a determination from the Internal
Revenue Service ("IRS") that the Plan is qualified under Section 401(a) of the
Code and that it satisfies the requirements for a qualified cash or deferred
arrangement under Section 401(k) of the Code.

     Employee Retirement Income Security Act.  The Plan is an "individual
account plan" other than a "money purchase pension plan" within the meaning of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").  As
such, the Plan is subject to all of the provisions of Title I (Protection of
Employee Benefit Rights) and Title II (Amendments to the Internal Revenue Code
Relating to Retirement Plans) of ERISA, except the funding requirements
contained in Part 3 of Title I of ERISA, which by their terms do not apply to an
individual account plan (other than a money purchase pension plan).  The Plan is
not subject to Title IV (Plan Termination Insurance) of ERISA.  Neither the
funding requirements contained in Title IV of ERISA nor the plan termination
insurance provisions contained in Title IV will be extended to Participants or
beneficiaries under the Plan.

                                      S-3
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH
THE ASSOCIATION.  A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON
WITHDRAWALS MADE PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2, UNLESS A
PARTICIPANT RETIRES AS PERMITTED UNDER THIS PLAN REGARDLESS OF WHETHER SUCH A
WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE ASSOCIATION OR AFTER
TERMINATION OF EMPLOYMENT.

     Reference to Full Text of Plan.  The following statements are summaries of
the material provisions of the Plan.  They are not complete and are qualified in
their entirety by the full text of the Plan, which is filed as an exhibit to the
registration statement filed with the SEC.  Copies of the Plan are available to
all employees by filing a request with the Plan Administrator.  Each employee is
urged to read carefully the full text of the Plan.

Eligibility and Participation

     Any employee of the Association is eligible to participate and will become
a Participant in the Plan following completion of six (6) months of service with
the Association and the attainment of age 21.  The Plan year is the calendar
year ("Plan Year").  Directors who are not employees of the Association are not
eligible to participate in the Plan.

     During 1997, approximately __ employees participated in the Plan.

Contributions Under the Plan

     Participant Contributions.  Each Participant in the Plan is permitted to
elect to reduce such Participant's Compensation (as defined below) pursuant to a
salary reduction agreement in amounts ranging from 1% to 10% of Compensation and
have that amount contributed to the Plan on such Participant's behalf.  Such
amounts are credited to the Participant's deferral contributions account.  For
purposes of the Plan, "Compensation" means a Participant's total amount of
earnings reportable W-2 wages for federal income tax withholding purposes plus a
Participant's elective deferrals pursuant to a salary reduction agreement under
the Plan or any elective deferrals to a Section 125 plan.  Due to recent
statutory changes, the annual Compensation of each Participant taken into
account under the Plan is limited to $160,000 (as adjusted under applicable Code
provisions).  A Participant may elect to modify the amount contributed to the
Plan under the participant's salary reduction agreement during the Plan Year.
Deferral contributions are transferred by the Association to the Trustees of the
Plan on a periodic basis as required by applicable law.

     Employer Contributions.  For employees with one or more years of service,
the Association matches employee deferral contributions on a discretionary
basis.  Additional 

                                      S-4
contributions may also be made on a discretionary basis in proportion to each
Participant's Compensation.

Limitations on Contributions

     Limitations on Annual Additions and Benefits.  Pursuant to the requirements
of the Code, the Plan provides that the amount of contributions allocated to
each Participant's Account during any Plan Year may not exceed the lesser of 25%
of the Participant's "Section 415 Compensation" for the Plan Year or $30,000 (as
adjusted under applicable Code provisions).  A Participant's "Section 415
Compensation" is a Participant's Compensation, excluding any amount contributed
to the Plan under a salary reduction agreement or any employer contribution to
the Plan or to any other plan or deferred compensation or any distributions from
a plan of deferred compensation.  In addition, annual additions are limited to
the extent necessary to prevent the limitations for the combined plans of the
Association from being exceeded.  To the extent that these limitations would be
exceeded by reason of excess annual additions to the Plan with respect to a
Participant, the excess must be reallocated to the remaining Participants who
are eligible for an allocation of Employer contributions for the Plan Year.

     Limitation on 401(k) Plan Contributions.  The annual amount of deferred
compensation of a Participant (when aggregated with any elective deferrals of
the Participant under any other employer plan, a simplified employee pension
plan or a tax-deferred annuity) may not exceed $10,000 (as adjusted under
applicable Code provisions).  Contributions in excess of this limitation
("excess deferrals") will be included in the Participant's gross federal income
tax purposes in the year they are made.  In addition, any such excess deferral
will again be subject to federal income tax when distributed by the Plan to the
Participant, unless the excess deferral (together with any income allocable
thereto) is distributed to the Participant not later than the first April 15th
following the close of the taxable year in which the excess deferral is made.
Any income on the excess deferral that is distributed not later than such date
shall be treated, for federal income tax purposes, as earned and received by the
Participant in the taxable year in which the excess deferral is made.

     Limitation on Plan Contributions for Highly Compensated Employees.
Sections 401(k) and 401(m) of the Code limit the amount of deferred compensation
contributed to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of deferred compensation
contributed by or on behalf of all other employees eligible to participate in
the Plan.  Specifically, the actual deferral percentage for a Plan Year (i.e.,
                                                                         ---- 
the average of the ratios, calculated separately for each eligible employee in
each group, by dividing the amount of salary reduction contributions credited to
the salary reduction contribution account of such eligible employee by such
employee's compensation for the Plan Year) of the Highly Compensated Employees
may not exceed the greater of (a) 125% of the actual deferred percentage of all
other eligible employees, or (b) the lesser of (i) 200% of the actual deferred
percentage of all other eligible employees, or (ii) the actual deferral
percentage of all other eligible employees plus two percentage points.  In
addition, the actual contribution percentage for a Plan Year (i.e., the average
                                                              ----             
of the ratios calculated separately for each eligible employee in each 

                                      S-5
group, by dividing the amount of employer contributions credited to the Matching
contributions account of such eligible employee by each eligible employee's
compensation for the Plan Year) of the Highly Compensated Employees may not
exceed the greater of (a) 125% of the actual contribution percentage of all
other eligible employees, or (b) the lesser of (i) 200% of the actual
contributions percentage of all other eligible employees, or (ii) the actual
contribution percentage of all other eligible employees plus two percentage
points.

     In general, a Highly Compensated Employee includes any employee who, during
the Plan Year or the preceding Plan Year, (1) was at any time a 5% owner (i.e.,
                                                                          ---- 
owns directly or indirectly more than 5% of the stock of the Employer, or stock
possessing more than 5% of the total combined voting power of all stock of the
Employer) or, (2) during the preceding Plan Year, received Section 415
Compensation in excess of $80,000 (as adjusted under applicable Code provisions)
and, if elected by the Association, was in the top paid group of employees for
such Plan Year.

     In order to prevent disqualification of the Plan, any amounts contributed
by Highly Compensated Employees that exceed the average deferral limitation in
any Plan Year ("excess contributions"), together with any income allocable
thereto, must be distributed to such Highly Compensated Employees before the
close of the following Plan Year.  However, the Association will be subject to a
10% excise tax on any excess contributions unless such excess contributions,
together with any income allocable thereto, either are recharacterized or are
distributed before the close of the first 2 1/2 months following the Plan Year
to which such excess contributions relate.  In addition, in order to avoid
disqualification of the Plan, any contributions by Highly Compensated Employees
that exceed the average contribution limitation in any Plan Year ("excess
aggregate contributions") together with any income allocable thereto, must be
distributed to such Highly Compensated Employees before the close of the
following Plan Year.  However, the 10% excise tax will be imposed on the
Association with respect to any excess aggregate contributions, unless such
amounts, plus any income allocable thereto, are distributed within 2 1/2 months
following the close of the Plan Year in which they arose.

     Top-Heavy Plan Requirements.  If, for any Plan Year, the Plan is a Top-
Heavy Plan (as defined below), then (i) the Association may be required to make
certain minimum contributions to the Plan on behalf of non-key employees (as
defined below), and (ii) certain additional restrictions would apply with
respect to the combination of annual additions to the Plan and projected annual
benefits under any defined plan maintained by the Association.

     In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year, if as of the last day of the preceding Plan Year, the aggregate balance of
the accounts of all Participants who are key Employees exceeds 60% of the
aggregate balance of the Accounts of the Participants.  "Key Employees"
generally include any employee, who at any time during the Plan Year or any
other the four preceding Plan Years, if (1) an officer of the Association having
annual compensation in excess of $60,000 who is in an administrative or policy-
making capacity, (2) one of the ten employees having annual compensation in
excess of $30,000 and owing, directly or indirectly, the largest interest in the
employer, (3) a 5% owner of the employer (i.e., 
                                          ----                                  

                                      S-6
owns directly or indirectly more than 5% of the stock of the employer, or stock
possessing more than 5% of the total combined voting power of all stock of the
employer), or (4) a 1% owner of the employer having compensation in excess of
$150,000.

Investment of Contributions

     All amounts credited to Participant's Accounts under the Plan are held in
the Trust which is administered by the Trustees who are appointed by the Savings
Bank's Board of Directors.  The Plan provides that a Participant may direct the
Trustees to invest all or a portion of his or her Accounts in various investment
options, as listed below.  A Participant may periodically elect to change his or
her investment directions with respect to both past contributions and additions
to the Participant's accounts invested in these investment options in accordance
with rules established by the Trustees.

     Under the Plan, the Accounts of a Participant held in the Trust will be
invested by the Trustees at the direction of the Participant in the following
portfolios:

                                [TO BE PROVIDED]

     For additional information regarding these investment options, please
     contact ____________.

     In connection with the Conversion, a Participant may elect to have prior
contributions and additions to the Participant's Account invested either in the
Employer Stock Fund or in any of the other portfolios listed above.  Any amounts
credited to a Participant's Accounts for which investment directions are not
given will be invested in _______________.

     The net gain (or loss) in the Accounts from investments (including interest
payments, dividends, realized and unrealized gains and losses on securities, and
expenses paid from the Trust) are determined on a daily basis.  For purposes of
such allocation, all assets of the Trust are valued at their fair market value.

The Employer Stock Fund

     The Employer Stock Fund will consist of investments in Common Stock made on
and after the effective date of the Conversion.

     Following the Conversion, when Common Stock is sold, the cost or net
proceeds will be charged or credited to the Accounts of Participants affected by
the purchase or sale.  A Participant's Account will also be adjusted to reflect
changes in the value of shares of Common Stock resulting from stock dividends,
stock splits and similar changes.

                                      S-7
To the extent dividends are not paid on Common Stock held in the Employer
Stock Fund, the return on any investment in the Employer Stock Fund will consist
only of the market value appreciation of the Common Stock subsequent to its
purchase. Declarations and payments of any dividends (regular and special) by
the Board of Directors will depend upon a number of factors, including the
amount of the net proceeds retained by the Holding Company, capital
requirements, regulatory limitations, the Association's and the Holding
Company's financial condition and results of operations, tax considerations and
general economic conditions.

     As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock.  Accordingly, there is no record of the historical performance
of the Employer Stock Fund.

     Investments in the Employer Stock Fund may involve certain risk factors
associated with investments in Common Stock of the Holding Company.  For a
discussion of these risk factors, see "RISK FACTORS" in the Prospectus.

Benefits Under the Plan

     Vesting.  A Participant has, at all times, a fully vested, nonforfeitable
interest in all of his or her Participant and Employer contributions and the
earnings thereon under the Plan.

Withdrawals and Distributions from the Plan

     APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2
UNLESS A PARTICIPANT RETIRES AS PERMITTED UNDER THE PLAN REGARDLESS OF WHETHER
SUCH A WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE ASSOCIATION.

     Distribution Upon Retirement, Death, Disability or Termination of
Employment. The distribution of benefits under the 401(k) Plan to a Participant
may be made in who retires, incurs a form of a lump-sum payment or installment
periods over a specified period. Distributions generally commence as soon as
practicable following the Participant's termination of employment. At the
request of the Participant, the distribution may include an in-kind distribution
of Common Stock of the Holding Company credited to the Participant's Account.
Benefits payments ordinarily must begin not later than 60 days following the end
of the Plan Year in which occurs later of the Participant's: (i) termination of
employment; (ii) attainment of age 65; or (iii) tenth anniversary of
commencement of participation in the Plan; but in no event later than April 1
following the calendar year in which the Participant attains age 70 1/2 (if the
Participant is retired). However, if the vested portion of the Participant's
Account balances exceeds $3,500, no distribution will be made from the Plan
prior to the Participant's attaining age 65 unless the Participant consents to
an earlier distribution. Special rules may apply to the

                                      S-8
distribution of Common Stock of the Holding Company to those Participants who
are executive officers, directors and principal shareholders of the Holding
Company who are subject to the provisions of Section 16(b) of the Exchange Act.

     In-Service Withdrawals and Loans.  The Plan provides for distributions of
Participant deferral contributions prior to termination of employment in the
form of hardship withdrawals.  Such withdrawals are permitted where the funds
are applied to (i) uninsured medical expenses, (ii) the purchase of a principal
residence, (iii) the payment of tuition and other education expenses or (iv)
payments necessary to prevent eviction from a principal residence or foreclosure
on a mortgage.  In order to qualify for a hardship withdrawal, the Participant
must satisfy certain requirements relating to his or her financial resources and
the amount of the withdrawal may not exceed the Participant's immediate and
heavy financial need.

     The Plan does not provide for other in-service withdrawals or loans.

     Nonalienation of Benefits. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.

Administration of the Plan

     Trustees.  The Trustees with respect to Plan assets are currently J. Edward
Wells, Edwin I. Shealy and Debra C. Garrett.

     Pursuant to the terms of the Plan, the Trustees receive and hold
contributions to the Plan in trust and have exclusive authority and discretion
to manage and control the assets of the Plan pursuant to the terms of the Plan
and to manage, invest and reinvest the Trust and income therefrom.  The Trustees
have the authority to invest and reinvest the Trust and may sell or otherwise
dispose of Trust investments at any time and may hold trust funds uninvested.
The Trustees have authority to invest the assets of the Trust in "any type of
property, investment or security" as defined under ERISA.

     The Trustees have full power to vote any corporate securities in the Trust
in person or by proxy; provided, however, that the Participants will direct the
Trustees as to voting and tendering of all Common Stock held in the Employer
Stock Fund.

     The Trustees receive no compensation for their services.  The expenses of
the Trustees are paid out of the Trust except to the extent such expenses and
compensation are paid by the Association.

                                      S-9
The Trustees must render at least annual reports to the Association and to
the Participants in such form and containing such information that the Trustees
deem necessary.

Reports to Plan Participants

     The Plan Administrator furnishes to each Participant a statement at least
quarterly showing (i) the balance in the Participant's Account as of the end of
that period, (ii) the amount of contributions allocated to any such
Participant's Account for that period, and (iii) the adjustments to such
Participant's Account to reflect earnings or losses (if any).

Plan Administrator

     The Association currently serves as the Plan Administrator.  The Plan
Administrator is responsible for the administration of the Plan, interpretation
of the provisions of the Plan, prescribing procedures for filing applications
for benefits, preparation and distribution of information explaining the Plan,
maintenance of plan records, books of account and all other data necessary for
the proper administration of the Plan, and preparation and filing of all returns
and reports relating to the Plan which are required to be filed with the U.S.
Department of Labor and the IRS, and for all disclosures required to be made to
Participants, beneficiaries and others under Sections 104 and 105 of ERISA.

Amendment and Termination

     The Association may terminate the Plan at any time.  If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee who ceases to be a Participant shall have a fully vested interest
in his or her Account. The Association reserves the right to make, from time to
time, any amendment or amendments to the Plan which do not cause any part of the
Trust to be used for, or diverted to, any purpose other than the exclusive
benefit of the Participants or their beneficiaries.

Merger, Consolidation or Transfer

     In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust to another plan, the Plan requires that each
Participant (if either the Plan or the other plan then terminated) receive a
benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he or she would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).

Federal Income Tax Consequences

     The following is only a brief summary of certain federal income tax aspects
of the Plan which are of general application under the Code and is not intended
to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan. The
summary is necessarily general in nature and

                                     S-10
does not purport to be complete. Moreover, statutory provisions are subject to
change, as are their interpretations, and their application may vary in
individual circumstances. Finally, the consequences under applicable state and
local income tax laws may not be the same as under the federal income tax laws.

PARTICIPANTS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY
DISTRIBUTION FROM THE PLAN AND TRANSACTIONS INVOLVING THE PLAN.

     The Plan has received a determination from the IRS that it is qualified
under Sections 401(a) and 401(k) of the Code, and that the related Trust is
exempt from tax under Section 501(a) of the Code.  A plan that is "qualified"
under these sections of the Code is afforded special tax treatment which include
the following: (1) the sponsoring employer is allowed an immediate tax deduction
for the amount contributed to the Plan of each year; (2) Participants pay no
current income tax on amounts contributed by the employer on their behalf; and
(3) earnings of the Plan are tax-exempt thereby permitting the tax-free
accumulation of income and gains on investments.  The Plan will be administered
to comply in operation with the requirements of the Code as of the applicable
effective date of any change in the law.  The Association expects to timely
adopt any amendments to the Plan that may be necessary to maintain the qualified
status of the Plan under the Code.  Following such an amendment, the Plan will
be submitted to the IRS for a determination that the Plan, as amended, continues
to qualify under Sections 401(a) and 501(a) of the Code and that it continues to
satisfy the requirements for a qualified cash or deferred arrangement under
Section 401(k) of the Code.

     Assuming that the Plan is administered in accordance with the requirements
of the Code, participation in the Plan under existing federal income tax laws
will have the following effects:

     (a) Amounts contributed to a Participant's 401(k) account and the
investment earnings are actually distributed or withdrawn from the Plan.
Special tax treatment may apply to the taxable portion of any distribution that
includes Common Stock or qualified as a "Lump Sum Distribution" (as described
below).

     (b) Income earned on assets held by the Trust will not be taxable to the
Trust.

     Lump Sum Distribution. A distribution from the Plan to a Participant or the
beneficiary of a Participant will qualify as a "Lump Sum Distribution" if it is
made: (i) within a single taxable year of the Participant or beneficiary; (ii)
on account of the Participant's death or separation from service, or after the
Participant attains age 59 1/2; and (iii) consists of the balance to the credits
of the Participant under the Plan and all other profit sharing plans, if any,
maintained by the Association. The portion of any Lump Sum Distribution that is
required to be included in the Participant's or beneficiary's taxable income for
federal income tax purposes ("total taxable amount") consists of the entire
amount of such Lump Sum Distribution less the amount of after-tax contributions,
if any, made by the Participant to any other profit sharing plans maintained by
the Association which is included in such distribution.

                                     S-11
Averaging Rules.  The portion of the total taxable amount of a Lump Sum
Distribution ("ordinary income portion") will be taxable generally as ordinary
income for federal income tax purposes.  However, for distributions occurring
prior to January 1, 2000, a Participant who has completed at least five years of
participation in the Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
Participant's death (regardless of the period of the Participant's participation
in the Plan or any other profit sharing plan maintained by the Employer), may
elect to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year averaging").  The election of
the special averaging rules may apply only to one Lump Sum Distribution received
by the Participant or beneficiary, provided such amount is received on or after
the Participant turns 59 1/2 and the recipient elects to have any other Lump Sum
Distribution from a qualified plan received in the same taxable year taxed under
the special averaging rule.  The special five-year averaging rule has been
repealed for distributions occurring after December 31, 1999.  Under a special
grandfather rule, individuals who turned 50 by 1986 may elect to have their Lump
Sum Distribution taxed under either the five-year averaging rule (if available)
or the prior law ten-year averaging rule.  Such individuals also may elect to
have that portion of the Lump Sum Distribution attributable to the Participant's
pre-1974 participation in the Plan taxed at a flat 20% rate as gain from the
sale of a capital asset.

     Common Stock Included in Lump Sum Distribution.  If a Lump Sum Distribution
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of the
----                                                                 
distribution over its cost to the Plan.  The tax basis of such Common Stock to
the Participant or beneficiary for purposes of computing gain or loss on its
subsequent sale will be the value of the Common Stock at the time of
distribution less the amount of net unrealized appreciation.  Any gain on a
subsequent sale or other taxable disposition of such Common Stock, to the extent
of the amount of net unrealized appreciation at the time of distribution, will
be considered long-term capital gain regardless of the holding period of such
Common Stock.  Any gain on a subsequent sale or other taxable disposition of the
Common Stock in excess of the amount of net unrealized appreciation at the time
of distribution will be considered either short-term capital gain or long-term
capital gain depending upon the length of the holding period of the Common
Stock.  The recipient of a distribution may elect to include the amount of any
net unrealized appreciation in the total taxable amount of such distribution to
the extent allowed by the regulations by the IRS.

     Distributions:  Rollovers and Direct Transfers to Another Qualified Plan or
to an IRA.  Pursuant to a change in the law, effective January 1, 1993,
virtually all distributions from the Plan may be rolled over to another
qualified Plan or to an individual retirement account ("IRA") without regard to
whether the distribution is a Lump Sum Distribution or Partial Distribution.
Effective January 1, 1993, Participants have the right to elect to have the
Trustees transfer all or any portion of an "eligible rollover distribution"
directly to another plan qualified under Section 401(a) of the Code or to an
IRA.  If the Participant does not elect to have an "eligible rollover
distribution" transferred directly to another qualified plan of to an IRA, the

                                     S-12
distribution will be subject to a mandatory federal withholding tax equal to 20%
of the taxable distribution.  An "eligible rollover distribution" means any
amount distributed from the Plan except:  (1) a distribution that is (a) one of
a series of substantially equal periodic payments made (not less frequently than
annually) over the Participant's life of the joint life of the Participant and
the Participant's designated beneficiary, or (b) for a specified period of ten
years or more; (2) any amount that is required to be distributed under the
minimum distribution rules; and (3) any other distributions excepted under
applicable federal law.  The tax law change described above did not modify the
special tax treatment of Lump Sum Distributions, that are not rolled over or
transferred, i.e., forward averaging, capital gains tax treatment and the
             ----                                                        
nonrecognition of net unrealized appreciation, discussed earlier.

     Additional Tax on Early Distributions. A Participant who receives a
distribution from the Plan prior to attaining age 59 1/2 will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled over into an IRA or another qualified plan or the
distribution is (i) made to a beneficiary (or to the estate of a Participant) on
or after the death of the Participant, (ii) attributable to the Participant's
being disabled within the meaning of Section 72(m)(7) of the Code, (iii) part of
a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of the Participant and his or her
beneficiary, (iv) made to the Participant after separation from service on
account of early retirement under the Plan after attainment of age 55, (v) made
to pay medical expenses to the extent deductible for federal income tax
purposes, (vi) pursuant to a qualified domestic relations order, or (vii) made
to effect the distribution of excess contributions or excess deferrals.

     THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE  DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.

Restrictions on Resale

     Any person receiving shares of the Common Stock under the Plan who is an
"affiliate" of the Association or the Holding Company as the term "affiliate" is
used in Rules 144 and 405 under the Securities Act of 1933, as amended
("Securities Act") (e.g., directors, officers and substantial shareholders of
the Association) may reoffer or resell such shares only pursuant to a
registration statement filed under the Securities Act (the Holding Company and
the Association having no obligation to file such registration statement) or,
assuming the availability thereof, pursuant to Rule 144 or some other exemption
from the registration requirements of the Securities Act.  Any person who may be
an "affiliate" of the Association or the Holding Company may

                                     S-13
wish to consult with counsel before transferring any Common Stock owned by him
or her. In addition, Participants who are officers of the Association or the
Holding Company are advised to consult with counsel as to the applicability of
the reporting and short-swing profit liability rules of Section 16 of the
Exchange Act which may affect the purchase and sale of the Common Stock where
acquired or sold under the Plan or otherwise.

                                 LEGAL OPINIONS

     The validity of the issuance of the Common Stock will be passed upon by
Breyer & Aguggia, Washington, D.C., which firm is acting as special counsel for
the Holding Company in connection with the Conversion.

                                     S-14
Investment Form
                             (Employer Stock Fund)

                  HERITAGE FEDERAL SAVINGS & LOAN ASSOCIATION
                                  401(k) PLAN

Name of Participant:
                     -----------------------------------------------------

Social Security Number:
                        --------------------------------------------------
             

     1.   Instructions.  In connection with the proposed conversion of Heritage
Federal Savings & Loan Association ("Association") to a stock savings bank and
the simultaneous formation of a holding company ("Conversion"), participants in
the Heritage Federal Savings & Loan Association 401(k) Plan ("Plan") may elect
to direct the investment of up to 100% of their account balance into the
Employer Stock Fund ("Employer Stock Fund").  Amounts transferred at the
direction of Participants into the Employer Stock Fund will be used to purchase
shares of the common stock of Heritage Bancorp, Inc. ("Common Stock"), the
proposed holding company for the Association.  A Participant's eligibility to
purchase shares of Common Stock is subject to the Participant's general
eligibility to purchase shares of Common Stock in the Conversion and the maximum
and minimum limitations set forth in the Plan Conversion.  See the Prospectus
for additional information.

     You may use this form to direct a transfer of funds credited to your
account to the Employer Stock Fund, to purchase Common Stock in the Conversion.
To direct such a transfer to the Employer Stock Fund, you should complete this
form and return it to _________ at the Association, no later than the close of
business on _______________, 1998.  The Association will keep a copy of this
form and return a copy to you.  (If you need assistance in completing this form,
please contact _________).

     2.   Transfer Direction.  I hereby direct the Plan Administrator to
transfer $__________ (in increments of $15) to the Employer Stock Fund to be
applied to the purchase of Common Stock in the Conversion.  Please transfer this
amount from the following investments in the amounts
indicated:____________________.

     3.   Effectiveness of Direction.  I understand that this Investment Form
shall be subject to all of the terms and conditions of the Plan and the terms
and conditions of the Conversion.  I acknowledge that I have received a copy of
the Prospectus and the Prospectus Supplement.

     
------------------------------------          --------------------------------
              Signature                                      Date

                             *    *    *    *    *

     4.   Acknowledgement of Receipt.  This Investment Form was received by the
Plan Administrator and will become effective on the date noted below.

-------------------------------------          --------------------------------
          Plan Administrator                                 Date

                                     S-15
PROSPECTUS
                             HERITAGE BANCORP, INC.
        (Holding company for Heritage Federal Savings & Loan Association,
                      to be known as Heritage Federal Bank)
             Between 2,975,000 and 4,025,000 Shares of Common Stock

Heritage Federal Savings & Loan Association is converting from the mutual form
to the stock form of organization and changing its name to Heritage Federal
Bank. As part of the conversion, Heritage Federal Savings & Loan Association
will become a wholly-owned subsidiary of Heritage Bancorp, Inc., which was
formed in November 1997. The common stock of Heritage Bancorp, Inc. is being
offered to the public under the terms of a Plan of Conversion which must be
approved by a majority of the votes eligible to be cast by the members of
Heritage Federal Savings & Loan Association. The conversion will not go forward
if Heritage Federal Savings & Loan Association does not receive this approval
and Heritage Bancorp, Inc. does not sell at least the minimum number of shares.

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

                                OFFERING SUMMARY

The amount of common stock being offered in the conversion is based on an
independent appraisal of the market value of Heritage Federal Savings & Loan
Association, after giving effect to the conversion and the formation of Heritage
Bancorp, Inc. The independent appraiser has stated that as of November 28, 1997,
the market value of Heritage Bancorp, Inc. and the converted Heritage Federal
Savings & Loan Association ranged from $44,625,000 to $60,375,000. Subject to
approval of the Office of Thrift Supervision, an additional 15% above the
maximum number of shares may be sold.
Price Per Share: $15.00
                                           Minimum          Midpoint         Maximum         Maximum, as adjusted
                                           -------          --------         -------         --------------------
Number of shares:                            2,975,000        3,500,000        4,025,000           4,628,750
Gross offering proceeds:                   $44,625,000      $52,500,000      $60,375,000         $69,431,250
Estimated offering expenses:                $1,098,000       $1,207,000       $1,315,000          $1,320,000
Estimated net proceeds:                    $43,527,000      $51,293,000      $59,060,000         $68,111,250
Estimated net proceeds per share:               $14.63           $14.66           $14.67              $14.71
Trident Securities, Inc. will use its best efforts to assist Heritage Bancorp,
Inc. in selling at least the minimum number of shares but does not guarantee
that this number will be sold. All funds received from subscribers will be held
in an interest-bearing savings account at Heritage Federal Savings & Loan
Association until the completion or termination of the conversion.

Heritage Bancorp, Inc. has received preliminary approval to have its common
stock quoted on the Nasdaq National Market under the symbol ____.

The subscription offering will terminate at 12:00 Noon, Eastern Time, on
______________, 1998, unless extended for up to ___ days.

--------------------------------------------------------------------------------
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.

For a discussion of certain risks that you should consider, see "RISK FACTORS"
beginning on page ____.

Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, nor any state securities regulator has approved or disapproved
these securities or determined if this prospectus is accurate or complete.
Any representation to the contrary is a criminal offense.

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

For additional information about the conversion, please refer to the more
detailed information in this prospectus. For assistance, please contact the
stock information center at (___)___________.

                            TRIDENT SECURITIES, INC.
                The date of this prospectus is ___________, 1998
TABLE OF CONTENTS
Page
Summary....................................................................................
Risk Factors...............................................................................
Selected Consolidated Financial Information................................................
Use of Proceeds............................................................................
Dividend Policy............................................................................
Market for Common Stock....................................................................
Capitalization.............................................................................
Historical and Pro Forma Regulatory Capital Compliance.....................................
Pro Forma Data.............................................................................
Shares to be Purchased by Management Pursuant to Subscription Rights.......................
Heritage Federal Savings & Loan Association Statements of Income...........................
Management's Discussion and Analysis of Financial Condition and Results of Operations......
Business of the Holding Company............................................................
Business of the Association................................................................
Management of the Holding Company..........................................................
Management of the Association..............................................................
Regulation.................................................................................
Taxation...................................................................................
The Conversion.............................................................................
Restrictions on Acquisition of the Holding Company.........................................
Description of Capital Stock of the Holding Company .......................................
Registration Requirements..................................................................
Legal and Tax Opinions.....................................................................
Experts....................................................................................
Additional Information.....................................................................
Index to Consolidated Financial Statements.................................................
Glossary...................................................................................     G-1
Heritage Federal Savings & Loan Association
                             Laurens, South Carolina

[map of South Carolina showing county boarders, with enlargement of Greenville,
Anderson, Laurens and Greenwood Counties showing the location of the towns of
Simpsonville, Belton, Laurens and Ware Shoals appears here]
SUMMARY

         The following summary explains the significant aspects of the
conversion. For additional information about the conversion, please refer to the
more detailed information in this prospectus. For assistance, please contact the
stock information center at (___) ____________. Throughout this prospectus,
Heritage Federal Savings & Loan Association is referred to as the "Association"
and Heritage Bancorp, Inc. is referred to as the "Holding Company." See the
glossary at the back of this prospectus for the definitions of certain terms
that are printed in boldface type the first time they appear in this prospectus.

Heritage Bancorp, Inc.

         The Association formed the Holding Company under Delaware law in
November 1997 for the purpose of owning all of the Association's capital stock
following completion of the conversion. The Holding Company has received
conditional approval of the OTS to become a savings and loan holding company by
acquiring the capital stock of the Association in the conversion. Before the
completion of the conversion, the Holding Company will not have any material
assets or liabilities, and it will not engage in any material operations. After
the conversion, the Holding Company's primary assets will be all of the capital
stock of the Association, a portion of the net proceeds of the conversion and a
note receivable from the Association's ESOP. Initially, the primary activity of
the Holding Company will be to direct, plan and coordinate the Association's
business activities. In the future, the Holding Company might become an
operating company or acquire or organize other operating subsidiaries, including
other financial institutions. The Holding Company's main office is located at
201 W. Main Street, Laurens, South Carolina 29360 and its telephone number is
(864) 984-4581.

Heritage Federal Savings & Loan Association

         Chartered in 1948, the Association is a federal mutual savings and loan
association. The Association was originally known as Laurens Federal Savings &
Loan Association. In 1977, the Association changed its name to Heritage Federal
Savings & Loan Association. In connection with the conversion, the Association
will change its name to Heritage Federal Bank. The Association's main office is
located at 201 W. Main Street, Laurens, South Carolina 29360 and its telephone
number is (864) 984-4581.

         The Association is regulated by the OTS and the FDIC. The Association's
deposits have been federally-insured by the FDIC since 1948 and are currently
insured by the FDIC under the SAIF. The Association has been a member of the
FHLB-System since 1948.

         The Association is a community oriented financial institution that
operates out of four offices in the Upstate region of South Carolina. The
Association's principal business is attracting deposits from the general public
and using those funds to originate residential mortgage loans. At September 30,
1997, the Association had total assets of $247.5 million, deposits of $215.4
million and total equity of $29.2 million. At that date, $180.6 million, or
73.0%, of the Association's assets were residential mortgage loans and $200.2
million, or 91.7%, of the Association's liabilities were certificates of
deposit. The Association emphasizes the origination of ARM loans and generally
holds its loans for long-term investment purposes. For a discussion of the
Association's business strategy and recent results of operations, see
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." For a discussion of the Association's business activities, see
"BUSINESS OF THE ASSOCIATION."

The Conversion

         The Association is undertaking the conversion pursuant to its Plan of
Conversion. The conversion is a change in the Association's legal form of
organization. The Association currently operates as a federally chartered mutual
savings and loan association with no stockholders. Through the conversion, the
Association will become a federally chartered stock savings bank and will issue
shares of its common stock to Heritage Bancorp, Inc. As part 

                                       1
of the conversion, Heritage Bancorp, Inc., as the Association's holding company,
will issue shares of its common stock to the public and to the Association's
ESOP. Currently, the Association's depositor and borrower members have voting
rights in the Association and, therefore, are entitled to elect directors of the
Association and to vote on other important matters. Following the conversion,
the Holding Company will exercise all voting rights with respect to the
Association's common stock, and the Holding Company's stockholders will elect
its directors and exercise all other voting rights with respect to the Holding
Company's common stock. The OTS has approved the conversion, subject to approval
by the Association's members at a special meeting to be held on _________, 1998.
For further description of the conversion, see "THE CONVERSION."

Reasons for the Conversion

         As a federal mutual savings and loan association, the Association does
not have stockholders and does not have authority to issue capital stock. By
converting to the stock form of organization, the Association will be structured
in the form used by commercial banks, most business entities and a growing
number of savings institutions. The conversion will be important to the
Association's future growth and performance by providing a larger capital base
from which it can operate, by enhancing its ability to attract and retain
qualified management through stock-based compensation plans, by enhancing its
ability to diversify into other financial services related activities and by
expanding its ability to provide services to the public. At this time, the
Association does not have any specific plans or arrangements for diversification
or expansion. See "THE CONVERSION -- Reasons for the Conversion."

Use of Proceeds

         The Holding Company will use the net conversion proceeds as follows:

         - 50% will be used to buy all of the common stock of the Association.
         The Association will use these funds to make loans and purchase
         investments similar to the kinds it currently holds.

         - 8% will be loaned to the ESOP to fund its purchase of common stock.

         - 42% will be kept for general corporate purposes. These purposes may
         include, for example, paying dividends or buying back shares of common
         stock.

         For further discussion, see "USE OF PROCEEDS."

The Subscription and Direct Community Offerings

         The Holding Company is offering shares of its common stock in a
Subscription Offering to certain current and former depositor and borrower
customers of the Association and to the Association's ESOP. Pursuant to its Plan
of Conversion, the Association has granted subscription rights in the following
order of priority in accordance with applicable regulatory requirements to:

         1.   "Eligible Account Holders" -- the Association's depositors with
              $50 or more on deposit as of June 30, 1996.

         2.   "ESOP" -- the Employee Stock Ownership Plan to be implemented
              by the Association in the conversion.

         3.   "Supplemental Eligible Account Holders" -- the Association's
              depositors with $50 or more on deposit as of December 31, 1997.

                                       2
4.   "Other Members" -- the Association's depositors as of
              ____________, 1998 and borrowers of the Association as of October
              21, 1997 whose loans continue to be outstanding as of
              _____________, 1998.

--------------------------------------------------------------------------------
         Subscription rights are not transferable, and persons with subscription
rights may not subscribe for shares for the benefit of any other person. If you
violate this prohibition you may lose your right to purchase shares in the
conversion and may be subject to criminal prosecution and/or other sanctions.
--------------------------------------------------------------------------------

         The Subscription Offering will expire at 12:00 Noon, Eastern Time, on
___________, 1998, unless extended by the Association and the Holding Company
for up to ___ days. In the event of an oversubscription, shares will be
allocated in accordance with the Plan of Conversion.

         Shares not sold in the Subscription Offering may be offered to the
general public in a Direct Community Offering with preference given to natural
persons and trusts of natural persons who are residents of the Association's
Local Community. The Direct Community Offering, if one is held, is expected to
begin immediately after the conclusion of the Subscription Offering, but may
begin at any time during the Subscription Offering. The Subscription Offering,
and the Direct Community Offering, if any, are being managed by Trident
Securities. Trident Securities is a registered broker-dealer and a member of the
NASD. Trident Securities is not obligated to purchase any shares of common stock
in this offering. Shares not sold in the Subscription Offering or Direct
Community Offering may be offered for sale in a Syndicated Community Offering,
which would be an offering to the general public on a best efforts basis by a
selling group of broker-dealers managed by Trident Securities. See "THE
CONVERSION -- The Subscription, Direct Community and Syndicated Community
Offerings."

         You will not pay a commission to buy any shares in the conversion.

Stock Pricing and Number of Shares to be Issued in the Conversion

         Between 2,975,000 and 4,025,000 shares of the common stock will be
sold, all at a price of $15.00 per share. With the approval of the OTS, the
number of shares may be increased to 4,628,750.

         The amount of common stock being offered in the conversion is based on
an independent appraisal of the estimated pro forma market value of the Holding
Company and the Association. RP Financial, the independent appraiser, has
estimated that, in its opinion, as of November 28, 1997, the aggregate pro forma
market value of the Holding Company and the Association ranged between
$44,625,000 and $60,375,000 (with a midpoint of $52,500,000) ("Estimated
Valuation Range"). The pro forma market value is the market value of the Holding
Company and the Association after taking into account the sale of shares in this
offering. The appraisal was based in part on the Association's financial
condition and operations and the effect of the additional capital raised by the
sale of common stock in this offering. The independent appraisal will be updated
prior to the completion of the conversion. If the pro forma market value of the
Holding Company and the Association changes to either below $44,625,000 or above
$69,431,250 (the adjusted maximum of the offering), you will be notified and
provided with the opportunity to modify or cancel your order. The $15.00 per
share purchase price was determined by the Boards of Directors of the Holding
Company and the Association. See "THE CONVERSION -- Stock Pricing and Number of
Shares to be Issued."

Purchase Limitations

         The minimum number of shares that you may purchase is 25. The
Association has established the following additional purchase limitations:

                                       3
- Except for the ESOP, which may subscribe for 8% of the shares issued
         in the conversion, no eligible subscriber (including all persons on a
         joint account) may purchase more than $330,000 of common stock (or
         22,000 shares) in the Subscription Offering.

         - No person may purchase more than $330,000 of common stock (or 22,000
         shares) in the Direct Community Offering or Syndicated Community
         Offering.

         - No person, either alone or together with associates or persons acting
         in concert, may purchase more than the overall maximum purchase
         limitation of 1% of the total number of shares of common stock issued
         in the conversion (not taking into account an increase in the number of
         shares as a result of the increase of the appraisal to the adjusted
         maximum).

         For further discussion of the purchase limits and definitions of
"associate" and "acting in concert," see "THE CONVERSION -- Limitations on
Purchases of Shares."

Procedure for Purchasing Common Stock

         To subscribe for shares of common stock in the Subscription Offering,
you should send or deliver an original, signed stock order form together with
full payment (or appropriate instructions for withdrawal from permitted deposit
accounts, as described below) to the Association in the postage-paid envelope
provided so that the stock order form is received before the end of the
Subscription Offering. You must also sign the certification that is part of the
stock order form. Payment for shares may be made in cash (if made in person) or
by check or money order. The Association will pay interest at the rate it pays
on passbook accounts from the date funds are received until completion or
termination of the conversion. Subscribers who have deposit accounts with the
Association may include instructions on the stock order form requesting
withdrawal from such deposit account(s) to purchase shares. Withdrawals from
certificates of deposit may be made without incurring an early withdrawal
penalty. All funds authorized for withdrawal from deposit accounts with the
Association will earn interest at the applicable account rate. After the
Association receives your order, your order cannot be withdrawn or changed,
except with the consent of the Association.

         To ensure that your subscription rights are properly identified, you
must list all qualifying savings accounts and loans, as of the respective
qualifying dates, on the stock order form. Persons who do not list all
qualifying savings accounts and loans may be subject to reduction or rejection
of their subscription.

         The Holding Company and the Association have the discretion to accept
or reject orders received either through the Direct Community Offering or the
Syndicated Community Offering. If your order is rejected in part, you will not
have the right to cancel the remainder of the order.

         Owners of self-directed IRAs may use the assets of their IRAs to
purchase shares of common stock in the conversion, provided that their IRAs are
not maintained on deposit with the Association. If you want to use funds in a
self-directed IRA maintained by the Association to purchase shares of common
stock, you must transfer your account to an unaffiliated institution or broker.
If you are interested in doing so, you should contact the Association's stock
information center no later than _____________, 1998.

         For further information on how to purchase stock, see "THE CONVERSION
-- Procedure for Purchasing Shares in the Subscription and Direct Community
Offerings."

Purchases by Officers and Directors

         The Association expects its directors and executive officers (together
with their associates) to subscribe for 168,336 shares, which equals 4.8% of the
shares issued at the midpoint of the offering range. The purchase price paid by
them will be the same $15.00 per share price as that paid by all other persons
who purchase shares in the 

                                       4
conversion. See "SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION
RIGHTS."

Benefits of the Conversion to Management

         ESOP. The Association will adopt the ESOP in connection with the
conversion. The ESOP intends to purchase 8% of the shares of common stock issued
in the conversion. If the ESOP's subscription is not filled in its entirety, the
ESOP may purchase shares in the open market or may purchase shares directly from
the Holding Company. The Holding Company will recognize additional compensation
expense as a result of the adoption of the ESOP. If the number of shares sold in
the conversion is increased above the maximum of the offering range, the ESOP
will have a first priority to purchase any such shares over the maximum of the
offering range, up to a total of 8% of the common stock. For information about
the ESOP, see "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Employee Stock
Ownership Plan." See also "RISK FACTORS -- New Expenses Associated With ESOP and
MRP" and "PRO FORMA DATA."

         Management Recognition Plan. The Holding Company expects to seek
stockholder approval of the MRP no earlier than six months after completion of
the conversion. The MRP will reserve a number of shares equal to 4% of the
number of shares issued in the conversion. Pursuant to the MRP, the Holding
Company would be able to make awards of shares of common stock to key employees
and directors of the Holding Company and the Association at no cost to the
recipient. All awards would be subject to vesting over a minimum of five years.
The size of individual awards will be determined prior to submitting the MRP for
stockholder approval, and disclosure of anticipated awards will be included in
the proxy materials for such meeting. For additional information about the MRP,
see "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Management Recognition Plan."
See also "RISK FACTORS -- New Expenses Associated With ESOP and MRP" and "PRO
FORMA DATA."

         Stock Option Plan. The Holding Company expects to seek stockholder
approval of a Stock Option Plan no earlier than six months after completion of
the conversion. The Stock Option Plan will reserve a number of shares equal to
10% of the number of shares issued in the conversion. Pursuant to the Stock
Option Plan, the Holding Company would be able to award options to acquire
shares of common stock to key employees and directors of the Holding Company and
the Association. The exercise price of such options would be 100% of the fair
market value of the common stock on the date the option is granted. All awards
would be subject to vesting over a minimum of five years. The size of individual
awards will be determined prior to submitting the Stock Option Plan for
stockholder approval, and disclosure of anticipated awards will be included in
the proxy materials for such meeting. For additional information about the Stock
Option Plan, see "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Stock Option
Plan."

         Employment and Severance Agreements. The Holding Company and the
Association plan to enter into an employment agreement with J. Edward Wells, the
Association's Chief Executive Officer. The employment agreement will provide
certain benefits to Mr. Wells if he is terminated following a change in control
of the Holding Company or the Association. If there is a change in control of
the Holding Company or the Association, Mr. Wells will be entitled to a package
of cash and/or benefits with a maximum value equal to 2.99 times his average
annual compensation during the five-year period preceding the change in control.
If a change of control had occurred as of September 30, 1997, the total value of
the severance benefits payable to Mr. Wells under the proposed employment
agreement would have been approximately $427,000. See "RISK FACTORS --
Provisions of Employment and Severance Agreements and Severance Plan" and
"MANAGEMENT OF THE ASSOCIATION -- Executive Compensation -- Employment
Agreement."

         The Holding Company and the Association plan to enter into severance
agreements with four of the Association's senior officers, none of whom will be
covered by an employment agreement. The severance agreements provide certain
benefits to the officers if they are terminated following a change in control of
the Holding Company or the Association. If there is a change in control of the
Holding Company or the Association, each senior officer would be entitled to a
package of cash and/or benefits with a maximum value equal to two times his

                                       5
compensation during the 12-month period preceding the change in control. If a
change of control had occurred as of September 30, 1997, the total value of the
severance benefits payable to these senior officers under the proposed
agreements would have been approximately $417,000. See "RISK FACTORS --
Provisions of Employment and Severance Agreements and Severance Plan" and
"MANAGEMENT OF THE ASSOCIATION -- Executive Compensation -- Severance
Agreements."

         Employee Severance Compensation Plan. In connection with the
conversion, the Board of Directors of the Association intends to adopt the
Severance Plan to provide benefits to eligible employees in the event of a
change in control of the Holding Company or the Association. Officers who enter
into separate employment or severance agreements with the Holding Company and
the Association will not be eligible to participate in the Severance Plan. The
Severance Plan will provide that, in the event of a change in control of the
Holding Company or the Association, eligible employees who are terminated or who
terminate employment (but only upon the occurrence of events specified in the
Severance Plan) within 12 months of the effective date of a change in control
will be entitled to a payment based on years of service and/or position with the
Association, subject to certain limits. If a change in control had occurred at
September 30, 1997 and all eligible employees had been terminated, the total
payment due under the Severance Plan would be approximately $529,000. See "RISK
FACTORS -- Provisions of Employment and Severance Agreements and Severance Plan"
and "MANAGEMENT OF THE ASSOCIATION -- Executive Compensation -- Employee
Severance Compensation Plan."

Market for Common Stock

         The Holding Company has obtained preliminary approval for the common
stock to be quoted on the Nasdaq National Market under the symbol ______. After
shares of the common stock commence trading, interested investors may contact a
stock broker to buy or sell shares. The Holding Company cannot assure you that
there will be active trading market for the common stock. See "RISK FACTORS --
Absence of Prior Market for the Common Stock" and "MARKET FOR COMMON STOCK."

Dividend Policy

         The Holding Company intends to adopt a policy of paying regular
semi-annual cash dividends at an annual rate of $0.30 per share (2.0% based on
the $15.00 per share purchase price of the common stock in the conversion).
Dividends will be subject to determination and declaration by the Board of
Directors, which will take into account a number of factors, including the
Holding Company's consolidated operating results and financial condition, net
worth and capital requirements, as well as regulatory restrictions on the
payment of dividends from the Association to the Holding Company (which would be
a primary source of funds for the Holding Company). The Holding Company cannot
assure you that dividends will in fact be paid or that if paid such dividends
will not be reduced or eliminated in the future. For further information about
the payment of dividends, see "DIVIDEND POLICY."

                                       6
RISK FACTORS

         Before investing in the common stock please carefully consider the
matters discussed below. The common stock is not a savings account or deposit
and is not insured by the FDIC or any other government agency.

Reliance on Certificates of Deposit

         At September 30, 1997, $200.2 million, or 92.9%, of the Association's
deposits were certificates of deposit, of which $148.9 million mature within one
year. Jumbo certificates of deposit (certificate accounts with balances of
$100,000 or more) totalled $40.3 million, or 20.1% of certificates of deposit,
at September 30, 1997. As a result of the large percentage of certificates of
deposit, the average rate paid on the Association's deposits is higher than the
average rate paid by institutions that have more checking and savings accounts,
which generally pay lower rates of interest. The Association's high cost of
deposits results in a lower interest rate spread and negatively impacts the
Association's profitability. In addition, certificates of deposit can be a more
interest rate sensitive source of funds than checking or savings accounts. If
interest rates rise significantly or if the Association does not offer
competitive interest rates on its certificates of deposit, the Association could
experience a significant decrease in its deposit accounts.

Mortgage Lending and Risks Associated with ARM Loans

         At September 30, 1997, approximately 73.0% of the Association's assets
consisted of residential mortgage loans. Such loans represented 90.0% of the
total loan portfolio at that date. While generally considered to involve less
risk than other types of lending such as commercial mortgage loans, commercial
business loans and consumer loans, residential mortgage loans provided
relatively lower yields. The Association's loan portfolio also includes a
significant amount of loans with adjustable rates of interest. At September 30,
1997, $170.3 million, or 84.8%, of the Association's total loans receivable had
adjustable interest rates. Adjustable rate loans generally pose the risk that as
interest rates rise the underlying payments of the borrowers rise, thereby
increasing the potential for loan delinquencies and loan losses. At the same
time, the marketability of the underlying properties may be adversely affected
by higher interest rates. The Association's adjustable rate loans contain
periodic and lifetime interest rate adjustment limits which, in a rising
interest rate environment, may prevent such loans from repricing to market
interest rates. Furthermore, most of the Association's ARM loans have an annual
adjustment limit of 1% and a lifetime adjustment limit of 4%. Most of the
Association's ARM loans adjust based on the National Median Cost of Funds Index.
This index is a lagging market index, which means that upward adjustments in
this index may occur more slowly than changes in the Association's cost of
interest-bearing liabilities, especially during periods of rapidly increasing
interest-rates. Moreover, the Association's ability to originate ARM loans may
be affected by changes in the level of interest rates and by market acceptance
of the terms of such loans. In a relatively low interest rate environment, as
currently exists, borrowers generally tend to favor fixed-rate loans over ARM
loans. For a discussion of the Association's loan portfolio, see "BUSINESS OF
THE ASSOCIATION -- Lending Activities."

Interest Rate Risk

         Changes in interest rates can have significant effects on the
Association's profitability. The Association's ability to make a profit, like
that of most financial institutions, depends largely on its net interest income,
which is the difference between the interest income received from its
interest-earning assets (such as loans and investment securities) and the
interest expense incurred in connection with its interest-bearing liabilities
(such as deposits and borrowings). The Association's net interest income and the
market value of its assets and liabilities could be significantly affected by
changes in interest rates. In a rising interest rate environment, the
Association anticipates that its net interest income could be adversely affected
as liabilities could reprice to higher market rates more quickly than assets. In
addition, rising interest rates may adversely affect the Association's earnings
because they may cause a decrease in customer demand for loans. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Asset and Liability Management."

                                       7
Changes in interest rates also can affect the average life of loans and
mortgage-backed securities. During periods of declining interest rates, loans
and mortgage-backed securities prepay faster as loans are prepaid and refinanced
at lower interest rates. During such periods, the Association generally will not
be able to reinvest the proceeds of any such prepayments at comparable yields.
Conversely, during periods of rising interest rates, the rate of prepayments
generally slows. Moreover, volatility in interest rates also can result in
disintermediation, or the flow of funds away from savings institutions into
direct investments, such as U.S. Government and corporate securities and other
investment vehicles which, because of the absence of federal insurance premiums
and reserve requirements, generally pay higher rates of return than savings
institutions.

Below Average Return on Equity After Conversion

         Return on equity (net income divided by average equity) is a ratio used
by many investors to compare the performance of a particular company with other
companies. The Holding Company's post-conversion return on equity will be below
the average return on equity for many publicly held savings and loans and banks.
In addition, the expenses associated with the ESOP and MRP, along with other
post-conversion expenses, are expected to contribute to reduced earnings levels.
Over time, the Holding Company intends to deploy the net proceeds from the
conversion to increase earnings per share and book value per share, without
assuming undue risk, with the goal of achieving a return on equity competitive
with other publicly traded savings and loans. This goal could take a number of
years to achieve, and the Holding Company cannot assure you that this goal can
be attained. Consequently, you should not expect a competitive return on equity
in the near future. See "SELECTED CONSOLIDATED FINANCIAL INFORMATION,"
"CAPITALIZATION" AND "PRO FORMA DATA."

New Expenses Associated With ESOP and MRP

         If the ESOP and MRP are implemented, the Association will recognize
additional material employee compensation and benefit expenses that stem from
the shares purchased or granted to employees and executives under those plans.
The Association cannot predict the actual amount of these new expenses because
applicable accounting practices require that they be based on the fair market
value of the shares of common stock when the expenses are recognized. Expenses
for the ESOP would be recognized when shares are committed to be released to
participants' accounts, and expenses for the MRP would be recognized over the
vesting period of awards made to recipients. These expenses have been reflected
in the pro forma financial information under "PRO FORMA DATA" assuming the
$15.00 per share purchase price as fair market value. Actual expenses, however,
will be based on the fair market value of the common stock at the time of
recognition, which may be higher or lower than $15.00. For further discussion of
these plans, see "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Employee Stock
Ownership Plan" and "-- Benefits -- Management Recognition Plan."

Possible Dilutive Effect of Benefit Programs

         If the conversion is completed and stockholders approve the MRP and
Stock Option Plan, the Holding Company intends to issue shares to its officers
and directors through these plans. If the shares for the MRP are issued from
authorized but unissued stock, your ownership interest could be diluted by up to
approximately 3.85%. If the shares for the Stock Option Plan are issued from
authorized but unissued stock, your ownership interest could be diluted by up to
approximately 9.09%. In either case, the issuance of additional shares would
decrease net income per share and stockholders' equity per share. If the ESOP is
not able to purchase 8% of the shares of common stock issued in the conversion,
the ESOP may purchase newly issued shares from the Holding Company. If this
occurs, your ownership interest would be diluted and net income per share and
stockholders' equity per share may be decreased. See "PRO FORMA DATA."

Possible Voting Control by Management and Employees

         The 168,336 shares of common stock expected to be purchased by the
Association's directors and executive officers and their associates in the
conversion, combined with the shares expected to be awarded or sold to plan

                                       8
participants under the ESOP, the MRP and the Stock Option Plan, could ultimately
result in management and employees and their associates controlling up to
approximately 26.2% of the outstanding shares of the common stock (assuming the
sale of 4,025,000 shares in the conversion and that the shares issued under the
MRP and the Stock Option Plan are repurchased treasury shares) and could permit
management to benefit from certain statutory and regulatory provisions, as well
as certain provisions in the Holding Company's Certificate of Incorporation and
Bylaws, that may tend to promote the continuity of existing management. If these
individuals were to act as a group or in concert with each other, they could
have significant influence over the outcome of any stockholder vote requiring a
majority vote and in the election of directors and could effectively exercise
veto power in matters requiring the approval of stockholders, such as certain
business combinations. Management might thus have the power to authorize actions
that may be viewed as contrary to the best interests of non-affiliated holders
of the common stock and might have veto power over actions that such holders may
deem to be in their best interests. See "SHARES TO BE PURCHASED BY MANAGEMENT
PURSUANT TO SUBSCRIPTION RIGHTS," "MANAGEMENT OF THE ASSOCIATION -- Executive
Compensation" and "RESTRICTIONS ON ACQUISITIONS OF THE HOLDING COMPANY."

Anti-Takeover Provisions and Statutory Provisions That Could Discourage Hostile
Acquisitions of Control

         Provisions in the Holding Company's Certificate of Incorporation and
Bylaws, the corporation law of the state of Delaware, and certain federal
regulations may make it difficult and expensive to pursue a tender offer, change
in control or takeover attempt that management opposes. As a result,
stockholders who might desire to participate in such a transaction may not have
an opportunity to do so. Such provisions will also make the removal of the
current board of directors or management of the Holding Company, or the
appointment of new directors, more difficult. These provisions include:
limitations on voting rights of beneficial owners of more than 10% of the
Holding Company's common stock; supermajority voting requirements for certain
business combinations; the election of directors to staggered terms of three
years; the elimination of cumulative voting for directors; and the removal of
directors without cause only upon the vote of holders of 80% of the outstanding
voting shares. The Certificate of Incorporation of the Holding Company also
contains provisions regarding the timing and content of stockholder proposals
and nominations and limiting the calling of special meetings. See "RESTRICTIONS
ON ACQUISITION OF THE HOLDING COMPANY."

Provisions of Employment and Severance Agreements and Severance Plan

         The employment and severance agreements of senior officers of the
Holding Company and the Association provide for cash severance payments and/or
the continuation of health, life and disability benefits in the event of their
termination of employment following a change in control of the Holding Company
or the Association. If a change in control had occurred at September 30, 1997,
the aggregate value of the severance benefits available to these executive
officers under the agreements would have been approximately $844,000. In
addition, if a change in control had occurred at September 30, 1997 and all
eligible employees had been terminated, the aggregate payment due under the
Severance Plan would have been approximately $529,000. These arrangements may
have the effect of increasing the costs of acquiring the Holding Company,
thereby discouraging future attempts to take over the Holding Company or the
Association. For information about the proposed employment and severance
agreements and Severance Plan, see "MANAGEMENT OF THE ASSOCIATION -- Executive
Compensation."

Competition

         The Association faces intense competition both in making loans and
attracting deposits. Competition for loans principally comes from commercial
banks, savings associations, credit unions, mortgage banking companies and
insurance companies. Historically, commercial banks, savings associations and
credit unions have been the Association's most direct competition for deposits.
The Association also competes with short-term money market funds and with other
financial institutions, such as brokerage firms and insurance companies, for
deposits. In competing for loans, the Association may be forced to offer lower
loan interest rates periodically. Conversely, in 

                                       9
competing for deposits, the Association may be forced to offer higher deposit
interest rates periodically. Either case or both cases could adversely affect
net interest income. See "BUSINESS OF THE ASSOCIATION -- Competition." 

Absence of Prior Market for the Common Stock

         The Holding Company has never issued capital stock and, consequently,
there is no existing market for the common stock. Although the Holding Company
has received preliminary approval to list its common stock on the Nasdaq
National Market under the symbol _____, the Holding Company cannot guarantee
that an active and liquid trading market for its common stock will develop, or
if it does develop, that it will continue. Furthermore, the Holding Company
cannot guarantee that if you purchase shares in the conversion you will be able
to sell your shares at or above the $15.00 purchase price. See "MARKET FOR
COMMON STOCK."

Possible Increase in Estimated Price Range and Number of Shares Issued

         RP Financial may increase the Estimated Valuation Range up to 15% to
reflect material changes in the financial condition or results of operations of
the Association or changes in market conditions or general financial, economic
or regulatory conditions following the commencement of the offering. If the
Estimated Valuation Range is increased, the Holding Company anticipates that it
would issue up to 4,628,750 shares of common stock for an aggregate price of up
to $69,431,250. This increase in the number of shares would decrease pro forma
net earnings per share and stockholders' equity per share, increase the Holding
Company's pro forma consolidated stockholders' equity and net earnings, and
increase the purchase price as a percentage of pro forma stockholders' equity
per share and net earnings per share. See "PRO FORMA DATA."

Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights

         If the IRS were to determine that the subscription rights granted
pursuant to the Plan of Conversion have an ascertainable value, receipt of such
rights may be a taxable event (either as capital gain or ordinary income), to
those persons who receive and/or exercise the subscription rights in an amount
equal to such value. Additionally, the IRS could require the Association to
recognize a gain for tax purposes on the distribution of subscription rights.
Whether subscription rights are considered to have ascertainable value is an
inherently factual determination. RP Financial has advised the Association in
writing that such rights have no value, but RP Financial's conclusion is not
binding on the IRS. See "THE CONVERSION -- Effects of Conversion to Stock Form
on Depositors and Borrowers of the Association -- Tax Effects."

Financial Institution Regulation and the Future of the Thrift Industry

         The Association is subject to extensive regulation, supervision and
examination by the OTS and the FDIC. Legislation has been introduced into
Congress that would consolidate the OTS with the Office of the Comptroller of
the Currency, which regulates national banks. If this or similar legislation is
enacted into law, the Association could be forced to become a state or national
bank and become subject to regulation by a different government agency. If the
Association is required to change charters, its investment authority and the
ability of the Holding Company to engage in diversified activities may be
limited. It is impossible at this time to predict whether such legislation will
be passed or the impact of any such legislation on the operations of the
Association and the Holding Company.

                                       10
SELECTED FINANCIAL INFORMATION

         The following tables set forth certain information concerning the
financial position and results of operations of the Association at the dates and
for the periods indicated. This information should be read in conjunction with
the Financial Statements and Notes thereto presented elsewhere in this
prospectus.
At September 30,
                                                                --------------------------------------------------------------
                                                                1997        1996             1995         1994            1993
                                                                ----        ----             ----         ----            ----
                                                                                            (In thousands)
SELECTED BALANCE SHEET DATA:
Total assets ............................................    $ 247,499    $ 244,659        $ 233,780    $ 214,817       $ 211,493
Investment securities ...................................       24,378       37,892           29,823       32,819          24,681
Mortgage-backed securities ..............................        6,665        9,726           11,989       14,097          13,356
Loans receivable, net ...................................      192,663      182,950          178,259      159,682         158,536
Loans held for sale .....................................        1,045           --               --           --           1,674
Deposit accounts ........................................      215,412      209,730          201,473      189,922         190,728
FHLB advances ...........................................           --        5,000            5,000           --              --
Total equity ............................................       29,235       26,740           25,692       23,367          19,599
Year Ended September 30,
                                                                --------------------------------------------------------------
                                                                1997        1996             1995         1994            1993
                                                                ----        ----             ----         ----            ----
                                                                                            (In thousands)

SELECTED OPERATING DATA:
Interest income .........................................    $  17,773    $  16,974        $  16,164    $  15,361       $  16,474
Interest expense ........................................       12,230       12,212           10,431        8,550           9,382
                                                             ---------    ---------        ---------    ---------       ---------

Net interest income .....................................        5,543        4,762            5,733        6,811           7,092
Provision for loan losses (recovery of allowance) .......          337           (7)              47           62              35
                                                             ---------    ---------        ---------    ---------       ---------

Net interest income after provision for loan losses .....        5,206        4,769            5,686        6,749           7,057
                                                             ---------    ---------        ---------    ---------       ---------

Other income ............................................          202          227              218          107             251
Other operating expenses ................................        2,362        3,877(1)         2,379        2,255           2,400
                                                             ---------    ---------        ---------    ---------       ---------

Income before income taxes ..............................        3,046        1,119            3,525        4,601           4,908
Provision for income taxes ..............................        1,094          360            1,546        1,691           1,763
Cumulative effect of change in
 accounting principle ...................................           --           --               --          570(2)           --
                                                             ---------    ---------        ---------    ---------       ---------
Net income ..............................................    $   1,952    $     759        $   1,979    $   3,480       $   3,145
                                                             =========    =========        =========    =========       =========
-----------------
(1) Includes one-time SAIF assessment of $1.2 million.
(2) Reflects adoption of SFAS No. 109, "Accounting for Income Taxes."

                                       11
At September 30,
                                                            -----------------------------------------------------
                                                            1997        1996         1995        1994        1993
                                                            ----        ----         ----        ----        ----
SELECTED OTHER DATA:
Number of:
 Mortgage loans outstanding .........................       3,366       3,340        3,418       3,360       3,493
 Deposit accounts ...................................      11,424      11,576       11,684      11,480      11,957
 Full-service offices ...............................           4           4            4           4           4
At September 30,
                                                            -----------------------------------------------------
                                                            1997        1996         1995        1994        1993
                                                            ----        ----         ----        ----        ----
SELECTED FINANCIAL RATIOS:
Performance Ratios:
Return on average assets(1) .........................        0.80%       0.32%        0.87%       1.62%       1.52%
Return on average equity(2) .........................        6.93        2.87         8.08       16.11       17.61
Average equity as a percent of average assets .......       11.49       10.99        10.79       10.09        8.62
Interest rate spread(3) .............................        1.76        1.51         2.09        2.84        3.13
Net interest margin(4) ..............................        2.33        2.04         2.59        3.24        3.51
Average interest-earning assets to                       
 average interest-bearing liabilities ...............        1.11        1.10         1.10        1.10        1.08
Other operating expenses as a                            
 percent of average total assets ....................        0.96        1.61         1.05        1.05        1.16
                                                         
Capital Ratios:                                          
Tangible ............................................       11.3        10.6         10.8        10.9         9.3
Core ................................................       11.3        10.6         10.8        10.9         9.3
Risk-based ..........................................       23.3        22.2         23.1        23.6        20.5
                                                         
Asset Quality Ratios:                                    
Nonperforming loans as a percent                         
 of loans receivable, net(5) ........................        0.48        0.56         0.52        0.84        1.25
Nonperforming assets as a                                
 percent of total assets(6) .........................        0.54        0.45         0.44        0.81        1.28
Allowance for loan losses as a percent                   
 of gross loans receivable ..........................        0.44        0.35         0.32        0.37        0.34
Allowance for loan losses as a                           
 percent of nonperforming loans .....................       93.58       65.24        63.10       46.28       28.18
Net charge-offs as a percent of                          
 average outstanding loans ..........................        0.07       (0.05)        0.05        0.00        0.00
-------------------
(1)  Net income divided by average total assets.
(2)  Net income divided by average total equity.
(3)  Difference between weighted average yield on interest-earning assets and
     weighted average cost of interest-bearing liabilities.
(4)  Net interest income as a percentage of average interest-earning assets.
(5)  Nonperforming loans consist of loans accounted for on a nonaccrual basis.
(6)  Nonperforming assets consist of nonperforming loans and real estate
     acquired in settlement of loans, but exclude restructured loans. See
     "BUSINESS OF THE ASSOCIATION -- Lending Activities -- Nonperforming Assets
     and Delinquencies."

                                       12
USE OF PROCEEDS

         The net proceeds from the sale of the common stock offered hereby are
estimated to range from $43.5 million to $59.1 million, or up to $68.1 million
if the Estimated Valuation Range is increased by 15%. See "PRO FORMA DATA" for
the assumptions used to arrive at such amounts. The Holding Company has received
conditional OTS approval to purchase all of the capital stock of the Association
to be issued in the conversion in exchange for 50% of the net proceeds of the
conversion. This will result in the Holding Company retaining approximately
$21.8 million to $29.5 million of net proceeds, or up to $34.1 million if the
Estimated Valuation Range is increased by 15%, and the Association receiving an
equal amount.

         Receipt of 50% of the net proceeds of the sale of the common stock will
increase the Association's capital and will support the expansion of the
Association's existing business activities. The Association will use the funds
contributed to it for general corporate purposes, including, initially, lending
and investment in short-term U.S. Government and agency obligations. Depending
on loan demand, the Association may consider using a portion of the conversion
proceeds for investment in mortgage-backed securities.

         In connection with the conversion and the establishment of the ESOP,
the Holding Company intends to loan the ESOP the amount necessary to purchase 8%
of the shares of common stock sold in the conversion. The Holding Company's loan
to fund the ESOP may range from $3,570,000 to $4,830,000 based on the sale of
238,000 shares to the ESOP (at the minimum of the Estimated Valuation Range) and
322,000 shares (at the maximum of the Estimated Valuation Range), respectively,
at $15.00 per share. If 15% above the maximum of the Estimated Valuation Range,
or 4,628,750 shares, are sold in the conversion, the Holding Company's loan to
the ESOP would be approximately $5,554,500 (based on the sale of 370,300 shares
to the ESOP). It is anticipated that the ESOP loan will have a 15-year term with
interest payable at the prime rate as published in The Wall Street Journal on
the closing date of the conversion. The loan will be repaid principally from the
Association's contributions to the ESOP and from any dividends paid on shares of
common stock held by the ESOP.

         The remaining net proceeds retained by the Holding Company initially
will be invested primarily in short-term U.S. Government and agency obligations.
Such proceeds will be available for additional contributions to the Association
in the form of debt or equity, to support future diversification or acquisition
activities, as a source of dividends to the stockholders of the Holding Company
and for future repurchases of common stock to the extent permitted under
Delaware law and federal regulations. The Holding Company will consider
exploring opportunities to use such funds to expand operations through acquiring
or establishing additional branch offices or acquiring other financial
institutions. Currently, there are no specific plans, arrangements, agreements
or understandings, written or oral, regarding any expansion activities.

         Following consummation of the conversion, the Board of Directors will
have the authority to adopt plans for repurchases of common stock, subject to
statutory and regulatory requirements. Since the Holding Company has not yet
issued stock, there currently is insufficient information upon which an
intention to repurchase stock could be based. The facts and circumstances upon
which the Board of Directors may determine to repurchase stock in the future
would include but are not limited to: (i) market and economic factors such as
the price at which the stock is trading in the market, the volume of trading,
the attractiveness of other investment alternatives in terms of the rate of
return and risk involved in the investment, the ability to increase the book
value and/or earnings per share of the remaining outstanding shares, and the
ability to improve the Holding Company's return on equity; (ii) the avoidance of
dilution to stockholders by not having to issue additional shares to cover the
exercise of stock options or to fund employee stock benefit plans; and (iii) any
other circumstances in which repurchases would be in the best interests of the
Holding Company and its stockholders. Any stock repurchases will be subject to a
determination by the Board of Directors that both the Holding Company and the
Association will be capitalized in excess of all applicable regulatory
requirements after any such repurchases and that capital will be adequate,
taking into account, among other things, the Association's level of
nonperforming and classified assets, the Holding Company's and the Association's
current and projected results of operations and asset/liability structure, the
economic environment and tax and other 

                                       13
regulatory considerations. For a discussion of the regulatory limitations 
applicable to stock repurchases, see "THE CONVERSION -- Restriction on 
Repurchase of Stock."

                                DIVIDEND POLICY

General 
 
     The Holding Company's Board of Directors anticipates declaring and paying 
semi-annual cash dividends on the common stock at an annual rate of $0.30 per 
share per year, or 2.0% based on the $15.00 per share purchase price. The first 
cash dividend is expected to be declared and paid during the second full quarter
following the consummation of the conversion. In addition, the Board of 
Directors may determine to pay periodic special cash dividends in addition to, 
or in lieu of, regular cash dividends. Declarations or payments of any dividends
(regular and special) will be subject to determination by the Holding Company's 
Board of Directors, which will take into account the amount of the net proceeds 
retained by the Holding Company, the Holding Company's financial condition, 
results of operations, tax considerations, capital requirements, industry 
standards, economic conditions and other factors, including the regulatory 
restrictions that affect the payment of dividends by the Association to the 
Holding Company discussed below. Under Delaware law, the Holding Company will be
permitted to pay cash dividends after the conversion either out of surplus or, 
if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year. In order to pay such cash
dividends, however, the Holding Company must have available cash either from the
net proceeds raised in the conversion and retained by the Holding Company,
borrowings by the Holding Company, dividends received from the Association or
earnings on Holding Company assets. No assurances can be given that any
dividends, either regular or special, will be declared or, if declared, what the
amount of dividends will be or whether such dividends, if commenced, will
continue.

Current Restrictions

     Dividends from the Holding Company may depend, in part, upon receipt of 
dividends from the Association because the Holding Company initially will have
no source of income other than dividends from the Association and earnings from
the investment of the net proceeds from the offering retained by the Holding
Company. OTS regulations require the Association to give the OTS 30 days'
advance notice of any proposed declaration of dividends to the Holding Company,
and the OTS has the authority under its supervisory powers to prohibit the
payment of dividends to the Holding Company. The OTS imposes certain limitations
on the payment of dividends from the Association to the Holding Company which
utilize a three-tiered approach that permits various levels of distributions
based primarily upon a savings association's capital level. The Association
currently meets the criteria to be designated a Tier 1 association, as
hereinafter defined, and consequently could at its option (after prior notice to
and no objection made by the OTS) distribute up to 100% of is net income during
the calendar year plus 50% of its surplus capital ratio at the beginning of the
calendar year less any distributions previously paid during the year. In
addition, the Association may not declare or pay a cash dividend on its capital
stock if the effect thereof would be to reduce the regulatory capital of the
Association below the amount required for the liquidation account to be
established pursuant to the Association's Plan of Conversion. See "REGULATION --
Federal Regulation of Savings Associations -- Limitations on Capital
Distributions," "THE CONVERSION -- Effects of Conversion to Stock Form on
Depositors and Borrowers of the Association -- Liquidation Account" and Note __
of Notes to the Financial Statements included elsewhere herein.

     Additionally, in connection with the conversion, the Holding Company and 
the Association have committed to the OTS that during the one-year period 
following consummation of the conversion, the Holding Company will not take any 
action to declare an extraordinary dividend to stockholders that would be 
treated by recipients as a tax-free return of capital for federal tax purposes.

                                      14
Tax Considerations

     In addition to the foregoing, retained earnings of the Association 
appropriated to bad debt reserves and deducted for federal income tax purposes 
cannot be used by the Association to pay cash dividends to the Holding Company 
without the payment of federal income taxes by the Association at the then 
current income tax rate on the amount deemed distributed, which would include 
the amount of any federal income taxes attributable to the distribution. See 
"TAXATION -- Federal Taxation" and Note 9 of Notes to the Financial Statements 
included elsewhere herein. The Holding Company does not contemplate any 
distribution by the Association that would result in a recapture of the 
Association's bad debt reserve or create the above-mentioned federal tax 
liabilities.

                            MARKET FOR COMMON STOCK

     The Holding Company has never issued capital stock and, consequently, there
is no existing market for the common stock. Although the Holding Company has 
received preliminary approval to list its common stock on the Nasdaq National 
Market under the symbol _____, there can be no assurance that the Holding
Company will meet Nasdaq National Market listing requirements, which include a
minimum market capitalization, at least three market makers and a minimum number
of record holders. Trident Securities has agreed to make a market for the
Holding Company's common stock following consummation of the conversion and will
assist the Holding Company in seeking to encourage at least two additional
market makers to establish and maintain a market in the common stock. Making a
market involves maintaining bid and ask quotations and being able, as principal,
to effect transactions in reasonable quantities at those quoted prices, subject
to various securities laws and other regulatory requirements. The Holding
Company anticipates that prior to the completion of the conversion it will be
able to obtain the commitment from at least two additional broker-dealers to act
as market makers for the common stock. Additionally, the development of a liquid
public market depends on the existence of willing buyers and sellers, the
presence of which is not within the control of the Holding Company, the
Association or any market maker. There can be no assurance that an active and
liquid trading market for the common stock will develop or that, if developed,
it will continue. The number of active buyers and sellers of the common stock at
any particular time may be limited. Under such circumstances, investors in the
common stock could have difficulty disposing of their shares on short notice and
should not view the common stock as a short-term investment. Furthermore, there
can be no assurance that purchasers will be able to sell their shares at or
above the purchase price or that quotations will be available on the Nasdaq
National Market as contemplated.

                                      15
CAPITALIZATION

          The following table presents the historical capitalization of the 
Association at September 30, 1997, and the pro forma consolidated capitalization
of the Holding Company after giving effect to the assumptions set forth under 
"PRO FORMA DATA," based on the sale of the number of shares of common stock at 
the minimum, midpoint, maximum and maximum, as adjusted, of the Estimated 
Valuation Range. The shares that would be issued at the maximum, as adjusted, of
the Estimated Valuation Range would be subject to receipt of OTS approval of 
an updated appraisal confirming such valuation. A change in the number of shares
to be issued in the conversion may materially affect pro forma consolidated 
capitalization.
Holding Company
                                                                         Pro Forma Consolidated Capitalization
                                                                                Based Upon the Sale of 
                                                               ------------------------------------------------------------
                                                               2,975,000       3,500,000       4,025,000       4,628,750   
                                           Capitalization      Shares at       Shares at       Shares at       Shares at
                                               as of           $15.00          $15.00          $15.00          $15.00
                                         September 30, 1997    Per Share(1)    Per Share(1)    Per Share(1)    Per Share(2)
                                         ------------------    ------------    ------------    ------------    ------------   
                                                                              (In thousands)
Deposits(3)............................     $215,412           $215,412        $215,412        $215,412        $215,412 
                                            ========           ========        ========        ========        ========

Stockholders' equity:

   Preferred stock:
     500,000 shares, $.01
     par value per share,
     authorized; none issued
     or outstanding....................     $     --           $     --        $     --        $     --        $     -- 

   Common stock:
     10,000,000 shares, $.01 par
     value per share, authorized;
     specified number of shares
     assumed to be issued and
     outstanding(4)....................           --                 30              35              40              46     

   Additional paid-in capital..........           --             43,497          51,258          59,020          68,065

   Retained income(5)..................       29,235             29,235          29,235          29,235          29,235 
   Less:
     Common Stock acquired
       by ESOP(6)......................           --             (3,570)         (4,200)         (4,830)         (5,555)
     Common Stock to be acquired
       by MRP(7).......................           --             (1,785)         (2,100)         (2,415)         (2,777)
                                            --------           --------        --------        --------        --------

Total stockholders' equity.............     $ 29,235           $ 67,407        $ 74,228        $ 81,050        $ 89,015 
                                            ========           ========        ========        ========        ========
(footnotes on the following page)

                                      16
------------------------
(1)  Does not reflect the possible increase in Estimated Valuation Range to
     reflect material changes in the financial condition or results of
     operations of the Association or changes in market conditions or general
     financial, economic and regulatory conditions, or the issuance of
     additional shares under the Stock Option Plan.
(2)  This column represents the pro forma capitalization of the Holding Company
     in the event the aggregate number of shares of common stock issued in the
     conversion is 15% above the maximum of the Estimated Valuation Range. See
     "PRO FORMA DATA" and Footnote 1 thereto.
(3)  Withdrawals from deposit account for the purchase of common stock are not
     reflected. Such withdrawals will reduce pro forma deposits by the amount
     thereof.
(4)  The Association's authorized capital will consist solely of 1,000 shares
     of common stock, par value $1.00 per share, 1,000 shares of which will be
     issued to the Holding Company, and 9,000 shares of preferred stock, no par
     value per share, none of which will be issued in connection with
     conversion.
(5)  Retained income is substantially restricted by applicable regulatory
     capital requirements. Additionally, the Association will be prohibited from
     paying any dividend that would reduce its regulatory capital below the
     amount in the liquidation account, which will be established for the
     benefit of the Association's Eligible Account Holders and Supplemental
     Eligible Account Holders at the time of the conversion and adjusted
     downward thereafter as such account holders reduce their balances or cease
     to be depositors. See "THE CONVERSION -- Effects of Conversion to Stock
     Form on Depositors and Borrowers of the Association -- Liquidation
     Account."
(6)  Assumes that 8% of the common stock in the conversion will be acquired by
     the ESOP in the conversion with funds borrowed from the Holding Company.
     Under GAAP, the amount of common stock to be purchased by the ESOP
     represents unearned compensation and is, accordingly, reflected as a
     reduction of capital. As shares are released to ESOP participant's
     accounts, a corresponding reduction in the charge against capital will
     occur. Since the funds are borrowed from the Holding Company, the borrowing
     will be eliminated in consolidation and no liability or interest expense
     will be reflected in the consolidated financial statements of the Holding
     Company, See "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Employee Stock
     Ownership Plan."
(7)  Assumes the purchase in the open market at $15.00 per share, pursuant to
     the proposed MRP, of a number of shares equal to 4% of the shares of common
     stock issued in the conversion at the minimum, midpoint, maximum and 15%
     above the maximum of the Estimated Valuation Range. The issuance of an
     additional 4% of the shares of common stock for the MRP from authorized but
     unissued shares would dilute the ownership interest of stockholders by
     3.85%. The shares are reflected as a reduction of stockholders' equity. See
     "RISK FACTORS -- Possible Dilutive Effect of Benefit Programs," "PRO FORMA
     DATA" and "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Management
     Recognition Plan." The MRP is subject to stockholder approval, which is
     expected to be sought at a meeting to be held no earlier than six months
     following consummation of the conversion.

                                      17
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE

     The following table presents the Association's historical and pro forma 
capital position relative to its capital requirements at September 30, 1997. 
The amount of capital infused into the Association for purposes of the following
table is 50% of the net proceeds of the offering. For purpose of the table 
below, the amount expected to be borrowed by the ESOP and the cost of the shares
expected to be acquired by the MRP are deducted from pro forma regulatory 
capital. For a discussion of the assumptions underlying the pro forma capital 
calculations presented below, see "USE OF PROCEEDS," "CAPITALIZATION" AND "PRO
FORMA DATA." The definitions of the terms used in the table are those provided 
in the capital regulations issued by the OTS. For a discussion of the capital 
standards applicable to the Association, see "REGULATION -- Federal Regulation 
of Savings Associations -- Capital Requirements."
PRO FORMA AT SEPTEMBER 30, 1997
                                                                       ------------------------------------------------
                                                                                      
                                                                       Minimum of Estimated      Midpoint of Estimated      
                                                                          Valuation Range           Valuation Range    
                                                                       --------------------      --------------------- 
                                                                         2,975,000 Shares          3,500,000 Shares    
                                           September 30, 1997          at $15.00 Per Share       at $15.00 Per Share   
                                      ----------------------------     --------------------      --------------------- 
                                                        Percent of               Percent of                Percent of  
                                                          Adjusted                 Adjusted                  Adjusted  
                                                           Total                    Total                     Total    
                                      Amount            Assets (1)     Amount      Assets (1)    Amount      Assets (1)  
                                      ------            ----------     ------      ----------    ------      ----------
                                                                         (Dollars in Thousands)
GAAP capital(2).....................  $29,235              11.9%       $45,643        17.2%      $48,581        18.0%

Tangible capital(2).................  $27,769              11.3%       $44,177        16.6%      $47,115        17.5%
Tangible capital requirement........    3,690               1.5          3,990         1.5         4,044         1.5
                                      -------              ----        -------        ----       -------        ----
Excess..............................  $24,079               9.8%       $40,187        15.1%      $43,071        16.0%
                                      =======              ====        =======        ====       =======        ====

Core capital(2).....................  $27,769              11.3%       $44,177        16.6%      $47,115        17.5%
Core capital requirement(3).........    7,381               3.0          7,980         3.0         8,087         3.0
                                      -------              ----        -------        ----       -------        ----
Excess..............................  $20,388               8.3%       $36,197        13.6%      $39,028        14.5%
                                      =======              ====        =======        ====       =======        ====

Total capital(4)....................  $28,519              23.3%       $44,927        35.5%      $47,865        37.6%
Risk-based
  capital requirement...............    9,796               8.0         10,116         8.0        10,173         8.0 
                                      -------              ----        -------        ----       -------        ----
Excess..............................  $18,723              15.3%       $34,811        27.5%      $37,692        29.6%
                                      =======              ====        =======        ====       =======        ====
PRO FORMA AT SEPTEMBER 30, 1997                                                 
                                      ----------------------------------------------                                  
                                                                                                                      
                                                                      15% above                                       
                                      Maximum of Estimated      Maximum of Estimated                                  
                                         Valuation Range           Valuation Range                                    
                                      --------------------      --------------------                                  
                                        4,025,000 Shares          4,628,750 Shares                                    
                                      at $15.00 Per Share       at $15.00 Per Share                                   
                                      --------------------      --------------------                                  
                                                Percent of               Percent of                                   
                                                  Adjusted                 Adjusted                                   
                                                   Total                    Total                                     
                                      Amount     Assets(1)      Amount    Assets(1)                                   
                                      ------     ---------      ------    ---------                                   
                                                   (Dollars in Thousands)
GAAP capital(2).....................  $51,516      18.9%        $54,959     19.8%                                     
                                                                                                                      
Tangible capital(2).................  $50,052      18.3%        $53,493     19.3%                                     
Tangible capital requirement........   4,097        1.5           4,160      1.5                                       
                                      -------      ----         -------     ----                                      
Excess..............................  $45,955      16.8%        $49,333     17.8%                                     
                                      =======      ====         =======     ====                                      
                                                                                                                      
Core capital(2).....................  $50,052      18.3%        $53,493     19.3%                                     
Core capital requirement(3).........    8,194       3.0           8,319      3.0                                      
                                      -------      ----         -------     ----                                      
Excess..............................  $41,858      15.3%        $45,174     16.3%                                     
                                      =======      ====         =======     ====                                                 
                                                                                                                      
Total capital(4)....................  $50,802      39.7%        $54,243     42.1%                                     
Risk-based                                                                                                            
  capital requirement...............   10,230       8.0          10,296      8.0                                      
                                      -------      ----         -------     ----                                      
Excess..............................  $40,572      31.7%        $43,947     34.1%                                     
                                      =======      ====         =======     ====
--------------------
(1) Based upon total adjusted assets of $246.0 million at September 30, 1997 and
    $267.8 million, $271.7 million, $275.6 million and $280.1 million at the
    minimum, midpoint, maximum, and maximum, as adjusted, of the Estimated
    Valuation Range, respectively, for purposes of the tangible and core capital
    requirements, and upon risk-weighted assets of $122.4 million at September
    30, 1997 and $126.8 million, $127.6 million, $128.4 million and $129.3
    million at the minimum, midpoint, maximum, and maximum, as adjusted, of the
    Estimated Valuation Range, respectively, for purposes of the risk-based
    capital requirement.
(2) An unrealized gain on securities available-for-sale, net of taxes, accounts
    for the difference between GAAP capital and each of tangible capital and
    core capital.
(3) The current OTS core capital requirement for savings associations is 3% of
    total adjusted assets. The OTS has proposed core capital requirements which
    would require a core capital ratio of 3 % of total adjusted assets for
    thrifts that receive the highest supervisory rating for safety and soundness
    and a core capital ratio of 4% to 5% for all other thrifts.
(4) Percentage represents total core and supplementary capital divided by total
    risk-weighted assets. Assumes net proceeds are invested in assets that carry
    a 20% risk-weighting.

                                      18
PRO FORMA DATA

         Under the Plan of Conversion, the common stock must be sold at a price
equal to the estimated pro forma market value of the Holding Company and the
Association as converted, based upon an independent valuation. The Estimated
Valuation Range as of November 28, 1997 is from a minimum of $44,625,000 to a
maximum of $60,375,000 with a midpoint of $52,500,000. At a price per share of
$15.00, this results in a minimum number of shares of 2,975,000, a maximum
number of shares of 4,025,000 and a midpoint number of shares of 3,500,000. The
actual net proceeds from the sale of the common stock cannot be determined until
the conversion is completed. However, net proceeds set forth on the following
table are based upon the following assumptions: (i) Trident Securities will
receive fees of approximately $578,000, $687,000, $795,000 and $800,000 at the
minimum, midpoint, maximum and 15% above the Estimated Valuation Range,
respectively (see "THE CONVERSION -- Plan of Distribution for the Subscription,
Direct Community and Syndicated Community Offerings); (ii) all of the common
stock will be sold in the Subscription and Direct Community Offerings; and (iii)
conversion expenses, excluding the fees paid to Trident Securities, will total
approximately $520,000 at each of the minimum, midpoint, maximum and 15% above
the Estimated Valuation Range. Actual expenses may vary from this estimate, and
the fees paid will depend upon the percentages and total number of shares sold
in the Subscription Offering, Direct Community Offering and Syndicated Community
Offering and other factors.

         The following table summarizes the historical net income and retained
income of the Association and the pro forma consolidated net income and
stockholders' equity of the Holding Company for the periods and at the dates
indicated, based on the minimum, midpoint and maximum of the Estimated Valuation
Range and based on a 15% increase in the maximum of the Estimated Valuation
Range. The pro forma consolidated net income of the Association for the year
ended September 30, 1997 has been calculated as if the conversion had been
consummated at the beginning of the period and the estimated net proceeds
received by the Holding Company and the Association had been invested at 5.68%,
at the beginning of the period, which represents the one-year U.S. Treasury Bill
yield as of September 30, 1997. As discussed under "USE OF PROCEEDS," the
Holding Company expects to retain 50% of the net proceeds of the offering from
which it will fund the ESOP loan. A pro forma after-tax return of 3.61% is used
for both the Holding Company and the Association for the period, after giving
effect to an incremental combined federal and state income tax rate of 36.5%.
Historical and pro forma per share amounts have been calculated by dividing
historical and pro forma amounts by the number of shares of common stock
indicated in the footnotes to the table. Per share amounts have been computed as
if the common stock had been outstanding at the beginning of the respective
periods or at September 30, 1997, but without any adjustment of per share
historical or pro forma stockholders' equity to reflect the earnings on the
estimated net proceeds.

         No effect has been given to: (i) the shares to be reserved for issuance
under the Holding Company's Stock Option Plan, which is expected to be voted
upon by stockholders at a meeting to be held no earlier than six months
following consummation of the conversion; (ii) withdrawals from deposit accounts
for the purpose of purchasing common stock in the conversion; (iii) the issuance
of shares from authorized but unissued shares to the MRP, which is expected to
be voted upon by stockholders at a meeting to be held no earlier than six months
following consummation of the conversion; or (iv) the establishment of a
liquidation account for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders. See "MANAGEMENT OF THE ASSOCIATION -- Benefits --
Stock Option Plan" and "THE CONVERSION -- Stock Pricing and Number of Shares to
be Issued."

         The following pro forma information may not be representative of the
financial effects of the conversion at the date on which the conversion actually
occurs and should not be taken as indicative of future results of operations.
Stockholders' equity represents the difference between the stated amounts of
consolidated assets and liabilities of the Holding Company computed in
accordance with GAAP. Stockholders' equity has not been increased or decreased
to reflect the difference between the carrying value of loans and other assets
and market value. Stockholders' equity is not intended to represent fair market
value nor does it represent amounts that would be available for distribution to
stockholders in the event of liquidation.

                                       19
At or For the Year Ended September 30, 1997
                                                              -------------------------------------------------------------------
                                                              Minimum of       Midpoint of       Maximum of       15% Above
                                                              Estimated        Estimated         Estimated        Maximum of
                                                              Valuation        Valuation         Valuation        Estimated
                                                              Range            Range             Range            Valuation Range
                                                              ---------        ---------         ---------        ---------  
                                                              2,975,000        3,500,000         4,025,000        4,628,750(1)
                                                              Shares           Shares            Shares           Shares
                                                              at $15.00        at $15.00         at $15.00        at $15.00
                                                              Per Share        Per Share         Per Share        Per Share
                                                              ---------        ---------         ---------        ---------
                                                                               (In thousands, except per share amounts)
Gross proceeds ........................................       $ 44,625          $ 52,500          $ 60,375          $ 69,431
Less: estimated expenses ..............................          1,098             1,207             1,315             1,320
                                                              --------          --------          --------          --------
Estimated net proceeds ................................         43,527            51,293            59,060            68,111
Less: Common stock acquired by ESOP ...................         (3,570)           (4,200)           (4,830)           (5,555)
Less: Common stock to be acquired by MRP ..............         (1,785)           (2,100)           (2,415)           (2,777)
                                                              --------          --------          --------          --------
     Net investable proceeds ..........................       $ 38,172          $ 44,993          $ 51,815          $ 59,779
                                                              ========          ========          ========          ========

Consolidated net income:
 Historical ...........................................       $  1,952          $  1,952          $  1,952          $  1,952
 Pro forma income on net proceeds(2) ..................          1,377             1,623             1,869             2,156
 Pro forma ESOP adjustments(3) ........................           (151)             (178)             (204)             (235)
 Pro forma MRP adjustments(4) .........................           (227)             (267)             (307)             (353)
                                                              --------          --------          --------          --------
   Pro forma net income ...............................       $  2,951          $  3,130          $  3,310          $  3,520
                                                              ========          ========          ========          ========

Consolidated net income per share (5)(6):
 Historical ...........................................       $   0.71          $   0.60          $   0.52          $   0.46
 Pro forma income on net proceeds .....................           0.50              0.50              0.50              0.50
 Pro forma ESOP adjustments(3) ........................          (0.05)            (0.05)            (0.05)            (0.05)
 Pro forma MRP adjustments(4) .........................          (0.08)            (0.08)            (0.08)            (0.08)
                                                              --------          --------          --------          --------
   Pro forma net income per share .....................       $   1.08          $   0.97          $   0.89          $   0.83
                                                              ========          ========          ========          ========

Consolidated stockholders' equity (book value):
 Historical ...........................................       $ 29,235          $ 29,235          $ 29,235          $ 29,235
 Estimated net proceeds ...............................         43,527            51,293            59,060            68,111
 Less: Common stock acquired by ESOP ..................         (3,570)           (4,200)           (4,830)           (5,555)
 Less: Common stock to be acquired by MRP(4) ..........         (1,785)           (2,100)           (2,415)           (2,777)
                                                              --------          --------          --------          --------
   Pro forma stockholders' equity(7) ..................       $ 67,407          $ 74,228          $ 81,050          $ 89,015
                                                              ========          ========          ========          ========

Consolidated stockholders' equity per share(6)(8):
 Historical(6) ........................................       $   9.83          $   8.35          $   7.26          $   6.32
 Estimated net proceeds ...............................          14.63             14.66             14.67             14.71
 Less: Common stock acquired by ESOP ..................          (1.20)            (1.20)            (1.20)            (1.20)
 Less: Common stock to be acquired by MRP(4) ..........          (0.60)            (0.60)            (0.60)            (0.60)
                                                              --------          --------          --------          --------
   Pro forma stockholders' equity per share(9) ........       $  22.66          $  21.21          $  20.13          $  19.23
                                                              ========          ========          ========          ========

Purchase price as a percentage of pro forma
 stockholders' equity per share .......................          66.20%            70.72%            74.52%            78.00%

Purchase price as a multiple of pro forma
 net income per share .................................         13.89x            15.46x            16.85x            18.07x
(footnotes on following page)

                                       20
-------------

(1)   Gives effect to the sale of an additional 603,750 shares in the
      conversion, which may be issued to cover an increase in the pro forma
      market value of the Holding Company and the Association as converted,
      without the resolicitation of subscribers or any right of cancellation.
      The issuance of such additional shares will be conditioned on a
      determination by RP Financial that such issuance is compatible with its
      determination of the estimated pro forma market value of the Holding
      Company and the Association as converted. See "THE CONVERSION -- Stock
      Pricing and Number of Shares to be Issued."
(2)   No effect has been given to withdrawals from savings accounts for the
      purpose of purchasing common stock in the conversion. Since funds on
      deposit at the Association may be withdrawn to purchase shares of common
      stock (which will reduce deposits by the amount of such purchases), the
      net amount of funds available to the Association for investment following
      receipt of the net proceeds of the conversion will be reduced by the
      amount of such withdrawals.
(3)   It is assumed that 8% of the shares of common stock offered in the
      conversion will be purchased by the ESOP. The funds used to acquire such
      shares will be borrowed by the ESOP (at an interest rate equal to the
      prime rate as published in The Wall Street Journal on the closing date of
      the conversion, which rate is currently 8.50%) from the net proceeds from
      the conversion retained by the Holding Company. The amount of this
      borrowing has been reflected as a reduction from gross proceeds to
      determine estimated net investable proceeds. The Association intends to
      make contributions to the ESOP in amounts at least equal to the principal
      and interest requirement of the debt. As the debt is paid down,
      stockholders' equity will be increased. The Association's payment of the
      ESOP debt is based upon equal installments of principal over a 15-year
      period, assuming a combined federal and state income tax rate of 36.5%.
      Interest income earned by the Holding Company on the ESOP debt offsets the
      interest paid by the Association on the ESOP loan. No reinvestment is
      assumed on proceeds contributed to fund the ESOP. Applicable accounting
      practices require that compensation expense for the ESOP be based upon
      shares committed to be released and that unallocated shares be excluded
      from earnings per share computations. The valuation of shares committed to
      be released would be based upon the average market value of the shares
      during the year, which, for purposes of this calculation, was assumed to
      be equal to the $15.00 per share purchase price. See "MANAGEMENT OF THE
      ASSOCIATION -- Benefits -- Employee Stock Ownership Plan."
(4)   In calculating the pro forma effect of the MRP, it is assumed that the
      required stockholder approval has been received, that the shares were
      acquired by the MRP at the beginning of the period presented in open
      market purchases at the $15.00 per share purchase price, that 20% of the
      amount contributed was an amortized expense during such period, and that
      the combined federal and state income tax rate is 36.5%. The issuance of
      authorized but unissued shares of the common stock instead of open market
      purchases would dilute the voting interests of existing stockholders by
      approximately 3.85% and pro forma net income per share would be $1.05,
      $0.95, $0.87 and $0.81 at the minimum, midpoint, maximum and 15% above the
      maximum of the Estimated Valuation Range for the year ended September 30,
      1997, respectively, and pro forma stockholders' equity per share would be
      $22.36, $20.97, $19.94 and $19.07 at the minimum, midpoint, maximum and
      15% above the maximum of the Estimated Valuation Range at September 30,
      1997, respectively. Shares issued under the MRP vest 20% per year and for
      purposes of this table compensation expense is recognized on a straight-
      line basis over each vesting period. In the event the fair market value
      per share is greater than $15.00 per share on the date shares are awarded
      under the MRP, total MRP expense would increase. The total estimated MRP
      expense was multiplied by 20% (the total percent of shares for which
      expense is recognized in the first year) resulting in pre-tax MRP expense
      of $357,000, $420,000, $483,000 and $555,000 at the minimum, midpoint,
      maximum and 15% above the maximum of the Estimated Valuation Range for the
      year ended September 30, 1997, respectively. No effect has been given to
      the shares reserved for issuance under the proposed Stock Option Plan.
(5)   Per share amounts are based upon shares outstanding of 2,752,867,
      3,238,667, 3,724,467 and 4,283,137 at the minimum, midpoint, maximum and
      15% above the maximum of the Estimated Valuation Range for the year ended
      September 30, 1997, respectively, which includes the shares of common
      stock sold in the conversion less the number of shares assumed to be held
      by the ESOP not committed to be released within the first year following
      the conversion.

                                       21
(6)   Historical per share amounts have been computed as if the shares of common
      stock expected to be issued in the conversion had been outstanding at the
      beginning of the period or on the date shown, but without any adjustment
      of historical net income or historical retained earnings to reflect the
      investment of the estimated net proceeds of the sale of shares in the
      conversion, the additional ESOP expense or the proposed MRP expense, as
      described above.
(7)   "Book value" represents the difference between the stated amounts of the
      Association's assets and liabilities. The amounts shown do not reflect the
      liquidation account which will be established for the benefit of Eligible
      Account Holders and Supplemental Eligible Account Holders in the
      conversion, or the federal income tax consequences of the restoration to
      income of the Association's special bad debt reserves for income tax
      purposes which would be required in the unlikely event of liquidation. See
      "THE CONVERSION-- Effects of Conversion to Stock Form on Depositors and
      Borrowers of the Association" and "TAXATION." The amounts shown for book
      value do not represent fair market values or amounts distributable to
      stockholders in the unlikely event of liquidation.
(8)   Per share amounts are based upon shares outstanding of 2,975,000,
      3,500,000, 4,025,000 and 4,628,750 at the minimum, midpoint, maximum and
      15% above the maximum of the Estimated Valuation Range, respectively.
(9)   Does not represent possible future price appreciation or depreciation of
      the common stock.

                                       22
SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS

         The following table sets forth certain information as to the
approximate purchases of common stock by each director and executive officer of
the Association, including their associates, as defined by applicable
regulations. No individual has entered into a binding agreement with respect to
such intended purchases, and, therefore, actual purchases could be more or less
than indicated below. Directors and officers of the Association and their
associates may not purchase in excess of 29% of the shares sold in the
conversion. For purposes of the following table, it has been assumed that
sufficient shares will be available to satisfy subscriptions in all categories.
Directors, officers, their associates and employees will pay the same price for
the shares for which they subscribe as the price that will be paid by all other
subscribers.
Percent of          Percent of
                                                                                    Shares at           Shares at
                                                                                   Minimum of          Maximum of
     Name and                  Anticipated Number of     Anticipated Dollar         Estimated           Estimated
     Position                   Shares Purchased (1)      Amount Purchased       Valuation Range     Valuation Range
     --------                   --------------------      ----------------       ---------------     ---------------
J. Edward Wells                       33,334                 $500,010                   1.12%                0.83%
  President, Chief Executive
  Officer and Director

Aaron H. King                         20,000                  300,000                   0.67                 0.50
  Director

J. Riley Bailes                       28,000                  420,000                   0.94                 0.70
  Director

John H. Lake                          13,334                  200,010                   0.45                 0.33
 Director

G. Edwin Owings                        6,667                  100,005                   0.22                 0.17
  Director

Edwin I. Shealy                       20,000                  300,000                   0.67                 0.50
  Chief Financial Officer

James H. Wasson, Jr.                  16,667                  250,005                   0.56                 0.41
  Vice President

John M. Swofford                       8,334                  125,010                   0.28                 0.21
  Vice President

Will B. Ferguson                      22,000                  330,000                   0.74                 0.55
  Vice President                      ------                  -------                   ----                 ----

     Total                           168,336               $2,525,040                   5.66%                4.18%
                                     =======               ==========                   ====                 ====
--------------
(1)  Excludes any shares awarded pursuant to the ESOP and MRP and options to
     acquire shares pursuant to the Stock Option Plan.

                                       23
HERITAGE FEDERAL SAVINGS & LOAN ASSOCIATION
                              STATEMENTS OF INCOME

         The following Statements of Income of Heritage Federal Savings & Loan
Association for the fiscal years ended September 30, 1997, 1996 and 1995 have
been audited by Deloitte & Touche LLP, Greenville, South Carolina, independent
auditors, whose report thereon appears elsewhere in this prospectus. These
statements should be read in conjunction with the Financial Statements and
related Notes included elsewhere herein.
Years Ended September 30,
                                                                       ---------------------------------
                                                                       1997           1996          1995
                                                                       ----           ----          ----
                                                                                 (In thousands)
INTEREST INCOME:
 Loans:
  First mortgage loans.............................................    $14,056        $13,166       $12,660
  Other loans......................................................        978            872           889
 Investment securities and other...................................      2,289          2,310         1,866
 Mortgage-backed securities........................................        450            626           749
                                                                      --------       --------      --------
   Total interest income...........................................     17,773         16,974        16,164
                                                                      --------       --------      --------

INTEREST EXPENSE:
 Deposits..........................................................     12,004         11,885         9,941
 Federal Home Loan Bank borrowings.................................        226            327           490
                                                                      --------       --------      --------
   Total interest expense..........................................     12,230         12,212        10,431
                                                                      --------       --------      --------

NET INTEREST INCOME................................................      5,543          4,762         5,733

PROVISION FOR LOAN LOSSES
 (RECOVERY OF ALLOWANCE) (Note 4)..................................        337             (7)           47
                                                                      --------       --------      --------

NET INTEREST INCOME AFTER
 PROVISION FOR LOAN LOSSES.........................................      5,206          4,769         5,686
                                                                      --------       --------      --------

OTHER INCOME (EXPENSE):
 Service charge and fees...........................................        205            206           210
 Gain (loss) of sale of mortgage loans held-for-sale...............          6             16             0
 Gain (loss) on sale of investments available-for-sale.............        (13)             2             0
 Other income, other...............................................          4              3             8
                                                                      --------       --------      --------
   Total other income, net.........................................        202            227           218
                                                                      --------       --------      --------

OTHER OPERATING EXPENSES:
 Employee compensation and benefits (Note 11)......................      1,450          1,344         1,329
 Deposit insurance premiums (Note 1)...............................        234          1,725           416
 Occupancy and equipment expense...................................        397            413           142
 Data processing - service bureau fees.............................        132            129           114
 Office supplies, postage, printing, etc...........................         81             97            82
 Professional fees.................................................         56             54            41
 Advertising and promotions........................................         24             31            22
 Net (income)/cost of real estate operations.......................       (167)          (120)           77
 Other.............................................................        155            204           156
                                                                      --------       --------      --------
  Total other operating expenses...................................      2,362          3,877         2,379
                                                                      --------       --------      --------

INCOME BEFORE INCOME TAXES.........................................      3,046          1,119         3,525

PROVISION FOR INCOME TAXES (Note 9)................................      1,094            360         1,546
                                                                      --------       --------      --------

NET INCOME.........................................................   $  1,952       $    759      $  1,979
                                                                      ========       ========      ========
See Notes to Financial Statements.

                                       24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

General

         Management's discussion and analysis of financial condition and results
of operations is intended to assist in understanding the financial condition and
results of operations of the Association. The information contained in this
section should be read in conjunction with the Financial Statements and
accompanying Notes thereto and the other sections contained in this prospectus.

Operating Strategy

         The Association's business consists principally of attracting retail
deposits (primarily certificates of deposit) from the general public and using
these funds to originate mortgage loans secured by one- to four-family
residences located in South Carolina. To a lesser extent, the Association also
originates commercial real estate loans, home equity loans, builder construction
loans and savings account loans. The Association intends to continue to fund its
assets primarily with retail deposits, although FHLB-Atlanta advances may be
used as a supplemental source of funds.

         The Association's profitability depends primarily on its net interest
income, which is the difference between the income it receives on its loan and
investment portfolio and its cost of funds, which consists of interest paid on
deposits and borrowings. Net interest income is also affected by the relative
amounts of interest-earning assets and interest-bearing liabilities. When
interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The
Association's profitability is also affected by the level of other operating
income and expenses. Other operating income includes service charges and fees,
gain on sale of mortgage loans and gain on sale of investments. Other operating
expenses include compensation and benefits, occupancy and equipment expenses,
deposit insurance premiums, data processing expenses and other operating costs.
The Association's results of operations are also significantly affected by
general economic and competitive conditions, particularly changes in market
interest rates, government legislation and regulation and monetary and fiscal
policies.

         The Association's business strategy is to operate as a
well-capitalized, profitable and independent financial institution dedicated to
financing home ownership and providing quality customer service. In recent years
the Association has emphasized the origination for retention in its portfolio of
adjustable-rate mortgage loans in order to reduce its interest rate risk.
Beginning in the year ended September 30, 1997, to increase the yield on its
loan portfolio, the Association has emphasized the origination for its portfolio
of fixed-rate mortgage loans with terms of 15 years or less and ARM loans with
an interest rate that is fixed for an initial period of ten years. In addition,
the Association has purchased $1.0 million of conforming fixed-rate loans for
its held for sale portfolio and plans to continue this activity depending on
market conditions. The Association relies heavily on certificates of deposit as
its source of funds. As a result, the Association's cost of funds is generally
higher than that of institutions that have more checking and savings accounts.
The Association's high cost of funds has contributed to a lower interest rate
spread and reduced profitability in recent years. The Association intends to
attempt to reduce its reliance on certificates of deposit by increasing its
emphasis on transaction accounts.

Comparison of Financial Condition at September 30, 1997 and 1996

         Total assets increased $2.8 million, or 1.2%, to $247.5 million at
September 30, 1997 from $244.7 million at September 30, 1996. Loans receivable
increased $9.7 million to $192.7 million from $183.0 million. The Association
used funds from maturities and prepayments of investment and mortgage-backed
securities to fund loan growth. Investment securities decreased to $24.4 million
from $37.9 million and mortgage-backed securities decreased to $6.7 million from
$9.7 million. Cash and cash equivalents increased to $14.7 million from $5.9
million.

                                       25
Total liabilities increased $345,000, or 0.2%, to $218.3 million at
September 30, 1997 from $217.9 million at September 30, 1996. Deposit accounts
increased $5.7 million to $215.4 million from $209.7 million. The increase in
deposit accounts was offset by a decrease in FHLB advances from $5.0 million to
$0.

         Total equity increased $2.5 million, or 9.3%, to $29.2 million at
September 30, 1997 from $26.7 million at September 30, 1996. Retained income
increased $1.9 million to $27.8 million, while unrealized gain on
available-for-sale securities increased $543,000 to $1.5 million.

Comparison of Operating Results for the Years Ended September 30, 1997 and 1996

         Net Income. Net income increased $1.2 million, or 157.2%, to $2.0
million for the year ended September 30, 1997 from $759,000 for the year ended
September 30, 1996. The results for fiscal 1996 reflect the payment of a
one-time, industry wide special assessment to recapitalize the SAIF, which for
the Association was $1.2 million. Without the payment of the SAIF special
assessment, net income for fiscal 1996 would have been $1.5 million.

         Net Interest Income. Net interest income increased $781,000, or 16.4%,
to $5.5 million for fiscal 1997 from $4.8 million for fiscal 1996. The
Association's interest rate spread increased 25 basis points to 1.76% for fiscal
1997 from 1.51% for fiscal 1996 as the Association experienced a 19 basis point
increase in the yield on its interest-earning assets and a 6 basis point
decrease in the cost of its interest-bearing liabilities.

         Total interest income increased $799,000, or 4.7%, from fiscal 1996 to
fiscal 1997. Interest income on loans receivable increased $996,000 largely as a
result of an increase of $11.6 million, or 6.5%, in the average balance of
loans. The Association's average yield on loans increased 5 basis points to
7.93% in fiscal 1997. The growth in interest income on loans was partially
offset by a reduction in interest income on mortgage-backed securities and
federal funds sold and interest-bearing deposits, as the Association reduced the
average balance of these investments. The yield on the Association's
interest-earning assets increased to 7.47% from 7.28% as a result of having a
larger percentage of interest-earning assets invested in loans.

         Total interest expense increased $18,000, or 0.1%, from fiscal 1996 to
fiscal 1997. The average balance of interest-bearing liabilities increased $2.6
million, or 1.2%, while the average rate paid decreased to 5.71% from 5.77%.
Interest paid on passbook, NOW and money market accounts decreased a total of
$25,000 primarily because of a decrease in the average balance of such accounts.
Interest paid on certificates of deposit increased $144,000 because of an
increase in the average balance of such accounts. This was partially offset by a
decrease in the average rate paid on certificates of deposit to 5.91% from
6.00%. Interest paid on FHLB advances decreased $101,000 as the decrease in the
average balance of advances was partially offset by the increase in the average
rate paid. By the end of fiscal 1997, the Association had repaid all of its FHLB
advances.

         Provision for Loan Losses. Provisions for loan losses are charged to
operations to bring the total allowance for loan losses to a level considered by
management to be adequate to provide for estimated losses based on management's
evaluation of such factors as the delinquency status of loans, current economic
conditions, the net realizable value of the underlying collateral and prior loan
loss experience. The provision for loan losses was $337,000 in fiscal 1997
compared with a recovery of $7,000 in fiscal 1996. During fiscal 1997, the
Association added $137,000 to the allowance for loan losses to provide for
estimated losses on specific problem loans. The Association added an additional
$200,000 to the allowance for loan losses based on its re-evaluation of the
risks inherent in the loan portfolio. At September 30, 1997, the Association's
allowance for loan losses totalled $874,000, which equaled .44% of total loans.
Although management uses the best information available, future adjustments to
the allowance may be necessary due to changes in economic, operating, regulatory
and other conditions that may be beyond the Association's control. While the
Association maintains its allowance for loan losses at a level which it
considers to be adequate to provide for estimated losses, there can be no
assurance that further additions will not be made to the allowance for loan
losses and that actual losses will not exceed the estimated amounts.

                                       26
Other Income. Other income decreased $25,000, or 11.0%, to $202,000 for
fiscal 1997 from $227,000 for fiscal 1996. Substantially all of the
Association's other income is derived from service charges and fees. Service
charges and fees totalled $205,000 in fiscal 1997 compared with $206,000 in
fiscal 1996. Gain on sale of mortgage loans decreased to $6,000 in fiscal 1997
from $16,000 in fiscal 1996 as a result of fewer loan sales in 1997. The
Association realized a loss of $13,000 on the sale of investments in fiscal 1997
compared with a gain of $2,000 in fiscal 1996.

         Other Operating Expenses. Other operating expenses were $2.4 million in
fiscal 1997 compared to $3.9 million in fiscal 1996. Included in other operating
expenses for fiscal 1996 is the SAIF special assessment. Excluding the SAIF
special assessment, other operating expenses were $2.6 million for fiscal 1996.
As a result of the recapitalization of the SAIF, the FDIC substantially reduced
deposit insurance premiums. Since January 1, 1997, the Association has paid
deposit insurance premiums at the rate of $.065 per $100 of deposits. Prior to
the recapitalization of the SAIF, deposit insurance premiums were $.23 per $100
of deposits. Employee compensation and benefits expense increased $106,000, or
7.9%, as a result of an increase in directors' fees, normal wage increases and
an increase in benefits costs. Income from real estate operations was $167,000
in fiscal 1997 as a result of gains on sales of real estate owned, as compared
with $120,000 in fiscal 1996. The Association anticipates that other operating
expenses will increase following the conversion as a result of increased costs
associated with operating as a public company and increased compensation expense
as a result of adoption of the ESOP and, if approved by the Holding Company's
stockholders, the MRP. Because the Association uses an outside data processing
service, the Association believes that its cost of addressing Year 2000 issues
will not be significant. See "RISK FACTORS -- Below Average Return on Equity
After Conversion" and "-- New Expenses Associated with ESOP and MRP."

         Income Taxes. The provision for income taxes increased to $1.1 million
for fiscal 1997 from $360,000 for fiscal 1996. Income taxes in fiscal 1996 were
lower because of the SAIF special assessment.

Comparison of Operating Results for the Years Ended September 30, 1996 and 1995

         Net Income. Net income decreased $1.2 million, or 61.6%, to $759,000
for the year ended September 30, 1996 from $2.0 million for the year ended
September 30, 1995. The results for fiscal 1996 include the payment of the $1.2
million special SAIF assessment. Without the payment of the SAIF assessment, net
income for fiscal 1996 would have been $1.5 million.

         Net Interest Income. Net interest income decreased $971,000, or 16.9%,
to $4.8 million for fiscal 1996 from $5.7 million for fiscal 1995. The
Association's interest rate spread decreased to 1.51% for fiscal 1996 from 2.09%
for fiscal 1995 as a result of an increase in the cost of the Association's
interest-bearing liabilities. The decrease in the interest rate spread was
partially offset by an increase in the average balance of interest-earning
assets.

         Total interest income increased $810,000, or 5.0%, from fiscal 1995 to
fiscal 1996. Interest income on loans receivable increased $489,000, or 3.6%, as
a result of growth of the loan portfolio. The average yield on loans receivable
was essentially unchanged between fiscal 1995 and 1996. The remainder of the
growth in interest income is primarily attributable to increases in the average
balances of investment securities and federal funds sold and overnight deposits.
Interest income on mortgage-backed securities decreased as a result of principal
repayments on mortgage-backed securities.

         Total interest expense increased $1.8 million, or 17.1%, from fiscal
1995 to fiscal 1996. Total interest paid on deposits increased $1.9 million as a
result of an increase in the average balance of certificates of deposit and an
increase in the average rate paid on certificates of deposit from 5.39% to
6.00%. The average rate paid on certificates of deposit increased as depositors
sought higher yields through longer maturities. Interest paid on FHLB advances
decreased $163,000 as a decrease in the average balance was partially offset by
an increase in the rate paid on such advances.

                                       27
Provision for Loan Losses. The Association had a recovery of $7,000 in
fiscal 1996 compared to a provision of $47,000 in fiscal 1995. The provision was
larger in fiscal 1995 as a result of larger charge-offs that year. The
Association had net charge-offs of $79,000 in fiscal 1995 compared to net
recoveries of $87,000 in fiscal 1996.

         Other Income. Other income increased $9,000 to $227,000 for fiscal 1996
from $218,000 for fiscal 1995. Service charges and fees totalled $206,000 in
fiscal 1996 compared to $210,000 in fiscal 1995. The Association had $16,000 of
gain on the sale of mortgage loans in fiscal 1996 with no such gain in fiscal
1995.

         Other Operating Expenses. Other operating expenses were $3.9 million in
fiscal 1996, compared to $2.4 million in fiscal 1995. Excluding the SAIF
assessment, other operating expenses were $2.6 million for fiscal 1996, an
increase of $251,000, or 10.55%, over fiscal 1995. Occupancy and equipment
expense increased $271,000, or 190.8%, as a result of increased depreciation
expense associated with its new main office opened in October 1995. Other
expenses such as office supplies, advertising and promotion also increased as a
result of the opening of the new main office. Income from real estate operations
was $120,000 in fiscal 1996 as a result of gains on the sale of real estate
owned compared with a cost of $77,000 in fiscal 1995.

         Income Taxes. The provision for income taxes decreased to $360,000 for
fiscal 1996 from $1.5 million for fiscal 1995. The decrease was the result of
the payment of the SAIF assessment.

Average Balances, Interest and Average Yields/Cost

         The following table sets forth certain information for the periods
indicated regarding average balances of assets and liabilities as well as the
total dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and average yields and
costs. Such yields and costs for the periods indicated are derived by dividing
income or expense by the average balances of assets or liabilities,
respectively, for the periods presented. Average balances for the year ended
September 30, 1995 were derived from month-end balances. Management does not
believe that the use of month-end balances instead of daily balances has caused
any material differences in the information presented.

                                       28
Year Ended September 30,
                                            -----------------------------------------------------------------------------
                                                            1997                                       1996
                                            ----------------------------------           --------------------------------
                                                          Interest                                   Interest
                                            Average       and           Yield/           Average     and           Yield/
                                            Balance       Dividends     Cost             Balance     Dividends     Cost
                                            -------       ---------     ------           -------     ---------     ------
(Dollars in thousands)
Interest-earning assets:
 Loans receivable, net (1)................ $189,689       $ 15,034       7.93%           $178,081    $ 14,038       7.88%
 Mortgage-backed securities...............    8,401            450       5.36              11,192         626       5.59
 Investment securities (3)................   32,397          1,856       5.73              35,684       1,815       5.09
 FHLB stock...............................    2,042            148       7.25               2,042         147       7.20
 Federal funds sold and overnight deposits    5,335            285       5.34               6,317         348       5.51
                                           --------       --------       ----            --------    --------       ---- 
  Total interest-earning assets...........  237,864         17,773       7.47             233,316      16,974       7.28
                                           --------       --------       ----            --------    --------       ---- 

 Non-interest-earning assets..............    7,315                                         7,328
                                           --------                                      --------
  Total average assets.................... $245,179                                      $240,644
                                           ========                                      ========

Interest-bearing liabilities (2):
 Passbook accounts........................ $ 11,561            340       2.94            $ 12,270         362       2.95 
 NOW and money market accounts............    3,751             89       2.37               3,784          92       2.43
 Certificates of deposit..................  195,853         11,575       5.91             190,572      11,431       6.00
                                           --------       --------       ----            --------    --------       ---- 
  Total deposits..........................  211,165         12,004       5.68             206,626      11,885       5.75
 FHLB advances............................    3,082            226       7.33               5,000         327       6.54
                                           --------       --------       ----            --------    --------       ----
  Total interest-bearing liabilities......  214,247         12,230       5.71             211,626      12,212       5.77
                                           --------       --------       ----            --------    --------       ----

 Noninterest-bearing liabilities..........    2,759                                         2,570
                                           --------                                      --------

  Total average liabilities...............  217,006                                       214,196 
                                           --------                                      --------

 Average equity...........................   28,173                                        26,448
                                           --------                                      --------   
  Total average liabilities and equity.... $245,179                                      $240,644
                                           ========                                      ========

 Net interest income......................                $  5,543                                   $  4,762
                                                          ========                                   ========
 Interest rate spread.....................                               1.76%                                      1.51%

 Net interest margin......................                               2.33%                                      2.04% 

 Ratio of average interest-earning assets
  to average interest-bearing liabilities.                               1.11x                                      1.10x
Year Ended September 30, 
                                               -------------------------------------- 
                                                                1995
                                               --------------------------------------
                                                              Interest
                                               Average        and              Yield/ 
                                               Balance        Dividends        Cost    
                                               -------        ---------        ------
(Dollars in thousands)
Interest-earning assets:
 Loans receivable, net (1)................     $172,133       $ 13,549          7.87%
 Mortgage-backed securities...............       13,020            749          5.75 
 Investment securities (3)................       31,882          1,580          4.96
 FHLB stock...............................        2,042            153          7.49
 Federal funds sold and overnight deposits        2,202            133          6.04
                                               --------       --------          ----  
  Total interest-earning assets...........      221,279         16,164          7.30  
                                               --------       --------          ----  

 Non-interest-earning assets..............        5,632
                                               -------- 
  Total average assets....................     $226,911
                                               ========
Interest-bearing liabilities (2):
 Passbook accounts........................     $ 13,343            393          2.95
 NOW and money market accounts............        3,751             94          2.51
 Certificates of deposit..................      175,431          9,454          5.39
                                               --------       --------          ----
  Total deposits..........................      192,525          9,941          5.16
 FHLB advances............................        7,812            490          6.27
                                               --------       --------          ----
  Total interest-bearing liabilities......      200,337         10,431          5.21
                                               --------       --------          ----

 Noninterest-bearing liabilities..........        2,091
                                               --------

  Total average liabilities...............      202,428  
                                               -------- 
 Average equity...........................       24,483
                                               -------- 

  Total average liabilities and equity....     $226,911
                                               ========

 Net interest income......................                    $  5,733
                                                              ========

 Interest rate spread.....................                                         2.09%

 Net interest margin......................                                         2.59% 

 Ratio of average interest-earning assets
  to average interest-bearing liabilities.                                         1.10x
----------------------
(1) Loans receivable, net includes Loans held-for-sale and nonaccrual loans. 
    Interest on Loan receivable does not include interest on nonaccrual loans.
(2) Does not include escrow balances.
(3) Yield information does not give affect to changes in fair value that are 
    reflected as a component of equity.

                                      29
Yields Earned and Rates Paid

         The following table sets forth at the date and for the periods
indicated the weighted average yields earned on the Association's assets and the
weighted average interest rates paid on the Association's liabilities, together
with the net yield on interest-earning assets.
At                 Years Ended September 30,
                                                           September 30,        ----------------------------
                                                               1997             1997       1996         1995
                                                           -------------        ----       ----         ----
Weighted average yield earned on:
  Loans receivable, net..............................           7.89%            7.93%      7.88%        7.87%
  Mortgage-backed securities.........................           5.30             5.36       5.59         5.75
  Investment securities..............................           6.03             5.73       5.09         4.96
  FHLB stock.........................................           7.24             7.25       7.20         7.49
  Federal funds sold and overnight deposits..........           6.13             5.34       5.51         6.04
    Total interest-earning assets....................           7.53             7.47       7.28         7.30

Weighted average rate paid on:
  Passbook accounts..................................           3.00             2.94       2.95         2.95
  NOW and money market accounts......................           2.27             2.37       2.43         2.51
  Certificates of deposit............................           5.93             5.91       6.00         5.39
    Total average deposits...........................           5.71             5.68       5.75         5.16
  FHLB advances......................................             --             7.33       6.54         6.27
    Total interest-bearing liabilities...............           5.71             5.71       5.77         5.21

Interest rate spread (spread between weighted average 
  rate earned on all interest-earning assets and 
  paid on all interest-bearing liabilities)..........           1.82             1.76       1.51         2.09

Net interest margin (net interest
 income as a percentage of average
 interest-earning assets)............................                            2.33       2.04         2.59
30
Rate/Volume Analysis

         The following table sets forth the effects of changing rates and
volumes on the interest income and interest expense of the Association.
Information is provided with respect: (i) to effects attributable to changes in
volume (changes in volume multiplied by prior rate); and (ii) to effects
attributable to changes in rate (changes in rate multiplied by prior volume).
The net change attributable to the combined impact of volume and rate has been
allocated proportionately to the change due to volume and the change due to
rate.
Year Ended September 30, 1997               Year Ended September 30, 1996 
                                      Compared to September 30, 1996              Compared to September 30, 1995
                                           Increase (Decrease)                        Increase (Decrease)
                                                 Due to                                       Due to
                                      -------------------------------            -------------------------------
                                      Rate       Volume         Total            Rate       Volume         Total
                                      ----       ------         -----            ----       ------         -----
                                                                (Dollars in thousands)
Interest-earning assets:
 Loans receivable, net (1).......... $   88       $  908       $  996           $    17      $   472      $  489
 Mortgage-backed securities.........    (25)        (151)        (176)              (20)        (103)       (123)
 Investment securities..............    153         (112)          41                42          193         235
 FHLB stock.........................      1           --            1                (6)          --          (6)
 Federal funds sold and
  overnight deposits................    (11)         (52)         (63)              (11)         226          215
                                     ------       ------       ------            ------       ------       ------

Total net change in income
 on interest-earning assets.........    206          593          799                22          788          810
                                     ------       ------       ------            ------       ------       ------

Interest-bearing liabilities:
 Passbook accounts..................     (1)         (21)         (22)               --          (31)         (31)
 NOW and money market
  accounts..........................     (2)          (1)          (3)               (3)           1           (2)
 Certificates of deposit............   (171)         315          144             1,122          855        1,977
                                     ------       ------       ------            ------       ------       ------
   Total average deposits...........   (174)         293          119             1,119          825        1,944
 FHLB advances......................     48         (149)        (101)               22         (185)        (163)
                                     ------       ------       ------            ------       ------       ------

Total net change in expense
 on interest-bearing
 liabilities........................  (126)          144           18             1,141          640        1,781
                                     ------       ------       ------            ------       ------       ------

Net change in net interest
 income............................. $  332       $  449       $  781           $(1,119)      $  148       $ (971)
                                     ======       ======       ======            ======       ======       ======
-------------
(1) Does not include interest on nonaccrual loans.

Asset and Liability Management

         Quantitative Aspects of Market Risk. The Association does not maintain
a trading account for any class of financial instrument nor does the Association
engage in hedging activities or purchase purchase high-risk derivative
instruments. Furthermore, the Association is not subject to foreign currency
exchange rate risk or commodity price risk. For information regarding the
sensitivity to interest rate risk of the Association's interest-earning assets
and interest-bearing liabilities, see the tables under "BUSINESS OF THE
ASSOCIATION -- Lending Activities -- Maturity of Loan Portfolio," "-- Investment
Activities" and "-- Deposit Activities and Other Sources of Funds -- Time
Deposits by Maturities."

                                       31
Qualitative Aspects of Market Risk. The Association's principal
financial objective is to achieve long-term profitability while reducing its
exposure to fluctuating market interest rates. The Association has sought to
reduce the exposure of its earnings to changes in market interest rates by
attempting to manage the mismatch between asset and liability maturities and
interest rates. The principal element in achieving this objective is to increase
the interest-rate sensitivity of the Association's interest-earning assets by
retaining for its portfolio loans with interest rates subject to periodic
adjustment to market conditions and selling fixed-rate one- to- four family
mortgage loans with terms over 15 years. In addition, the Association maintains
an investment portfolio of U.S. Government and agency securities with
contractual maturities of between one and five years. The Association relies on
retail deposits as its primary source of funds. Management believes retail
deposits, compared to brokered deposits, reduce the effects of interest rate
fluctuations because they generally represent a more stable source of funds.

         In order to encourage institutions to reduce their interest rate risk,
the OTS adopted a rule incorporating an interest rate risk component into the
risk-based capital rules. Using data compiled by the OTS, the Association
receives a report which measures interest rate risk by modeling the change in
NPV (net portfolio value) over a variety of interest rate scenarios. This
procedure for measuring interest rate risk was developed by the OTS to replace
the "gap" analysis (the difference between interest-earning assets and
interest-bearing liabilities that mature or reprice within a specific time
period). NPV is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The calculation is intended to
illustrate the change in NPV that will occur in the event of an immediate change
in interest rates of at least 200 basis points with no effect given to any steps
that management might take to counter the effect of that interest rate movement.
Under OTS regulations, an institution with a greater than "normal" level of
interest rate risk is subject to a deduction from total capital for purposes of
calculating its risk-based capital. The OTS, however, has delayed the
implementation of this regulation. An institution with a "normal" level of
interest rate risk is defined as one whose "measured interest rate risk" is less
than 2.0%. Institutions with assets of less than $300 million and a risk-based
capital ratio of more than 12.0% are exempt. The Association is exempt because
of its asset size. Based on the Association's regulatory capital levels at
September 30, 1997, the Association believes that, if the proposed regulation
was implemented at that date, the Association's level of interest rate risk
would have caused it to be treated as an institution with greater than "normal"
interest rate risk.

         The following table is provided by the OTS and sets forth the change in
the Association's NPV at June 30, 1997, based on OTS assumptions, that would
occur in the event of an immediate change in interest rates, with no effect
given to any steps that management might take to counteract that change.

         Basis Point ("bp")              Estimated Change in
          Change in Rates                Net Portfolio Value
          ---------------                -------------------
                                        (Dollars in thousands)

                  +400                       ($15,494)
                  +300                        (10,826)
                  +200                         (6,391)
                  +100                         (2,645)
                     0                              0
                  (100)                         1,360
                  (200)                         2,285
                  (300)                         3,283
                  (400)                         4,712
                                        
         The above table illustrates, for example, that an instantaneous 200
basis point increase in market interest rates at June 30, 1997 would reduce the
Association's NPV by approximately $6.4 million, or 20%, at that date.

                                       32
Certain assumptions utilized by the OTS in assessing the interest rate
risk of savings associations within its region were utilized in preparing the
preceding table. These assumptions relate to interest rates, loan prepayment
rates, deposit decay rates, and the market values of certain assets under
differing interest rate scenarios, among others.

         As with any method of measuring interest rate risk, certain
shortcomings are inherent in the method of analysis presented in the foregoing
table. For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different degrees to
changes in market interest rates. Also, the interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as ARM loans, have features which
restrict changes in interest rates on a short-term basis and over the life of
the asset. Further, in the event of a change in interest rates, expected rates
of prepayments on loans and early withdrawals from certificates could deviate
significantly from those assumed in calculating the table.

Liquidity and Capital Resources

         The Association's primary sources of funds are customer deposits,
proceeds from principal and interest payments on and the sale of loans, maturing
securities and FHLB advances. While maturities and scheduled amortization of
loans are a predictable source of funds, deposit flows and mortgage prepayments
are greatly influenced by general interest rates, economic conditions and
competition.

         The Association must maintain an adequate level of liquidity to ensure
the availability of sufficient funds to fund loan originations and deposit
withdrawals, to satisfy other financial commitments and to take advantage of
investment opportunities. The Association generally maintains sufficient cash
and short-term investments to meet short-term liquidity needs. At September 30,
1997, cash and cash equivalents totalled $14.7 million, or 5.9% of total assets,
and investment securities classified as available-for-sale totalled $8.4
million. At September 30, 1997, the Association also maintained, but did not
draw upon, an uncommitted credit facility with the FHLB-Atlanta, which provided
for immediately available advances up to an aggregate amount of $32.0 million.

         OTS regulations require savings institutions to maintain an average
daily balance of liquid assets (cash and eligible investments) equal to at least
4.0% of the average daily balance of its net withdrawable deposits and
short-term borrowings. The Association's actual liquidity ratio at September 30,
1997 was 19.2%. See "-- Comparison of Financial Condition at September 30, 1997
and 1996" and "BUSINESS OF THE ASSOCIATION -- Investment Activities."

         The Association's primary investing activity is the origination of one-
to- four family mortgage loans. During the years ended September 30, 1997, 1996
and 1995, the Association originated $37.0 million, $36.5 million, and $39.4
million of such loans, respectively. At September 30, 1997, the Association had
loan commitments totalling $1.4 million, unused lines of credit of $6.3 million
and undisbursed loans in process totalling $7.0 million. The Association
anticipates that it will have sufficient funds available to meet current loan
commitments. Certificates of deposit that are scheduled to mature in less than
one year from September 30, 1997 totalled $148.9 million. Historically, the
Association has been able to retain a significant amount of its deposits as they
mature.

         OTS regulations require the Association to maintain specific amounts of
regulatory capital. As of September 30, 1997, the Association complied with all
regulatory capital requirements as of that date with tangible, core and
risk-based capital ratios of 11.3%, 11.3% and 23.3%, respectively. For a
detailed discussion of regulatory capital requirements, see "REGULATION --
Federal Regulation of Savings Associations -- Capital Requirements." See also
"HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE."

Year 2000 Issues

         Computer programs that use only two digits to identify a year could
fail or create erroneous results by or at the year 2000. All of the material
data processing of the Association that could be affected by this problem is

                                       33
provided by a third party service bureau. The Association has contaced its
service bureau and has received assurances that the service bureau will properly
function in the year 2000. Internally, the Association has determined that
certain computer programs must be revised in advance of the year 2000. The
Association does not beleive that the costs associated with its actions and
those of its vendors will be material to the Association. However, in the event
the Association's service bureau is unable to fulfill its contractual
obligations to the Association, it could have a significant adverse impact on
the financial condition and results of operations of the Association.

Impact of Accounting Pronouncements and Regulatory Policies

         Accounting for Stock-Based Compensation. SFAS No. 123, "Accounting for
Stock-Based Compensation," establishes financial accounting and reporting
standards for stock-based employee compensation plans. This statement encourages
all entities to adopt a new method of accounting to measure compensation cost of
all employee stock compensation plans based on the estimated fair value of the
award at the date it is granted. Companies are, however, allowed to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting, which generally does not result in compensation expense
recognition for most plans. Companies that elect to remain with the existing
accounting method are required to disclose in a footnote to the financial
statements pro forma net income and, if presented, earnings per share, as if
this statement had been adopted. The accounting requirements of this statement
are effective for transactions entered into in fiscal years that begin after
December 15, 1995; however, companies are required to disclose information for
awards granted in their first fiscal year beginning after December 15, 1994.
Management of the Association has not completed an analysis of the potential
effects of SFAS No. 123 on its financial condition or results of operations, but
expects to use the intrinsic value method upon consummation of the Conversion.

         Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities. SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities. This statement applies prospectively
to transactions occurring after December 31, 1996, and establishes new standards
that focus on control whereas, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. The adoption of SFAS No. 125 did
not have a material impact on the Association's results of operations or
financial position.

         Deferral of the Effective Date of Certain Provisions of SFAS No. 125.
In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date
of Certain Provisions of FASB Statement No. 125." SFAS No. 127 defers for one
year the effective date of portions of SFAS No. 125 that address secured
borrowings and collateral for all transactions. Additionally, SFAS No. 127
defers for one year the effective date of transfers of financial assets that are
part of repurchase agreements, securities lending and similar transactions.

         Earnings Per Share. SFAS No. 128, "Earnings Per Share," standardizes
the international calculation for earnings per share and requires companies with
complex capital structures that have publicly held common stock or potential
common stock to present both basic and diluted earnings per share on the face of
the income statement. SFAS No. 128 becomes effective for periods ending after
December 15, 1997.

         Comprehensive Income. SFAS No. 130, "Reporting Comprehensive Income,"
issued in July 1997, establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. It requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
presented with the same prominence as other financial statements. SFAS No. 130
requires that companies (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial condition.
SFAS No. 130 is effective for fiscal years 

                                       34
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comprehensive purposes is required.

         Segment Information. SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" establishes standards for the way public
business enterprises report information about operating segments and establishes
standards for related disclosures about products and services, geographic areas
and major customers. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. Information required to be disclosed includes segment
profit or loss, certain specific revenue and expense items, segment assets and
certain other information. This statement is effective for the Holding Company
for financial statements issued for the fiscal year ending September 30, 1999.

Effect of Inflation and Changing Prices

         The financial statements and related financial data presented herein
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time due
to inflation. The primary impact of inflation is reflected in the increased cost
of the Association's operations. Unlike most industrial companies, virtually all
the assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates do
not necessarily move in the same direction or to the same extent as the prices
of goods and services.

                         BUSINESS OF THE HOLDING COMPANY

General

         The Holding Company was organized as a Delaware business corporation at
the direction of the Association in November 1997 for the purpose of becoming
the holding company for the Association upon completion of the conversion. As a
result of the Conversion, the Association will be a wholly-owned subsidiary of
the Holding Company and all of the issued and outstanding capital stock of the
Association will be owned by the Holding Company.

Business

         Prior to the conversion, the Holding Company has not and will not
engage in any significant activities other than of an organizational nature.
Upon completion of the Conversion, the Holding Company's sole business activity
will be the ownership of the outstanding capital stock of the Association. The
Holding Company will also hold a note receivable from the ESOP. In the future,
the Holding Company may acquire or organize other operating subsidiaries,
although there are no current plans, arrangements, agreements or understandings,
written or oral, to do so.

         Initially, the Holding Company will neither own nor lease any property
but will instead use the premises, equipment and furniture of the Association
with the payment of appropriate rental fees, as required by applicable law and
regulations.

         Since the Holding Company will only hold the outstanding capital stock
of the Association upon consummation of the conversion, the competitive
conditions applicable to the Holding Company will be the same as those
confronting the Association. See "BUSINESS OF THE ASSOCIATION -- Competition."

                                       35
BUSINESS OF THE ASSOCIATION

General

         The Association operates as a community oriented financial institution.
The Association's business consists primarily of attracting retail deposits from
the general public and using those funds to originate real estate loans. The
Association emphasizes the origination of adjustable-rate mortgages and
generally holds its loans for long-term investment purposes. See "-- Lending
Activities."

Market Area

         The Association conducts operations out of its main office in Laurens,
South Carolina (in Laurens County) and three branch offices in Upstate South
Carolina, Belton (in Anderson County), Ware Shoals (in Greenwood County) and
Simpsonville (in Greenville County). Most of the Association's depositors live
in the areas surrounding the Association's offices and most of the Association's
loans are made to persons in the counties in which its branches are located, as
well as in the Columbia, South Carolina metropolitan area.

         Laurens County, with an estimated population of 62,000, is located to
the east of the Greenville-Spartanburg-Anderson metropolitan area. Although a
rural county, the completion of U.S. Interstate Routes I-26 and I-385 has
provided access to the larger population and employment centers of Columbia and
Greenville-Spartanburg-Anderson. The Association's Belton and Simpsonville
branches are within the Greenville-Spartanburg-Anderson metropolitan area, while
the Ware Shoals branch is in a rural area between Laurens and the city of
Greenwood. South Carolina's economy, historically dependent on the textile
industry, has expanded into a broad variety of employment sectors in recent
years as the textile industry has declined. The development of major
transportation routes, low cost of living and labor, and aggressive marketing by
local and state government have resulted in an increase in industrial
development. As a result, the Association's market areas have reported increases
in population, households and income in recent years.

         The Association faces intense competition for deposits and loan
originations from the many financial institutions conducting business within its
market area. See "-- Competition" and "RISK FACTORS -- Competition."

Lending Activities

         General. At September 30, 1997, the Association's total loans
receivable portfolio amounted to $192.7 million, or 77.8% of total assets at
that date. The Association has traditionally concentrated its lending activities
on mortgage loans, with such loans amounting to $191.3 million, or 95.3% of the
total loans receivable at September 30, 1997. At that date, $170.3 million, or
84.8% of the Association's total loans receivable had adjustable interest rates.
In addition to one- to four-family mortgage loans, the Association originates
construction loans, commercial real estate loans, home equity loans and savings
account loans. All of the Association's mortgage loan portfolio is secured by
real estate, either as primary or secondary collateral, located in South
Carolina.

                                       36
Loan Portfolio Analysis. The following table sets forth the composition
of the Association's loan portfolio (excluding loans held-for-sale) at the dates
indicated. The Association had no concentration of loans exceeding 10% of total
loans receivable other than as disclosed below.
At September 30,
                                     ---------------------------------------------------------------------
                                            1997                    1996                     1995
                                     -------------------     --------------------     --------------------     
                                     Amount      Percent     Amount       Percent     Amount       Percent     
                                     ------      -------     ------       -------     ------       -------     
                                                        (Dollars in thousands)
Mortgage loans:
 One- to four-family...........     $180,609       90.0%    $173,925       90.4%     $167,092        90.2%     
 Builder construction..........        2,601        1.3        3,836        2.0         2,735         1.5      
 Commercial....................        8,136        4.0        6,450        3.3         7,573         4.1      
                                    --------      -----     --------      -----      --------       -----      
   Total mortgage loans........      191,346       95.3      184,211       95.7       177,400        95.8      
Savings account loans..........        1,419        0.7        1,146        0.6         1,439         0.8      
Home equity loans..............        8,124        4.0        7,050        3.7         6,429         3.4      
                                    --------      -----     --------      -----      --------       -----      
  Total loans receivable.......      200,889      100.0%     192,407      100.0%      185,268       100.0%     
                                                  =====                   =====                     =====      
                                                                                 
Less:                                                                            
 Undisbursed loan funds........        6,989                   8,375                    5,995                  
 Deferred loan origination fees          363                     412                      424                  
 Allowance for loan losses.....          874                     670                      590                  
                                     -------                 -------                  -------      
                                                                                 
  Loans receivable, net........     $192,663                $182,950                 $178,259                  
                                    ========                ========                 ========
At September 30,
                                      -------------------------------------------
                                             1994                    1993
                                      ------------------      -------------------
                                      Amount     Percent      Amount      Percent
                                      ------     -------      ------      -------
                                               (Dollars in thousands)
Mortgage loans:                 
 One- to four-family...........      $151,238      89.9%     $147,968       90.0%      
 Builder construction..........         2,763       1.6         1,871        1.1       
 Commercial....................         7,536       4.5         7,731        4.7       
                                      -------     -----       -------      -----       
   Total mortgage loans........       161,537      96.0       157,570       95.8       
Savings account loans..........         1,133       0.7         1,444        0.9       
Home equity loans..............         5,607       3.3         5,476        3.3       
                                      -------     -----       -------      -----       
  Total loans receivable.......       168,277     100.0%      164,490      100.0%      
                                                  =====                    =====       
                                                                                       
Less:                                                                                  
 Undisbursed loan funds........         7,584                   4,980                  
 Deferred loan origination fees           389                     414                  
 Allowance for loan losses.....           622                     560                  
                                      -------                 -------       
  Loans receivable, net........      $159,682                $158,536                  
                                     ========                ========
37
One- to Four-Family Real Estate Loans. The Association has concentrated
its lending activities on the origination of loans secured by first mortgage
loans on one- to four-family residences located in South Carolina. At September
30, 1997, $180.6 million, or 90.0%, of the Association's total loan portfolio
consisted of such loans. Included in this amount are $8.1 million of
construction loans that will convert to permanent mortgage loans after the
completion of the construction phase.

        The Association offers ARM loans at rates and terms competitive with
market conditions. At September 30, 1997, $154.1 million, or 85.3%, of the
Association's one- to four-family real estate loans were subject to periodic
interest rate adjustments. Substantially all of the Association's ARM loans are
underwritten and documented in accordance with guidelines established by Freddie
Mac, even though the Association originates ARM loans primarily for its own
portfolio. The Association originates for its portfolio ARM loans which provide
for an interest rate that adjusts every year or that is fixed for three or ten
years and then adjusts every year after the initial period. The Association's
ARM loans generally provide for annual and lifetime interest rate adjustment
limits of 1% and 4%, respectively. The Association's ARM loans adjust based on
the National Median Cost of Funds Index. This index is a lagging market index,
which means that upward adjustments in this index may occur more slowly than
changes in the Association's cost of interest-bearing liabilities, especially
during periods of rapidly increasing interest-rates. The Association's ARM loans
are typically based on a 30-year amortization schedule. The initial rate on most
of the Association's ARM loans is .75% to 1% below the fully indexed rate for
the loan.

        The Association offers fixed-rate, one- to four-family mortgage loans
with maturities ranging from ten to 30 years. These loans are fully amortizing
with monthly payments sufficient to repay the total amount of the loan with
interest by the end of the loan term. Generally, they are underwritten and
documented in accordance with guidelines established by Freddie Mac. The
Association's fixed-rate loans customarily include "due on sale" clauses, which
give the Association the right to declare a loan immediately due and payable in
the event the borrower sells or otherwise disposes of the real property subject
to the mortgage and the loan is not paid. In recent years, as part of its
asset/liability management, the Association has retained for its portfolio 
fixed-rate loans with terms of ten to 15 years. The Association determines
whether to sell or retain fixed-rate loans with terms of more than 15 years on a
case-by-case basis.

        The Association also offers loans to individuals for the construction
and acquisition of their personal residence. Such loans are made on the same
terms as the Association's one- to four-family mortgage loans, but provide for
the payment of interest only during the construction phase, which is usually six
months. At the end of the construction phase, the loan converts to a permanent
mortgage loan.

        The Association offers second mortgage loans, although these have become
less popular since the introduction of home equity lines of credit. The
Association's second mortgage loans have fixed interest rates and terms of up to
ten years. At September 30, 1997, the Association had $1.1 million of second
mortgage loans included in its one- to four-family mortgage loans.

        Borrower demand for ARM loans versus fixed-rate mortgage loans is a
function of the level of interest rates, the expectations of changes in the
level of interest rates and the difference between the initial interest rates
and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment.

        The retention of ARM loans in the Association's loan portfolio helps
reduce the Association's exposure to changes in interest rates. There are,
however, unquantifiable credit risks resulting from the potential of increased
costs due to changed rates to be paid by the borrower. It is possible that
during periods of rising interest rates the risk of default on ARM loans may
increase as a result of repricing and the increased payments required by the
borrower. See "RISK FACTORS -- Risks Associated with ARM Loans." In addition,
although ARM loans allow the Association to increase the sensitivity of its
asset base to changes in the interest rates, the extent of this interest
sensitivity is limited by the annual and lifetime interest rate adjustment
limits. Because of these considerations and its use of a lagging market index,
the Association has no assurance that yields on ARM loans will be sufficient to

                                       38
offset increases in the Association's cost of funds. The Association believes
these risks, which have not had a material adverse effect on the Association to
date, generally are less than the risks associated with holding fixed-rate loans
in portfolio during a rising interest rate environment.

        The Association generally requires title insurance insuring the status
of its lien or an acceptable attorney's opinion on all loans where real estate
is the primary source of security. The Association also requires that fire and
casualty insurance (and, if appropriate, flood insurance) be maintained in an
amount at least equal to the outstanding loan balance.

        The Association's one- to four-family residential mortgage loans
typically do not exceed 80% of the appraised value of the security property.
Pursuant to underwriting guidelines adopted by the Association's Board of
Directors, the Association can lend up to 95% of the appraised value of the
property securing a one- to- four family residential loan; however, the
Association generally obtains private mortgage insurance on the portion of the
principal amount that exceeds 80% of the appraised value of the security
property.

        Builder Construction Loans. The Association originates residential
construction loans to local home builders, generally with whom it has an
established relationship. At September 30, 1997, builder construction loans
amounted to $2.6 million, or 1.3% of the Association's total loans receivable.

        The Association's construction loans to builders generally have fixed
interest rates and are for a term of one year. Such loans to builders are
typically made with a maximum loan to value ratio of 80%. These loans are made
either on a pre-sold or speculative (unsold) basis. However, the Association
generally limits the number of outstanding loans on unsold homes under
construction to individual builders, with the amount dependent on the financial
strength of the builder, the present exposure of the builder, the degree of loan
concentration and prior sales of homes in the development. At September 30,
1997, the largest amount of construction loans outstanding to one builder was
$455,000, all of which was for speculative construction.

        Prior to making a commitment to fund a construction loan, the
Association requires an appraisal of the property by a state-licensed and
qualified appraiser. The Association's staff or a paid inspector also reviews
and inspects each project prior to disbursement of funds during the term of the
construction loan. Loan proceeds are disbursed after inspection of the project
based on percentage of completion.

        Construction lending affords the Association the opportunity to earn
higher interest rates with shorter terms to maturity relative to single-family
permanent mortgage lending. Construction lending, however, is generally
considered to involve a higher degree of risk than single-family permanent
mortgage lending because of the inherent difficulty in estimating both a
property's value at completion of the project and the estimated cost of the
project. The nature of these loans is such that they are generally more
difficult to evaluate and monitor. If the estimate of construction cost proves
to be inaccurate, the Association may be required to advance funds beyond the
amount originally committed to permit completion of the project. If the estimate
of value upon completion proves to be inaccurate, the Association may be
confronted with a project whose value is insufficient to assure full repayment.
Projects may also be jeopardized by disagreements between borrowers and builders
and by the failure of builders to pay subcontractors. Loans to builders to
construct homes for which no purchaser has been identified carry more risk
because the payoff for the loan is dependent on the builder's ability to sell
the property prior to the time that the construction loan is due.

        The Association has attempted to minimize the foregoing risks by, among
other things, limiting its construction lending primarily to residential
properties. It is also the Association's general policy to obtain personal
guarantees from financially capable parties where the loan is made to a
corporation or other legal entity.

        Commercial Real Estate Loans. The Association originates mortgage loans
for the acquisition and refinancing of commercial real estate properties. The
Association does not actively solicit commercial real estate loans. At September
30, 1997, $8.1 million, or 4.0% of the Association's total loans receivable,
consisted of loans
                                       39
secured by existing commercial real estate properties. The majority of the
Association's commercial real estate loans are secured by office buildings,
churches, retail shops and warehouses, all of which are located in South
Carolina. Occasionally, the Association makes land acquisition and development
loans. At September 30, 1997, the Association's largest commercial real estate
loan was $1.8 million and is secured by improved and unimproved lots in a
subdivision near Greenwood, South Carolina.

        Most of the Association's commercial real estate loans have adjustable
interest rates and 15-year terms. The Association requires appraisals of all
properties securing commercial real estate loans. Appraisals are performed by an
independent appraiser designated by the Association, all of which are reviewed
by management.

        Commercial real estate lending affords the Association an opportunity to
receive interest at rates higher than those generally available from one- to
four-family residential lending. However, loans secured by such properties
usually are greater in amount and are more difficult to evaluate and monitor,
and, therefore, involve a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by commercial
properties are often dependent on the successful operation and management of the
properties, repayment of such loans may be affected by adverse conditions in the
real estate market or the economy. The Association seeks to minimize these risks
by limiting the maximum loan-to-value ratio to 80% and strictly scrutinizing the
financial condition of the borrower, the cash flow of the project, the quality
of the collateral and the management of the property securing the loan. The
Association also obtains loan guarantees from financially capable parties based
on a review of personal financial statements.

        Savings Account Loans. The Association offers loans secured by savings
deposits. At September 30, 1997, savings account loans totalled $1.4 million, or
0.7% of total loans receivable. Generally, such loans are made up to 90% of the
amount on deposit at the Association.

        Home Equity Loans. The Association originates home equity loans in the
form of lines of credit. At September 30, 1997, the Association had $8.1 million
of home equity loans and unused commitments to extend credit under home equity
loans of $6.3 million. Most of these loans are made to existing customers. The
Association's home equity loans have variable interest rates tied to the prime
lending rate. The Association imposes a maximum loan-to-value ratio of 90% after
considering both the first and second mortgage loans.

        The Association's home equity loans may have greater credit risk than
one- to four-family residential mortgage loans because they are secured by
mortgages subordinated to an existing first mortgage on the property, which, in
most cases, is held by the Association.

                                       40
Maturity of Loan Portfolio. The following table sets forth certain
information at September 30, 1997 regarding the dollar amount of loans maturing
in the Association's portfolio based on their contractual terms to maturity, but
does not include scheduled payments or potential prepayments. Demand loans,
loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as becoming due within one year. Loan balances do not
include undisbursed loan proceeds, unearned discounts, unearned income and
allowance for loans losses.
After           After             After
                                              One Year         3 Years           5 Years
                              Within           Through         Through           Through            Beyond
                             One Year          3 Years         5 Years          10 Years           10 Years            Total
                             --------          -------         -------          --------           --------            -----
                                                                   (In thousands)
Mortgage loans:
  One- to four-family......  $   146            $1,085          $4,888           $18,032            $156,458          $180,609
  Builder construction.....    2,601                --              --                --                  --             2,601
  Commercial...............       --               589           2,088               857               4,602             8,136
Savings account loans......    1,419                --              --                --                  --             1,419
Home equity loans .........    8,124                --              --                --                  --             8,124
                             -------            ------          ------           -------            --------          -------- 
   Total...................  $12,290            $1,674          $6,976           $18,889            $161,060          $200,889
                             =======            ======          ======           =======            ========          ========
The following table sets forth the dollar amount of all loans due after
September 30, 1998, which have fixed interest rates and have floating or
adjustable interest rates.
Fixed-          Floating- or
                                  Rates         Adjustable-Rates
                                  -----         ----------------
                                                 (In thousands)
Mortgage loans:
  One- to- four family.....      $26,348             $154,115
  Builder construction.....           --                   --
  Commercial...............        1,494                6,642
Savings account loans......           --                   --
Home equity loans .........           --                   --
                                --------            ---------
    Total..................      $27,842             $160,757
                                ========            =========
41
Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of a loan is substantially less
than its contractual terms because of prepayments. In addition, due-on-sale
clauses on loans generally give the Association the right to declare loans
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of a mortgage loan tends to increase, however, when current
mortgage loan market rates are substantially higher than rates on existing
mortgage loans and, conversely, decrease when rates on existing mortgage loans
are substantially higher than current mortgage loan market rates.

         Loan Solicitation and Processing. The Association's lending activities
are subject to the written, non-discriminatory, underwriting standards and loan
origination procedures established by the Association's Board of Directors and
management. Loan originations come from a number of sources. The customary
sources of loan originations are realtors, walk-in customers, referrals and
existing customers. The Association also uses one mortgage broker in Columbia
and one mortgage broker in Greenwood to originate loans. For the year ended
September 30, 1997, the Association originated $11.8 million loans, or 26.1% of
total originations, through these brokers. All loans originated through these
mortgage brokers are underwritten by the Association pursuant to the
Association's underwriting guidelines.

         All single-family residential mortgage loans up to $300,000 and all
other loans up to $200,000 must be approved by two members of the Association's
Loan Committee. All loans in excess of such amounts but below $500,000 must be
approved by a committee consisting of the President, two Vice Presidents in
charge of lending operations and two outside Directors. All loans of $500,000 or
more must be approved by the Association's Board of Directors.

         Loan Originations, Purchases and Sales. While the Association
originates both adjustable-rate and fixed-rate loans, its ability to generate
each type of loan depends upon relative customer demand for loans in its primary
market area. During the years ended September 30, 1997, 1996 and 1995, the
Association originated $45.1 million, $46.3 million and $47.1 million of loans,
respectively. Of the $45.1 million of loans originated in the year ended
September 30, 1997, $35.8 million, or 79.3%, had adjustable rates of interest.

         In fiscal 1997, the Association began purchasing loans from a mortgage
banking company in Greenville, South Carolina. All of the loans purchased in
fiscal 1997 were purchased through this company and all of the property securing
such loans is located in Upstate South Carolina. These loans are written to
Freddie Mac guidelines with all exceptions reviewed and approved by the
Association. The Association anticipates that it will continue to purchase loans
from time to time to supplement its own originations.

         The Association sells loans in order to manage the interest rate risk
associated with holding long-term, fixed-rate mortgages, to enable the
Association to offer a wide variety of mortgage products, and to earn
origination fees and premiums. In 1995, the Association established a
relationship with another financial institution pursuant to which the
Association sells fixed-rate, one- to four-family mortgage loans with terms in
excess of 15 years. The Association does not retain servicing rights on the
loans that it sells.

                                       42
The following table sets forth total loans originated, purchased, sold
and repaid during the periods indicated.
Years Ended September 30,
                                            -----------------------------------------------
                                            1997                 1996                  1995
                                            ----                 ----                  ----
                                                            (In thousands)
Loans originated:
 Mortgage loans:
  One- to four-family ...................   $37,020            $36,450               $39,444
  Builder construction...................     2,901              5,255                 4,175
  Commercial.............................     1,958              1,739                   543
 Savings account loans...................     1,128                572                 1,079
 Home equity loans.......................     2,139              2,243                 1,871
                                            -------            -------               -------
   Total loans originated................    45,146             46,259                47,112
                                            -------            -------               -------

Loans purchased:
 Mortgage loans:
  One- to four-family....................     2,975                 --                    --
  Builder construction...................        --                 --                    --
  Commercial.............................       541                 --                    --
                                            -------            -------               -------
   Total loans purchased.................     3,516                 --                    --
                                            -------            -------               -------

Loans sold...............................      (479)              (954)                   --

Principal repayments.....................   (35,198)           (42,970)              (26,764)
Transfer to real estate owned............      (996)               (92)                 (185)
Increase (decrease) in other items, net..    (1,231)             2,448                (1,586)
                                            -------            -------               -------

Net increase (decrease) in loans
 receivable, net.........................   $10,758            $ 4,691               $18,577
                                            =======            =======               =======
Loan Commitments. The Association issues commitments for mortgage loans
conditioned upon the occurrence of certain events. Such commitments are made in
writing on specified terms and conditions and are honored for up to 30 days from
approval, depending on the type of transaction. At September 30, 1997, the
Association had loan commitments (excluding undisbursed portions of interim
construction loans of $7.0 million) of $1.4 million and unused lines of credit
of $6.3 million. See Note 10 of Notes to the Financial Statements.

         Loan Fees. In addition to interest earned on loans, the Association
receives income from fees in connection with loan originations, loan
modifications, late payments and for miscellaneous services related to its
loans. Income from these activities varies from period to period depending upon
the volume and type of loans made and competitive conditions.

         The Association charges loan origination fees which are calculated as a
percentage of the amount borrowed. In accordance with applicable accounting
procedures, loan origination fees and discount points in excess of loan
origination costs are deferred and recognized over the contractual remaining
lives of the related loans on a level yield basis. Discounts and premiums on
loans purchased are accreted and amortized in the same manner. At September 30,
1997, the Association had $363,000 of deferred loan fees. The Association
recognized $151,000, $162,000 and $100,000 of deferred loan fees during the
years ended September 30, 1997, 1996 and 1995, respectively, in connection with
loan refinancings, payoffs, sales and ongoing amortization of outstanding loans.

                                       43
Nonperforming Assets and Delinquencies. When a borrowers fails to make
a required payment on a loan, the Association attempts to cure the deficiency by
contacting the borrower and seeking the payment. A late notice is mailed 15 days
after a payment is due. In most cases, deficiencies are cured promptly. If a
delinquency continues, additional contact is made either through additional
notices or other means and the Association will attempt to work out a payment
schedule. While the Association generally prefers to work with borrowers to
resolve such problems, the Association will institute foreclosure or other
proceedings, as necessary, to minimize any potential loss.

         Loans are placed on nonaccrual status generally if, in the opinion of
management, principal or interest payments are not likely in accordance with the
terms of the loan agreement, or when principal or interest is past due more than
90 days. Interest accrued but not collected at the date the loan is placed on
nonaccrual status is reversed against income in the current period. Loans may be
reinstated to accrual status when payments are 90 days or less past due and, in
the opinion of management, collection of the remaining past due balances can be
reasonably expected.

         The Association's Board of Directors is informed monthly of the amounts
of loans delinquent more than 30, 60 and 90 days, all loans in foreclosure and
all foreclosed and repossessed property owned by the Association.

                                       44
The following table sets forth information with respect to the
Association's nonperforming assets and restructured loans within the meaning of
SFAS No. 15 at the dates indicated.
At September 30,
                                                  ------------------------------------------------------------------------
                                                    1997            1996            1995            1994            1993
                                                    ----            ----            ----            ----            ----
                                                                                   (Dollars in thousands)
Loans accounted for on
 a nonaccrual basis:
 Mortgage loans:
  One- to four-family .......................      $  444          $  679          $  867          $1,010          $1,329
  Builder construction ......................         411             348              40             121             103
  Commercial ................................          33              --              28             187             539
 Savings account loans ......................          --              --              --              --              --
 Home equity loans ..........................          46              --              --              26              16
                                                   ------          ------          ------          ------          ------

       Total of nonaccrual loans ............         934           1,027             935           1,344           1,987

Real estate owned ...........................         410              86             104             388             724
                                                   ------          ------          ------          ------          ------

     Total nonperforming assets .............      $1,344          $1,113          $1,039          $1,732          $2,711
                                                   ======          ======          ======          ======          ======

Restructured loans ..........................        $732            $769            $588            $479            $481
                                                   ======          ======          ======          ======          ======

Nonaccrual loans as a percentage
 of loans receivable, net ...................        0.48%           0.56%           0.52%           0.84%           1.25%

Nonaccrual loans as a percentage
 of total assets ............................        0.38%           0.42%           0.40%           0.63%           0.94%

Nonperforming assets as a
 percentage of total assets .................        0.54%           0.45%           0.44%           0.81%           1.28%
Interest income that would have been recorded for the year ended
September 30, 1997 had nonaccruing loans been current in accordance with their
original terms amounted to $85,000. The amount of interest included in interest
income on such loans for the year ended September 30, 1997 amounted to $42,000.
Interest income that would have been recorded for the year ended September 30,
1997 had restructured loans been current in accordance with their original terms
amounted to $60,000, and the amount of interest included in interest income on
such loans for that period amounted to $74,000.

         Real Estate Owned. Real estate acquired by the Association as a result
of foreclosure or by deed-in-lieu of foreclosure is classified as real estate
owned until sold. When property is acquired it is recorded at fair market value
at the date of foreclosure. Subsequent to foreclosure, real estate owned is
carried at the lower of the foreclosed amount or fair value, less estimated
selling costs. At September 30, 1997, the Association had $410,000 of real
estate owned, which consisted of three single family residences.

         Restructured Loans. Under GAAP, the Association is required to account
for certain loan modifications or restructuring as a "troubled debt
restructuring." In general, the modification or restructuring of a debt
constitutes a troubled debt restructuring if the Association for economic or
legal reasons related to the borrower's financial difficulties grants a
concession to the borrowers that the Association would not otherwise consider. A
debt restructuring or loan modification for a borrower does not necessarily
always constitute a troubled debt restructuring, however, and a troubled debt
restructuring does not necessarily result in a nonaccrual loan. The Association
had 

                                       45
$732,000 of restructured loans as of September 30, 1997, which consisted of
one commercial mortgage loan and six one- to four-family mortgage loans.

         Asset Classification. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover possible losses related to assets
classified substandard or doubtful can be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention" and monitored by the Association.

         The aggregate amounts of the Association's classified and special
mention assets at the dates indicated were as follows:
At September 30,
                          -------------------
                          1997           1996
                          ----           ----
                             (In thousands)
Classified assets:
 Loss................   $  123           $120
 Doubtful............      592            264
 Substandard.........    1,190            881
 Special mention.....    1,072          1,549
At September 30, 1997, assets classified as loss consisted of one
builder construction loan totalling $8,000 and one commercial mortgage loan
totalling $115,000; assets classified as doubtful consisted of 14 one- to four-
family mortgage loans totalling $592,000; and assets classified as substandard
consisted of 21 one- to four-family mortgage loans totalling $668,000 and nine
builder construction loans totalling $522,000. At September 30, 1997, assets
classified as special mention consisted primarily of one- to four-family
mortgage loans that were delinquent more than 60 days.

         Allowance for Loan Losses. In originating loans, the Association
recognizes that losses will be experienced and that the risk of loss will vary
with, among other things, the type of loan being made, the creditworthiness of
the borrower over the term of the loan, general economic conditions and, in the
case of a secured loan, the quality of the security for the loan. The allowance
method is used in providing for loan losses. Accordingly, all loan losses are
charged to the allowance and all recoveries are credited to it. The allowance
for loan losses is established through a provision for loan losses charged to
operations. The provision for loan losses is based on management's periodic
evaluation of such factors as the delinquency status of loans, current economic
conditions, the net realizable value of the underlying collateral and prior loan
loss experience.

         At September 30, 1997, the Association had an allowance for loan losses
of $874,000. Although management believes that it uses the best information
available to establish the allowance for loan losses, future

                                       46
adjustments to the allowance for loan losses may be necessary and results of
operations could be significantly and adversely affected if circumstances differ
substantially from the assumptions used in making the determinations.
Furthermore, while the Association believes it has established its existing
allowance for loan losses in accordance with GAAP, there can be no assurance
that regulators, in reviewing the Association's loan portfolio, will not request
the Association to increase significantly its allowance for loan losses. In
addition, because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurance that the existing allowance
for loan losses is adequate or that substantial increases will not be necessary
should the quality of any loans deteriorate as a result of the factors discussed
above. Any material increase in the allowance for loan losses may adversely
affect the Association's financial condition and results of operations.

         The following table sets forth an analysis of the Association's
allowance for loan losses.
Years Ended September 30,
                                                                   --------------------------------------------------------
                                                                   1997        1996         1995         1994          1993
                                                                   ----        ----         ----         ----          ----
                                                                                   (Dollars in thousands)
Allowance at beginning of period .............................     $670        $590         $622         $560          $525  
Provision for loan losses ....................................      337          (7)          47           62            35  
Recoveries:                                                                                                                  
 Mortgage loans:                                                                                                             
  One- to four-family ........................................       --          --           --           --            --  
  Builder construction .......................................       --          --           --           --            --  
  Commercial .................................................       --         115           --           --            --  
 Savings account loans .......................................       --          --           --           --            --  
 Home equity loans ...........................................       --          --           --           --            --  
                                                                  -----       -----        -----         ----          ----  
    Total recoveries .........................................       --         115           --           --            --  
                                                                  -----       -----        -----         ----          ----  
                                                                                                                             
Charge-offs:                                                                                                                 
 Mortgage loans:                                                                                                             
  One- to four-family ........................................       --          28           --           --            --  
  Builder construction .......................................       --          --           --           --            --  
  Commercial .................................................      133          --           79           --            --  
 Savings account loans .......................................       --          --           --           --            --  
 Home equity loans ...........................................       --          --           --           --            --  
                                                                  -----       -----        -----         ----          ----  
    Total charge-offs ........................................      133          28           79           --            --  
                                                                  -----       -----        -----         ----          ----  
    Net charge-offs ..........................................      133         (87)          79           --            --  
                                                                  -----       -----        -----         ----          ----  
    Balance at end of period .................................     $874        $670         $590         $622          $560  
                                                                  =====       =====        =====         ====          ====  
                                                                                                                     

Allowance for loan losses as a percentage
 of total loans outstanding at the end of
 the period ..................................................     0.44%       0.35%        0.32%        0.37%         0.34%  
                                                                                                                              
Net charge-offs (recoveries) as a percentage of average                                                                       
 loans outstanding during the period .........................     0.07%      (0.05%)       0.05%        0.00%         0.00%  
                                                                                                                              
Allowance for loan losses as a percentage of                                                                                  
 nonperforming loans at end of period ........................    93.58%      65.24%       63.10%       46.28%        28.18%
For additional discussion regarding the provisions for loan losses in
recent periods, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Comparison of Operating Results for the Years Ended
September 30, 1997 and 1996 -- Provision for Loan Losses," and "-- Comparison of
Operating Results for the Years Ended September 30, 1996 and 1995 -- Provision
for Loan Losses."

                                       47
The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any other category.
At September 30,
                                          ------------------------------------------------------------------------------------------
                                                   1997                      1996                     1995                      1994
                                          -----------------------   -----------------------   ----------------------   -------------
                                                      Percent                   Percent                  Percent                
                                                      of Loans                  of Loans                 of Loans               
                                                      in Category               in Category              in Category            
                                                      to Total                  to Total                 to Total               
                                          Amount      Loans         Amount      Loans         Amount      Loans         Amount      
                                          ------      -----         ------      -----         ------      -----         ------   
                                                                         (Dollars in thousands)
Mortgage loans:
 One- to four-family................      $668          90.0%        $452        90.4%         $540        90.2%         $486
 Builder construction...............        42           1.3           26         2.0             8         1.5            12   
 Commercial.........................       138           4.0          175         3.3            19         4.1           111   
Savings account loans...............        --           0.7           --         0.6            --         0.8            --   
Home equity loans...................        26           4.0           17         3.7            23         3.4            13   
Unallocated.........................        --           N/A           --         N/A            --         N/A            --   
                                          ----         -----         ----       -----          ----       -----          ----   
   Total allowance for loan losses..      $874         100.0%        $670       100.0%         $590       100.0%         $622   
                                          ====         =====         ====       =====          ====       =====          ====
At September 30,
                                     ------------------------------------------
                                         1994                 1993
                                     -------------   --------------------------
                                       Percent                     Percent         
                                       of Loans                    of Loans        
                                       in Category                 in Category     
                                       to Total                    to Total        
                                       Loans          Amount       Loans           
                                       -----          ------       -----
Mortgage loans:                                                                 
 One- to four-family................    89.9%          $450           90.0%          
 Builder construction...............     1.6              9            1.1           
 Commercial.........................     4.5             89            4.7           
Savings account loans...............     0.7             --            0.9           
Home equity loans...................     3.3             12            3.3           
Unallocated.........................     N/A             --            N/A             
                                       -----           ----          -----  
   Total allowance for loan losses..   100.0%          $560          100.0%
                                       =====           ====          =====
48
Investment Activities

         The Association is permitted under federal law to invest in various
types of liquid assets, including U.S. Government obligations, securities of
various federal agencies and of state and municipal governments, deposits at the
FHLB-Atlanta, certificates of deposit of federally insured institutions, certain
bankers' acceptances and federal funds. Subject to various restrictions, the
Association may also invest a portion of its assets in commercial paper and
corporate debt securities. Savings institutions like the Association are also
required to maintain an investment in FHLB stock. The Association is required
under federal regulations to maintain a minimum amount of liquid assets. See
"REGULATION" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."

         SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that investments be categorized as "held to maturity,"
"trading securities" or "available for sale," based on management's intent as to
the ultimate disposition of each security. SFAS No. 115 allows debt securities
to be classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." Such securities are reported at fair value, and
unrealized gains and losses on such securities would be included in earnings.
The Association does not currently use or maintain a trading account. Debt and
equity securities not classified as either "held to maturity" or "trading
securities" are classified as "available for sale." Such securities are reported
at fair value, and unrealized gains and losses on such securities are excluded
from earnings and reported as a net amount in a separate component of equity.

         The Association's investment policies limit investments to U.S.
Government and agency securities, Federal Funds and overnight deposits and
mortgage-backed securities. The Association's investment policy does not permit
engaging directly in hedging activities or purchasing high risk mortgage
derivative products. Investments are made based on certain considerations, which
include the interest rate, yield, settlement date and maturity of the
investment, the Association's liquidity position, and anticipated cash needs and
sources (which in turn include outstanding commitments, upcoming maturities,
estimated deposits and anticipated loan amortization and repayments). The effect
that the proposed investment would have on the Association's credit and interest
rate risk and risk-based capital is also considered.

         The Association purchases investment securities to provide for
necessary liquidity for day-to-day operations. The Association also purchases
investment securities when investable funds exceed loan demand. In recent years,
the Association's investment securities purchases have been limited to U.S.
Government and agency securities with contractual maturities of up to five
years. Depending on loan demand, the Association may consider increasing its
investment in mortgage-backed securities after the conversion.

                                       49
The following table sets forth the amortized cost and fair value of the
Association's securities, by accounting classification and by type of security,
at the dates indicated.
At September 30,
                                                 -----------------------------------------------------------------------------------
                                                           1997                         1996                          1995
                                                 -----------------------       -----------------------       -----------------------
                                                 Amortized        Fair         Amortized        Fair         Amortized         Fair
                                                   Cost           Value          Cost           Value          Cost           Value
                                                 ---------       -------       ---------       -------       ---------       -------
                                                                                   (In thousands)
Available for sale:
Investment securities:
  U.S. Treasury obligations ..............        $ 2,010        $ 2,008        $ 7,536        $ 7,472        $10,061        $ 9,944
  U.S. Government Agency
    obligations ..........................          3,996          3,976          7,841          7,761             --             --
Freddie Mac common stock .................             57          2,406             57          1,666             57          1,180
                                                  -------        -------        -------        -------        -------        -------
      Total available for sale ...........          6,063          8,390         15,434         16,899         10,118         11,124
                                                  -------        -------        -------        -------        -------        -------

Held to maturity:
Investment securities:
  U.S. Government Agency
    obligations ..........................         15,988         15,954         20,993         20,778         18,699         18,349
Mortgage-backed securities:
  Fannie Mae .............................            788            781          1,142          1,117          1,455          1,423
  Freddie Mac ............................          5,877          5,854          8,584          8,467         10,534         10,363
                                                  -------        -------        -------        -------        -------        -------
      Total held to maturity .............         22,653         22,589         30,719         30,362         30,688         30,135
                                                  -------        -------        -------        -------        -------        -------

      Total ..............................        $28,716        $30,979        $46,153        $47,261        $40,806        $41,259
                                                  =======        =======        =======        =======        =======        =======
The following table sets forth certain information regarding the
carrying value, weighted average yields and maturities or periods to repricing
of the Association's debt securities and mortgage-backed securities at September
30, 1997. U.S. Treasury obligations and certain U.S. Government agency
obligations are exempt from state taxation. Their yields, however, have not been
computed on a tax equivalent basis for purposes of the table.
Less Than                 One to
                                           One Year                Five Years                  Totals
                                      -----------------        ------------------       ---------------------
                                                 Weighted                  Weighted                  Weighted
                                    Amortized    Average     Amortized     Average    Amortized       Average
                                      Cost        Yield        Cost         Yield       Cost           Yield
                                    ---------    --------    ---------     --------   ---------      --------
                                                              (Dollars in thousands)
Available for sale:                                         
Investment securities:                                      
  U.S. Treasury obligations....     $  501        6.03%      $ 1,509         5.44%    $ 2,010           5.52%
  U.S. Government Agency                                    
    obligations................      2,496        5.30         1,500         5.46       3,996           5.36
                                    ------                    ------                   ------
      Total available for sale.      2,997        6.49         3,009         5.45       6,006           5.41
                                    ------                    ------                   ------
                                                            
Held to maturity:                                           
Investment securities:                                      
  U.S. Government Agency                                    
    obligations................      2,002        5.09        13,986         6.16      15,988           6.07
Mortgage-backed securities:                                 
  Fannie Mae...................         --          --           788         5.75         788           5.75
  Freddie Mac..................      3,574        5.39         2,303         5.06       5,877           5.21
                                    ------                    ------                   ------
      Total held to maturity...      5,576        5.26        17,077         5.99      22,653           5.88
                                    ------                    ------                   ------
                                                            
      Total....................     $8,573        5.82       $20,086         5.91     $28,659           5.89
                                    ======                   =======                  =======
50
Deposit Activities and Other Sources of Funds

         General. Deposits are the major external source of funds for the
Association's lending and other investment activities. In addition, the
Association also generates funds internally from loan principal repayments and
prepayments and maturing investment and mortgage-backed securities. Scheduled
loan repayments are a relatively stable source of funds, while deposit inflows
and outflows and loan prepayments are influenced significantly by general
interest rates and money market conditions. Borrowings from the FHLB-Atlanta may
be used to compensate for reductions in the availability of funds from other
sources. Presently, the Association has no other borrowing arrangements.

         Deposit Accounts. A substantial number of the Association's depositors
reside in South Carolina. The Association's deposit products include NOW
accounts, money market accounts, regular passbook savings, and term certificate
accounts. Deposit account terms vary with the principal difference being the
minimum balance deposit, early withdrawal penalties and the interest rate. The
Association reviews its deposit mix and pricing weekly. The Association does not
utilize brokered deposits, nor has it aggressively sought jumbo certificates of
deposit. To attract larger deposits, from time to time the Association has paid
bonus rates on large deposits.

         The Association believes it is competitive in the interest rates it
offers on its deposit products. The Association does not seek to pay the highest
deposit rates but a competitive rate. The Association determines the rates paid
based on a number of conditions, including rates paid by competitors, the
Association's interest rate spread, loan demand and deposit balances.

         In the unlikely event the Association is liquidated after the
conversion, depositors will be entitled to full payment of their deposit
accounts before any payment is made to the Holding Company as the sole
stockholder of the Association.

         The following table sets forth information concerning the Association's
time deposits and other interest-bearing deposits at September 30, 1997.
Weighted                                                                                                Percentage
Average                                                                Minimum                          of Total
Interest Rate  Term                 Checking and Savings Deposits      Amount       Balance             Deposits
-------------  ----                 -----------------------------      ------       -------             --------
                                                                                 (In thousands)
3.00%          None                 Passbook accounts               $   200       $ 11,423                5.3%
2.03           None                 NOW accounts                        250          2,833                1.3
3.00           None                 Money market deposit accounts     2,500            939                0.4

                                    Certificate Accounts
                                    --------------------

5.44           Within 6 months      Fixed term, fixed rate            2,500         91,350               42.5
5.83           7 - 12 months        Fixed term, fixed rate            2,500         57,509               26.7
6.11           13 - 36 months       Fixed term, fixed rate              500         48,943               22.7
5.96           37 - 60 months       Fixed term, fixed rate              500          2,415                1.1
                                                                                  --------              -----
                                    TOTAL                                         $215,412              100.0%
                                                                                  ========              =====
51
The following table indicates the amount of the Association's jumbo
certificate accounts by time remaining until maturity as of September 30, 1997.
Jumbo certificate accounts have principal balances of $100,000 or more.
Certificate
               Maturity Period                  Accounts
               ---------------                 -----------
                                             (In thousands)
Three months or less...............             $ 7,069
Over three through six months......                  --
Over six through 12 months.........               4,715
Over 12 months.....................              28,473
                                               --------
     Total.........................             $40,257
                                               ========
Deposit Flow. The following table sets forth the balances (inclusive of
interest credited) and changes in dollar amounts of deposits in the various
types of accounts offered by the Association between the dates indicated.
At September 30,
                                           ------------------------------------------------------------------------------
                                                       1997                          1996                     1995
                                           ----------------------------   ----------------------------   ----------------
                                                      Percent                       Percent                      Percent
                                                        of   Increase                 of    Increase                of
                                            Amount    Total  (Decrease)   Amount    Total   (Decrease)   Amount   Total
                                            ------    -----  ----------   ------    -----   ----------   ------   -----
                                                                                      (Dollars in Thousands)
Passbook accounts.....................     $ 11,423     5.3%   $(444)    $ 11,867    5.6%    $(608)     $12,475    6.2%
NOW and money market accounts.........        3,772     1.7     (149)       3,921    1.9       255        3,666    1.8
Fixed-rate certificate accounts which
 mature in the year ending:
  Within 1 year.......................      148,859    69.1   39,787      109,072   52.0   (18,637)     127,709   63.4
  After 1 year, but within 2 years....       41,284    19.2  (18,054)      59,338   28.3    34,110       25,228   12.5
  After 2 years, but within 5 years...       10,074     4.7  (15,458)      25,532   12.2    (6,863)      32,395   16.1
                                           --------   -----  --------    --------  -----   --------    --------  -----

     Total............................     $215,412   100.0%  $5,682     $209,730  100.0%   $8,257     $201,473  100.0%
                                           ========   =====   ======     ========  =====    ======     ========  =====
Time Deposits by Rates. The following table sets forth the amount of
time deposits in the Association categorized by rates at the dates indicated.
At September 30,   
                               ----------------------------------------------
                               1997                  1996                1995
                               ----                  ----                ----
                                               (In thousands)
3.01 - 4.00%........         $  5,575             $  6,826           $  3,262
4.01 - 5.00%........            1,218                2,216             17,716
5.01 - 6.00%........           95,528               97,960             59,427
6.01 - 7.00%........           92,245               81,430             98,864
7.01 - 8.00%........            5,651                5,510              5,958
8.01 - 9.00%........               --                   --                105
                             --------             --------           ---------
  Total.............         $200,217             $193,942           $185,332
                             ========             ========           =========
52
Time Deposits by Maturities. The following table sets forth the amount
of time deposits in the Association categorized by maturities at September 30,
1997.
Amount Due
                           --------------------------------------------------------------------------------
                           Less Than        1-2           2-3             3-4         After
                           One Year        Years         Years           Years       4 Years        Total
                           --------        -----         -----           -----       -------        -----
                                                            (In thousands)
3.01 - 4.00%.......        $  5,575       $    --        $   --          $   --          $ --      $  5,575
4.01 - 5.00%.......           1,218            --            --              --            --         1,218
5.01 - 6.00%.......          73,227        18,886         2,257             872           286        95,528
6.01 - 7.00%.......          64,327        22,298         4,363             974           283        92,245
7.01 - 8.00%.......           4,512           100         1,039              --            --         5,651
                           --------       -------        ------          ------          ----      --------
  Total............        $148,859       $41,284        $7,659          $1,846          $569      $200,217
                           ========       =======        ======          ======          ====      ========
Deposit Activity. The following table sets forth the deposit activity
of the Association for the periods indicated.
Years Ended September 30,
                                            ----------------------------------------
                                            1997              1996             1995
                                            ----              ----             ----
                                                         (In thousands)
Beginning balance..................        $209,730          $201,473          $189,922
                                           --------          --------          --------

Net deposits (withdrawals)
  before interest credited.........          (3,430)             (821)            3,963
Interest credited..................           9,112             9,078             7,588
                                           --------          --------          --------

Net increase in deposits...........           5,682             8,257            11,551
                                           --------          --------          --------

Ending balance.....................        $215,412          $209,730          $201,473
                                           ========          ========          ========
Borrowings. The Association has the ability to use advances from the
FHLB-Atlanta to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. The FHLB-Atlanta functions as a central reserve bank
providing credit for savings associations and certain other member financial
institutions. As a member of the FHLB-Atlanta, the Association is required to
own capital stock in the FHLB-Atlanta and is authorized to apply for advances on
the security of such stock and certain of its mortgage loans and other assets
(principally securities that are obligations of, or guaranteed by, the U.S.
Government or agencies thereof) provided certain creditworthiness standards have
been met. Advances are made pursuant to several different credit programs. Each
credit program has its own interest rate and range of maturities. Depending on
the program, limitations on the amount of advances are based on the financial
condition of the member institution and the adequacy of collateral pledged to
secure the credit.

                                       53
The following table sets forth certain information regarding the
Association's use of FHLB advances during the periods indicated.
Years Ended September 30,
                                            -----------------------------------------
                                            1997              1996             1995
                                            ----              ----             ----
                                                      (Dollars in thousands)
Maximum balance at any month end.......     $5,000            $5,000           $13,250
Average balance........................      3,082             5,000             7,812
Year end balance.......................         --             5,000             5,000
Weighted average interest rate:
  At end of year.......................         --              6.54%             6.54%
  During the year......................       7.33%             6.54%             6.27%
Competition

         The Association faces intense competition in its primary market area
for the attraction of deposits (its primary source of lendable funds) and in the
origination of loans. Its most direct competition for deposits has historically
come from commercial banks, credit unions, other thrifts operating in its market
area, and other financial institutions, such as brokerage firms and insurance
companies. Particularly in times of high interest rates, the Association has
faced additional significant competition for investors' funds from short-term
money market securities and other corporate and government securities. The
Association's competition for loans comes from commercial banks, thrift
institutions, credit unions and mortgage bankers. Such competition for deposits
and the origination of loans may limit the Association's growth in the future.
See "RISK FACTORS -- Competition."

Subsidiary Activities

         Under OTS regulations, the Association generally may invest up to 3% of
its assets in service corporations, provided that at least one-half of
investment in excess of 1% is used primarily for community, inner-city and
community development projects. The Association does not have any subsidiaries.

                                       54
Properties

         At September 30, 1997, the net book value of the Association's
properties (including land and buildings), fixtures, furniture and equipment was
$4.3 million. The following table sets forth certain information regarding the
Association's offices at September 30, 1997, all of which are owned.
Approximate    
Location                             Year Opened         Square Footage          Deposits
--------                             -----------         --------------          --------
                                                                              (In thousands)
Main Office                             1995(1)             24,500               $104,187
201 West Main Street
Laurens, SC  29360

Belton Office                           1962                 1,800                 63,380
208 Anderson Street
Belton, SC  29627

Ware Shoals Office                      1968                 1,444                 23,570
81 North Greenwood Avenue
Ware Shoals, SC  29692

Simpsonville Office                     1977                 3,668                 24,275
514 North Main Street
Simpsonville, SC  29681
-------------------
(1) The Association occupied a smaller facility at the same location from 1955
to 1995.

Personnel

         As of September 30, 1997, the Association had 35 full-time and four
part-time employees, none of whom is represented by a collective bargaining
unit. The Association believes its relationship with its employees is good.

Legal Proceedings

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

                                       55
MANAGEMENT OF THE HOLDING COMPANY

         Directors shall be elected by the stockholders of the Holding Company
for staggered three-year terms, or until their successors are elected and
qualified. The Holding Company's Board of Directors consists of five persons
divided into three classes, each of which contains approximately one third of
the Board. One class, consisting of Messrs. John H. Lake and G. Edwin Owings,
has a term of office expiring at the first annual meeting of stockholders; a
second class, consisting of Messrs. Aaron H. King and J. Riley Bailes, has a
term of office expiring at the second annual meeting of stockholders; and a
third class, consisting of Mr. J. Edward Wells, has a term of office expiring at
the third annual meeting of stockholders.

         The executive officers of the Holding Company are elected annually and
hold office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The executive
officers of the Holding Company are:

Name                            Position
----                            -------- 

J. Edward Wells                 Chairman of the Board, President,
                                  Chief Executive Officer, and Secretary
Edwin I. Shealy                 Chief Financial Officer and Treasurer

         Since the formation of the Holding Company, none of the executive
officers, directors or other personnel has received remuneration from the
Holding Company. Initially, no separate compensation will be paid for service as
an executive officer of the Holding Company. For information concerning the
principal occupations, employment and compensation of the directors and
executive officers of the Holding Company during the past five years, see
"MANAGEMENT OF THE ASSOCIATION -- Biographical Information."

                         MANAGEMENT OF THE ASSOCIATION

Directors and Executive Officers

         The Board of Directors of the Association is presently composed of five
members who are elected for terms of three years, approximately one third of
whom are elected annually in accordance with the Bylaws of the Association. The
executive officers of the Association are elected annually by the Board of
Directors and serve at the Board's discretion. The following table sets forth
information with respect to the Directors and executive officers of the
Association.
Directors
                                                                              Current
                                                                  Director    Term
Name                   Age (1)     Position with Association      Since       Expires
----                   -------     -------------------------      -------     -------
John H. Lake             69        Director                       1977        1999
G. Edwin Owings          84        Director                       1949        1999
Aaron H. King            73        Director                       1972        2000
J. Riley Bailes          58        Director                       1986        2000
J. Edward Wells          58        President, Chief Executive     1971        2001
                                     Officer and Director
56
Executive Officers Who Are Not Directors

Name                   Age (1)     Position with Association
----                   -------     -------------------------
Edwin I. Shealy          50        Chief Financial Officer and Treasurer
James H. Wasson          53        Vice President and Secretary
John M. Swofford         52        Vice President
Will B. Ferguson         40        Vice President
-----------------
(1)  As of September 30, 1997.

Biographical Information

         Set forth below is certain information regarding the Directors and
executive officers of the Association. Unless otherwise stated, each Director
and executive officer has held his current occupation for the last five years.
There are no family relationships among or between the Directors or executive
officers, except that Mr. Wasson is the first cousin of Mr. Wells' wife.

         J. Edward Wells is the President and Chief Executive Officer of the
Association, positions he has held since 1972. Mr. Wells joined the Association
in 1967.

         Aaron H. King retired as Senior Vice President and Branch Manager of
the Association in 1996 after 34 years with the Association.

         J. Riley Bailes is the retired owner of a retail clothing store in
Laurens, South Carolina.

         John H. Lake is a retired dentist.

         G. Edwin Owings is the retired owner of Laurens Lumber Co. in Laurens,
South Carolina.

         Edwin I. Shealy is the Chief Financial Officer and Treasurer of the
Association, positions he has held since 1990.

         John M. Swofford is a Vice President of the Association and manager of
the Association's Laurens branch, positions he has held since 1988. From 1976 to
1988, Mr. Swofford served as the manager of the Association's Simpsonville
branch.

         James H. Wasson, Jr. is Secretary and Vice President of the Association
responsible for mortgage lending, positions he has held since 1977. Mr. Wasson
has been employed by the Association since 1968.

         Will B. Ferguson is a Vice President of the Association, a position he
has held since 1995. Mr. Ferguson has been employed by the Association since
1984.

Meetings and Committees of the Board of Directors

         The business of the Association is conducted through meetings and
activities of the Board of Directors and its committees. During the fiscal year
ended September 30, 1997, the Board of Directors held 13 regular meetings. No
director attended fewer than 75% of the total meetings of the Board of Directors
and of committees on which such director served.

                                       57
The Audit Committee, consisting of the non-employee members of the
Board of Directors, receives and reviews all reports prepared by the
Association's external auditor. The Audit Committee met one time during the year
ended September 30, 1997.

         The full Board of Directors acts as a Nominating Committee for the
annual selection of management's nominees for election as directors. The full
Board of Directors met once in its capacity as Nominating Committee during the
year ended September 30, 1997.

Directors' Compensation

         Fees. Directors of the Association receive a monthly retainer and a
monthly attendance fee. First term members receive a retainer of $425 and
attendance fee of $425. Second term members receive a retainer of $475 and
attendance fee of $475. For subsequent terms, directors receive a retainer of
$625 and attendance fee of $625. No additional fees are paid for service on
committees. If the Board of Directors declares a bonus for employees, then each
Director who is not also an employee receives a bonus based on their annual
remuneration and computed at the same rate as the employee bonus. For the year
ended September 30, 1997, the Association paid an aggregate of $1,800 in bonuses
to non-employee Directors. Following consummation of the conversion, directors'
fees will continue to be paid by the Association and, initially, no separate
fees are expected to be paid for service on the Holdings Company's Board of
Directors.

Executive Compensation

         Summary Compensation Table. The following information is furnished for
Mr. Wells for the year ended September 30, 1997. No other executive officer of
the Association received salary and bonus of $100,000 or more during the year
ended September 30, 1997.
Annual Compensation(1)
                         -----------------------------------------------------
Name and                                                       Other Annual        All Other
Position                 Year      Salary        Bonus         Compensation(2)     Compensation
--------                 ----      ------        -----         ---------------     ------------
J. Edward Wells          1997      $145,052       $4,372         $1,698            $21,754(3)
President and Chief
Executive Officer
-----------------
(1) Compensation information for the years ended September 30, 1996 and 1995 has
    been omitted as the Association was not a public company nor a subsidiary
    thereof at such time. 
(2) The aggregate amount of perquisites and other personal
    benefits was less than 10% of the total annual salary and bonus reported. 
(3) Consists of $5,824 contribution to 401(k) plan, $14,560 contribution to 
    money purchase pension plan and $1,370 of life insurance premiums.

         Employment Agreement. In connection with the conversion, the Holding
Company and the Association (collectively, the "Employers") plan to enter into a
three-year employment agreement ("Employment Agreement") with Mr. Wells. Under
the Employment Agreement, the initial salary level for Mr. Wells will be
$________ which amount will be paid by the Association and may be increased at
the discretion of the Board of Directors or an authorized committee of the
Board. On each anniversary of the commencement date of the Employment Agreement,
the term of each agreement may be extended for an additional year at the
discretion of the Board. The agreement is terminable by the Employers at any
time, by Mr. Wells if he is assigned duties inconsistent with his initial
position, duties, responsibilities and status, or upon the occurrence of certain
events specified by federal regulations. In the event that Mr. Wells' employment
is terminated without cause or upon Mr. Wells' voluntary termination 

                                       58
following the occurrence of an event described in the preceding sentence, the
Association would be required to honor the terms of the agreement through the
expiration of the current term, including payment of current cash compensation
and continuation of employee benefits.

         The Employment Agreement also provides for a severance payment and
other benefits in the event of involuntary termination of employment in
connection with any change in control of the Employers. A severance payment also
will be provided on a similar basis in connection with a voluntary termination
of employment where, subsequent to a change in control, Mr. Wells is assigned
duties inconsistent with his position, duties, responsibilities and status
immediately prior to such change in control. The term "change in control" is
defined in the agreement as having occurred when, among other things, (a) a
person other than the Holding Company purchases shares of the Holding Company's
common stock pursuant to a tender or exchange offer for such shares, (b) any
person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act)
is or becomes the beneficial owner, directly or indirectly, of securities of the
Holding Company representing 25% or more of the combined voting power of the
Holding Company's then outstanding securities, (c) the membership of the Board
of Directors changes as the result of a contested election, or (d) shareholders
of the Holding Company approve a merger, consolidation, sale or disposition of
all or substantially all of the Holding Company's assets, or a plan of partial
or complete liquidation.

         The maximum value of the severance benefits under the Employment
Agreements is 2.99 times Mr. Wells' average annual compensation during the
five-year period preceding the effective date of the change in control (the
"base amount"). The Employment Agreement provides that the value of the maximum
benefit may be distributed, at Mr. Wells' election, (i) in the form of a lump
sum cash payment equal to 2.99 times Mr. Wells' base amount or (ii) a
combination of a cash payment and continued coverage under the Employers'
health, life and disability programs for a 36-month period following the change
in control, the total value of which does not exceed 2.99 times the Executive's
base amount. Assuming that a change in control had occurred at September 30,
1997 and that Mr. Wells elected to receive a lump sum cash payment, he would
have been entitled to a payment of approximately $427,000. Section 280G of the
Internal Revenue Code of 1986, as amended ("Code"), provides that severance
payments that equal or exceed three times the individual's base amount are
deemed to be "excess parachute payments" if they are contingent upon a change in
control. Individuals receiving excess parachute payments are subject to a 20%
excise tax on the amount of such excess payments, and the Employers would not be
entitled to deduct the amount of such excess payments.

         The Employment Agreement restrict Mr. Wells' right to compete against
the Employers for a period of one year from the date of termination of the
agreement if he voluntarily terminates employment, except in the event of a
change in control.

         Severance Agreements. In connection with the conversion, the Holding
Company and the Association plan to enter into severance agreements with Mr.
Shealy, the Holding Company's Chief Financial Officer and the Association's
Treasurer and Chief Financial Officer, and Messrs. Swofford, Wasson and
Ferguson, each a Vice President of the Association. On each anniversary of the
commencement date of the severance agreements, the term of each agreement may be
extended for an additional year at the discretion of the Board. It is
anticipated that the four severance agreements will have an initial term of two
years.

         The severance agreements will provide for severance payments and
continuation of insured employee welfare benefits in the event of involuntary
termination of employment in connection with any change in control of the
Employers in the same manner as provided for in the employment agreements.
Severance payments and benefits also will be provided on a similar basis in
connection with a voluntary termination of employment where, subsequent to a
change in control, an officer is assigned duties inconsistent with his position,
duties, responsibilities and status immediately prior to such change in control.
The term "change in control" is defined in the agreement as having occurred
when, among other things, (a) a person other than the Holding Company purchases
shares of the Holding Company's common stock pursuant to a tender or exchange
offer for such shares, (b) any person (as such term is used in Sections 13(d)
and 14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly
or indirectly, of securities of the Holding Company representing 25% or more of
the combined voting power of the Holding 

                                       59
Company's then outstanding securities, (c) the membership of the Board of
Directors changes as the result of a contested election, or (d) shareholders of
the Holding Company approve a merger, consolidation, sale or disposition of all
or substantially all of the Holding Company's assets, or a plan of partial or
complete liquidation.

         Assuming that a change in control had occurred at September 30, 1997,
and excluding any other benefits due under the severance agreements, the
aggregate value of the severance benefits payable to the four officers would
have been approximately $417,000.

         Employee Severance Compensation Plan. In connection with the
conversion, the Board of Directors of the Association intends to adopt the
Severance Plan to provide benefits to eligible employees in the event of a
change in control of the Holding Company or the Association. In general, all
employees (except for officers who enter into separate employment or severance
agreements with the Holding Company and the Association) will be eligible to
participate in the Severance Plan. Under the Severance Plan, in the event of a
change in control of the Holding Company or the Association, eligible employees,
other than officers of the Association, who are terminated or who terminate
employment (but only upon the occurrence of events specified in the Severance
Plan) within 12 months of the effective date of a change in control will be
entitled to a payment based on years of service with the Association. However,
the maximum payment for any eligible employee would be equal to 52 weeks of
their current compensation. The Severance Plan also provides that employees who
have not met the three year service requirement for participation would receive
a payment equal to two weeks' compensation. Assuming that a change in control
had occurred at September 30, 1997 and the termination of all eligible
employees, the maximum aggregate payment due under the Severance Plan would be
approximately $529,000.

Benefits

         General. The Association currently pays 100% of the premiums for
medical, dental, life and disability insurance benefits for full-time employees,
subject to certain deductibles.

         401(k) Plan. The Association maintains the Heritage Federal Savings &
Loan Association 401(k) Plan ("401(k) Plan") for the benefit of eligible
employees of the Association. The 401(k) Plan is intended to be a tax-qualified
plan under Sections 401(a) and 401(k) of the Code. Employees of the Association
who have completed six months of service and who have attained age 21 are
eligible to participate in the 401(k) Plan on the January 1 next following the
date such requirements are satisfied. Participants may contribute up to 10% of
their annual compensation to the 401(k) Plan through a salary reduction
election. The Association matches participant contributions on a discretionary
basis.

         In addition to employer matching contributions, the Association may
contribute a discretionary amount to the 401(k) Plan in any plan year which is
allocated to individual participants in the proportion that their annual
compensation bears to the total compensation of all participants during the plan
year. Participants are at all times 100% vested in all salary reduction
contributions and employer matching and profit-sharing contributions. For the
year ended September 30, 1997, the Association incurred total
contribution-related expenses of $43,000 in connection with the 401(k) Plan.

         The Association formerly maintained a money purchase pension plan for
the benefit of eligible officers and employees. The money purchase pension plan
was merged with the 401(k) Plan effective December 31, 1997.

         Generally, the investment of 401(k) Plan assets is directed by plan
participants. In connection with the conversion, the investment options
available to participants will be expanded to include the opportunity to direct
the investment of up to 100% of their 401(k) Plan account balance to purchase
shares of the Holding Company's common stock. A participant in the 401(k) Plan
who elects to purchase common stock in the conversion through the 401(k) Plan
will receive the same subscription priority and be subject to the same
individual purchase limitations as if the participant had elected to make such
purchase using other funds. See "THE CONVERSION -- Limitations on Purchases of
Shares."

                                       60
Employee Stock Ownership Plan. The Board of Directors has authorized
the adoption by the Association of an ESOP for employees of the Association to
become effective upon the completion of the conversion. The ESOP is intended to
satisfy the requirements for an employee stock ownership plan under the Code and
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Full-time employees of the Holding Company and the Association who have been
credited with at least 1,000 hours of service during a 12-month period and who
have attained age 21 will be eligible to participate in the ESOP.

         In order to fund the purchase of up to 8% of the common stock to be
issued in the conversion, it is anticipated that the ESOP will borrow funds from
the Holding Company. Such loan will equal 100% of the aggregate purchase price
of the common stock. The loan to the ESOP will be repaid principally from the
Association's contributions to the ESOP and dividends payable on common stock
held by the ESOP over the anticipated 15-year term of the loan. The interest
rate for the ESOP loan is expected to be the prime rate as published in The Wall
Street Journal on the closing date of the conversion. See "PRO FORMA DATA." To
the extent that the ESOP is unable to acquire 8% of the common stock issued in
the conversion, such additional shares will be acquired following the conversion
through open market purchases.

         In any plan year, the Association may make additional discretionary
contributions to the ESOP for the benefit of plan participants in either cash or
shares of common stock, which may be acquired through the purchase of
outstanding shares in the market or from individual stockholders or which
constitute authorized but unissued shares or shares held in treasury by Holding
Company. The timing, amount, and manner of such discretionary contributions will
be affected by several factors, including applicable regulatory policies, the
requirements of applicable laws and regulations, and market conditions.

         Shares purchased by the ESOP with the proceeds of the loan will be held
in a suspense account and released on a pro rata basis as the loan is repaid.
Discretionary contributions to the ESOP and shares released from the suspense
account will be allocated among participants on the basis of each participant's
proportional share of total compensation. Forfeitures will be reallocated among
the remaining plan participants.

         Participants will vest in their accrued benefits under the ESOP at the
rate of ___% per year, beginning upon the completion of ____ years of
participation. A participant is fully vested at retirement, in the event of
disability or upon termination of the ESOP. Benefits are distributable upon a
participant's retirement, early retirement, death, disability, or termination of
employment. The Association's contributions to the ESOP are not fixed, so
benefits payable under the ESOP cannot be estimated.

         It is anticipated that Messrs. _____, _____ and _____ will be appointed
by the Board of Directors of the Association to serve as trustees of the ESOP.
Under the ESOP, the trustees must vote all allocated shares held in the ESOP in
accordance with the instructions of plan participants and unallocated shares and
allocated shares for which no instructions are received must be voted in the
same ratio on any matter as those shares for which instructions are given.

         Pursuant to Statement of Position 93-6, compensation expense for a
leveraged ESOP is recorded at the fair market value of the ESOP shares when
committed to be released to participants' accounts. See "PRO FORMA DATA" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Comparison of Operating Results for the Years Ended September 30,
1997 and 1996.

         If the ESOP purchases newly issued shares from the Holding Company,
total stockholders' equity would neither increase nor decrease. However, on a
per share basis, stockholders' equity and per share net earnings would decrease
because of the increase in the number of outstanding shares.

         The ESOP will be subject to the requirements of ERISA and the
regulations of the IRS and the Department of Labor issued thereunder. The
Association intends to request a determination letter from the IRS regarding the

                                       61
tax-qualified status of the ESOP. Although no assurance can be given that a
favorable determination letter will be issued, the Association expects that a
favorable determination letter will be received by the ESOP.

         Stock Option Plan. The Board of Directors of the Holding Company
intends to adopt the Stock Option Plan and to submit the Stock Option Plan to
the stockholders for approval at a meeting held no earlier than six months
following consummation of the conversion. Under current OTS regulations, the
approval of a majority vote of the Holding Company's outstanding shares is
required prior to the implementation of the Stock Option Plan within one year of
the consummation of the conversion. The Stock Option Plan will comply with all
applicable regulatory requirements. However, the Stock Option Plan will not be
approved or endorsed by the OTS.

         The Stock Option Plan will be designed to attract and retain qualified
management personnel and nonemployee directors, to provide such officers, key
employees and nonemployee directors with a proprietary interest in the Holding
Company as an incentive to contribute to the success of the Holding Company and
the Association, and to reward officers and key employees for outstanding
performance. The Stock Option Plan will provide for the grant of incentive stock
options ("ISOs") intended to comply with the requirements of Section 422 of the
Code and for nonqualified stock options ("NQOs"). Upon receipt of stockholder
approval of the Stock Option Plan, stock options may be granted to key employees
of the Holding Company and its subsidiaries, including the Association. Unless
sooner terminated, the Stock Option Plan will continue in effect for a period of
ten years from the date the Stock Option Plan is approved by stockholders.

         A number of authorized shares of common stock equal to 10% of the
number of shares of common stock issued in connection with the conversion will
be reserved for future issuance under the Stock Option Plan (402,500 shares
based on the issuance of 4,025,000 shares at the maximum of the Estimated
Valuation Range). Shares acquired upon exercise of options will be authorized
but unissued shares or treasury shares. In the event of a stock split, reverse
stock split, stock dividend, or similar event, the number of shares of common
stock under the Stock Option Plan, the number of shares to which any award
relates and the exercise price per share under any option may be adjusted by the
Committee (as defined below) to reflect the increase or decrease in the total
number of shares of common stock outstanding.

         The Stock Option Plan will be administered and interpreted by a
committee of the Board of Directors ("Committee"). Subject to applicable OTS
regulations, the Committee will determine which nonemployee directors, officers
and key employees will be granted options, whether, in the case of officers and
employees, such options will be ISOs or NQOs, the number of shares subject to
each option, and the exercisability of such options. All options granted to
nonemployee directors will be NQOs. The per share exercise price of all options
will equal at least 100% of the fair market value of a share of common stock on
the date the option is granted.

         Under current OTS regulations, if the Stock Option Plan is implemented
within one year of the consummation of the conversion, (i) no officer or
employees could receive an award of options covering in excess of 25%, (ii) no
nonemployee director could receive in excess of 5% and (iii) nonemployee
directors, as a group, could not receive in excess of 30% of the number of
shares reserved for issuance under the Stock Option Plan.

         It is anticipated that all options granted under the Stock Option Plan
will be granted subject to a vesting schedule whereby the options become
exercisable over a specified period following the date of grant. Under OTS
regulations, if the Stock Option plan is implemented within the first year
following consummation of the conversion the minimum vesting period will be five
years. All unvested options will be immediately exercisable in the event of the
recipient's death or disability. Unvested options also will be exercisable
following a change in control (as defined in the Stock Option Plan) of the
Holding Company or the Association to the extent authorized or not prohibited by
applicable law or regulations. OTS regulations currently provide that if the
Stock Option Plan is implemented prior to the first anniversary of the
conversion, vesting may not be accelerated upon a change in control of the
Holding Company or the Association.

                                       62
Each stock option that is awarded to an officer or key employee will
remain exercisable at any time on or after the date it vests through the earlier
to occur of the tenth anniversary of the date of grant or three months after the
date on which the optionee terminates employment (one year in the event of the
optionee's termination by reason of death or disability), unless such period is
extended by the Committee. Each stock option that is awarded to a nonemployee
director will remain exercisable through the earlier to occur of the tenth
anniversary of the date of grant or one year (two years in the event of a
nonemployee director's death or disability) following the termination of a
nonemployee director's service on the Board. All stock options are
nontransferable except by will or the laws of descent or distribution.

         Under current provisions of the Code, the federal tax treatment of ISOs
and NQOs is different. With respect to ISOs, an optionee who satisfies certain
holding period requirements will not recognize income at the time the option is
granted or at the time the option is exercised. If the holding period
requirements are satisfied, the optionee will generally recognize capital gain
or loss upon a subsequent disposition of the shares of common stock received
upon the exercise of a stock option. If the holding period requirements are not
satisfied, the difference between the fair market value of the common stock on
the date of grant and the option exercise price, if any, will be taxable to the
optionee at ordinary income tax rates. A federal income tax deduction generally
will not be available to the Holding Company as a result of the grant or
exercise of an ISO, unless the optionee fails to satisfy the holding period
requirements. With respect to NQOs, the grant of an NQO generally is not a
taxable event for the optionee and no tax deduction will be available to the
Holding Company. However, upon the exercise of an NQO, the difference between
the fair market value of the common stock on the date of exercise and the option
exercise price generally will be treated as compensation to the optionee upon
exercise, and the Holding Company will be entitled to a compensation expense
deduction in the amount of income realized by the optionee.

         Although no specific award determinations have been made at this time,
the Holding Company and the Association anticipate that if stockholder approval
is obtained it would provide awards to its directors, officers and employees to
the extent and under terms and conditions permitted by applicable regulations.
The size of individual awards will be determined prior to submitting the Stock
Option Plan for stockholder approval, and disclosure of anticipated awards will
be included in the proxy materials for such meeting.

         Management Recognition Plan. Following the conversion, the Board of
Directors of the Holding Company intends to adopt an MRP for officers,
employees, and nonemployee directors of the Holding Company and the Association,
subject to shareholder approval. The MRP will enable the Holding Company and the
Association to provide participants with a proprietary interest in the Holding
Company as an incentive to contribute to the success of the Holding Company and
the Association. The MRP will comply with all applicable regulatory
requirements. However, the MRP will not be approved or endorsed by the OTS.
Under current OTS regulations, the approval of a majority vote of the Holding
Company's outstanding shares is required prior to the implementation of the MRP
within one year of the consummation of the conversion.

         The MRP expects to acquire a number of shares of the Holding Company's
common stock equal to 4% of the common stock issued in connection with the
conversion (161,000 shares based on the issuance of 4,025,000 shares in the
conversion at the maximum of the Estimated Valuation Range). Such shares will be
acquired on the open market, if available, with funds contributed by the Holding
Company or the Association to a trust which the Holding Company may establish in
conjunction with the MRP ("MRP Trust") or from authorized but unissued shares or
treasury shares of the Holding Company.

         A committee of the Board of Directors of the Holding Company will
administer the MRP, the members of which will also serve as trustees of the MRP
Trust, if formed. The trustees will be responsible for the investment of all
funds contributed by the Holding Company or the Association to the MRP Trust.
The Board of Directors of the Holding Company may terminate the MRP at any time
and, upon termination, all unallocated shares of common stock will revert to the
Holding Company.

                                       63
Shares of common stock granted pursuant to the MRP will be in the form
of restricted stock payable ratably over a specified vesting period following
the date of grant. During the period of restriction, all shares will be held in
escrow by the Holding Company or by the MRP Trust. Under OTS regulations, if the
MRP is implemented within the first year following consummation of the
conversion, the minimum vesting period will be five years. All unvested MRP
awards will vest in the event of the recipient's death or disability. Unvested
MRP awards will also vest following a change in control (as defined in the MRP)
of the Holding Company or the Association to the extent authorized or not
prohibited by applicable law or regulations. OTS regulations currently provide
that, if the MRP is implemented prior to the first anniversary of the
conversion, vesting may not be accelerated upon a change in control of the
Holding Company or the Association.

         A recipient of an MRP award in the form of restricted stock generally
will not recognize income upon an award of shares of common stock, and the
Holding Company will not be entitled to a federal income tax deduction, until
the termination of the restrictions. Upon such termination, the recipient will
recognize ordinary income in an amount equal to the fair market value of the
common stock at the time and the Holding Company will be entitled to a deduction
in the same amount after satisfying federal income tax withholding requirements.
However, the recipient may elect to recognize ordinary income in the year the
restricted stock is granted in an amount equal to the fair market value of the
shares at that time, determined without regard to the restrictions. In that
event, the Holding Company will be entitled to a deduction in such year and in
the same amount. Any gain or loss recognized by the recipient upon subsequent
disposition of the stock will be either a capital gain or capital loss.

         Although no specific award determinations have been made at this time,
the Holding Company and the Association anticipate that if stockholder approval
is obtained it would provide awards to its directors, officers and employees to
the extent and under terms and conditions permitted by applicable regulations.
Under current OTS regulations, if the MRP is implemented within one year of the
consummation of the conversion, (i) no officer or employees could receive an
award covering in excess of 25%, (ii) no nonemployee director could receive in
excess of 5% and (iii) nonemployee directors, as a group, could not receive in
excess of 30% of the number of shares reserved for issuance under the MRP. The
size of individual awards will be determined prior to submitting the MRP for
stockholder approval, and disclosure of anticipated awards will be included in
the proxy materials for such meeting.

Transactions with the Association

         Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons (unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee) and must not involve more than the normal risk of repayment or present
other unfavorable features. The Association's policy is not to make any new
loans or extensions of credit to the Association's executive officers and
directors at different rates or terms than those offered to the general public.
In addition, loans made to a director or executive officer in an amount that,
when aggregated with the amount of all other loans to such person and his
related interests, are in excess of the greater of $25,000 or 5% of the
Association's capital and surplus (up to a maximum of $500,000) must be approved
in advance by a majority of the disinterested members of the Board of Directors.
See "REGULATION -- Federal Regulation of Savings Associations -- Transactions
with Affiliates." The aggregate amount of loans by the Association to its
executive officers and directors was $383,000 at September 30, 1997, or
approximately 0.5% of pro forma stockholders' equity (based on the issuance of
the maximum of the Estimated Valuation Range).

                                       64
REGULATION

General

     The Association is subject to extensive regulation, examination and
supervision by the OTS as its chartering agency, and the FDIC, as the insurer of
its deposits.  The activities of federal savings institutions are governed by
the Home Owners' Loan Act, as amended (the "HOLA") and, in certain respects, the
Federal Deposit Insurance Act ("FDIA") and the regulations issued by the OTS and
the FDIC to implement these statutes.  These laws and regulations delineate the
nature and extent of the activities in which federal savings associations may
engage.  Lending activities and other investments must comply with various
statutory and regulatory capital requirements.  In addition, the Association's
relationship with its depositors and borrowers is also regulated to a great
extent, especially in such matters as the ownership of deposit accounts and the
form and content of the Association's mortgage documents.  The Association must
file reports with the OTS and the FDIC concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other financial
institutions.  There are periodic examinations by the OTS and the FDIC to review
the Association's compliance with various regulatory requirements.  The
regulatory structure also gives the regulatory authorities extensive 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 Congress, could have a
material adverse impact on the Association and its operations.

Federal Regulation of Savings Associations

     Office of Thrift Supervision.  The OTS is an office in the Department of
the Treasury subject to the general oversight of the Secretary of the Treasury.
The OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board.  Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.

     Federal Home Loan Bank System.  The FHLB System, consisting of 12 FHLBs, is
under the jurisdiction of the Federal Housing Finance Board ("FHFB").  The
designated duties of the FHFB are to supervise the FHLBs, to ensure that the
FHLBs carry out their housing finance mission, to ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets, and to
ensure that the FHLBs operate in a safe and sound manner.  The Association, as a
member of the FHLB-Atlanta, is required to acquire and hold shares of capital
stock in the FHLB-Atlanta in an amount equal to the greater of (i) 1.0% of the
aggregate outstanding principal amount of residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or
(ii) 1/20 of its advances (i.e., borrowings) from the FHLB-Atlanta.  The
Association is in compliance with this requirement with an investment in FHLB-
Atlanta stock of $2.0 million at September 30, 1997.  Among other benefits, the
FHLB-Atlanta provides a central credit facility primarily for member
institutions.  It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System.  It makes advances to members in
accordance with policies and procedures established by the FHFB and the Board of
Directors of the FHLB-Atlanta.

     Federal Deposit Insurance Corporation.  The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
depository institutions.  The FDIC currently maintains two separate insurance
funds: the Bank Insurance Fund ("BIF") and the SAIF.  As insurer of the
Association's deposits, the FDIC has examination, supervisory and enforcement
authority over the Association.

     The Association's accounts are insured by the SAIF to the maximum extent
permitted by law.  The Association pays deposit insurance premiums based on a
risk-based assessment system established by the FDIC.  Under applicable
regulations, institutions are assigned to one of three capital groups that are
based solely on the level of an institution's capital -- "well capitalized,"
"adequately capitalized," and "undercapitalized" -- which are defined in the
same manner as the regulations establishing the prompt corrective action system,
as discussed below.  These 

                                       65
three groups are then divided into three subgroups which reflect varying levels
of supervisory concern, from those which are considered to be healthy to those
which are considered to be of substantial supervisory concern. The matrix so
created results in nine assessment risk classifications, with rates that until
September 30, 1996 ranged from 0.23% for well capitalized, financially sound
institutions with only a few minor weaknesses to 0.31% for undercapitalized
institutions that pose a substantial risk of loss to the SAIF unless effective
corrective action is taken.

     Pursuant to the Deposit Insurance Funds Act ("DIF Act"), which was enacted
on September 30, 1996, the FDIC imposed a special assessment on each depository
institution with SAIF-assessable deposits which resulted in the SAIF achieving
its designated reserve ratio.  In connection therewith, the FDIC reduced the
assessment schedule for SAIF members, effective January 1, 1997, to a range of
0% to 0.27%, with most institutions, including the Association, paying 0%.  This
assessment schedule is the same as that for the BIF, which reached its
designated reserve ratio in 1995.  In addition, since January 1, 1997, SAIF
members are charged an assessment of .065% of SAIF-assessable deposits for the
purpose of paying interest on the obligations issued by the Financing
Corporation ("FICO") in the 1980s to help fund the thrift industry cleanup.
BIF-assessable deposits will be charged an assessment to help pay interest on
the FICO bonds at a rate of approximately .013% until the earlier of December
31, 1999 or the date upon which the last savings association ceases to exist,
after which time the assessment will be the same for all insured deposits.

     The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date.  The DIF Act contemplates the
development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations.  It is not known what form the common charter may
take and what effect, if any, the adoption of a new charter would have on the
operation of the Association.

     The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC.  It also may suspend
deposit insurance temporarily during the hearing process for the permanent
termination of insurance, if the institution has no tangible capital.  If
insurance of accounts is terminated, the accounts at the institution at the time
of termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC.  Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of the Association.

     Liquidity Requirements.  Under OTS regulations, each savings institution is
required to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and specified U.S.
Government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage (currently
4.0%) of its net withdrawable accounts plus short-term borrowings.  Monetary
penalties may be imposed for failure to meet liquidity requirements.  See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."

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

                                       66
has a Tier I risk-based capital ratio that is less than 3.0% or has a leverage
ratio that is less than 3.0%; and (v) "critically undercapitalized" if it has a
ratio of tangible equity to total assets that is equal to or less than 2.0%.

     A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity.  (The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.)

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

     At September 30, 1997, the Association was categorized as "well
capitalized" under the prompt corrective action regulations of the OTS.

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

     Qualified Thrift Lender Test.  All savings associations are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations.  A savings institution that fails to become or remain a QTL
shall either convert to a national bank charter or be subject to the following
restrictions on its operations:  (i) the association may not make any new
investment or engage in activities that would not be permissible for national
banks; (ii) the association may not establish any new branch office where a
national bank located in the savings institution's home state would not be able
to establish a branch office; (iii) the association shall be ineligible to
obtain new advances from any FHLB; and (iv) the payment of dividends by the
association shall be subject to the rules regarding the statutory and regulatory
dividend restrictions applicable to national banks.  Also, beginning three years
after the date on which the savings institution ceases to be a QTL, the savings
institution would be prohibited from retaining any investment or engaging in any
activity not permissible for a national bank and would be required to repay any
outstanding advances to any FHLB.  In addition, within one year of the date on
which a savings association controlled by a company ceases to be a QTL, the
company must register as a bank holding company and become subject to the rules
applicable to such companies.  A savings institution may requalify as a QTL if
it thereafter complies with the QTL test.

     Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Internal Revenue Code or that
65% of an institution's "portfolio assets" (as defined) consist of certain
housing and consumer-related assets on a monthly average basis in nine out of
every 12 months.  Assets that qualify without limit for inclusion as part of the
65% requirement are loans made to purchase, refinance, construct, improve or
repair domestic residential housing and manufactured housing; home equity loans;
mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; direct or indirect
obligations of the FDIC; and loans for educational purposes, loans to small
businesses and loans made through credit cards.  In addition, the following
assets, among others, may be included in meeting the test subject 

                                       67
to an overall limit of 20% of the savings institution's portfolio assets: 50% of
residential mortgage loans originated and sold within 90 days of origination;
100% of consumer loans; and stock issued by Freddie Mac or Fannie Mae. Portfolio
assets consist of total assets minus the sum of (i) goodwill and other
intangible assets, (ii) property used by the savings institution to conduct its
business, and (iii) liquid assets up to 20% of the institution's total assets.
At September 30, 1997, the Association was in compliance with the QTL test.

     Capital Requirements.  Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital.  Savings associations must meet all of the standards in
order to comply with the capital requirements.
 
     OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets).  Core capital
is defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities.  In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion of
certain assets from capital and to account appropriately for the investments in
and assets of both includable and non-includable subsidiaries.  Institutions
that fail to meet the core capital requirement would be required to file with
the OTS a capital plan that details the steps they will take to reach
compliance.  In addition, the OTS's prompt corrective action regulation provides
that a savings institution that has a leverage ratio of less than 4% (3% for
institutions receiving the highest CAMEL examination rating) will be deemed to
be "undercapitalized" and may be subject to certain restrictions.  See "--
Federal Regulation of Savings Associations -- Prompt Corrective Action."

     Savings associations also must maintain "tangible capital" not less than
1.5% of the Association's adjusted total assets. "Tangible capital" is defined,
generally, as core capital minus any "intangible assets" other than purchased
mortgage servicing rights.

     Each savings institution must maintain total risk-based capital equal to at
least 8% of risk-weighted assets.  Total risk-based capital consists of the sum
of core and supplementary capital, provided that supplementary capital cannot
exceed core capital, as previously defined.  Supplementary capital includes (i)
permanent capital instruments such as cumulative perpetual preferred stock,
perpetual subordinated debt and mandatory convertible subordinated debt, (ii)
maturing capital instruments such as subordinated debt, intermediate-term
preferred stock and mandatory convertible subordinated debt, subject to an
amortization schedule, and (iii) general valuation loan and lease loss
allowances up to 1.25% of risk-weighted assets.

     The risk-based capital regulation assigns each balance sheet asset held by
a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets.  Assets not
included for purposes of calculating capital are not included in calculating
risk-weighted assets.  The categories range from 0% for cash and securities that
are backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due.  Qualifying residential
mortgage loans (including multi-family mortgage loans) are assigned a 50% risk
weight.  Consumer, commercial, home equity and residential construction loans
are assigned a 100% risk weight, as are nonqualifying residential mortgage loans
and that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio.  The book value of assets in each category is
multiplied by the weighing factor (from 0% to 100%) assigned to that category.
These products are then totalled to arrive at total risk-weighted assets.  Off-
balance sheet items are included in risk-weighted assets by converting them to
an approximate balance sheet "credit equivalent amount" based on a conversion
schedule.  These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included risk-weighted assets.

                                       68
The OTS has incorporated an interest rate risk component into its
regulatory capital rule.  Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements.  A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
                               ----                                     
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of the
association's assets, as calculated in accordance with guidelines set forth by
the OTS. A savings association whose measured interest rate risk exposure
exceeds 2% must deduct an interest rate risk component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
association's assets. That dollar amount is deducted from an association's total
capital in calculating compliance with its risk-based capital requirement. Under
the rule, there is a two quarter lag between the reporting date of an
institution's financial data and the effective date for the new capital
requirement based on that data. A savings association with assets of less than
$300 million and risk-based capital ratios 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 association's
interest rate risk component on a case-by-case basis. Under certain
circumstances, a savings association may request an adjustment to its interest
rate risk component if it believes that the OTS-calculated interest rate risk
component overstates its interest rate risk exposure. In addition, certain 
"well-capitalized" institutions may obtain authorization to use their own
interest rate risk model to calculate their interest rate risk component in lieu
of the OTS-calculated amount. The OTS has postponed the date that the component
will first be deducted from an institution's total capital.

     See "HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE" for a table
that sets forth in terms of dollars and percentages the OTS tangible, core and
risk-based capital requirements, the Association's historical amounts and
percentages at September 30, 1997 and pro forma amounts and percentages based
upon the assumptions stated therein.
 
     Limitations on Capital Distributions.  OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers.  In addition, OTS regulations require the Association to give the OTS
30 days' advance notice of any proposed declaration of dividends, and the OTS
has the authority under its supervisory powers to prohibit the payment of
dividends.  The regulation utilizes a three-tiered approach which permits
various levels of distributions based primarily upon a savings association's
capital level.

     A Tier 1 savings association has capital in excess of its fully phased-in
capital requirement (both before and after the proposed capital distribution).
Tier 1 savings association may make (without application but upon prior notice
to, and no objection made by, the OTS) capital distributions during a calendar
year up to 100% of its net income to date during the calendar year plus one-half
its surplus capital ratio (i.e., the amount of capital in excess of its fully
                           ----                                              
phased-in requirement) at the beginning of the calendar year or the amount
authorized for a Tier 2 association.  Capital distributions in excess of such
amount require advance notice to the OTS.  A Tier 2 savings association has
capital equal to or in excess of its minimum capital requirement but below its
fully phased-in capital requirement (both before and after the proposed capital
distribution).  Such an association may make (without application) capital
distributions up to an amount equal to 75% of its net income during the previous
four quarters depending on how close the association is to meeting its fully
phased-in capital requirement.  Capital distributions exceeding this amount
require prior OTS approval.  Tier 3 associations are savings associations with
capital below the minimum capital requirement (either before or after the
proposed capital distribution).  Tier 3 associations may not make any capital
distributions without prior approval from the OTS.

     The Association currently meets the criteria to be designated a Tier 1
association and, consequently, could at its option (after prior notice to, and
no objection made by, the OTS) distribute up to 100% of its net income during
the calendar year plus 50% of its surplus capital ratio at the beginning of the
calendar year less any distributions previously paid during the year.

                                       69
Loans to One Borrower. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans to one borrower. Generally, this
limit is 15% of the Association's unimpaired capital and surplus, plus an
additional 10% of unimpaired capital and surplus, if such loan is secured by
readily-marketable collateral, which is defined to include certain financial
instruments and bullion. The OTS by regulation has amended the loans to one
borrower rule to permit savings associations meeting certain requirements,
including capital requirements, to extend loans to one borrower in additional
amounts under circumstances limited essentially to loans to develop or complete
residential housing units. At September 30, 1997, the Association's regulatory
limit on loans to one borrower was $4.2 million. At September 30, 1997, the
Association's largest aggregate amount of loans to one borrower was $1.8
million.
 
     Activities of Associations and Their Subsidiaries.  A savings association
may establish operating subsidiaries to engage in any activity that the savings
association may conduct directly and service corporation subsidiaries to engage
in certain preapproved activities or, with approval of the OTS, other activities
reasonably related to the activities of financial institutions.  When a savings
association establishes or acquires a subsidiary or elects to conduct any new
activity through a subsidiary that the association controls, the savings
association must notify the FDIC and the OTS 30 days in advance and provide the
information each agency may, by regulation, require.  Savings associations also
must conduct the activities of subsidiaries in accordance with existing
regulations and orders.

     The OTS may determine that the continuation by a savings association of its
ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary.  The FDIC
also may determine by regulation or order that any specific activity poses a
serious threat to the SAIF.  If so, it may require that no SAIF member engage in
that activity directly.

     Transactions with Affiliates.  Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act relative to transactions with
affiliates in the same manner and to the same extent as if the savings
association were a Federal Reserve member bank.   A savings and loan holding
company, its subsidiaries and any other company under common control are
considered affiliates of the subsidiary savings association under the HOLA.
Generally, Sections 23A and 23B:  (i) limit the extent to which the insured
association or its subsidiaries may engage in certain covered transactions with
an affiliate to an amount equal to 10% of such institution's capital and surplus
and place an aggregate limit on all such transactions with affiliates to an
amount equal to 20% of such capital and surplus, and (ii) require that all such
transactions be on terms substantially the same, or at least as favorable to the
institution or subsidiary, as those provided to a non-affiliate.  The term
"covered transaction" includes the making of loans, the purchase of assets, the
issuance of a guarantee and similar types of transactions.  Any loan or
extension of credit by the Association to an affiliate must be secured by
collateral in accordance with Section 23A.

     Three additional rules apply to savings associations:  (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies;  (ii) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (iii) the
OTS may, for reasons of safety and soundness, impose more stringent restrictions
on savings associations but may not exempt transactions from or otherwise
abridge Section 23A or 23B.  Exemptions from Section 23A or 23B may be granted
only by the Federal Reserve, as is currently the case with respect to all FDIC-
insured banks.

     The Association's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by such persons,
is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and Regulation O thereunder.  Among other things, these regulations require that
such loans be made on terms and conditions substantially the same as those
offered to unaffiliated individuals and not involve more than the normal risk of
repayment.  Regulation O also places individual and aggregate limits on the
amount of loans the Association may make to such persons based, in part, on the
Association's capital position, and requires certain board approval 

                                       70
procedures to be followed. The OTS regulations, with certain minor variances,
apply Regulation O to savings institutions.

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

Savings and Loan Holding Company Regulations

     Holding Company Acquisitions.  The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without prior
OTS approval, from acquiring more than 5% of the voting stock of any other
savings association or savings and loan holding company or controlling the
assets thereof.  They also prohibit, among other things, any director or officer
of a savings and loan holding company, or any individual who owns or controls
more than 25% of the voting shares of such holding company, from acquiring
control of any savings association not a subsidiary of such savings and loan
holding company, unless the acquisition is approved by the OTS.

     Holding Company Activities.  As a unitary savings and loan holding company,
the Holding Company generally is not subject to activity restrictions under the
HOLA.  If the Holding Company acquires control of another savings association as
a separate subsidiary other than in a supervisory acquisition, it would become a
multiple savings and loan holding company.  There generally are more
restrictions on the activities of a multiple savings and loan holding company
than on those of a unitary savings and loan holding company.  The HOLA provides
that, among other things, no multiple savings and loan holding company or
subsidiary thereof which is not an insured association shall commence or
continue for more than two years after becoming a multiple savings and loan
association holding company or subsidiary thereof, any business activity other
than:  (i) furnishing or performing management services for a subsidiary insured
institution, (ii) conducting an insurance agency or escrow business, (iii)
holding, managing, or liquidating assets owned by or acquired from a subsidiary
insured institution, (iv) holding or managing properties used or occupied by a
subsidiary insured institution, (v) acting as trustee under deeds of trust, (vi)
those activities previously directly authorized by regulation as of March 5,
1987 to be engaged in by multiple holding companies or (vii) those activities
authorized by the Federal Reserve Board as permissible for bank holding
companies, unless the OTS by regulation, prohibits or limits such activities for
savings and loan holding companies.  Those activities described in (vii) above
also must be approved by the OTS prior to being engaged in by a multiple savings
and loan holding company.

     Qualified Thrift Lender Test.  The HOLA provides that any savings and loan
holding company that controls a savings association that fails the QTL test, as
explained under "-- Federal Regulation of Savings Associations -- Qualified
Thrift Lender Test," must, within one year after the date on which the
association ceases to be a QTL, register as and be deemed a bank holding company
subject to all applicable laws and regulations.

                                    TAXATION

Federal Taxation

     General.  The Holding Company and the Association will report their income
on a fiscal year basis using the accrual method of accounting and will be
subject to federal income taxation in the same manner as other corporations with
some exceptions, including particularly the Association's reserve for bad debts
discussed below.  

                                       71
The following discussion of tax matters is intended only as a summary and does
not purport to be a comprehensive description of the tax rules applicable to the
Association or the Holding Company.

     Bad Debt Reserve. Historically, savings institutions such as the
Association which met certain definitional tests primarily related to their
assets and the nature of their business ("qualifying thrift") were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
may have been deducted in arriving at their taxable income. The Association's
deductions with respect to "qualifying real property loans," which are generally
loans secured by certain interest in real property, were computed using an
amount based on the Association's actual loss experience, or a percentage equal
to 8% of the Association's taxable income, computed with certain modifications
and reduced by the amount of any permitted additions to the non-qualifying
reserve. Due to the Association's loss experience, the Association generally
recognized a bad debt deduction equal to 8% of taxable income.

     In August 1996, the provisions repealing the current thrift bad debt rules
were passed by Congress as part of "The Small Business Job Protection Act of
1996."  The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995.  These rules also require that all institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988).  The Association has
previously recorded a deferred tax liability equal to the bad debt recapture and
as such the new rules will have no effect on the net income or federal income
tax expense.  For taxable years beginning after December 31, 1995, the
Association's bad debt deduction will be determined under the experience method
using a formula based on actual bad debt experience over a period of years or,
if the Association is a "large" association (assets in excess of $500 million)
on the basis of net charge-offs during the taxable year.  The new rules allow an
institution to suspend bad debt reserve recapture for the 1996 and 1997 tax
years if the institution's lending activity for those years is equal to or
greater than the institution's average mortgage lending activity for the six
taxable years preceding 1996 adjusted for inflation.  For this purpose, only
home purchase or home improvement loans are included and the institution can
elect to have the tax years with the highest and lowest lending activity removed
from the average calculation.  If an institution is permitted to postpone the
reserve recapture, it must begin its six year recapture no later than the 1998
tax year.  The unrecaptured base year reserves will not be subject to recapture
as long as the institution continues to carry on the business of banking.  In
addition, the balance of the pre-1988 bad debt reserves continue to be subject
to provisions of present law referred to below that require recapture in the
case of certain excess distributions to shareholders.

     Distributions.  To the extent that the Association makes "nondividend
distributions" to the Holding Company, such distributions will be considered to
result in distributions from the balance of its bad debt reserve as of December
31, 1987 (or a lesser amount if the Association's loan portfolio decreased since
December 31, 1987) and then from the supplemental reserve for losses on loans
("Excess Distributions"), and an amount based on the Excess Distributions will
be included in the Association's taxable income.  Nondividend distributions
include distributions in excess of the Association's current and accumulated
earnings and profits, distributions in redemption of stock and distributions in
partial or complete liquidation.  However, dividends paid out of the
Association's current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered to result in a distribution
from the Association's bad debt reserve.  The amount of additional taxable
income created from an Excess Distribution is an amount that, when reduced by
the tax attributable to the income, is equal to the amount of the distribution.
Thus, if, after the conversion, the Association makes a "nondividend
distribution," then approximately one and one-half times the Excess Distribution
would be includable in gross income for federal income tax purposes, assuming a
34% corporate income tax rate (exclusive of state and local taxes).  See
"REGULATION" and "DIVIDEND POLICY" for limits on the payment of dividends by the
Association.  The Association does not intend to pay dividends that would result
in a recapture of any portion of its tax bad debt reserve.

     Corporate Alternative Minimum Tax.  The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%.  The excess of the tax bad
debt reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is treated
as a preference item for purposes of computing the AMTI.  In addition, only 90%
of AMTI can be offset by net operating loss 

                                       72
carryovers. AMTI is increased by an amount equal to 75% of the amount by which
the Association's adjusted current earnings exceeds its AMTI (determined without
regard to this preference and prior to reduction for net operating losses). For
taxable years beginning after December 31, 1986, and before January 1, 1996, an
environmental tax of 0.12% of the excess of AMTI (with certain modification)
over $2.0 million is imposed on corporations, including the Association, whether
or not an Alternative Minimum Tax is paid.

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

     Audits.  The Association's federal income tax returns have not been audited
within the past five years.

State Taxation

     South Carolina.  The provisions of South Carolina tax law mirror the Code,
with certain modifications, as it relates to savings and loan associations.  The
Association is subject to South Carolina income tax at the rate of 6%.  This
rate of tax is imposed on savings and loan associations in lieu of the general
state business corporation income tax.  The Association's state income tax
returns have not been audited within the last five years.

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

                                       73
THE CONVERSION

     The OTS has approved the Plan of Conversion subject to its approval by the
members of the Association entitled to vote thereon and to the satisfaction of
certain other conditions imposed by the OTS in its approval.  OTS approval does
not constitute a recommendation or endorsement of the Plan of Conversion.

General

     On September 10, 1997, the Board of Directors of the Association
unanimously adopted the Plan of Conversion, which was subsequently amended on
November 19, 1997, pursuant to which the Association will be converted from a
federally chartered mutual savings and loan association to a federally chartered
stock savings bank to be held as a wholly-owned subsidiary of the Holding
Company, a newly formed Delaware corporation.  The following discussion of the
Plan of Conversion is qualified in its entirety by reference to the Plan of
Conversion, which is attached as Exhibit A to the Association's Proxy Statement
and is available to members of the Association upon request.  The Plan of
Conversion is also filed as an exhibit to the Registration Statement.  See
"ADDITIONAL INFORMATION."  The OTS has approved the Plan of Conversion subject
to its approval by the members of the Association entitled to vote on the matter
at a Special Meeting called for that purpose to be held on ___________, 1998,
and subject to the satisfaction of certain other conditions imposed by the OTS
in its approval.

     The conversion will be accomplished through adoption of a Federal Stock
Charter and Bylaws to authorize the issuance of capital stock by the
Association.  As part of the conversion, the Association will issue all of its
newly issued common stock (1,000 shares) to the Holding Company in exchange for
50% of the net proceeds from the sale of common stock by the Holding Company.

     The Plan of Conversion provides generally that:  (i) the Association will
convert from a federally chartered mutual savings and loan association to a
federally chartered stock savings bank; (ii) the common stock will be offered by
the Holding Company in the Subscription Offering to persons having subscription
rights; (iii) if necessary, shares of common stock not subscribed for in the
Subscription Offering will be offered in a Direct Community Offering to certain
members of the general public, with preference given to natural persons and
trusts of natural persons residing in the Local Community, and then to certain
members of the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers pursuant to selected dealers agreements;
and (iv) the Holding Company will purchase all of the capital stock of the
Association to be issued in connection with the conversion.  The conversion will
be effected only upon completion of the sale of at least $44,625,000 of common
stock to be issued pursuant to the Plan of Conversion.

     As part of the conversion, the Holding Company is making a Subscription
Offering of its common stock to holders of subscription rights in the following
order of priority: (i) Eligible Account Holders (depositors with $50.00 or more
on deposit as of June 30, 1996); (ii) the Association's ESOP; (iii) Supplemental
Eligible Account Holders (depositors with $50.00 or more on deposit as of
December 31, 1997); and (iv) Other Members (depositors of the Association as of
____ __, 1998 and borrowers of the Association with loans outstanding as of
October 21, 1997 which continue to be outstanding as of ____ __, 1998).

     Shares of common stock not subscribed for in the Subscription Offering may
be offered for sale in the Direct Community Offering.  The Direct Community
Offering, if one is held, is expected to begin immediately after the expiration
of the Subscription Offering, but may begin at any time during the Subscription
Offering.  Shares of common stock not sold in the Subscription and Direct
Community Offerings may be offered in the Syndicated Community Offering.
Regulations require that the Direct Community and Syndicated Community Offerings
be completed within 45 days after completion of the fully extended Subscription
Offering unless extended by the Association or the Holding Company with the
approval of the regulatory authorities.  If the Syndicated Community Offering is
determined not to be feasible, the Board of Directors of the Association will
consult with the regulatory authorities to determine an appropriate alternative
method for selling the unsubscribed shares of common stock.  The 

                                       74
Plan of Conversion provides that the conversion must be completed within 24
months after the date of the approval of the Plan of Conversion by the members
of the Association.

     No sales of common stock may be completed, either in the Subscription
Offering, Direct Community Offering or Syndicated Community Offering unless the
Plan of Conversion is approved by the members of the Association.

     The completion of the offering, however, is subject to market conditions
and other factors beyond the Association's control.  No assurance can be given
as to the length of time after approval of the Plan of Conversion at the Special
Meeting that will be required to complete the Direct Community or Syndicated
Community Offerings or other sale of the common stock.  If delays are
experienced, significant changes may occur in the estimated pro forma market
value of the Holding Company and the Association as converted, together with
corresponding changes in the net proceeds realized by the Holding Company from
the sale of the common stock.  In the event the conversion is terminated, the
Association would be required to charge all Conversion expenses against current
income.

     Orders for shares of common stock will not be filled until at least
2,975,000 shares of common stock have been subscribed for or sold and the OTS
approves the final valuation and the conversion closes.  If the conversion is
not completed within 45 days after the last day of the fully extended
Subscription Offering and the OTS consents to an extension of time to complete
the conversion, subscribers will be given the right to increase, decrease or
rescind their subscriptions.  Unless an affirmative indication is received from
subscribers that they wish to continue to subscribe for shares, the funds will
be returned promptly, together with accrued interest at the Association's
passbook rate from the date payment is received until the funds are returned to
the subscriber.  If such period is not extended, or, in any event, if the
conversion is not completed, all withdrawal authorizations will be terminated
and all funds held will be promptly returned together with accrued interest at
the Association's passbook rate from the date payment is received until the
conversion is terminated.

Reasons for the Conversion

     The Board of Directors and management believe that the conversion is in the
best interests of the Association, its members and the communities it serves.
The Association's Board of Directors has formed the Holding Company to serve as
a holding company, with the Association as its subsidiary, upon the consummation
of the conversion.  By converting to the stock form of organization, the Holding
Company and the Association will be structured in the form used by holding
companies of commercial banks, most business entities and by a growing number of
savings institutions.  Management of the Association believes that the
conversion offers a number of advantages which will be important to the future
growth and performance of the Association.  The capital raised in the conversion
is intended to support the Association's current lending and investment
activities and may also support possible future expansion and diversification of
operations, although there are no current specific plans, arrangements or
understandings, written or oral, regarding any such expansion or
diversification.  The conversion is also expected to afford the Association's
management, members and others the opportunity to become stockholders of the
Holding Company and participate more directly in, and contribute to, any future
growth of the Holding Company and the Association.  The conversion will also
enable the Holding Company and the Association to raise additional capital in
the public equity or debt markets should the need arise, although there are no
current specific plans, arrangements or understandings, written or oral,
regarding any such financing activities.  The Association, as a mutual savings
and loan association, does not have the authority to issue capital stock or debt
instruments, other than by accepting deposits.

Effects of Conversion to Stock Form on Depositors and Borrowers of the
Association

     Voting Rights.  Savings members and borrowers will have no voting rights in
the converted Association or the Holding Company and therefore will not be able
to elect directors of the Association or the Holding Company or to control their
affairs. Currently, these rights are accorded to savings members of the
Association.  Subsequent 

                                       75
to the conversion, voting rights will be vested exclusively in the Holding
Company with respect to the Association and the holders of the common stock as
to matters pertaining to the Holding Company. Each holder of common stock shall
be entitled to vote on any matter to be considered by the stockholders of the
Holding Company. A stockholder will be entitled to one vote for each share of
common stock owned.

     Savings Accounts and Loans.  The Association's savings accounts, account
balances and existing FDIC insurance coverage of savings accounts will not be
affected by the conversion.  Furthermore, the conversion will not affect the
loan accounts, loan balances or obligations of borrowers under their individual
contractual arrangements with the Association.

     Tax Effects.  The Association has received an opinion from Breyer &
Aguggia, Washington, D.C., that the conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Code.  Among other things, the
opinion states that:

     (i) no gain or loss will be recognized to the Association in its mutual or
     stock form by reason of the conversion;

     (ii) no gain or loss will be recognized to its account holders upon the
     issuance to them of accounts in the Association immediately after the
     conversion, in the same dollar amounts and on the same terms and conditions
     as their accounts at the Association in its mutual form plus interest in
     the liquidation account;

     (iii) the tax basis of account holders' accounts in the Association
     immediately after the conversion will be the same as the tax basis of their
     accounts immediately prior to conversion;

     (iv) the tax basis of each account holder's interest in the liquidation
     account will be equal to the value, if any, of that interest;

     (v) the tax basis of the common stock purchased in the conversion will be
     the amount paid and the holding period for such stock will commence at the
     date of purchase; and

     (vi) no gain or loss will be recognized to account holders upon the receipt
     or exercise of subscription rights in the conversion, except to the extent
     subscription rights are deemed to have value as discussed below.

     Unlike a private letter ruling issued by the IRS, an opinion of counsel is
not binding on the IRS and the IRS could disagree with the conclusions reached
therein.  In the event of such disagreement, no assurance can be given that the
conclusions reached in an opinion of counsel would be sustained by a court if
contested by the IRS.

     Based upon past rulings issued by the IRS, the opinion provides that the
receipt of subscription rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan of Conversion will be
taxable to the extent, if any, that the subscription rights are deemed to have a
fair market value.  RP Financial, a financial consulting firm retained by the
Association, whose findings are not binding on the IRS, has issued a letter
indicating that the subscription rights do not have any value, based on the fact
that such rights are acquired by the recipients without cost, are
nontransferable and of short duration and afford the recipients the right only
to purchase shares of the common stock at a price equal to its estimated fair
market value, which will be the same price paid by purchasers in the Direct
Community Offering for unsubscribed shares of common stock.  If the subscription
rights are deemed to have a fair market value, the receipt of such rights may
only be taxable to those Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members who exercise their subscription rights.  The
Association could also recognize a gain on the distribution of such subscription
rights.  Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members are encouraged to consult with their own tax advisors as to the
tax consequences in the event the subscription rights are deemed to have a fair
market value.

                                       76
The Association has also received an opinion from Deloitte & Touche LLP,
Greenville, South Carolina, that, assuming the conversion does not result in any
federal income tax liability to the Association, its account holders, or the
Holding Company, implementation of the Plan of Conversion will not result in any
South Carolina income tax liability to such entities or persons.

     The opinions of Breyer & Aguggia and Deloitte & Touche LLP and the letter
from RP Financial are filed as exhibits to the Registration Statement.  See
"ADDITIONAL INFORMATION."

     PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.

     Liquidation Account.  In the unlikely event of a complete liquidation of
the Association in its present mutual form, each depositor in the Association
would receive a pro rata share of any assets of the Association remaining after
payment of claims of all creditors (including the claims of all depositors up to
the withdrawal value of their accounts).  Each depositor's pro rata share of
such remaining assets would be in the same proportion as the value of his or her
deposit account to the total value of all deposit accounts in the Association at
the time of liquidation.

     After the conversion, holders of withdrawable deposit(s) in the
Association, including certificates of deposit ("Savings Account(s)"), shall not
be entitled to share in any residual assets in the event of liquidation of the
Association.  However, pursuant to OTS regulations, the Association shall, at
the time of the conversion, establish a liquidation account in an amount equal
to its total equity as of the date of the latest statement of financial
condition contained herein.

     The liquidation account shall be maintained by the Association subsequent
to the conversion for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who retain their Savings Accounts in the Association.
Each Eligible Account Holder and Supplemental Eligible Account Holder shall,
with respect to each Savings Account held, have a related inchoate interest in a
portion of the liquidation account balance ("subaccount").

     The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or a Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's "qualifying deposit" in the
Savings Account and the denominator is the total amount of the "qualifying
deposits" of all such holders.  Such initial subaccount balance shall not be
increased, and it shall be subject to downward adjustment as provided below.

     If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing day of the Association subsequent to June 30, 1996, or December 31, 1997
is less than the lesser of (i) the deposit balance in such Savings Account at
the close of business on any other annual closing date subsequent to June 30,
1996 or December 31, 1997 or (ii) the amount of the "qualifying deposit" in such
Savings Account on June 30, 1996 or December 31, 1997, then the subaccount
balance for such Savings Account shall be adjusted by reducing such subaccount
balance in an amount proportionate to the reduction in such deposit balance.  In
the event of a downward adjustment, such subaccount balance shall not be
subsequently increased, notwithstanding any increase in the deposit balance of
the related Savings Account.  If any such Savings Account is closed, the related
subaccount balance shall be reduced to zero.

     In the event of a complete liquidation of the Association (and only in such
event) each Eligible Account Holder and Supplemental Eligible Account Holder
shall be entitled to receive a liquidation distribution from the liquidation
account in the amount of the then current adjusted subaccount balance(s) for
Savings Account(s) then held by such holder before any liquidation distribution
may be made to stockholders.  No merger, consolidation, bulk purchase of assets
with assumptions of Savings Accounts and other liabilities or similar
transactions with another federally insured institution in which the Association
is not the surviving institution shall be considered to be a complete
liquidation.  In any such transaction the liquidation account shall be assumed
by the surviving institution.

                                       77
In the unlikely event the Association is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to the Holding Company as the sole stockholder of the
Association.

The Subscription, Direct Community and Syndicated Community Offerings

     Subscription Offering.  In accordance with the Plan of Conversion,
nontransferable subscription rights to purchase the common stock have been
issued to persons and entities entitled to purchase the common stock in the
Subscription Offering.  The amount of the common stock which these parties may
purchase will be subject to the availability of the common stock for purchase
under the categories set forth in the Plan of Conversion.  Subscription
priorities have been established for the allocation of stock to the extent that
the common stock is available.  These priorities are as follows:

     Category 1:  Eligible Account Holders.  Each depositor with $50.00 or more
on deposit at the Association as of June 30, 1996 will receive nontransferable
subscription rights to subscribe for up to the greater of $330,000 of common
stock, one-tenth of one percent of the total offering of common stock or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of qualifying deposit of the
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders.  If the exercise of subscription
rights in this category results in an oversubscription, shares of common stock
will be allocated among subscribing Eligible Account Holders so as to permit
each Eligible Account Holder, to the extent possible, to purchase a number of
shares sufficient to make such person's total allocation equal 100 shares or the
number of shares actually subscribed for, whichever is less.  Thereafter,
unallocated shares will be allocated among subscribing Eligible Account Holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all Eligible Account Holders.
Subscription rights received by officers and directors in this category based on
their increased deposits in the Association in the one year period preceding
December 31, 1995 are subordinated to the subscription rights of other Eligible
Account Holders.

     Category 2:  ESOP.  The Plan of Conversion provides that the ESOP shall
receive nontransferable subscription rights to purchase up to 8% of the shares
of common stock issued in the conversion.  The ESOP intends to purchase 8% of
the shares of common stock issued in the conversion.  In the event the number of
shares offered in the conversion is increased above the maximum of the Estimated
Valuation Range, the ESOP shall have a priority right to purchase any such
shares exceeding the maximum of the Estimated Valuation Range up to an aggregate
of 8% of the common stock.  If the ESOP's subscription is not filled in its
entirety, the ESOP may purchase shares in the open market or may purchase shares
directly from the Holding Company.

     Category 3:  Supplemental Eligible Account Holders.  Each depositor with
$50.00 or more on deposit as of December 31, 1997 will receive nontransferable
subscription rights to subscribe for up to the greater of $330,000 of common
stock, one-tenth of one percent of the total offering of common stock or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of qualifying deposits of the
Supplemental Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Supplemental Eligible Account Holders.  If the
exercise of subscription rights in this category results in an oversubscription,
shares of common stock will be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each Supplemental Eligible Account Holder, to
the extent possible, to purchase a number of shares sufficient to make his or
her total allocation equal 100 shares or the number of shares actually
subscribed for, whichever is less.  Thereafter, unallocated shares will be
allocated among subscribing Supplemental Eligible Account Holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all Supplemental Eligible Account
Holders.

                                       78
Category 4:  Other Members.  Each depositor of the Association as of the
Voting Record Date (_________ __, 1998) and each borrower with a loan
outstanding on October 21, 1997 which continues to be outstanding as of the
Voting Record Date will receive nontransferable subscription rights to purchase
up to $330,000 of common stock in the conversion to the extent shares are
available following subscriptions by Eligible Account Holders, the Association's
ESOP and Supplemental Eligible Account Holders.  In the event of an
oversubscription in this category, the available shares will be allocated
proportionately based on the amount of the respective subscriptions.

     Subscription rights are nontransferable. Persons selling or otherwise
transferring their rights to subscribe for common stock in the Subscription
Offering or subscribing for common stock on behalf of another person will be
subject to forfeiture of such rights and possible further sanctions and
penalties imposed by the OTS or another agency of the U.S. Government. Each
person exercising subscription rights will be required to certify that he or she
is purchasing such shares solely for his or her own account and that he or she
has no agreement or understanding with any other person for the sale or transfer
of such shares. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED WITHOUT THE
CONSENT OF THE ASSOCIATION AND THE HOLDING COMPANY.

     The Holding Company and the Association will make reasonable attempts to
provide a prospectus and related offering materials to holders of subscription
rights.  However, the Subscription Offering and all subscription rights under
the Plan of Conversion will expire at 12:00 Noon, Eastern Time, on the
Expiration Date, whether or not the Association has been able to locate each
person entitled to such subscription rights.  Orders for common stock in the
Subscription Offering received in hand by the Association after the Expiration
Date will not be accepted.  The Subscription Offering may be extended by the
Holding Company and the Association up to _____ __, 1998 without the OTS's
approval.  OTS regulations require that the Holding Company complete the sale of
common stock within 45 days after the close of the Subscription Offering.  If
the Direct Community Offering and the Syndicated Community Offerings are not
completed within such period all funds received will be promptly returned with
interest at the Association's passbook rate and all withdrawal authorizations
will be canceled.  If regulatory approval of an extension of the time period has
been granted, all subscribers will be notified of such extension and of the
duration of any extension that has been granted, and will be given the right to
increase, decrease or rescind their orders. If an affirmative response to any
resolicitation is not received by the Holding Company from a subscriber, the
subscriber's order will be rescinded and all funds received will be promptly
returned with interest (or withdrawal authorizations will be canceled).  No
single extension can exceed 90 days.

     Direct Community Offering.  Any shares of common stock which remain
unsubscribed for in the Subscription Offering will be offered by the Holding
Company to certain members of the general public in a Direct Community Offering,
with preference given to natural persons and trusts of natural persons residing
in the Local Community.  Purchasers in the Direct Community Offering are
eligible to purchase up to $330,000 of common stock.  In the event an
insufficient number of shares are available to fill orders in the Direct
Community Offering, the available shares will be allocated on a pro rata basis
determined by the amount of the respective orders.  The Direct Community
Offering, if held, is expected to commence immediately subsequent to the
Expiration Date, but may begin at anytime during the Subscription Offering.  The
Direct Community Offering may terminate on or at any time subsequent to the
Expiration Date, but no later than 45 days after the close of the Subscription
Offering, unless extended by the Holding Company and the Association, with
approval of the OTS.  Any extensions beyond 45 days after the close of the fully
extended Subscription Offering would require a resolicitation of orders, wherein
subscribers for the maximum numbers of shares of common stock would be, and
certain other large subscribers in the discretion of the Holding Company and the
Association may be, given the opportunity to continue their orders, in which
case they will need to reconfirm affirmatively their subscriptions prior to the
expiration of the resolicitation offering or their subscription funds will be
promptly refunded with interest at the Association's passbook rate, or be
permitted to modify or cancel their orders.  The right of any person to purchase
shares in the Direct Community Offering is subject to the absolute right of the
Holding Company and the Association to accept or reject such purchases in whole
or in part.  If an order is rejected in part, the purchaser does not have the

                                       79
right to cancel the remainder of the order.  The Holding Company presently
intends to terminate the Direct Community Offering as soon as it has received
orders for all shares available for purchase in the conversion.

     If all of the common stock offered in the Subscription Offering is
subscribed for, no common stock will be available for purchase in the Direct
Community Offering.

     Syndicated Community Offering. The Plan of Conversion provides that, if
necessary, all shares of common stock not purchased in the Subscription Offering
and Direct Community Offering, if any, may be offered for sale to certain
members of the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers to be formed and managed by Trident
Securities acting as agent of the Holding Company. The Holding Company and the
Association have the right to reject orders, in whole or part, in their sole
discretion in the Syndicated Community Offering. Neither Trident Securities nor
any registered broker-dealer shall have any obligation to take or purchase any
shares of the common stock in the Syndicated Community Offering; however,
Trident Securities has agreed to use its best efforts in the sale of shares in
the Syndicated Community Offering.

     Stock sold in the Syndicated Community Offering also will be sold at the
$15.00 purchase price.  See "--Stock Pricing and Number of Shares to be Issued."
No person will be permitted to subscribe in the Syndicated Community Offering
for shares of common stock with an aggregate purchase price of more than
$330,000.  See "--Plan of Distribution for the Subscription, Direct Community
and Syndicated Community Offerings" for a description of the commission to be
paid to the selected dealers and to Trident Securities.

     Trident Securities may enter into agreements with selected dealers to
assist in the sale of shares in the Syndicated Community Offering.  During the
Syndicated Community Offering, selected dealers may only solicit indications of
interest from their customers to place orders with the Holding Company as of a
certain date ("Order Date") for the purchase of shares of Conversion Stock.
When and if Trident Securities and the Holding Company believe that enough
indications of interest and orders have been received in the Subscription
Offering, the Direct Community Offering and the Syndicated Community Offering to
consummate the conversion, Trident Securities will request, as of the Order
Date, selected dealers to submit orders to purchase shares for which they have
received indications of interest from their customers.  Selected dealers will
send confirmations to such customers on the next business day after the Order
Date.  Selected dealers may debit the accounts of their customers on a date
which will be three business days from the Order Date ("Settlement Date").
Customers who authorize selected dealers to debit their brokerage accounts are
required to have the funds for payment in their account on but not before the
Settlement Date.  On the Settlement Date, selected dealers will remit funds to
the account that the Holding Company established for each selected dealer.  Each
customer's funds so forwarded to the Holding Company, along with all other
accounts held in the same title, will be insured by the FDIC up to the
applicable $100,000 legal limit.  After payment has been received by the Holding
Company from selected dealers, funds will earn interest at the Association's
passbook rate until the completion of the offering.  At the completion of the
conversion, the funds received will be used to purchase the shares of common
stock ordered.  The shares issued in the conversion cannot and will not be
insured by the FDIC or any other government agency.  In the event the conversion
is not consummated as described above, funds with interest will be returned
promptly to the selected dealers, who, in turn, will promptly credit their
customers' brokerage accounts.

     The Syndicated Community Offering may terminate no more than 45 days after
the expiration of the Subscription Offering, unless extended by the Holding
Company and the Association, with approval of the OTS.

     In the event the Association is unable to find purchasers from the general
public for all unsubscribed shares, other purchase arrangements will be made by
the Board of Directors of the Association, if feasible.  Such other arrangements
will be subject to the approval of the OTS.  The OTS may grant one or more
extensions of the offering period, provided that (i) no single extension exceeds
90 days, (ii) subscribers are given the right to increase, decrease or rescind
their subscriptions during the extension period, and (iii) the extensions do not
go more than two years beyond the date on which the members approved the Plan of
Conversion.  If the conversion is not completed within 

                                       80
45 days after the close of the Subscription Offering, either all funds received
will be returned with interest (and withdrawal authorizations canceled) or, if
the OTS has granted an extension of time, all subscribers will be given the
right to increase, decrease or rescind their subscriptions at any time prior to
20 days before the end of the extension period. If an extension of time is
obtained, all subscribers will be notified of such extension and of their rights
to modify their orders. If an affirmative response to any resolicitation is not
received by the Holding Company from a subscriber, the subscriber's order will
be rescinded and all funds received will be promptly returned with interest (or
withdrawal authorizations will be canceled).

     Persons in Non-Qualified States. The Holding Company and the Association
will make reasonable efforts to comply with the securities laws of all states in
the United States in which persons entitled to subscribe for stock pursuant to
the Plan of Conversion reside. However, the Holding Company and the Association
are not required to offer stock in the Subscription Offering to any person who
resides in a foreign country or resides in a state of the United States with
respect to which (i) a small number of persons otherwise eligible to subscribe
for shares of common stock reside in such state or (ii) the Holding Company or
the Association determines that compliance with the securities laws of such
state would be impracticable for reasons of cost or otherwise, including but not
limited to a request or requirement that the Holding Company and the Association
or their officers, directors or trustees register as a broker, dealer, salesman
or selling agent, under the securities laws of such state, or a request or
requirement to register or otherwise qualify the subscription rights or common
stock for sale or submit any filing with respect thereto in such state. Where
the number of persons eligible to subscribe for shares in one state is small,
the Holding Company and the Association will base their decision as to whether
or not to offer the common stock in such state on a number of factors, including
the size of accounts held by account holders in the state, the cost of reviewing
the registration and qualification requirements of the state (and of actually
registering or qualifying the shares) or the need to register the Holding
Company, its officers, directors or employees as brokers, dealers or salesmen.

Plan of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings

     The Association and the Holding Company have retained Trident Securities to
consult with and advise the Association and to assist the Association and the
Holding Company, on a best efforts basis, in the distribution of shares in the
offering.  Trident Securities is a broker-dealer registered with the SEC and a
member of the NASD.  Trident Securities will assist the Association in the
conversion as follows:  (i) it will act as marketing advisor with respect to the
Subscription Offering and will represent the Association as placement agent on a
best efforts basis in the sale of the common stock in the Direct Community
Offering if one is held; (ii) it will conduct training sessions with directors,
officers and employees of the Association regarding the conversion process; and
(iii) it will assist in the establishment and supervision of the Association's
stock information center and, with management's input, will train the
Association's staff to record properly and tabulate orders for the purchase of
common stock and to respond appropriately to customer inquiries.

     Based upon negotiations between Trident Securities on the one hand and the
Holding Company and the Association on the other hand concerning fee structure,
Trident Securities will receive a commission equal to 1.5% of the aggregate
amount of common stock sold in the Subscription and Direct Community Offerings,
excluding shares sold to the ESOP and to directors, officers and employees of
the Association and associates of such persons.  Fees payable to Trident
Securities will not exceed $800,000.  Trident Securities and selected dealers
participating in the Syndicated Community Offering may receive a commission in
the Syndicated Community Offering in an amount to be agreed upon by the Holding
Company and the Association.  Fees and commissions paid to Trident Securities
and to any selected dealers may be deemed to be underwriting fees, and Trident
Securities and such selected dealers may be deemed to be underwriters.  Trident
Securities will also be reimbursed for its reasonable out-of-pocket expenses not
to exceed $7,500 and its legal fees not to exceed $27,500.  Trident Securities
has received an advance of $7,500 towards its reimbursable expenses.  For
additional information, see "-- Stock Pricing and Number of Shares to be Issued"
and "USE OF PROCEEDS."

                                       81
Subject to certain limitations, the Holding Company and the Association
have also agreed to indemnify Trident Securities against liabilities and
expenses (including legal fees) incurred in connection with certain claims or
litigation arising out of or based upon untrue statements or omissions contained
in the offering material for the common stock or with regard to allocations of
shares (in the event of oversubscription) or determinations of eligibility to
purchase shares.

Description of Sales Activities

     The common stock will be offered in the Subscription Offering and Direct
Community Offering principally by the distribution of this prospectus and
through activities conducted at the Association's stock information center at
its main office facility.  The stock information center is expected to operate
during normal business hours throughout the Subscription Offering and Direct
Community Offering.  It is expected that at any particular time one or more
Trident Securities employees will be working at the stock information center.
Such employees of Trident Securities will be responsible for mailing materials
relating to the offering, responding to questions regarding the conversion and
the offering and processing stock orders.

     Sales of common stock will be made by registered representatives affiliated
with Trident Securities or by the selected dealers managed by Trident
Securities. The management and employees of the Association may participate in
the offering in clerical capacities, providing administrative support in
effecting sales transactions or, when permitted by state securities laws,
answering questions of a mechanical nature relating to the proper execution of
the order form. Management of the Association may answer questions regarding the
business of the Association when permitted by state securities laws. Other
questions of prospective purchasers, including questions as to the advisability
or nature of the investment, will be directed to registered representatives. The
management and employees of the Holding Company and the Association have been
instructed not to solicit offers to purchase common stock or provide advice
regarding the purchase of common stock.

     No officer, director or employee of the Association or the Holding Company
will be compensated, directly or indirectly, for any activities in connection
with the offer or sale of securities issued in the conversion.

     None of the Association's personnel participating in the offering is
registered or licensed as a broker or dealer or an agent of a broker or dealer.
The Association's personnel will assist in the above-described sales activities
pursuant to an exemption from registration as a broker or dealer provided by
Rule 3a4-1 promulgated under the Exchange Act.  Rule 3a4-1 generally provides
that an "associated person of an issuer" of securities shall not be deemed a
broker solely by reason of participation in the sale of securities of such
issuer if the associated person meets certain conditions.  Such conditions
include, but are not limited to, that the associated person participating in the
sale of an issuer's securities not be compensated in connection therewith at the
time of participation, that such person not be associated with a broker or
dealer and that such person observe certain limitations on his or her
participation in the sale of securities.  For purposes of this exemption,
"associated person of an issuer" is defined to include any person who is a
director, officer or employee of the issuer or a company that controls, is
controlled by or is under common control with the issuer.

Procedure for Purchasing Shares in the Subscription and Direct Community
Offerings

     To ensure that each purchaser receives a prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 under the Exchange Act, no
prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date.  Execution of the order
form will confirm receipt or delivery in accordance with Rule 15c2-8.  Order
forms will only be distributed with a prospectus.  The Association will accept
for processing only orders submitted on original order forms.  The Association
is not obligated to accept orders submitted on photocopied or telecopied order
forms.  Orders cannot and will not be accepted without the execution of the
certification appearing on the reverse side of the order form.

                                       82
To purchase shares in the Subscription Offering, an executed order form
with the required full payment for each share subscribed for, or with
appropriate authorization for withdrawal of full payment from the subscriber's
deposit account with the Association (which may be given by completing the
appropriate blanks in the order form), must be received by the Association by
12:00 Noon, Eastern Time, on the Expiration Date.  Order forms that are not
received by such time or are executed defectively or are received without full
payment (or without appropriate withdrawal instructions) are not required to be
accepted.  The Holding Company and the Association have the right to waive or
permit the correction of incomplete or improperly executed order forms, but do
not represent that they will do so.  Pursuant to the Plan of Conversion, the
interpretation by the Holding Company and the Association of the terms and
conditions of the Plan of Conversion and of the order form will be final.  In
order to purchase shares in the Direct Community Offering, the order form,
accompanied by the required payment for each share subscribed for, must be
received by the Association prior to the time the Direct Community Offering
terminates, which may be on or at any time subsequent to the Expiration Date.
Once received, an executed order form may not be modified, amended or rescinded
without the consent of the Association unless the conversion has not been
completed within 45 days after the end of the Subscription Offering, unless such
period has been extended.

     In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (June 30,
1996) and/or the Supplemental Eligibility Record Date (December 31, 1997) and/or
the Voting Record Date (___________ __, 1998) must list all accounts on the
order form giving all names in each account, the account number and the
approximate account balance as of such date.  Failure to list an account could
result in fewer shares being allocated in the event of an oversubscription than
if all accounts had been disclosed.

     Full payment for subscriptions may be made (i) in cash if delivered in
person at the Association's stock information center, (ii) by check, bank draft,
or money order, or (iii) by authorization of withdrawal from deposit accounts
maintained with the Association.  Appropriate means by which such withdrawals
may be authorized are provided on the order form.  No wire transfers will be
accepted.  Interest will be paid on payments made by cash, check, bank draft or
money order at the Association's passbook rate from the date payment is received
until the completion or termination of the conversion.  If payment is made by
authorization of withdrawal from deposit accounts, the funds authorized to be
withdrawn from a deposit account will continue to accrue interest at the
contractual rates until completion or termination of the conversion (unless the
certificate matures after the date of receipt of the order form but prior to
closing, in which case funds will earn interest at the passbook rate from the
date of maturity until consummation of the conversion), but a hold will be
placed on such funds, thereby making them unavailable to the depositor until
completion or termination of the conversion.  At the completion of the
conversion, the funds received in the offering will be used to purchase the
shares of common stock ordered.  The shares of common stock issued in the
conversion cannot and will not be insured by the FDIC or any other government
agency.  In the event that the conversion is not consummated for any reason, all
funds submitted will be promptly refunded with interest as described above.

     If a subscriber authorizes the Association to withdraw the amount of the
aggregate purchase price from his or her deposit account, the Association will
do so as of the effective date of conversion, though the account must contain
the full amount necessary for payment at the time the subscription order is
received.  The Association will waive any applicable penalties for early
withdrawal from certificate accounts.  If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the time
that the funds actually are transferred under the authorization the certificate
will be canceled at the time of the withdrawal, without penalty, and the
remaining balance will earn interest at the Association's passbook rate.

     The ESOP will not be required to pay for the shares subscribed for at the
time it subscribes, but rather may pay for such shares of common stock
subscribed for at the $15.00 purchase price upon consummation of the conversion,
provided that there is in force from the time of its subscription until such
time, a loan commitment from an unrelated financial institution or the Holding
Company to lend to the ESOP, at such time, the aggregate purchase price of the
shares for which it subscribed.

                                       83
IRAs maintained in the Association do not permit investment in the common
stock.  A depositor interested in using his or her IRA funds to purchase common
stock must do so through a self-directed IRA.  Since the Association does not
offer such accounts, it will allow such a depositor to make a trustee-to-trustee
transfer of the IRA funds to a trustee offering a self-directed IRA program with
the agreement that such funds will be used to purchase the Holding Company's
common stock in the offering.  There will be no early withdrawal or IRS interest
penalties for such transfers.  The new trustee would hold the common stock in a
self-directed account in the same manner as the Association now holds the
depositor's IRA funds.  An annual administrative fee may be payable to the new
trustee.  Depositors interested in using funds in an Association IRA to purchase
common stock should contact the stock information center as soon as possible so
that the necessary forms may be forwarded for execution and returned prior to
the Expiration Date.  In addition, the provisions of ERISA and IRS regulations
require that officers, directors and 10% shareholders who use self-directed IRA
funds to purchase shares of common stock in the Subscription Offering, make such
purchases for the exclusive benefit of IRAs.

     Certificates representing shares of common stock purchased, and any refund
due, will be mailed to purchasers at such address as may be specified in
properly completed order forms or to the last address of such persons appearing
on the records of the Association as soon as practicable following consummation
of the sale of all shares of common stock.  Any certificates returned as
undeliverable will be disposed of in accordance with applicable law.  Purchasers
may not be able to sell the shares of common stock which they purchased until
certificates for the common stock are available and delivered to them, even
though trading of the common stock may have commenced.

Stock Pricing and Number of Shares to be Issued

     Federal regulations require that the aggregate purchase price of the
securities sold in connection with the conversion be based upon an estimated pro
forma value of the Holding Company and the Association as converted (i.e.,
                                                                     ----
taking into account the expected receipt of proceeds from the sale of securities
in the conversion), as determined by an independent appraisal. The Association
and the Holding Company have retained RP Financial to prepare an appraisal of
the pro forma market value of the Holding Company and the Association as
converted, as well as a business plan. RP Financial will receive a fee expected
to total approximately $42,500 for its appraisal services and assistance in the
preparation of a business plan, plus reasonable out-of-pocket expenses incurred
in connection with the appraisal. The Association has agreed to indemnify RP
Financial under certain circumstances against liabilities and expenses
(including legal fees) arising out of, related to, or based upon the conversion.

     RP Financial has prepared an appraisal of the estimated pro forma market
value of the Holding Company and the Association as converted taking into
account the formation of the Holding Company as the holding company for the
Association.  For its analysis, RP Financial undertook substantial
investigations to learn about the Association's business and operations.
Management supplied financial information, including annual financial
statements, information on the composition of assets and liabilities, and other
financial schedules.  In addition to this information, RP Financial reviewed the
Association's Form AC Application for Approval of Conversion and the Holding
Company's Form S-1 Registration Statement.  Furthermore, RP Financial visited
the Association's facilities and had discussions with the Association's
management and its special conversion legal counsel, Breyer & Aguggia.  No
detailed individual analysis of the separate components of the Holding Company's
or the Association's assets and liabilities was performed in connection with the
evaluation.

     In estimating the pro forma market value of the Holding Company and the
Association as converted, as required by applicable regulatory guidelines, RP
Financial's analysis utilized three selected valuation procedures, the
Price/Book ("P/B") method, the Price/Earnings ("P/E") method, and Price/Assets
("P/A") method, all of which are described in its report.  RP Financial placed
the greatest emphasis on the P/E and P/B methods in estimating pro forma market
value.  In applying these procedures, RP Financial reviewed, among other
factors, the economic make-up of the Association's primary market area, the
Association's financial performance and condition in relation to publicly-traded
institutions that RP Financial deemed comparable to the Association, the
specific terms of the offering of the Holding Company's common stock, the pro
forma impact of the additional capital raised in the conversion, 

                                       84
conditions of securities markets in general, and the market for thrift
institution common stock in particular. RP Financial's analysis provides an
approximation of the pro forma market value of the Holding Company and the
Association as converted based on the valuation methods applied and the
assumptions outlined in its report. Included in its report were certain
assumptions as to the pro forma earnings of the Holding Company after the
conversion that were utilized in determining the appraised value. These
assumptions included expenses as described under "PRO FORMA DATA," an assumed
after-tax rate of return on the net conversion proceeds of ____%, purchases by
the ESOP of 8% of the common stock sold in the conversion and purchases in the
open market by the MRP of a number of shares equal to 4% of the common stock
sold in the conversion at the $15.00 purchase price. See "PRO FORMA DATA" for
additional information concerning these assumptions. The use of different
assumptions may yield different results.

     On the basis of the foregoing, RP Financial has advised the Holding Company
and the Association that, in its opinion, as of November 28, 1997, the aggregate
estimated pro forma market value of the Holding Company and the Association as
converted and, therefore, the common stock was within the valuation range of
$44,625,000 to $60,375,000 with a midpoint of $52,500,000.  After reviewing the
methodology and the assumptions used by RP Financial in the preparation of the
appraisal, the Board of Directors established the Estimated Valuation Range
which is equal to the valuation range of $44,625,000 to $60,375,000 with a
midpoint of $52,500,000.  Assuming that the shares are sold at $15.00 per share
in the conversion, the estimated number of shares would be between 2,975,000 and
4,025,000 with a midpoint of 3,500,000.  The purchase price of $15.00 was
determined by discussion among the Boards of Directors of the Association and
the Holding Company and Trident Securities, taking into account, among other
factors (i) the requirement under OTS regulations that the common stock be
offered in a manner that will achieve the widest distribution of the stock, (ii)
desired liquidity in the common stock subsequent to the conversion, and (iii)
the expense of issuing shares for purposes of Delaware franchise taxes.  Since
the outcome of the offering relates in large measure to market conditions at the
time of sale, it is not possible to determine the exact number of shares that
will be issued by the Holding Company at this time. The Estimated Valuation
Range may be amended, with the approval of the OTS, if necessitated by
developments following the date of such appraisal in, among other things, market
conditions, the financial condition or operating results of the Association,
regulatory guidelines or national or local economic conditions.

     RP Financial's appraisal report is filed as an exhibit to the Registration
Statement.  See "ADDITIONAL INFORMATION."

     If, upon completion of the Subscription Offering, at least the minimum
number of shares are subscribed for, RP Financial, after taking into account
factors similar to those involved in its prior appraisal, will determine its
estimate of the pro forma market value of the Holding Company and the
Association as converted, as of the close of the Subscription Offering.

     No sale of the shares will take place unless prior thereto RP Financial
confirms to the OTS that, to the best of RP Financial's knowledge and judgment,
nothing of a material nature has occurred that would cause it to conclude that
the actual total purchase price on an aggregate basis was incompatible with its
estimate of the total pro forma market value of the Holding Company and the
Association as converted at the time of the sale.  If, however, the facts do not
justify such a statement, the offering or other sale may be canceled, a new
Estimated Valuation Range and price per share set and new Subscription, Direct
Community and Syndicated Community Offerings held.  Under such circumstances,
subscribers would have the right to modify or rescind their subscriptions and to
have their subscription funds returned promptly with interest and holds on funds
authorized for withdrawal from deposit accounts would be released or reduced.

     Depending upon market and financial conditions, the number of shares issued
may be more or less than the range in number of shares discussed herein.  In the
event the total amount of shares issued is less than 2,975,000 or more than
4,628,750 (15% above the maximum of the Estimated Valuation Range), for
aggregate gross proceeds of less than $44,625,000 or more than $69,431,250,
subscription funds will be returned promptly with interest to each 

                                       85
subscriber unless he indicates otherwise. In the event a new valuation range is
established by RP Financial, such new range will be subject to approval by the
OTS.

     If purchasers cannot be found for an insignificant residue of unsubscribed
shares from the general public, other purchase arrangements will be made by the
Boards of Directors of the Association and the Holding Company, if possible.
Such other purchase arrangements will be subject to the approval of the OTS and
may provide for purchases for investment purposes by directors, officers, their
associates and other persons in excess of the limitations provided in the Plan
of Conversion and in excess of the proposed director purchases set forth herein,
although no such purchases are currently intended.  If such other purchase
arrangements cannot be made, the Plan of Conversion will terminate.

     In formulating its appraisal, RP Financial relied upon the truthfulness,
accuracy and completeness of all documents the Association furnished to it.  RP
Financial also considered financial and other information from regulatory
agencies, other financial institutions, and other public sources, as
appropriate.  While RP Financial believes this information to be reliable, RP
Financial does not guarantee the accuracy or completeness of such information
and did not independently verify the financial statements and other data
provided by the Association and the Holding Company or independently value the
assets or liabilities of the Holding Company and the Association.  The appraisal
by RP Financial is not intended to be, and must not be interpreted as, a
recommendation of any kind as to the advisability of voting to approve the Plan
of Conversion or of purchasing shares of common stock.  Moreover, because the
appraisal is necessarily based on many factors which change from time to time,
there is no assurance that persons who purchase such shares in the conversion
will later be able to sell shares thereafter at prices at or above the purchase
price.

Limitations on Purchases of Shares

     The Plan of Conversion provides for certain limitations to be placed upon
the purchase of common stock by eligible subscribers and others in the
conversion.  Each subscriber must subscribe for a minimum of 25 shares.  With
the exception of the ESOP, which is expected to subscribe for 8% of the shares
of common stock issued in the conversion, the Plan of Conversion provides for
the following purchase limitations: (i) No Eligible Account Holder, Supplemental
Eligible Account Holder or Other Member, including, in each case, all persons on
a joint account, may purchase shares of common stock with an aggregate purchase
price of more than $330,000, (ii) no person may purchase in the Direct Community
Offering, if any, or in the Syndicated Community Offering, if any, shares of
common stock with an aggregate purchase price of more than $330,000, and (iii)
no person, either alone or together with associates of or persons acting in
concert with such person, may purchase in the aggregate more than the overall
maximum purchase limitation of 1% of the total number of shares of common stock
issued in the conversion (exclusive of any shares issued pursuant to an increase
in the Estimated Valuation Range of up to 15%). For purposes of the Plan of
Conversion, the directors are not deemed to be acting in concert solely by
reason of their Board membership. Pro rata reductions within each subscription
rights category will be made in allocating shares to the extent that the maximum
purchase limitations are exceeded.

     The Association's and the Holding Company's Boards of Directors may, in
their sole discretion, increase the maximum purchase limitation set forth above
up to 9.99% of the shares of common stock sold in the conversion, provided that
orders for shares which exceed 5% of the shares of common stock sold in the
conversion may not exceed, in the aggregate, 10% of the shares sold in the
conversion.  The Association and the Holding Company do not intend to increase
the maximum purchase limitation unless market conditions are such that an
increase in the maximum purchase limitation is necessary to sell a number of
shares in excess of the minimum of the Estimated Valuation Range.  If the Boards
of Directors decide to increase the purchase limitation above, persons who
subscribed for the maximum number of shares of common stock will be, and other
large subscribers in the discretion of the Holding Company and the Association
may be, given the opportunity to increase their subscriptions accordingly,
subject to the rights and preferences of any person who has priority
subscription rights.

                                       86
The term "acting in concert" is defined in the Plan of Conversion to mean
(i) knowing participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not pursuant to an express
agreement; or (ii) a combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise.  In general, a person who acts in concert with another party shall
also be deemed to be acting in concert with any person who is also acting in
concert with that other party.

     The term "associate" of a person is defined in the Plan of Conversion to
mean (i) any corporation or organization (other than the Association or a
majority-owned subsidiary of the Association) of which such person is an officer
or partner or is, directly or indirectly, the beneficial owner of 10% or more of
any class of equity securities; (ii) any trust or other estate in which such
person has a substantial beneficial interest or as to which such person serves
as trustee or in a similar fiduciary capacity (excluding tax-qualified employee
plans); and (iii) any relative or spouse of such person, or any relative of such
spouse, who either has the same home as such person or who is a director or
officer of the Association or any of its parents or subsidiaries.  For example,
a corporation of which a person serves as an officer would be an associate of
such person and, therefore, all shares purchased by such corporation would be
included with the number of shares which such person could purchase individually
under the above limitations.

     The term "officer" is defined in the Plan of Conversion to mean an
executive officer of the Association, including its Chairman of the Board,
President, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents in
charge of principal business functions, Secretary and Treasurer.

     Common stock purchased pursuant to the conversion will be freely
transferable, except for shares purchased by directors and officers of the
Association and the Holding Company and by NASD members.  See "--Restrictions on
Transferability by Directors and Officers and NASD Members."

Restrictions on Repurchase of Stock

     Pursuant to OTS regulations, OTS-regulated savings associations (and their
holding companies) may not for a period of three years from the date of an
institution's mutual-to-stock conversion repurchase any of its common stock from
any person, except in the event of (i) an offer made to all of its stockholders
to repurchase the common stock on a pro rata basis, approved by the OTS; or (ii)
the repurchase of qualifying shares of a director. Furthermore, repurchases of
any common stock are prohibited if the effect thereof would cause the
association's regulatory capital to be reduced below (a) the amount required for
the liquidation account or (b) the regulatory capital requirements imposed by
the OTS. Repurchases are generally prohibited during the first year following
conversion. Upon ten days' written notice to the OTS, and if the OTS does not
object, an institution may make open market repurchases of its outstanding
common stock during years two and three following the conversion, provided that
certain regulatory conditions are met and that the repurchase would not
adversely affect the financial condition of the institution. Any repurchases of
common stock by the Holding Company would be subject to these regulatory
restrictions unless the OTS would provide otherwise.

Restrictions on Transferability by Directors and Officers and NASD Members

     Shares of common stock purchased in the offering by directors and officers
of the Holding Company may not be sold for a period of one year following
consummation of the conversion, except in the event of the death of the
stockholder or in any exchange of the common stock in connection with a merger
or acquisition of the Holding Company.  Shares of common stock received by
directors or officers through the ESOP or the MRP or upon exercise of options
issued pursuant to the Stock Option Plan or purchased subsequent to the
conversion are not subject to this restriction.  Accordingly, shares of common
stock issued by the Holding Company to directors and officers shall bear a
legend giving appropriate notice of the restriction and, in addition, the
Holding Company will give appropriate instructions to the transfer agent for the
Holding Company's common stock with respect to the restriction on 

                                       87
transfers. Any shares issued to directors and officers as a stock dividend,
stock split or otherwise with respect to restricted common stock shall be
subject to the same restrictions.

     Purchases of outstanding shares of common stock of the Holding Company by
directors, executive officers (or any person who was an executive officer or
director of the Association after adoption of the Plan of Conversion) and their
associates during the three-year period following the conversion may be made
only through a broker or dealer registered with the SEC, except with the prior
written approval of the OTS.  This restriction does not apply, however, to
negotiated transactions involving more than 1% of the Holding Company's
outstanding common stock or to the purchase of stock pursuant to the Stock
Option Plan.

     The Holding Company has filed with the SEC a registration statement under
the Securities Act for the registration of the common stock to be issued
pursuant to the conversion.  The registration under the Securities Act of shares
of the common stock to be issued in the conversion does not cover the resale of
such shares.  Shares of common stock purchased by persons who are not affiliates
of the Holding Company may be resold without registration.  Shares purchased by
an affiliate of the Holding Company will be subject to the resale restrictions
of Rule 144 under the Securities Act.  If the Holding Company meets the current
public information requirements of Rule 144 under the Securities Act, each
affiliate of the Holding Company who complies with the other conditions of Rule
144 (including those that require the affiliate's sale to be aggregated with
those of certain other persons) would be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of (i) 1% of the outstanding shares of the Holding Company
or (ii) the average weekly volume of trading in such shares during the preceding
four calendar weeks.  Provision may be made in the future by the Holding Company
to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.

     Under guidelines of the NASD, members of the NASD and their associates are
subject to certain restrictions on the transfer of securities purchased in
accordance with subscription rights and to certain reporting requirements upon
purchase of such securities.

               RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY

     The following discussion is a summary of certain provisions of federal law
and regulations and Delaware corporate law, as well as the Certificate of
Incorporation and Bylaws of the Holding Company, relating to stock ownership and
transfers, the Board of Directors and business combinations, all of which may be
deemed to have "anti-takeover" effects. The description of these provisions is
necessarily general and reference should be made to the actual law and
regulations and to the Certificate of Incorporation and Bylaws of the Holding
Company contained in the Registration Statement filed with the SEC. See
"ADDITIONAL INFORMATION" as to how to obtain a copy of these documents.

Conversion Regulations

     OTS regulations prohibit any person from making an offer, announcing an
intent to make an offer or participating in any other arrangement to purchase
stock or acquiring stock or subscription rights in a converting institution (or
its holding company) from another person prior to completion of its conversion.
Further, without the prior written approval of the OTS, no person may make such
an offer or announcement of an offer to purchase shares or actually acquire
shares in the converting institution (or its holding company) for a period of
three years from the date of the completion of the conversion if, upon the
completion of such offer, announcement or acquisition, that person would become
the beneficial owner of more than 10% of the outstanding stock of the
institution (or its holding company).  The OTS has defined "person" to include
any individual, group acting in concert, corporation, partnership, association,
joint stock company, trust, unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution.  However, offers made
exclusively to an association (or its holding company) or an underwriter or
member of a 

                                       88
selling group acting on the converting institution's (or its holding company's)
behalf for resale to the general public are excepted. The regulation also
provides civil penalties for willful violation or assistance in any such
violation of the regulation by any person connected with the management of the
converting institution (or its holding company) or who controls more than 10% of
the outstanding shares or voting rights of a converting or converted institution
(or its holding company).

Change of Control Regulations

     Under the Change in Bank Control Act, no person may acquire control of an
insured federal savings and loan association or its parent holding company
unless the OTS has been given 60 days' prior written notice and has not issued a
notice disapproving the proposed acquisition.  In addition, OTS regulations
provide that no company may acquire control of a savings association without the
prior approval of the OTS.  Any company that acquires such control becomes a
"savings and loan holding company" subject to registration, examination and
regulation by the OTS.

     Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings
association's directors, or a determination by the OTS that the acquiror has the
power to direct, or directly or indirectly to exercise a controlling influence
over, the management or policies of the institution.  Acquisition of more than
10% of any class of a savings association's voting stock, if the acquiror also
is subject to any one of eight "control factors," constitutes a rebuttable
determination of control under the regulations.  Such control factors include
the acquiror being one of the two largest stockholders.  The determination of
control may be rebutted by submission to the OTS, prior to the acquisition of
stock or the occurrence of any other circumstances giving rise to such
determination, of a statement setting forth facts and circumstances which would
support a finding that no control relationship will exist and containing certain
undertakings.  The regulations provide that persons or companies which acquire
beneficial ownership exceeding 10% or more of any class of a savings
association's stock must file with the OTS a certification form that the holder
is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable.  There are also rebuttable presumptions in
the regulations concerning whether a group "acting in concert" exists, including
presumed action in concert among members of an "immediate family."

     The OTS may prohibit an acquisition of control if it finds, among other
things, that (i) the acquisition would result in a monopoly or substantially
lessen competition, (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the institution, or (iii) the competence,
experience or integrity of the acquiring person indicates that it would not be
in the interest of the depositors or the public to permit the acquisition of
control by such person.

Anti-takeover Provisions in the Holding Company's Certificate of Incorporation
and Bylaws and in Delaware Law

     A number of provisions of the Holding Company's Certificate of
Incorporation and Bylaws deal with matters of corporate governance and certain
rights of stockholders.  The following discussion is a general summary of
certain provisions of the Holding Company's Certificate of Incorporation and
Bylaws and regulatory provisions relating to stock ownership and transfers, the
Board of Directors and business combinations, which might be deemed to have a
potential "anti-takeover" effect.  These provisions may have the effect of
discouraging a future takeover attempt which is not approved by the Board of
Directors but which individual Holding Company stockholders may deem to be in
their best interests or in which stockholders may receive a substantial premium
for their shares over then current market prices.  As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so.  Such provisions will also render the removal of the incumbent Board of
Directors or management of the Holding Company more difficult.  The following
description of certain of the provisions of the Certificate of Incorporation and
Bylaws of the Holding Company is necessarily general and reference should be
made 

                                       89
in each case to such Certificate of Incorporation and Bylaws, which are
incorporated herein by reference. See "ADDITIONAL INFORMATION" as to where to
obtain a copy of these documents.

     Limitation on Voting Rights.  The Certificate of Incorporation of the
Holding Company provides that in no event shall any record owner of any
outstanding common stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of common stock (the "Limit") be entitled or permitted to any vote in respect of
the shares held in excess of the Limit, unless permitted by a resolution adopted
by a majority of the board of directors.  Beneficial ownership is determined
pursuant to Rule 13d-3 of the General Rules and Regulations of the Exchange Act
and includes shares beneficially owned by such person or any of his or her
affiliates (as defined in the Certificate of Incorporation), shares which such
person or his or her affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person and his or her
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by the ESOP or directors, officers and employees of
the Association or Holding Company or shares that are subject to a revocable
proxy and that are not otherwise beneficially, or deemed by the Holding Company
to be beneficially, owned by such person and his or her affiliates.

     Board of Directors.  The Board of Directors of the Holding Company is
divided into three classes, each of which shall contain approximately one-third
of the whole number of the members of the Board.  The members of each class
shall be elected for a term of three years, with the terms of office of all
members of one class expiring each year so that approximately one-third of the
total number of directors are elected each year.  The Holding Company's
Certificate of Incorporation provides that the size of the Board shall be as set
forth in the Bylaws.  The Bylaws currently set the number of directors at five.
The Certificate of Incorporation provides that any vacancy occurring in the
Board, including a vacancy created by an increase in the number of directors,
shall be filled by a vote of two-thirds of the directors then in office and any
director so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of the class to which the director has been
chosen expires.  The classified Board is intended to provide for continuity of
the Board of Directors and to make it more difficult and time consuming for a
stockholder group to fully use its voting power to gain control of the Board of
Directors without the consent of the incumbent Board of Directors of the Holding
Company.  The Certificate of Incorporation of the Holding Company provides that
a director may be removed from the Board of Directors prior to the expiration of
his or her term only for cause and only upon the vote of 80% of the outstanding
shares of voting stock.  In the absence of this provision, the vote of the
holders of a majority of the shares could remove the entire Board, but only with
cause, and replace it with persons of such holders' choice.

     Cumulative Voting, Special Meetings and Action by Written Consent.  The
Certificate of Incorporation does not provide for cumulative voting for any
purpose.  Moreover, the Certificate of Incorporation provides that special
meetings of stockholders of the Holding Company may be called only by the Board
of Directors of the Holding Company and that stockholders may take action only
at a meeting and not by written consent.

     Authorized Shares. The Certificate of Incorporation authorizes the issuance
of 10,000,000 shares of common stock and 500,000 shares of preferred stock. The
shares of common stock and preferred stock were authorized in an amount greater
than that to be issued in the conversion to provide the Holding Company's Board
of Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits,
restricted stock grants and the exercise of stock options. However, these
additional authorized shares may also be used by the Board of Directors,
consistent with fiduciary duties, to deter future attempts to gain control of
the Holding Company. The Board of Directors also has sole authority to determine
the terms of any one or more series of preferred stock, including voting rights,
conversion rates, and liquidation preferences. As a result of the ability to fix
voting rights for a series of preferred stock, the Board has the power, to the
extent consistent with its fiduciary duty, to issue a series of preferred stock
to persons friendly to management in order to attempt to block a tender offer,
merger or other transaction by which a third party seeks control of the Holding
Company, and thereby assist members of management to retain their positions. The
Holding Company's Board currently has no plans for the issuance of additional
shares, other than the issuance of shares of common stock upon exercise of stock
options and in connection with the MRP.

                                       90
Stockholder Vote Required to Approve Business Combinations with Principal
Stockholders.  The Certificate of Incorporation requires the approval of the
holders of at least 80% of the Holding Company's outstanding shares of voting
stock to approve certain "Business Combinations" (as defined therein) involving
a "Related Person" (as defined therein) except in cases where the proposed
transaction has been approved in advance by a majority of those members of the
Holding Company's Board of Directors who are unaffiliated with the Related
Person and were directors prior to the time when the Related Person became a
Related Person.  The term "Related Person" is defined to include any individual,
corporation, partnership or other entity (other than the Holding Company or its
subsidiary) which owns beneficially or controls, directly or indirectly, 10% or
more of the outstanding shares of voting stock of the Holding Company or an
affiliate of such person or entity.  This provision of the Certificate of
Incorporation applies to any "Business Combination," which is defined to
include:  (i) any merger or consolidation of the Holding Company with or into
any Related Person; (ii) any sale, lease, exchange, mortgage, transfer, or other
disposition of 25% or more of the assets of the Holding Company or combined
assets of the Holding Company and its subsidiaries to a Related Person; (iii)
any merger or consolidation of a Related Person with or into the Holding Company
or a subsidiary of the Holding Company; (iv) any sale, lease, exchange,
transfer, or other disposition of 25% or more of the assets of a Related Person
to the Holding Company or a subsidiary of the Holding Company; (v) the issuance
of any securities of the Holding Company or a subsidiary of the Holding Company
to a Related Person; (vi) the acquisition by the Holding Company or a subsidiary
of the Holding Company of any securities of a Related Person; (vii) any
reclassification of common stock of the Holding Company or any recapitalization
involving the common stock of the Holding Company; or (viii) any agreement or
other arrangement providing for any of the foregoing.

     Under Delaware law, absent this provision, business combinations, including
mergers, consolidations and sales of substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of a majority of the outstanding shares of common stock of the Holding
Company and any other affected class of stock.  One exception under Delaware law
to the majority approval requirement applies to stockholders owning 15% or more
of the common stock of a corporation for a period of less than three years.
Such 15% stockholder, in order to obtain approval of a business combination,
must obtain the approval of two-thirds of the outstanding stock, excluding the
stock owned by such 15% stockholder, or satisfy other requirements under
Delaware law relating to board of director approval of his or her acquisition of
the shares of the Holding Company.  The increased stockholder vote required to
approve a business combination may have the effect of foreclosing mergers and
other business combinations which a majority of stockholders deem desirable and
placing the power to prevent such a merger or combination in the hands of a
minority of stockholders.

     Amendment of Certificate of Incorporation and Bylaws.  Amendments to the
Holding Company's Certificate of Incorporation must be approved by a majority
vote of its Board of Directors and also by a majority of the outstanding shares
of its voting stock, provided, however, that an affirmative vote of at least 80%
of the outstanding voting stock entitled to vote (after giving effect to the
provision limiting voting rights) is required to amend or repeal certain
provisions of the Certificate of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
directors, director and officer indemnification by the Holding Company and
amendment of the Holding Company's Bylaws and Certificate of Incorporation. The
Holding Company's Bylaws may be amended by its Board of Directors, or by a vote
of 80% of the total votes eligible to be voted at a duly constituted meeting of
stockholders.

     Stockholder Nominations and Proposals.  The Certificate of Incorporation of
the Holding Company requires a stockholder who intends to nominate a candidate
for election to the Board of Directors, or to raise new business at a
stockholder meeting to give not less than 30 nor more than 60 days' advance
notice to the Secretary of the Holding Company.  The notice provision requires a
stockholder who desires to raise new business to provide certain information to
the Holding Company concerning the nature of the new business, the stockholder
and the stockholder's interest in the business matter.  Similarly, a stockholder
wishing to nominate any person for election as a director must provide the
Holding Company with certain information concerning the nominee and the
proposing stockholder.

                                       91
Purpose and Takeover Defensive Effects of the Holding Company's Certificate
of Incorporation and Bylaws.  The Board of Directors of the Association believes
that the provisions described above are prudent and will reduce the Holding
Company's vulnerability to takeover attempts and certain other transactions that
have not been negotiated with and approved by its Board of Directors.  These
provisions will also assist the Association in the orderly deployment of the
conversion proceeds into productive assets during the initial period after the
conversion.  The Board of Directors believes these provisions are in the best
interest of the Association and Holding Company and its stockholders.  In the
judgment of the Board of Directors, the Holding Company's Board will be in the
best position to determine the true value of the Holding Company and to
negotiate more effectively for what may be in the best interests of its
stockholders.  Accordingly, the Board of Directors believes that it is in the
best interest of the Holding Company and its stockholders to encourage potential
acquirors to negotiate directly with the Board of Directors of the Holding
Company and that these provisions will encourage such negotiations and
discourage hostile takeover attempts.  It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at a price reflective of the true value of the
Holding Company and that is in the best interest of all stockholders.

     Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common.  Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms that may be less favorable than
might otherwise be available.  A transaction that is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value of the Holding
Company for its stockholders, with due consideration given to matters such as
the management and business of the acquiring corporation and maximum strategic
development of the Holding Company's assets.

     An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense.  Although a tender offer
or other takeover attempt may be made at a price substantially above the current
market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company.  As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
that is under different management and whose objectives may not be similar to
those of the remaining stockholders.  The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive the
Holding Company's remaining stockholders of benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners became less
than 300, thereby allowing for deregistration under the Exchange Act.

     Despite the belief of the Association and the Holding Company as to the
benefits to stockholders of these provisions of the Holding Company's
Certificate of Incorporation and Bylaws, these provisions may also have the
effect of discouraging a future takeover attempt that would not be approved by
the Holding Company's Board, but pursuant to which stockholders may receive a
substantial premium for their shares over then current market prices.  As a
result, stockholders who might desire to participate in such a transaction may
not have any opportunity to do so.  Such provisions will also render the removal
of the Holding Company's Board of Directors and of management more difficult.
The Board of Directors of the Association and the Holding Company, however, have
concluded that the potential benefits outweigh the possible disadvantages.

     Following the conversion, pursuant to applicable law and, if required,
following the approval by stockholders, the Holding Company may adopt additional
anti-takeover charter provisions or other devices regarding the acquisition of
its equity securities that would be permitted for a Delaware business
corporation.

     The cumulative effect of the restriction on acquisition of the Holding
Company contained in the Certificate of Incorporation and Bylaws of the Holding
Company and in Federal and Delaware law may be to discourage potential takeover
attempts and perpetuate incumbent management, even though certain stockholders
of the Holding Company may deem a potential acquisition to be in their best
interests, or deem existing management not to be acting in their best interests.

                                       92
DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY

General

     The Holding Company is authorized to issue 10,000,000 shares of common
stock having a par value of $.01 per share and 500,000 shares of preferred stock
having a par value of $.01 per share.  The Holding Company currently expects to
issue up to 4,025,000 shares of common stock and no shares of preferred stock in
the conversion.  Each share of the Holding Company's common stock will have the
same relative rights as, and will be identical in all respects with, each other
share of common stock.  Upon payment of the purchase price for the common stock,
in accordance with the Plan of Conversion, all such stock will be duly
authorized, fully paid and nonassessable.

     The common stock of the Holding Company will represent nonwithdrawable
capital, will not be an account of any type, and will not be insured by the FDIC
or any other government agency.

Common Stock

     Dividends.  The Holding Company can pay dividends out of statutory surplus
or from certain net profits if, as and when declared by its Board of Directors.
The payment of dividends by the Holding Company is subject to limitations which
are imposed by law and applicable regulation.  See "DIVIDEND POLICY" and
"REGULATION."  The holders of common stock of the Holding Company will be
entitled to receive and share equally in such dividends as may be declared by
the Board of Directors of the Holding Company out of funds legally available
therefor.  If the Holding Company issues preferred stock, the holders thereof
may have a priority over the holders of the common stock with respect to
dividends.

     Voting Rights.  Upon conversion, the holders of common stock of the Holding
Company will possess exclusive voting rights in the Holding Company.  They will
elect the Holding Company's Board of Directors and act on such other matters as
are required to be presented to them under Delaware law or as are otherwise
presented to them by the Board of Directors.  Except as discussed in
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY," each holder of common
stock will be entitled to one vote per share and will not have any right to
cumulate votes in the election of directors.  If the Holding Company issues
preferred stock, holders of the Holding Company preferred stock may also possess
voting rights.  Certain matters require a vote of 80% of the outstanding shares
entitled to vote thereon.  See "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY."

     As a federal mutual savings and loan association, corporate powers and
control of the Association are vested in its Board of Directors, who elect the
officers of the Association and who fill any vacancies on the Board of Directors
as it exists upon conversion.  Subsequent to Conversion, voting rights will be
vested exclusively in the owners of the shares of capital stock of the
Association, all of which will be owned by the Holding Company, and voted at the
direction of the Holding Company's Board of Directors.  Consequently, the
holders of the common stock will not have direct control of the Association.

     Liquidation.  In the event of any liquidation, dissolution or winding up of
the Association, the Holding Company, as holder of the Association's capital
stock would be entitled to receive, after payment or provision for payment of
all debts and liabilities of the Association (including all deposit accounts and
accrued interest thereon) and after distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders (see "THE CONVERSION"), all assets of the Association available
for distribution. In the event of liquidation, dissolution or winding up of the
Holding Company, the holders of its common stock would be entitled to receive,
after payment or provision for payment of all its debts and liabilities, all of
the assets of the Holding Company available for distribution. If Holding Company
preferred stock is issued, the holders thereof may have a priority over the
holders of the common stock in the event of liquidation or dissolution.

                                       93
Preemptive Rights.  Holders of the common stock of the Holding Company will
not be entitled to preemptive rights with respect to any shares that may be
issued.  The common stock is not subject to redemption.

Preferred Stock

     None of the shares of the authorized Holding Company preferred stock will
be issued in the conversion and there are no plans to issue the preferred stock.
Such stock may be issued with such designations, powers, preferences and rights
as the Board of Directors may from time to time determine.  The Board of
Directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.

Restrictions on Acquisition

     Acquisitions of the Holding Company are restricted by provisions in its
Certificate of Incorporation and Bylaws and by the rules and regulations of
various regulatory agencies.  See "REGULATION" and "RESTRICTIONS ON ACQUISITION
OF THE HOLDING COMPANY."

                           REGISTRATION REQUIREMENTS

     The Holding Company will register the common stock with the SEC pursuant to
Section 12(g) of the Exchange Act upon the completion of the conversion and will
not deregister its common stock for a period of at least three years following
the completion of the conversion.  Upon such registration, the proxy and tender
offer rules, insider trading reporting and restrictions, annual and periodic
reporting and other requirements of the Exchange Act will be applicable.

                             LEGAL AND TAX OPINIONS

     The legality of the common stock has been passed upon for the Holding
Company by Breyer & Aguggia, Washington, D.C.  The federal tax consequences of
the offering have been opined upon by Breyer & Aguggia and the South Carolina
tax consequences of the offering have been opined upon by Deloitte & Touche LLP.
Breyer & Aguggia and Deloitte & Touche LLP have consented to the references
herein to their opinions.  Certain legal matters will be passed upon for Trident
Securities by Luse Lehman Gorman Pomerenk & Schick, Washington, D.C.

                                    EXPERTS

     The financial statements of the Association as of September 30, 1997 and
1996 and for the years ended September 30, 1997, 1996 and 1995 included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and have been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.

     RP Financial has consented to the publication herein of the summary of its
report to the Association setting forth its opinion as to the estimated pro
forma market value of the Holding Company and the Association as converted and
its letter with respect to subscription rights and to the use of its name and
statements with respect to it appearing herein.

                                       94
ADDITIONAL INFORMATION

     The Holding Company has filed with the SEC a Registration Statement on Form
S-1 (File No. 333-______) under the Securities Act with respect to the common
stock offered in the conversion.  This prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC.  Such
information may be inspected at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at its
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and 7 World Trade Center, Suite 1300, New York, New York  10048.  Copies
may be obtained at prescribed rates from the Public Reference Section of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549.  The Registration Statement
also is available through the SEC's World Wide Web site on the Internet
(http://www.sec.gov).

     The Association has filed with the OTS an Application for Approval of
Conversion, which includes proxy materials for the Association's Special Meeting
and certain other information.  This prospectus omits certain information
contained in such Application.  The Application, including the proxy materials,
exhibits and certain other information that are a part thereof, may be
inspected, without charge, at the offices of the OTS, 1700 G Street, N.W.,
Washington, D.C. 20552 and at the office of the Regional Director of the OTS at
the Southeast Regional Office of the OTS, 1475 Peachtree Street, N.E., Atlanta,
Georgia 30309.

                                       95
Index To Financial Statements
                  Heritage Federal Savings & Loan Association
Page
                                                                                      ----
Independent Auditors' Report......................................................      F-1

Balance Sheets as of September 30, 1997 and 1996..................................      F-2

Statements of Income for the
 Years Ended September 30, 1997, 1996 and 1995....................................       24

Statements of Equity for the
 Years Ended September 30, 1997, 1996, and 1995...................................      F-3

Statements of Cash Flows for the
 Years Ended September 30, 1997, 1996 and 1995....................................      F-4

Notes to Financial Statements.....................................................      F-6
*   *   *

     All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or related
Notes.

     Separate financial statements for the Holding Company have not been
included herein because the Holding Company, which has engaged in only
organizational activities to date, has no significant assets, liabilities
(contingent or otherwise), revenues or expenses.

                                       96
INDEPENDENT AUDITORS' REPORT

Board of Directors
Heritage Federal Savings and Loan Association:

We have audited the accompanying balance sheets of Heritage Federal Savings and
Loan Association (the "Association") as of September 30, 1997 and 1996, and the
related statements of income, equity and cash flows for each of the three years
in the period ended September 30, 1997, 1996, and 1995.  These financial
statements are the responsibility of the Association'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 auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Association at September 30, 1997 and
1996, and the results of its operations and its cash flows for each of the three
years in the period ended September 30, 1997 in conformity with generally
accepted accounting principles.

/s/ DELOITTE & TOUCHE LLP
Greenville, South Carolina

November 7, 1997
                                      F-1
HERITAGE FEDERAL SAVINGS AND LOAN ASSOCIATION

BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
(In Thousands of Dollars)
--------------------------------------------------------------------------------
ASSETS                                                                                          1997              1996
Cash                                                                                        $    2,012        $    1,557   
Federal funds sold and overnight interest-bearing deposits                                      12,647             4,318   
                                                                                            ----------        ----------
          Total cash and cash equivalents                                                       14,659             5,875
Investment securities (Note 2):
  Held-to-maturity - at amortized cost (fair value:  1997 - $15,954; 1996 -
    $20,778)                                                                                    15,988            20,993
  Available-for-sale - at fair value (amortized cost:  1997 - $6,063; 1996 -
    $15,434)                                                                                     8,390            16,899
Mortgage-backed securities - held to maturity - at amortized cost
  (fair value:  1997 - $6,635; 1996 - $9,584) (Note 3)                                           6,665             9,726    
Loans receivable - net (Notes 4 and 8)                                                         192,663           182,950    
Loans held-for-sale - at lower of cost or market (market value:
  1997 - $1,065)                                                                                 1,045              -
Office properties and equipment - net (Note 5)                                                   4,278             4,530    
Federal Home Loan Bank Stock - at cost (Note 8)                                                  2,042             2,042    
Accrued interest receivable                                                                      1,242             1,334    
Real estate acquired in settlement of loans - net (Note 6)                                         410                86    
Other assets                                                                                       117               224    
                                                                                            ----------        ----------

TOTAL                                                                                       $  247,499        $  244,659
                                                                                            ==========        ==========

LIABILITIES AND EQUITY

LIABILITIES:
  Deposit accounts (Note 7)                                                                 $  215,412        $  209,730
  Advance from Federal Home Loan Bank of Atlanta (Note 8)                                         -                5,000
  Accrued interest on deposit accounts                                                             338               358
  Other liabilities (Note 9)                                                                     2,514             2,831
                                                                                            ----------        ----------

          Total liabilities                                                                    218,264           217,919
                                                                                            ----------        ----------

COMMITMENTS AND CONTINGENCIES (Note 10)

EQUITY:
  Retained income - substantially restricted (Notes 9 and 12)                                   27,769            25,817
  Unrealized gain on available-for-sale securities (net of deferred income
    taxes of $861 in 1997 and $542 in 1996)                                                      1,466               923
                                                                                            ----------        ----------

          Total equity                                                                          29,235            26,740
                                                                                            ----------        ----------

TOTAL                                                                                       $  247,499        $  244,659
                                                                                            ==========        ==========
See notes to financial statements.

                                      F-2
HERITAGE FEDERAL SAVINGS AND LOAN ASSOCIATION

STATEMENTS OF EQUITY
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(In Thousands of Dollars)
--------------------------------------------------------------------------------
Net Unrealized
                                                                            Gain on
                                                                        Available-for-Sale      Retained
                                                                          Securities (1)         Income          Total
BALANCE, SEPTEMBER 30, 1994                                                  $   288             $23,079        $23,367
                                                                                     
  Net income for the year ended September 30, 1995                               -                 1,979          1,979
  Change in net unrealized gain on available-for-sale                                   
    securities for the year ended September 30, 1995                             346                 -              346
                                                                             -------             -------        -------
                                                                                     
BALANCE, SEPTEMBER 30, 1995                                                      634              25,058         25,692
                                                                                     
  Net income for the year ended September 30, 1996                               -                   759            759
  Change in net unrealized gain on available-for-sale                                
    securities for the year ended September 30, 1996                             289                 -              289
                                                                             -------             -------        -------
                                                                                     
BALANCE, SEPTEMBER 30, 1996                                                      923              25,817         26,740   
                                                                                     
  Net income for the year ended September 30, 1997                               -                 1,952          1,952
  Change in net unrealized gain on available-for-sale                                
    securities for the year ended September 30, 1997                             543                 -              543
                                                                             -------             -------        -------
                                                                                     
BALANCE, SEPTEMBER 30, 1997                                                  $ 1,466             $27,769        $29,235
                                                                             =======             =======        =======
(1)  Net of deferred income taxes.

See notes to financial statements.

                                      F-3
HERITAGE FEDERAL SAVINGS AND LOAN ASSOCIATION

STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(In Thousands of Dollars
--------------------------------------------------------------------------------
Year Ended September 30,
                                                                               ----------------------------------------
                                                                                    1997         1996          1995
OPERATING ACTIVITIES:
  Net income                                                                      $ 1,952      $   759       $ 1,979
  Adjustments to reconcile net income to net cash provided by                                                       
    operating activities:                                                                                           
    Provision for deferred income taxes (benefit)                                     528         (110)          204
    Loss (gain) on sale of available-for-sale securities                               13           (2)          -
    Amortization of premium on investment and mortgage-backed                                                       
      securities                                                                       30           59            66
    Gain on sale of loans held-for-sale                                                (6)         (16)          -
    Amortization of net deferred income                                              (151)        (162)         (100)
    Provision for loan losses (recovery of allowance)                                 337           (7)           47
    Proceeds from the sale of loans held-for-sale                                     485          970           -
    Purchase of loans held-for-sale                                                (1,051)         -             -
    Depreciation on office properties and equipment                                   280          242            52
    Loss on sale of property                                                          -             37           -
    Provision for losses (recovery of allowance) on real estate acquired                                            
      in settlement of loans                                                            9           (1)           61
    Loss (gain) on sales of real estate acquired in settlement of loans              (185)        (122)            3
    (Increase) decrease in accrued interest receivable and other assets               199         (194)         (421)
    Increase (decrease) in accrued interest payable and other liabilities          (1,184)       1,515           865
                                                                                  -------      -------       -------    
          Net cash provided by operating activities                                 1,256        2,968         2,756
                                                                                  -------      -------       -------    
                                                                                                                    
INVESTING ACTIVITIES:                                                                                               
  Proceeds from maturities and calls of available-for-sale investment                                               
    securities                                                                      8,100        6,500         3,500
  Proceeds from maturities and calls of held-to-maturity investment                                                 
    securities                                                                      8,500        7,100           -
  Proceeds from the sale of available-for-sale investment securities                1,737        1,002           -
  Purchases of available-for-sale investment securities                              (500)      (2,504)          -
  Purchases of held-to-maturity investment securities                              (3,492)     (19,750)          -
  Purchases of mortgage-backed securities                                             -           (499)          -
  Principal repayments on mortgage-backed securities                                3,049        2,747         2,087
  Purchase of loans receivable                                                     (2,465)         -             -
  Net loan originations and principal payments on loans                            (8,903)      (5,568)      (18,711)
  Proceeds from sales of real estate acquired in settlement of loans                  986          232           405
  Capitalized costs of real estate acquired in settlement of loans                   (138)         -             -
  Acquisition of office properties and equipment                                      (28)        (663)       (3,227)
                                                                                  -------      -------       -------    
          Net cash provided by (used in) investing activities                       6,846      (11,403)      (15,946)
                                                                                  -------      -------       -------
F-4
HERITAGE FEDERAL SAVINGS AND LOAN ASSOCIATION

STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(In Thousands of Dollars)
--------------------------------------------------------------------------------
Year Ended September 30,
                                                                               -------------------------------------
                                                                                  1997         1996         1995
FINANCING ACTIVITIES:
  Net increase in deposits                                                     $  5,682     $  8,257     $  11,551
  Proceeds from Federal Home Loan Bank borrowings                                     -            -        18,250
  Principal repayments on Federal Home Loan Bank borrowings                      (5,000)           -       (13,250)
                                                                               --------     --------     --------- 
          Net cash provided by financing activities                                 682        8,257        16,551
                                                                               --------     --------     --------- 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                              8,784         (178)        3,361

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                    5,875        6,053         2,692
                                                                               --------     --------     --------- 

CASH AND CASH EQUIVALENTS AT END OF YEAR                                       $ 14,659     $  5,875     $   6,053
                                                                               ========     ========     ========= 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the year for:
    Interest                                                                   $ 12,250     $ 12,211     $  10,310
                                                                               ========     ========     ========= 
    Income taxes                                                               $    553     $    650     $   1,246
                                                                               ========     ========     ========= 

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
  Transfers from loans to real estate acquired in settlement of loans          $    996     $     92     $     185
                                                                               ========     ========     ========= 
  Increase in net unrealized gain on available-for-sale investment
    securities                                                                 $    543     $    289     $     346
                                                                               ========     ========     =========
See notes to financial statements.

                                      F-5
HERITAGE FEDERAL SAVINGS AND LOAN ASSOCIATION

NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
--------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Nature of Operations and Customer Concentration - Heritage Federal Savings
   and Loan Association (the "Association") is a federally chartered mutual
   savings and loan association engaged in the business of accepting savings and
   demand deposits and providing mortgage and commercial loans to its members
   and others.  The Association's business is primarily conducted in Laurens
   County and adjacent counties of South Carolina.

   Conversion to Capital Stock Form of Ownership - On September 10, 1997, the
   Board of Directors of the Association adopted a Plan of Conversion to convert
   from a federally chartered mutual savings and loan association to a federally
   chartered capital stock savings and loan association with the concurrent
   formation of a holding company, subject to approval by regulatory authorities
   and depositors of the Association.  The conversion is expected to be
   accomplished through the adoption of a federal stock charter for the
   Association, the sale of all of the Association's stock to the holding
   company and the sale of the holding company's common stock to the public.  A
   subscription offering of the shares of common stock will be offered initially
   to eligible account holders, employee benefit plans of the Association,
   supplemental eligible account holders, other members and directors, officers
   and employees of the Association.  Any shares of common stock not sold in the
   subscription offering are expected to be offered for sale to the general
   public.

   At the time of the conversion, the Association will establish a liquidation
   account in an amount equal to its retained income as of the date of the
   latest balance sheet appearing in the final prospectus.  The liquidation
   account will be maintained for the benefit of eligible account holders and
   supplemental eligible account holders who continue to maintain their accounts
   at the Association after the conversion.  The liquidation account will be
   reduced annually to the extent that eligible account holders and supplemental
   eligible account holders have reduced their qualifying deposits as of each
   anniversary date.  Subsequent increases will not restore an eligible or
   supplemental eligible account holder's interest in the liquidation account.
   In the event of a complete liquidation of the Association, each eligible
   account holder and supplemental eligible account holder will be entitled to
   receive a distribution from the liquidation account in an amount
   proportionate to the current adjusted qualifying balances for accounts then
   held.

   Subsequent to the conversion, the Association may not declare or pay cash
   dividends on or repurchase any of its share of common stock, if the effect
   thereof would cause equity to be reduced below applicable regulatory capital
   maintenance requirements or if such declaration and payment would otherwise
   violate regulatory requirements.

   Conversion costs will be deferred and reduce the proceeds from the shares
   sold in the conversion.  If the conversion is not completed, all costs will
   be charged as an expense.  As of September 30, 1997, no significant
   conversion costs have been incurred.

                                      F-6
The following is a description of the more significant accounting policies
   which the Association follows in preparing and presenting its financial
   statements.

   Basis of Accounting - The accounting and reporting policies of the
   Association conform to generally accepted accounting principles and to
   general practices within the savings and loan industry.

   Use of Estimates - The preparation of financial statements in conformity with
   generally accepted accounting principles requires management to make
   estimates and assumptions that affect the reported amounts of assets and
   liabilities and disclosure of contingent assets and liabilities at the date
   of the financial statements and the reported amounts of revenues and expenses
   during the reporting period.  Actual results could differ from those
   estimates.  Material estimates that are particularly susceptible to change
   relate to the determination of the allowance for loan losses and the
   valuation of real estate owned.

   Cash and Cash Equivalents - For purposes of reporting cash flows, cash and
   cash equivalents includes cash on hand, federal funds sold, overnight
   interest-bearing deposits and amounts due from depository institutions.

   Investment and Mortgage-Backed Securities - Debt securities that the
   Association has the positive intent and ability to hold to maturity are
   classified as "held-to-maturity" securities and reported at amortized cost.
   Debt and equity securities that are bought and held principally for the
   purpose of selling in the near term are classified as "trading" securities
   and reported at fair value with unrealized gains and losses included in
   earnings.  Debt and equity securities not classified as either held-to-
   maturity or trading securities are classified as "available-for-sale"
   securities and reported at fair value with unrealized gains and losses
   excluded from earnings and reported, net of taxes, as a separate component of
   equity.  Transfers of securities between classifications are accounted for at
   fair value.  No securities have been classified as trading securities.

   In November 1995, the Financial Accounting Standards Board ("FASB") issued a
   Special Report, A Guide to Implementation of Statement 115 on Accounting for
   Certain Debt and Equity Securities, which included a transition provision
   allowing all entities to reassess the appropriateness of the classifications
   of all securities held and account for any resulting reclassifications at
   fair value.  Reclassifications from the held-to-maturity category resulting
   from this one-time reassessment did not call into question, or "taint," the
   intent of the Association to hold other debt securities to maturity in the
   future.  In accordance with this Special Report, in December 1995, the
   Association transferred securities with a fair value of approximately $10.3
   million and amortized cost of approximately $10.4 million from held-to-
   maturity to available-for-sale.

   Realized gains and losses on investment securities are recognized at the time
   of sale based upon the specific identification method.

   Loans - Loans held for investment are recorded at cost.

   Nonaccrual loans are those loans on which the accrual of interest has ceased.
   Loans are placed on nonaccrual status if, generally, in the opinion of
   management, principal or interest is not likely to be paid in accordance with
   the terms of the loan agreement, or when principal or interest is past due
   more than 90 days.  Interest accrued but not collected at the date a loan is
   placed on nonaccrual status is reversed against interest income in the
   current period.  Interest income on nonaccrual loans is recognized only to
   the extent received in cash.

                                      F-7
Restructured loans are those for which concessions, such as the reduction of
   interest rates or deferral of interest or principal payments, have been
   granted due to a deterioration in the borrowers' financial condition.  The
   difference between interest that would have been recognized under the
   original terms of nonaccrual and renegotiated loans and interest actually
   recognized on such loans was not a material amount for the years ended
   September 30, 1997, 1996 and 1995.

   Effective October 1, 1995, the Association adopted Statement of Financial
   Accounting Standards ("SFAS") No. 114, Accounting by Creditors for Impairment
   of a Loan, and SFAS No. 118, Accounting by Creditors for Impairment of a Loan
   - Income Recognition and Disclosures.  SFAS No. 114 requires that the
   carrying value of an impaired loan be based on the present value of expected
   future cash flows discounted at the loan's effective interest rate or, as a
   practical expedient, at the loan's observable market price or the fair value
   of the collateral, if the loan is collateral-dependent.  Under SFAS No. 114,
   a loan is considered impaired when, based on current information, it is
   probable that the borrower will be unable to pay contractual interest or
   principal payments as scheduled in the loan agreement.  SFAS No. 114 applies
   to all loans except smaller-balance homogenous mortgage and consumer loans,
   loans carried at fair value or the lower of cost or fair value, debt
   securities, and leases.  Generally, the Association applies SFAS No. 114 to
   nonaccrual commercial loans and renegotiated loans.  The adoption of the
   statements did not affect operating results, the level of the overall
   allowance or the comparability of credit related data.  Income recognition or
   charge-off policies were not changed as a result of SFAS No. 114 and SFAS No.
   118.  The total principal balances of impaired loans at September 30, 1997
   was not material.

   Effective January 1, 1997,  the Association adopted SFAS No. 125, Accounting
   for Transfers and Servicing of Financial Assets and Extinguishments of
   Liabilities, which requires that liabilities and derivatives incurred or
   obtained by transferors as part of a transfer of financial assets be
   initially measured at fair value, if practicable.  It also requires that
   servicing assets and other retained interests in the transferred assets be
   measured by allocating the previous carrying amount between the assets sold,
   if any, and retained interests, if any, based on their relative fair values
   at the date of the transfer.  Servicing assets and liabilities must be
   subsequently measured by amortization in proportion to and over the period of
   estimated net servicing income or loss and assessment for asset impairment or
   increased obligation based on their fair values.  This statement was
   effective for transfers and servicing of financial assets and extinguishments
   of liabilities occurring after December 31, 1996.  The total amount of
   servicing assets was considered immaterial as of September 30, 1997.

   In December 1996, the FASB issued SFAS No. 127, Deferral of the Effective
   Date of Certain Provisions of FASB Statement No. 125.  SFAS No. 127 defers
   for one year the effective date of portions of SFAS No. 125 that address
   secured borrowings and collateral for all transactions.  Additionally, SFAS
   No. 127 defers for one year the effective date of transfers of financial
   assets that are part of repurchase agreements, securities lending and similar
   transactions.

   Allowances for Losses - The Association maintains allowances for loan losses.
   Provisions for losses are charged to income when, in the opinion of
   management, losses are probable.

   The allowance for loan losses is based upon management's evaluation of the
   loan portfolio.  The evaluation considers such factors as the delinquency
   status of loans, current economic conditions, the fair value of the
   underlying collateral and prior loan loss experience.

   Recovery of the carrying value of loans is dependent to some extent on future
   economic, operating and other conditions that may be beyond the Association's
   control.  Unanticipated future adverse changes in such conditions could
   result in material adjustments to allowances (and future results of
   operations).

                                      F-8
Loans Held-for-Sale - Loans intended for sale in the secondary market are
   stated at the lower of cost or estimated market value as determined by
   outstanding commitments from investors or current investor market yield
   requirements calculated on an aggregate basis.  Net unrealized losses are
   recognized in a valuation allowance by charges to income.

   Office Properties and Equipment - Office properties and equipment are carried
   at cost less accumulated depreciation.  Depreciation is computed over the
   estimated useful lives of the related assets using straight-line and
   accelerated methods.

   Long-Lived Assets - Effective October 1, 1996, the Association adopted SFAS
   No. 121, Accounting for the Impairment of Long-lived Assets and for Long-
   lived Assets to be Disposed of.  SFAS No. 121 establishes accounting
   standards for the impairment of long-lived assets, certain identifiable
   intangible assets and goodwill related to those assets to be held and used
   and for long-lived assets to be held and certain intangible assets to be
   disposed of.  The adoption of SFAS No. 121 did not have a material impact on
   financial conditions or results of operations.

   Real Estate Acquired in Settlement of Loans - Real estate acquired in
   settlement of loans is initially carried at fair value at the date of
   foreclosure, establishing a new cost basis.  Valuations are periodically
   performed by management and allowances for possible losses are established
   when the cost of real estate acquired in settlement of loans exceeds fair
   value less estimated costs to sell.  Revenues, expenses and additions to the
   valuation allowance related to real estate acquired in settlement of loans
   are charged to operations.

   Fair values are based primarily on independent appraisals of market value.
   Recovery of estimated fair value is dependent to a great extent on economic,
   operating and other conditions that may be beyond the Association's control.
   Accordingly, these estimates are particularly susceptible to changes that
   could result in material adjustment in the near term.

   Deferred Loan Origination Fees - Nonrefundable loan fees and certain direct
   loan origination costs are deferred and recognized over the lives of the
   loans using the level yield method.  Amortization of these deferrals is
   recognized as an adjustment to interest income.

   SAIF Fund Assessment - On September 30, 1996, legislation was enacted to
   recapitalize the Savings Association Insurance Fund.  The effect of this
   legislation was to require a one-time assessment on all federally insured
   savings associations' deposits, payable by November 1996.  The $1.2 million
   assessment was accrued as a charge to earnings in the quarter ended September
   30, 1996 and is included in deposit insurance premiums in the statement of
   income.  The assessment was paid by the Association in November 1996.

   Advertising Costs - The Association expenses advertising costs as incurred.

   Income Taxes - Provisions for income taxes are based on amounts reported in
   the statements of income (after exclusion of nontaxable income such as
   interest on municipal securities) and include changes in deferred income
   taxes.  Deferred tax assets and liabilities are reflected at currently
   enacted income tax rates applicable to the period in which the deferred tax
   assets or liabilities are expected to be realized or settled.  As changes in
   tax laws or rates are enacted, deferred tax assets and liabilities are
   adjusted through the provision for income taxes.

                                      F-9
Recently Issued Accounting Standards - The FASB has recently issued two
      new accounting standards that will affect the reporting and disclosure of
      financial information by the Company. Management has not determined the
      effects of adopting these statements, but their adoptions will not impact
      financial condition or results of operations since they deal with
      reporting and disclosure. The following is a summary of the standards and
      their required implementation dates:

      .  SFAS No. 130, Reporting Comprehensive Income - This statement
         establishes standards for reporting and disclosure of comprehensive
         income and its components (revenues, expenses, gains and losses). This
         statement requires that all items that are required to be recognized
         under accounting standards as components of comprehensive income
         (including, for example, unrealized holding gains and losses on
         available-for-sale securities) be reported in a financial statement
         similar to the statement of income and retained income. The accumulated
         balance of other comprehensive income will be disclosed separately from
         retained income in the equity section of the balance sheet. This
         statement is effective for the Association for the fiscal year
         beginning October 1, 1998.

      .  SFAS No. 131, Disclosures About Segments of an Enterprise and Related
         Information - This statement establishes standards for the way public
         business enterprises report information about operating segments and
         establishes standards for related disclosures about products and
         services, geographic areas and major customers. Operating segments are
         components of an enterprise about which separate financial information
         is available that is evaluated regularly by the chief operating
         decision maker in deciding how to allocate resources and in assessing
         performance. Information required to be disclosed includes segment
         profit or loss, certain specific revenue and expense items, segment
         assets and certain other information. This statement will be effective
         for the Association for financial statements issued for the fiscal year
         beginning October 1, 1998 if the conversion to a capital stock form of
         ownership discussed above is completed.

      Reclassifications - Certain 1996 and 1995 amounts have been reclassified
      to conform with the 1997 presentation.

2.    INVESTMENT SECURITIES

      Investment securities at September 30, 1997 and 1996 are summarized as 
      follows (in thousands of dollars):
Gross           Gross
                                                Amortized        Unrealized      Unrealized       Fair
September 30, 1997                                Cost             Gains          Losses         Value
Held-to-maturity - U.S. Government
  Agency obligations                            $  15,988         $      19       $     (53)     $  15,954
                                                ---------         ---------       ---------      ---------
Available-for-sale:
  U.S. Treasury obligations                     $   2,010         $       6       $      (8)     $   2,008
  U.S. Government Agency obligations                3,996                 -             (20)         3,976
  FHLMC common stock                                   57             2,349               -          2,406
                                                ---------         ---------       ---------      ---------
Total                                           $   6,063         $   2,355       $     (28)     $   8,390
                                                =========         =========       =========      =========
F-10
Gross          Gross
                                                  Amortized      Unrealized     Unrealized        Fair
       September 30, 1996                           Cost           Gains          Losses          Value
Held-to-maturity - U.S. Government
         Agency obligations                        $20,993        $     6        $  (221)        $20,778
                                                   =======        =======        =======         =======

       Available-for-sale:
         U.S. Treasury obligations                 $ 7,536        $     6        $   (70)        $ 7,472
         U.S. Government Agency obligations          7,841              2            (82)          7,761
         FHLMC common stock                             57          1,609           -              1,666
                                                   -------        -------        -------         -------

       Total                                       $15,434        $ 1,617        $  (152)        $16,899
                                                   =======        =======        =======         =======
The amortized cost and fair value of debt securities at September 30, 1997,
   by contractual maturity, follow (in thousands of dollars):
Available for Sale             Held to Maturity
                                                 ---------------------------   ---------------------------
                                                   Amortized        Fair         Amortized        Fair
                                                      Cost          Value          Cost           Value
Due in one year or less                      $ 2,997        $ 2,984        $ 2,002        $ 1,995
       Due after one year through five years          3,009          3,000         13,986         13,959
                                                    -------        -------        -------        -------
       Total                                        $ 6,006        $ 5,984        $15,988        $15,954
                                                    =======        =======        =======        =======
Gross realized gains on sales of available-for-sale securities were
   approximately $0, $2,000 and $0 in the years ended September 30, 1997, 1996
   and 1995, respectively.  Gross realized losses on sales of available-for-sale
   investment securities were $13,000, $0 and $0 in the years ended September
   30, 1997, 1996 and 1995, respectively.

   Investment securities totaling $825,000 and $1.7 million at September 30,
   1997 and 1996, respectively, were pledged as collateral for public deposits.

3. MORTGAGE-BACKED SECURITIES

   Fixed rate mortgage-backed securities are all classified as held to maturity
   and consisted of the following (in thousands of dollars):
Amortized   Unrealized   Unrealized      Fair
       September 30, 1997         Cost        Gains        Losses        Value
FNMA                      $   788      $ -          $  (7)      $   781
       FHLMC                       5,877        2            (25)        5,854
                                 -------      ---          -----       -------
                                       
       Total                     $ 6,665      $ 2          $ (32)      $ 6,635
                                 =======      ===          =====       =======
F-11
Amortized  Unrealized    Unrealized       Fair
       September 30, 1996         Cost        Gains        Losses         Value
FNMA                      $1,142        $  1        $  (26)        $1,117
       FHLMC                      8,584           5          (122)         8,467
                                 ------        ----        ------         ------

       Total                     $9,726        $  6        $ (148)        $9,584
                                 ======        ====        ======         ======
The amortized cost and fair value of mortgage-backed securities at September
   30, 1997, by contractual maturity, follow (in thousands of dollars):
Amortized       Fair
                                                     Cost          Value
Due in one year or less                      $3,574        $3,566
       Due after one year through five years         3,091         3,069
                                                    ------        ------

       Total                                        $6,665        $6,635
                                                    ======        ======
4. LOANS RECEIVABLE

   Loans receivable consisted of the following (in thousands of dollars):
September 30,
                                                      ---------------------------------
                                                           1997               1996
Mortgage loans:
         Residential (1-4 family)                       $ 180,609          $ 173,925
         Builder construction loans                         2,601              3,836
         Commercial loans                                   8,136              6,450
       Savings account loans                                1,419              1,146
       Home equity loans                                    8,124              7,050
                                                        ---------          ---------
                 Total loans                              200,889            192,407
       Less:
         Undisbursed portion of loans in process           (6,989)            (8,375)
         Deferred loan origination fees                      (363)              (412)
         Allowance for loan losses                           (874)              (670)
                                                        ---------          ---------

       Total                                            $ 192,663          $ 182,950
                                                        =========          =========

       Weighted average interest yield of loans              7.93%              7.88%
                                                             ----               ----
Under regulations of the Office of Thrift Supervision ("OTS"), the
   Association may not make loans to one borrower in excess of 15% of unimpaired
   capital.  This limitation does not apply to loans made before August 9, 1989.
   At September 30, 1997, the Association had loans outstanding to individual
   borrowers ranging up to $1.8 million and is in compliance with this
   regulation.

                                      F-12
The Association sells mortgage loans in the secondary market.  Generally such
   loans are sold without recourse and servicing is retained.  Servicing loans
   for others consists of collecting mortgage payments, maintaining escrow
   accounts, disbursing payments to investors and foreclosure processing.  Loan
   servicing income is recorded on the accrual basis and includes servicing fees
   received from investors as well as certain charges collected from borrowers,
   such as late payment fees.  At September 30, 1997 and 1996, the Association
   serviced loans for others with a total balance outstanding of $5.4 million
   and $6.0 million, respectively, and held borrowers' escrow balances in the
   amounts of $41,000 and $53,000, respectively.

   The following is a reconciliation of the allowance for loan losses for the
   years ended September 30, 1997, 1996 and 1995 (in thousands of dollars):
Year Ended
                                                                    September 30,
                                                         ----------------------------------
                                                            1997        1996        1995
Balance at beginning of year                        $ 670       $ 590       $ 622
       Provision for losses (recovery of allowance)          337          (7)         47
       Write-offs                                           (133)        (28)        (79)
       Recoveries                                           -            115        -    
                                                           -----       -----       -----

       Balance at end of year                              $ 874       $ 670       $ 590
                                                           =====       =====       =====
Directors and officers of the Association are customers of the institution in
   the ordinary course of business.  Deposits and loans of directors and
   officers have terms consistent with those offered to other customers.  At
   September 30, 1997 and 1996, loans to officers or directors of the
   Association totaled approximately $638,000 and $700,000, respectively.

5. OFFICE PROPERTIES AND EQUIPMENT

   Office properties and equipment are summarized as follows (in thousands of
   dollars):
September 30,
                                                  ----------------------------
                                                      1997            1996
Land                                         $   237         $   237
       Land improvements                                271             271
       Office buildings                               3,453           3,442
       Furniture, fixtures and equipment              1,157           1,142
                                                    -------         -------
       Total                                          5,118           5,092
       Less accumulated depreciation                   (840)           (562)
                                                    -------         -------

       Office properties and equipment - net        $ 4,278         $ 4,530
                                                    =======         =======
F-13
6. REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS

   Real estate acquired in settlement of loans is summarized as follows (in
   thousands of dollars):
September 30,
                                                     -----------------------
                                                        1997         1996
Real estate acquired in settlement of loans    $   424      $ 1,009
       Less allowance for losses                          (14)        (923)
                                                      -------      -------
       Total                                          $   410      $    86
                                                      =======      =======
The changes in the allowance for losses on real estate acquired in settlement
   of loans consisted of the following (in thousands of dollars):
Year Ended
                                                                     September 30,
                                                         -------------------------------------
                                                             1997         1996         1995
Balance at beginning of year                        $   923      $ 1,074      $ 1,023
       Provision for losses (recovery of allowance)             15           (1)          61
       Write-offs, net of recoveries                          (924)        (150)         (10)
                                                           -------      -------      -------
       Balance at end of year                              $    14      $   923      $ 1,074
                                                           =======      =======      =======
7. DEPOSIT ACCOUNTS

   Deposit accounts are as follows (in thousands of dollars):
September 30,
                                                                       -----------------------
       Account Type                                                        1997        1996
Passbook Accounts (1997 - 3.0%; 1996 - 2.5%)                     $ 11,423     $ 11,867
                                                                        --------     --------
       NOW Accounts (1997 - 2.0%; 1996 - 2.1%)                             2,833        2,706
                                                                        --------     --------
       Money Market Deposit Accounts (1997 - 3.0%; 1996 - 2.75%)             939        1,215
                                                                        --------     --------
       Certificates of Deposit:
         3.01-4.00%                                                        5,575        6,826
         4.01-5.00%                                                        1,218        2,216
         5.01-6.00%                                                       95,528       97,960
         6.01-7.00%                                                       92,245       81,430
         7.01-8.00%                                                        5,651        5,510
                                                                        --------     --------
       Total certificates of deposit                                     200,217      193,942
                                                                        --------     --------
       Total                                                            $215,412     $209,730
                                                                        ========     ========
       Weighted average rate:
         Savings certificates                                               5.93%        5.87%
         All deposit accounts                                               5.71%        5.64%
F-14
At September 30, 1997, deposit accounts with balances of $100,000 and greater
   totaled approximately $40.3 million. Deposits in excess of $100,000 are not
   federally insured. The Association does not accept brokered deposits.

   Maturities of certificates of deposits (in thousands of dollars):

       Year Ending September 30, 1997
Maturing:
         Within 1 year                                           $148,859
         After 1 but within 2 years                                41,284
         After 2 but within 3 years                                 7,659
         After 3 but within 4 years                                 1,846
         After 4 but within 5 years                                   569
                                                                 --------

       Total                                                     $200,217
                                                                 ========
Interest expense by type of deposit is summarized as follows (in thousands of
   dollars):
Year Ended September 30,
                                        ---------------------------------------
                                            1997           1996           1995
Demand accounts:                
         Passbook                         $   340        $   362        $   393
         NOW and Money Market Accounts         89             92             94
       Certificate accounts                11,575         11,431          9,454
                                          -------        -------        -------

       Total                              $12,004        $11,885        $ 9,941
                                          =======        =======        =======
8. BORROWING ARRANGEMENTS WITH FEDERAL HOME LOAN BANK OF ATLANTA

   The Association had outstanding advances of $0 and $5,000,000 from the
   Federal Home Loan Bank of Atlanta ("FHLB") at September 30, 1997 and 1996.
   The $5,000,000 advance outstanding at September 30, 1996 had a fixed interest
   rate of 6.54% and matured May 11, 1997. The maximum amount of outstanding
   advances at any month-end during fiscal years 1997, 1996 and 1995 was
   $5,000,000, $5,000,000 and $13,250,000, respectively. The average balance
   outstanding for such years was approximately $3,082,000, $5,000,000 and
   $7,812,000, respectively. The weighted average interest rate during fiscal
   years 1997, 1996 and 1995 was 7.33%, 6.54% and 6.27%, respectively.

   The Association pledged as collateral for these borrowings its FHLB stock and
   has entered into blanket collateral agreements with the FHLB whereby the
   Association maintains, free of other encumbrances, qualifying mortgages (as
   defined) with unpaid principal balances, when discounted at 75% of the unpaid
   principal balances, of at least 100% of total advances.

   Additionally, the Association may borrow under various line of credit
   programs with the FHLB. Any amounts advanced to the Association under these
   programs are secured by the Association's investment securities and bear
   interest at an adjustable rate with interest payable monthly. At September
   30, 1997 and 1996, the Association had no amounts outstanding.

                                      F-15
9. INCOME TAXES

   The tax effects of significant items comprising the Association's net
   deferred tax liability as of September 30, 1997 and 1996 are as follows (in
   thousands of dollars):
September 30,
                                                                                   ---------------------------
                                                                                       1997         1996
Deferred tax assets:
         Allowance for loan losses                                                    $  355
         Accrued SAIF assessment                                                        -           $  498
         Deferred loan fees                                                                4            70
         Real estate acquired in settlement of loans                                    -               20
         Difference between book and tax basis of fixed assets                             7            73
         Other                                                                             9          --
                                                                                      ------        ------
               Total                                                                     375           661
                                                                                      ------        ------

       Deferred tax liabilities:
         Difference between book and tax basis of Federal Home Loan
           Bank stock                                                                    336           336
         Unrealized gain on investments available for sale                               861           542
         Tax basis bad debt reserves in excess of book basis bad debt reserves
           arising after December 31, 1987                                              -               54
         Tax basis bad debt reserve arising after December 31, 1987 subject
           to recapture                                                                  326          - 
         Other                                                                          -               30
                                                                                      ------        ------
               Total                                                                   1,523           962
                                                                                      ------        ------

       Net deferred tax liability                                                     $1,148        $  301
                                                                                      ======        ======
The net deferred tax liability at September 30, 1997 and 1996 is included in
   "other liabilities" in the balance sheet.

   The provision for income taxes is summarized as follows (in thousands of
   dollars):
Year Ended September 30,
                                                                    -----------------------------------------
                                                                        1997         1996           1995
Current provision:                                       
         Federal                                                      $  553        $  470         $1,221
         State                                                            13          --              121
                                                                      ------        ------         ------
       Total current                                                     566           470          1,342
                                                                      ------        ------         ------
                                                                
       Deferred provision:                                      
         Federal                                                         443           (93)           172
         State                                                            85           (17)            32
                                                                      ------        ------         ------
       Total deferred                                                    528          (110)           204
                                                                      ------        ------         ------
       Total provision for income taxes                               $1,094        $  360         $1,546
                                                                      ======        ======         ======
F-16
No valuation allowance on deferred tax assets has been established as
   management believes that the existing deductible temporary differences will
   reverse during periods in which the Association generates net taxable income.

   In years ended September 30, 1996 and prior, the Association was allowed
   under the Internal Revenue Code to deduct, subject to certain conditions, an
   annual addition to a reserve for bad debts ("reserve method") in determining
   taxable income. Legislation enacted in August 1996 repealed the reserve
   method effective for the Association beginning with the fiscal year ended
   September 30, 1997. Under the legislation, the Association will be allowed to
   deduct actual bad debt charge-offs ("charge-off method") in determining
   taxable income. The income tax deduction under the reserve method has been
   historically greater than the provision for loan losses recorded for
   financial accounting purposes. The income tax deduction under the charge-off
   method for the year ended September 30, 1997 was less than the provision for
   loan losses recorded for financial accounting purposes.

   Deferred income taxes have been provided on differences between the bad debt
   reserve for tax purposes determined under the formerly used reserve method
   and the loan loss allowance for financial accounting purposes only to the
   extent of differences arising subsequent to December 31, 1987. Under the
   legislation previously mentioned, the Association will be required to
   recapture the post-1987 tax bad debt reserve of approximately $326,000 into
   expense over a six-year period beginning with the fiscal year ended no later
   than September 30, 1999 (September 30, 1998 if certain conditions are not
   met). Since a deferred tax liability has been provided on this difference,
   the recapture will have no impact on equity or results of operations.

   Retained earnings as of September 30, 1997 includes approximately $4.9
   million representing reserve method bad debt reserves originating prior to
   December 31, 1987 for which no deferred income taxes are required to be
   provided. These reserves may be included in taxable income if the Association
   pays dividends in excess of its accumulated earnings and profits (as defined
   by the Internal Revenue Code) or in the event of a distribution in partial or
   complete liquidation of the Association.

   Income taxes differed from amounts computed by applying the statutory federal
   rate of 34% to income before income taxes as follows (in thousands of
   dollars):
Years Ended September 30,
                                                        -------------------------------------
                                                           1997          1996          1995
Tax at statutory Federal income tax rate (34%)    $ 1,036       $   380       $ 1,199
       Increase (decrease) resulting from:
         State income taxes                                   66           (11)          100
         Other - net                                          (8)           (9)          247
                                                         -------       -------       -------
       Total                                             $ 1,094       $   360       $ 1,546
                                                         =======       =======       =======

       Effective rate                                       35.9%         32.1%         43.8%
F-17
10. COMMITMENTS AND CONTINGENCIES

    Loan Commitments - Loan commitments are agreements to lend to a customer as
    long as there is no violation of any condition established in the contract.
    Commitments extend over various periods of time with the majority of such
    commitments disbursed within a ninety day period. Commitments generally have
    fixed expiration dates or other termination clauses and may require payment
    of a fee. Commitments to extend credit at fixed rates exposes the
    Association to some degree of interest rate risk. The Association evaluates
    each customer's creditworthiness on a case-by-case basis. The type or amount
    of collateral obtained varies and is based on management's credit evaluation
    of the potential borrower.

    At September 30, 1997, the Association had loan commitments, excluding
    undisbursed portions of interim construction loans, of approximately $1.4
    million.

    At September 30, 1997, the Association had approved home equity lines of
    credit approximating $14.4 million, of which approximately $8.1 million was
    in use and approximately $6.3 million was available for use.

    The Association leases various property and equipment. The effect of these
    leases on the financial position or results of operations is insignificant.

    The Association has no additional financial instruments with off-balance
    sheet risk.

    Potential Impact of Changes in Interest Rates - The Association's
    profitability depends to a large extent on its net interest income, which is
    the difference between interest income from loans and investments and
    interest expense on deposits. Like most financial institutions, the
    Association's short-term interest income and interest expense are
    significantly affected by changes in market interest rates and other
    economic factors beyond its control. The Association's interest earning
    assets consist primarily of long-term, fixed rate and adjustable rate
    mortgage loans and investments which adjust more slowly to changes in
    interest rates than its interest bearing liabilities which are deposits.
    Accordingly, the Association's earnings could be adversely affected during
    periods of rising interest rates.

    Litigation - The Association is involved in legal actions in the normal
    course of business. Management, based on advice of counsel, does not expect
    any material losses from current litigation.

    Concentrations of Credit Risk - The Association's business activity is
    principally with customers located in South Carolina. Except for residential
    loans in the Association's market area, the Association has no other
    significant concentrations of credit risk.

11. RETIREMENT PLANS

    The Association has a noncontributory money purchase pension plan covering
    substantially all full-time employees over the age of twenty-one who have
    completed six months of continuous employment with the Association at the
    anniversary date of the plan. Pension costs are computed by multiplying
    eligible participants' annual salaries by ten percent. Amounts credited to
    participants' accounts vest (become nonforfeitable) as follows:

    .  Twenty percent of the account balance after three years of service

    .  Twenty percent each year thereafter, until fully vested at the completion
       of seven years of service.

                                      F-18
The Association provides additional retirement benefits by means of a 401(k)
    plan for substantially all employees over the age of twenty-one who have
    completed six months of employment. Under the plan, employees may defer from
    1% to 10% of their compensation to be contributed to the plan. The
    Association contributes an equal amount of the salary deferral (subject to a
    maximum contribution of 4% of a participant's compensation) to the plan.
    Participants are 100% vested upon participation in the plan.
 
    Total expense under both retirement plans for the years ended September 30,
    1997, 1996 and 1995 was approximately $151,000, $156,000 and $156,000,
    respectively.

    The Association provides no other post-employment benefits.

12. REGULATORY CAPITAL REQUIREMENTS

    The Association is subject to various regulatory capital requirements
    administered by the federal financial institution regulatory 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 Association's
    financial statements. Under capital adequacy guidelines and the regulatory
    framework for prompt corrective action, the Association must meet specific
    capital guidelines that involve quantitative measures of the Association's
    assets, liabilities and certain off-balance-sheet items as calculated under
    regulatory accounting practices. The Association's capital amounts and
    classification are also subject to qualitative judgments by the regulators
    about components, risk weightings and other factors.
 
    Quantitative measures established by regulation to ensure capital adequacy
    require the Association to maintain minimum amounts and ratios. Under
    regulations of the Office of Thrift Supervision ("OTS"), the Association
    must have: (i) core capital equal to 3.0% of adjusted total assets, (ii)
    tangible capital equal to 1.5% of adjusted total assets and (iii) total
    capital equal to 8.0% of risk-weighted assets. In measuring compliance with
    all three capital standards, institutions must deduct from their capital
    (with several exceptions primarily for mortgage banking subsidiaries and
    insured depository institution subsidiaries) their investments in, and
    advances to, subsidiaries engaged (as principal) in activities not
    permissible for national banks, and certain other adjustments. Management
    believes, as of September 30, 1997, that the Association meets all capital
    adequacy requirements to which it is subject.

    The following is a reconciliation of the Association's equity reported in
    the financial statements under generally accepted accounting principles to
    OTS regulatory capital requirements (in thousands of dollars):
Tangible       Core       Risk-Based
                                                                 Capital       Capital       Capital
September 30, 1997                                                               
       Total equity as reported in the financial statements      $ 29,235      $ 29,235      $ 29,235
       General allowance for loan losses                             -             -              750
       Net unrealized loss on available-for-sale securities        (1,466)       (1,466)       (1,466)
                                                                 --------      --------      --------
                                                                                        
       Regulatory Capital                                        $ 27,769      $ 27,769      $ 28,519
                                                                 ========      ========      ========
                                                                                        
       September 30, 1996                                                               
       Total equity as reported in the financial statements      $ 26,740      $ 26,740      $ 26,740
       General allowance for loan losses                             -             -              550
       Net unrealized gain on available-for-sale securities          (923)         (923)         (923)
                                                                 --------      --------      --------
                                                                                        
       Regulatory Capital                                        $ 25,817      $ 25,817      $ 26,367
                                                                 ========      ========      ========
F-19
The Association's actual and required capital amounts and ratios are
   summarized as follows (in thousands of dollars):
Minimum
                                                               Actual              Requirement
                                                         ------------------    ------------------
                                                          Amount     Ratio      Amount     Ratio
September 30, 1997
         Tangible capital (to total assets)               $27,769    11.3%      $ 3,690     1.5%
         Core capital (to adjusted total assets)          $27,769    11.3%      $ 7,381     3.0%
         Risk-based capital (to risk-based assets)        $28,519    23.3%      $ 9,796     8.0%

       September 30, 1996
         Tangible capital (to total assets)               $25,817    10.6%      $ 3,648     1.5%
         Core capital (to adjusted total assets)          $25,817    10.6%      $ 7,297     3.0%
         Risk-based capital (to risk-based assets)        $26,367    22.2%      $ 9,492     8.0%
As of September 30, 1997 and 1996, the most recent respective notifications
   from the OTS classified the Association as well capitalized under the
   regulatory framework for prompt corrective action. There are no conditions or
   events since the most recent notification that management believes have
   changed the Association's category. To be categorized as well capitalized,
   the Association must maintain minimum ratios of total capital to risk-based
   assets, core capital to risk-based assets and core capital to adjusted total
   assets. The Association's actual and minimum capital requirements to be well
   capitalized under prompt corrective action provisions are as follows:
Minimum
                                                               Actual              Requirement
                                                         ------------------    ------------------
                                                          Amount     Ratio      Amount     Ratio
September 30, 1997
         Tier I Capital (to adjusted-total assets)        $27,769    11.3%      $12,302      5.0%
         Tier I Capital (to risk-weighted assets)         $27,769    22.7%      $ 7,346      6.0%
         Total Capital (to risk-weighted assets)          $28,519    23.3%      $12,245     10.0%

       September 30, 1996
         Tier I Capital (to adjusted-total assets)        $25,817    10.6%      $12,156      5.0%
         Tier I Capital (to risk-weighted assets)         $25,817    21.8%      $ 7,118      6.0%
         Total Capital (to risk-weighted assets)          $26,367    22.2%      $11,865     10.0%
F-20
13. FAIR VALUE OF FINANCIAL INSTRUMENTS

    SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
    requires disclosure of fair value information regarding financial
    instruments, whether or not recognized in the balance sheet, for which it is
    practicable to estimate a value. The stated and estimated fair value amounts
    of the Association's financial instruments, as of September 30, 1997 and
    1996, are summarized below (in thousands of dollars):
1997                          1996
                                              ---------------------------     ---------------------------- 
                                                Stated        Estimated         Stated        Estimated
Assets                                          Amount        Fair Value        Amount        Fair Value
Cash and cash equivalents               $ 14,659        $ 14,659        $  5,875        $  5,875
       Mortgage-backed securities                 6,665           6,635           9,726           9,584
       Investment securities                     24,378          24,344          37,892          37,677
       Loans receivable, net                    192,663         196,037         182,950         184,828
       Loans held-for-sale                        1,045           1,065            --              --
       Federal Home Loan Bank stock               2,042           2,042           2,042           2,042
       Accrued interest receivable                1,242           1,242           1,334           1,334
                                               --------        --------        --------        --------

                                               $242,694        $246,024        $239,819        $241,340
                                               ========        ========        ========        ========

       Liabilities

       Interest bearing demand deposits        $ 11,423        $ 11,423        $ 11,867        $ 11,867
       Money market accounts                        939             939           1,215           1,215
       NOW accounts                               2,833           2,833           2,706           2,706
       Certificates of deposit                  200,217         200,832         193,942         194,143
       Accrued interest payable                     338             338             358             358
                                               --------        --------        --------        --------

                                               $215,750        $216,365        $210,088        $210,289
                                               ========        ========        ========        ========
The Association had off-balance sheet financial commitments, which include
    commitments to originate loans, undisbursed portions of interim construction
    loans and unused lines of credit (see Note 10). Since these commitments are
    based on current rates, the commitment amount is considered to be a
    reasonable estimate of fair value.

    Estimated fair values were determined using the following methods and
    assumptions:

    Cash and Cash Equivalents - Cash and cash equivalents have maturities of
    three months or less and, accordingly, the carrying amounts of such
    instruments are deemed to be reasonable estimates of fair value.
 
    Mortgage-Backed Securities and Investment Securities - Fair values are based
    on quoted market prices where available. If quoted market prices are not
    available, fair values are based on quoted market prices of comparable
    instruments.
 
    Loans Receivable, Net - Fair values for loans are estimated by segregating
    the portfolio by type of loan and discounting scheduled cash flows using
    current market interest rates for loans with similar terms, reduced by an
    estimate of credit losses inherent in the portfolio.

                                      F-21
Loans Held-for-Sale - Loans held-for-sale are valued at the lower of cost or
    market as determined by outstanding commitments from investors or current
    investor yield requirements calculated on an aggregate loan basis.
 
    Federal Home Loan Bank Stock - Investment in stock of the FHLB is required
    by law for every federally insured savings institution. No ready market
    exists for this stock and it has no quoted market value. However, redemption
    of this stock has historically been at par value. Accordingly, the carrying
    amount is deemed to be a reasonable estimate of fair value.

    Deposits - As required by SFAS No. 107, fair values for demand deposits,
    money market accounts and savings accounts are the amounts payable on demand
    as of the reporting date (i.e., their stated amounts). The fair value of
    certificates of deposit is estimated by discounting the contractual cash
    flows using current market interest rates for accounts with similar
    maturities.

    Accrued Interest Receivable and Payable - The stated amounts of accrued
    interest receivable and payable approximate the fair value.

    Limitations - Fair value estimates are made at a specific point in time,
    based on relevant market information and information about the financial
    instrument. These estimates do not reflect any premium or discount that
    could result from offering for sale at one time the Association's entire
    holdings of a particular financial instrument. Because no market exists for
    a significant portion of the Association's financial instruments, fair value
    estimates are based on judgments regarding future expected loss experience,
    current economic conditions, risk characteristics of various financial
    instruments and other factors. These estimates are subjective in nature and
    involve uncertainties and matters of significant judgment and therefore
    cannot be determined with precision. Changes in assumptions could
    significantly affect the estimates.

    Fair value estimates are based on existing on-and-off balance sheet
    financial instruments without attempting to estimate the value of
    anticipated future business and the value of assets and liabilities that are
    not considered financial instruments. For example, a significant asset not
    considered a financial asset is premises and equipment. In addition, tax
    ramifications related to the realization of the unrealized gains and losses
    can have a significant effect on fair value estimates and have not been
    considered in any of the estimates.

                                   **********

                                      F-22
GLOSSARY
ARM loans                                              Adjustable-rate mortgage loans.

Direct Community Offering                              The offering of shares of the Common Stock to the
                                                       general public with preference given to natural 
                                                       persons and trusts of natural persons who are 
                                                       residents of the Association's Local Community.

Eligible Account Holders                               Holders of savings accounts at the Association with
                                                       balances of at least $50 as of June 30, 1996.

Exchange Act                                           The Securities Exchange Act of 1934, as amended.

Expiration Date                                        _____________, 1998.

ESOP                                                   Employee Stock Ownership Plan to be implemented 
                                                       by the Association in the conversion.

FASB                                                   Financial Accounting Standards Board.

FDIC                                                   Federal Deposit Insurance Corporation.

FHLB                                                   Federal Home Loan Bank.

Freddie Mac                                            Federal Home Loan Mortgage Corporation.

Fannie Mae                                             Federal National Mortgage Association.

GAAP                                                   Generally accepted accounting principles.

IRA                                                    Individual Retirement Account.

IRS                                                    Internal Revenue Service.

Local Community                                        The counties where the Association's offices are 
                                                       located: Laurens Anderson, Greenwood and 
                                                       Greenville Counties, South Carolina.

MRP                                                    The Management Recognition Plan, a restricted stock 
                                                       plan, that the Holding Company intends to adopt 
                                                       following the conversion.

NASD                                                   National Association of Securities Dealers, Inc.

Other Members                                          Depositors of the Association as of ___________, 
                                                       1998 and borrowers of the Association as of October 
                                                       21, 1997 whose loans continue to be outstanding as 
                                                       of ___________, 1998.

OTS                                                    Office of Thrift Supervision of the United States 
                                                       Department of the Treasury.
G-1
Plan of Conversion                                     The plan of conversion adopted by the Association,
                                                       pursuant to which the conversion is being 
                                                       undertaken.

RP Financial                                           RP Financial, LC., the firm the Association engaged 
                                                       to prepare the appraisal of its estimated pro forma 
                                                       market value in the conversion and to advise the 
                                                       Association about its business plan.

SAIF                                                   Savings Association Insurance Fund.

SEC                                                    Securities and Exchange Commission.

Securities Act                                         The Securities Act of 1933, as amended.

Severance Plan                                         The Employee Severance Compensation Plan that the 
                                                       Association intends to adopt in connection with the 
                                                       conversion.

SFAS                                                   Statement of Financial Accounting Standards.

Stock Option Plan                                      The stock option plan that the Holding Company 
                                                       intends to adopt following the conversion.

Subscription Offering                                  The offering of shares of the Common Stock, in 
                                                       order to priority, to Eligible Account Holders, the 
                                                       ESOP, Supplement Eligible Account Holders and 
                                                       Other Members.

Supplemental Eligible Account Holders                  Holders of accounts at the Association with balances 
                                                       of at least $50 as of December 31, 1997.

Syndicated Community Offering                          The offering of shares of the Common Stock to the
                                                       general public by a group of selected dealers.

Trident Securities                                     Trident Securities, Inc., the firm the Association 
                                                       engaged to advise and assist it in marketing the 
                                                       Common Stock and conducting the Subscription 
                                                       Offering and, if any, the Community Offering and/or 
                                                       Syndicated Offering.
G-2
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by Heritage Bancorp, Inc.  or Heritage Federal Savings & Loan
Association.  This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby to any
person or in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation in such jurisdiction.  Neither the delivery of this prospectus
nor any sale hereunder shall under any circumstances create any implication that
there has been no change in the affairs of Heritage Bancorp, Inc. or Heritage
Federal Savings & Loan Association since any of the dates as of which
information is furnished herein or since the date hereof.

                       [Logo for Heritage Bancorp, Inc.]

                         (Proposed Holding Company for
                            Heritage Federal Savings
                        & Loan Association, to be known
                           as Heritage Federal Bank)

                        2,975,000 to 4,025,000 Shares of
                                  Common Stock

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

                                   Prospectus

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

                            TRIDENT SECURITIES, INC.

                                ______ __, 1997

Until the later of _______, 1998, or 25 days after commencement of the
Syndicated Community Offering of Common Stock, if any, all dealers that buy,
sell or trade these securities, whether or not participating in this offering,
may be required to deliver a prospectus.  This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.  Other Expenses of Issuance and Distribution
Legal fees and expenses..................  $185,000
  Securities marketing legal fees..........    27,500
  Printing, postage and mailing............   105,000
  Appraisal and business plan preparation..    42,500
  Accounting fees..........................   100,000
  Data processing fees....................     15,000
  SEC registration fee.....................    20,000
  Blue Sky filing fees and expenses........     3,000
  OTS filing fees..........................     8,400
  Other expenses...........................    13,600
                                             --------
      Total................................  $520,000
                                             ========
Trident Securities, Inc. will receive a fee of 1.5% of the aggregate dollar
amount of stock sold in the Subscription Offering and Community Offering
(excluding shares purchased by the Association's ESOP and by directors, officers
and employees of the Association and associates of such persons) not to exceed
$800,000.

Item 14.  Indemnification of Officers and Directors

          Article XVII of the Certificate of Incorporation of Heritage Bancorp,
          Inc. requires indemnification of directors, officers and employees to
          the fullest extent permitted by Delaware law.

          Section 145 of the Delaware General Corporation Law sets forth
          circumstances under which directors, officers, employees and agents
          may be insured or indemnified against liability which they may incur
          in their capacities:

     145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.--(a) A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.  The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.

     (b)  A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been

                                     II-1
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.

     (c)  To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.

     (d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section.  Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.

     (e)  Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section.  Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.

     (f)  The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.

     (g)  A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
incurred by him any such capacity, or arising out of his status as such, whether
or not the corporation would have the power to indemnify him against such
liability under this section.

     (h)  For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agents, so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.

     (i)  For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith

                                     II-2
and in a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this section.

     (j)  The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.

Item 15.  Recent Sales of Unregistered Securities.

          Not Applicable

Item 16.  Exhibits and Financial Statement Schedules:

          The financial statements and exhibits filed as part of this
          Registration Statement are as follows:

(a)       List of Exhibits

 1.1  --  Form of proposed Agency Agreement among Heritage Bancorp, Inc.,
          Heritage Federal Savings & Loan Association and Trident Securities,
          Inc. (*)
          
 1.2  --  Engagement Letter between Heritage Federal Savings & Loan Association
          and Trident Securities, Inc.
 
 2    --  Plan of Conversion of Heritage Federal Savings & Loan Association
          (attached as an exhibit to the Proxy Statement included herein as
          Exhibit 99.5)

 3.1  --  Certificate of Incorporation of Heritage Bancorp, Inc.
          
 3.2  --  Bylaws of Heritage Bancorp, Inc.
 
 4    --  Form of Certificate for Common Stock
 
 5    --  Opinion of Breyer & Aguggia regarding legality of securities
          registered
          
 8.1  --  Form of Federal Tax Opinion of Breyer & Aguggia
 
 8.2  --  Form of State Tax Opinion of Deloitte & Touche LLP
                                 
 8.3  --  Opinion of RP Financial, LC. as to the value of subscription rights
          
10.1  --  Proposed Form of Employment Agreement with J. Edward Wells
          
10.2  --  Proposed Form of Severance Agreement For Certain Senior Officers
          
10.3  --  Proposed Form of Employee Stock Ownership Plan
 
10.4  --  Heritage Federal Savings & Loan Association 401(k) Plan (*)
          
10.5  --  Form of Heritage Federal Savings & Loan Association Employee
          Severance Compensation Plan
            

                                     II-3
21    --  Subsidiaries of Heritage Bancorp, Inc.
 
23.1  --  Consent of Deloitte & Touche LLP
 
23.2  --  Consent of Breyer & Aguggia (contained in opinion included as 
          Exhibit 5)

23.3  --  Consent of Breyer & Aguggia as to its Federal Tax Opinion
          
23.4  --  Consent of RP Financial, LC.
 
24    --  Power of Attorney (contained in signature page to the Registration
          Statement)

27    --  Financial Data Schedule
 
99.1  --  Order and Acknowledgement Form
 
99.2  --  Solicitation and Marketing Materials
 
99.3  --  Agreement with RP Financial, LC.
 
99.4  --  Appraisal Report of RP Financial, LC. (*)
 
99.5  --  Proxy Statement for Special Meeting of Members of Heritage Federal
          Savings & Loan Association

---------------------
(*) To be filed by amendment.

(b)   Financial Statements and Schedules

 
      Heritage Federal Savings & Loan Association
 
                                                                           Pages
 
Independent Auditors' Report............................................    F-1
 
Balance Sheets as of September 30, 1997 and 1996........................    F-2
 
Statements of Income for the Years Ended
 September 30, 1997, 1996 and 1995......................................     24
 
Statements of Equity for the Years Ended
 September 30, 1997, 1996 and 1995......................................    F-3
 
Statements of Cash Flows for the Years Ended
 September 30, 1997, 1996 and 1995......................................    F-4
 
Notes to Financial Statements...........................................    F-6

     All schedules are omitted because the required information is either not
applicable or is included in the financial statements or related notes.

                                     II-4
Item 17. Undertakings

         The undersigned Registrant hereby undertakes:

         (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

                 (i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933, as amended ("Securities Act");

                 (ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;

                 (iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.

         (2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be the initial bona fide offering
thereof.

         (3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.

         (4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act") (and, where
applicable, each filing of any employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

         Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

                                     II-5
SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Laurens, South Carolina
on the 10th day of December 1997.

                                    HERITAGE BANCORP, INC.

                                    By: /s/ J. Edward Wells
                                        --------------------------------
                                        J. Edward Wells
                                        President and Chief Executive Officer

                               POWER OF ATTORNEY

     We, the undersigned directors and officers of Heritage Bancorp, Inc., do
hereby severally constitute and appoint J. Edward Wells, our true and lawful
attorney and agent, to do any and all things and acts in our names in the
capacities indicated below and to execute all instruments for us and in our
names in the capacities indicated below which said J. Edward Wells may deem
necessary or advisable to enable Heritage Bancorp, Inc. to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with the Registration
Statement on Form S-1 relating to the offering of Heritage Bancorp, Inc.'s
Common Stock, including specifically but not limited to, power and authority to
sign for us or any of us in our names in the capacities indicated below the
Registration Statement and any and all amendments (including post-effective
amendments) thereto; and we hereby ratify and confirm all that J. Edward Wells
shall do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signatures                       Title                                        Date
----------                       -----                                        ----
/s/ J. Edward Wells           President, Chief Executive Officer             December 10, 1997
------------------------      and Director (Principal Executive Officer)
J. Edward Wells            

/s/ Edwin I. Shealy           Chief Financial Officer                        December 10, 1997
------------------------      (Principal Financial and
Edwin I. Shealy               Accounting Officer)      
              
                              

/s/ Aaron H. King             Director                                       December 10, 1997
------------------------
Aaron H. King
/s/ J. Riley Bailes           Director                                       December 10, 1997
------------------------
J. Riley Bailes

/s/ John H. Lake              Director                                       December 10, 1997
------------------------
John H. Lake

/s/ G. Edwin Owings            Director                                      December 10, 1997
------------------------
G. Edwin Owings
INDEX TO EXHIBITS

 1.1   --   Form of proposed Agency Agreement among Heritage Bancorp, Inc.,
            Heritage Federal Savings & Loan Association and Trident 
            Securities, Inc. (a)    
              
 1.2   --   Engagement Letter between Heritage Federal Savings & Loan
            Association and Trident Securities, Inc.
            
 2     --   Plan of Conversion of Heritage Federal Savings & Loan Association
            (attached as an exhibit to the Proxy Statement included 
            herein as Exhibit 99.5)  
             
 3.1   --   Certificate of Incorporation of Heritage Bancorp, Inc.
            
 3.2   --   Bylaws of Heritage Bancorp, Inc.
      
 4     --   Form of Certificate for Common Stock
      
 5     --   Opinion of Breyer & Aguggia regarding legality of securities
            registered
            
 8.1   --   Form of Federal Tax Opinion of Breyer & Aguggia
      
 8.2   --   Form of State Tax Opinion of Deloitte & Touche LLP 
      
 8.3   --   Opinion of RP Financial, LC. as to the value of subscription rights
      
10.1   --   Proposed Form of Employment Agreement with J. Edward Wells
      
10.2   --   Proposed Form of Severance Agreement For Certain Senior Officers
      
10.3   --   Proposed Form of Employee Stock Ownership Plan
      
10.4   --   Heritage Federal Savings & Loan Association 401(k) Plan (a)
      
10.5   --   Form of Heritage Savings & Loan Association Employee Severance
            Compensation Plan

21     --   Subsidiaries of Heritage Bancorp, Inc.
      
23.1   --   Consent of Deloitte & Touche LLP
      
23.2   --   Consent of Breyer & Aguggia (contained in opinion included as
            Exhibit 5)
            
23.3   --   Consent of Breyer & Aguggia as to its Federal Tax Opinion
            
23.4   --   Consent of RP Financial, LC.
      
24     --   Power of Attorney (contained in signature page to the Registration
            Statement)

27     --   Financial Data Schedule
      
99.1   --   Order and Acknowledgement Form
99.2   --   Solicitation and Marketing Materials
      
99.3   --   Agreement with RP Financial, LC.
      
99.4   --   Appraisal Report of RP Financial, LC. (a)
      
99.5   --   Proxy Statement for Special Meeting of Members of Heritage Federal
            Savings & Loan Association

--------------------------
(a) To be filed by amendment.